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**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-K/A**

 

**(Amendment No. 1)**

 

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**FOR THEFISCAL YEAR ENDED DECEMBER 31, 2009**

** **

**COMMISSIONFILE NUMBER: 1-14097**

 

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**SAUER-DANFOSS INC.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                     | ** ** | **36-3482074**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **2800 E. 13****th**** Street, Ames, Iowa**                 | ** ** | **50010**                             |
| **Krokamp  35, Neumünster, Germany**                        | ** ** | **24539**                             |
| (Address of principal  executive offices)                        |       | (Zip Code)                            |

 

**(515) 239-6000**

(Registrant’s telephonenumber, including Area Code)

 

Securities registeredpursuant to Section 12(b) of the Act:

 

| **Common Stock, par value $0.01 per share** | ** ** | **New York Stock Exchange**   |
|---------------------------------------------------------------------------|------------|----------------------------------------------|
| (Title of each class)                                                     |       | (Name of each exchange on  which registered) |

 

Securities registeredpursuant to Section 12(g) of the Act:

 

**None**

(Title of class)

 

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act of 1933. Yes o  No x

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934 (the “Act”). Yes o  No x

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Act during the preceding 12 months (or for suchshorter periods that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days. Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of thischapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K: x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                                              |   | Accelerated filer x         |
|------------------------------------------------------------------------|--------|-----------------------------|
| Non-accelerated filer o  (Do not check if a smaller reporting company) |   | Smaller reporting company o |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct): Yes o  No x

 

The aggregate market value ofthe voting common stock of the registrant held by nonaffiliates based on the lastsale price on June 30, 2009 was $69,370,059. (The registrant does not haveany other authorized common equity.)

 

As of April 23, 2010there were 48,389,406 shares of common stock, $0.01 par value, of theregistrant outstanding.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

None.

 

 

 

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**TABLE OF CONTENTS**

 
| ** **                                                                                                        | **Page No.** |
|-------------------------------------------------------------------------------------------------------------------|-------------------|
|                                                                                                              |              |
| **Explanatory  Note**                                                                                             | **1**             |
|                                                                                                              |              |
| **Part III**                                                                                                 |              |
| **Item  10.  Directors, Executive Officers  and Corporate Governance**                                       | **2**             |
| **Item 11.  Executive Compensation**                                                                         | **5**             |
| **Item 12.  Security  Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters** | **29**            |
| **Item 13.  Certain  Relationships and Related Transactions, and Director Independence**                     | **30**            |
| **Item 14.  Principal  Accountant Fees and Services**                                                        | **32**            |
|                                                                                                              |              |
| **Part IV**                                                                                                  |              |
|                                                                                                              |              |
| **Item 15. Exhibits and Financial Statement Schedules**                                                           | **32**            |
|                                                                                                              |              |
| **Signatures**                                                                                                    | **33**            |
|                                                                                                              |              |
| **Index to Exhibits**                                                                                             | **35**            |

 

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**Explanatory Note**

 

This Amendment No. 1to the Annual Report on Form 10-K (this “Amendment No. 1”) ofSauer-Danfoss Inc. (the “Company”) amends the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009 that was originally filed withthe Securities and Exchange Commission (the “SEC”) on March 4, 2010 (the “OriginalForm 10-K”).  Capitalized terms usedbut not defined in this Amendment No. 1 have the meanings specified in theOriginal Form 10-K.

 

This Amendment No. 1is being filed solely to include the information required in Part III(Items 10, 11, 12, 13, and 14) of Form 10-K that was omitted from theOriginal Form 10-K in reliance upon General Instruction G(3) to Form 10-K.

 

Except as describedin this Explanatory Note, no other information in the Original Form 10-Kis being modified or amended by this Amendment No. 1.  Except with respect to the Part III material set forth herein, this Amendment No. 1does not reflect events occurring after March 4, 2010, which was thefiling date of the Original Form 10-K. Accordingly, this Amendment No. 1 should be read in conjunctionwith the Original Form 10-K and the Company’s other filings with theSEC.  This Amendment No. 1 consistssolely of the preceding cover page, this Explanatory Note, Part III (Items10, 11, 12, 13, and 14), Part IV (Item 15(a)(3)), the signature page, andthe exhibits identified in Part IV (Item 15(a)(3)).

 

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**Part III**

 

**Item 10.  Directors,Executive Officers and Corporate Governance.**

 

**EXECUTIVE OFFICERS OF THE COMPANY**

 

The following table setsforth certain information regarding the executive officers of the Company:

 
| **Name**                  | ** ** | **Age** | ** ** | **Position**                                                     | ** ** | **Year  Appointed** |
|---------------------------|------------|---------|------------|------------------------------------------------------------------|------------|---------------------|
| Sven Ruder(1)             |       | 53      |       | President and  Chief Executive Officer                           |       | 2009                |
| Jesper V.  Christensen(2) |       | 40      |       | Executive Vice  President and Chief Financial Officer, Treasurer |       | 2009                |
| C. Kells Hall(3)          |       | 61      |       | Executive Vice  President and President Propel Division          |       | 2009                |
| Marc A.  Weston(4)        |       | 41      |       | Executive Vice  President and Chief Marketing Officer            |       | 2010                |
| Wolfgang  Schramm(5)      |       | 55      |       | Executive Vice  President and President Controls Division        |       | 2007                |
| Kenneth D.  McCuskey(3)   |       | 55      |       | Vice President  and Chief Accounting Officer, Secretary          |       | 2000                |

 

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(1)           Prior to joining theCompany, Mr. Ruder was employed as President of the Motion ControlsDivision of Danfoss A/S, the majority stockholder of the Company.

 

(2)           Prior to joining theCompany, Mr. Christensen was employed as Vice President, Finance, IT &HR in the Motion Controls Division of Danfoss A/S, the majority stockholder ofthe Company.

 

(3)           These executive officershave served in various capacities with the Company or its subsidiaries for morethan the past five years.

 

(4)           Prior to joining theCompany, Mr. Weston was employed by The Timken Company as Vice PresidentStrategic Planning.

 

(5)           Prior to joining the Company,Mr. Schramm was employed by Visteon Corporation as Executive DirectorAdvanced Technology.

 

**DIRECTORS****OF THE COMPANY**

 

**Niels B. Christiansen,******age44, has been a director of the Company since July 10, 2008.  Mr. Christiansen was appointed Presidentand Chief Executive Officer of Danfoss A/S on October 1, 2008.  Prior to that, he had been Vice ChiefExecutive Officer of Danfoss A/S since November 15, 2006.  From November 15, 2006 through December 31,2007, he also served as Chief Operating Officer of Danfoss A/S.  From November 1, 2004 through November 14,2006, he served as Executive Vice President and Chief Operating Officer ofDanfoss A/S.  From January 1, 2003through September 30, 2004, Mr. Christiansen was an Executive VicePresident at GN Store Nord A/S, a Danish developer of telecommunicationsnetworking and hand-held communications solutions.  From January 1, 2000 through September 30,2004, he was President and Chief Executive Officer of GN Netcom A/S, a Danishsubsidiary of GN Store Nord A/S.

 

Mr. Christiansenis a member of the Executive Committee of Danfoss A/S; serves as the Chairmanof the Board of Directors of Axcel A/S, a Danish private equity fund; andserves on the Boards of Directors of TrygVesta A/S, a publicly traded Danishinsurance company, B&O a/s, a publicly traded Danish manufacturer of audioand video products, and William Demant Holding A/S, a publicly traded Danishmanufacturer of audio products.

 

Mr. Christiansen’sposition as the Chief Executive Officer of Danfoss A/S, the Company’s majoritystockholder, and the financial and managerial expertise he has gained as anexecutive officer and a director of several publicly and privately heldcompanies make him a valuable member of the Company’s Board of Directors.

 

**Jørgen M. Clausen,******age61, has been a director of the Company since May 3, 2000, Chairman of theCompany since May 5, 2004, and prior to that served as Vice Chairman ofthe Company from 2000 to 2004.  Mr. Clausenserved as President and Chief Executive Officer of Danfoss A/S for many yearsuntil his retirement in October 2008. He now serves as the Chairman of Danfoss A/S.

 

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Mr. Clausen’sability to represent the interests of the Clausen family, which controlsDanfoss A/S, coupled with his extensive experience as the Chief ExecutiveOfficer of Danfoss A/S, like the Company a multi-national industrialmanufacturing corporation, give him unique insights into risk management,strategic planning, and the overall business of the Company.  In addition, Mr. Clausen has directexperience in the hydraulic industry, having served as the Vice President ofDanfoss A/S’s fluid power division before it was acquired by the Company.  All of these factors have contributed to Mr. Clausen’snomination to the Company’s Board of Directors since 2000.

 

**Kim Fausing,******age45, has been a director of the Company since July 10, 2008.  Mr. Fausing has been Executive VicePresident and Chief Operating Officer of Danfoss A/S since January 2008.  In 2007, Mr. Fausing became a divisionalpresident of Danfoss A/S, having previously worked at Hilti Corporation, aprivately owned manufacturer of construction and engineering products, from1990 through 2007.  He served as Hilti’sPresident in Japan and Managing Director from 2000 through 2003, and as aDivision President and Member of its Executive Committee from 2003 through2007.  In 2010, Mr. Fausing became amember of the Boards of Directors of Hilti and Velux A/S, a privately ownedDanish manufacturer of windows and skylights.

 

Mr. Fausing bringsa wealth of executive and managerial experience to the Board of Directors as aresult of his work with Hilti Corporation and Danfoss A/S and his service onthe Hilti and Velux Boards of Directors.

 

**Per Have,**age53, became a director of the Company on November 9, 2009.  Mr. Have was appointed Chief FinancialOfficer of Danfoss A/S on September 30, 2009.  He has served as President of the Bitten andMads Clausen Foundation, the controlling shareholder of Danfoss A/S, since2007.  From 2006 through 2007, Mr. Havewas Senior Vice President, Refrigeration & Air Conditioning Divisionof Danfoss A/S.  From 2002 through 2005,he served as Vice President, Corporate Finance, of Danfoss A/S.  He was employed by the Company as its VicePresident, Global Supply Chain and IT, from 2000 through 2002.

 

The Board of Directorsexpects Mr. Have’s financial expertise and professional experience, aswell as his position as President of the Bitten and Mads Clausen Foundation, tocontribute strongly to the Board’s strategic, financial, and risk oversightfunctions.

 

**William E. Hoover, Jr.,**age 60, has been a director of the Company since July 10, 2008.  Mr. Hoover worked for McKinsey &Co., a management consulting firm, for approximately 30 years until July 2007,when he retired from the position of senior director.  Mr. Hoover serves on the Boards ofDirectors of Danfoss A/S; GN Great Nordic, a Danish manufacturer of hearinginstruments that is listed on the Copenhagen Stock Exchange; NorthStar Battery,a privately owned firm that makes batteries for mobile base stations; andSkykon A/S, a privately held Danish firm that makes towers for windmills.

 

Mr. Hoover’s skillsand experience developed over decades of work in the management consultingfield following his graduation from the Harvard Business School in 1977 bringstrength and depth to the Board, especially in the area of strategicdevelopment.

 

**Johannes F. Kirchhoff,******age52, has been a director of the Company since April 17, 1997. Mr. Kirchhoffhas been owner and Managing Director of FAUN Umwelttechnik GmbH & Co.KG, a German manufacturer of vehicles for waste disposal, for more than thepast five years. He serves on the Boards of Directors of RITAG RitterhuderArmaturen GmbH & Co. Armaturenwerk KG, a privately owned Germancompany that produces valves and fittings, and of Fachhochschule Suedwestfalen,a regional German university.  He isChairman of the Compensation Committee of the Company’s Board and a member ofthe Audit Committee of the Board.

 

As the owner andManaging Director of a privately held manufacturing company with internationaloperations, Mr. Kirchhoff has significant experience in settingcompensation, developing and implementing strategic business plans, andevaluating risk, all from the perspective of the long-term financial soundnessthat is critical for success in a privately held company.  This strategic and managerial experiencemakes Mr. Kirchhoff an important member of the Company’s Board.

 

**F. Joseph Loughrey,**age 60, has been a director of the Company since June 23, 2000.  After 35 years of service with Cummins Inc., Mr. Loughreyretired on April 1, 2009.  He servedas Vice Chairman of the Board of Directors of Cummins Inc. from August 1,2008 through May 12, 2009 and served as its President and Chief OperatingOfficer from May 2005 until August 2008.  From October 1999 until May 2005,he was Executive Vice President of Cummins Inc. and President - EngineBusiness.  From 1996 to 1999, Mr. Loughreyserved as Executive Vice President of Cummins Engine Company and GroupPresident - Industrial and Chief Technical Officer. He serves on the Boards ofDirectors of Hillenbrand, Inc., an Indiana corporation with shares listedon the NYSE; the Lumina Foundation, an Indianapolis-based private 

 

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foundation that works toexpand access to post-secondary education in the United States; AB SKF, aSwedish corporation with shares quoted on the NASDAQ OMX Stockholm; TheVanguard Group, a registered investment company; and Oxfam America, acharitable organization.  Mr. Loughreyis a member of the Audit Committee and the Compensation Committee of the Board.

 

Mr. Loughrey bringsto the Board many years of significant experience in upper management ofpublicly traded manufacturing companies. Cummins is a supplier to many of the original equipment manufacturersthat the Company supplies, so Mr. Loughrey’s experience with Cumminsallows him to evaluate the Company’s business model and practices from acritical perspective.  His understandingof the challenges and opportunities that face manufacturing companies ingeneral and in the Company’s industry in particular, along with his managerialskills and experience, make him a strong voice on the Board.

 

**Sven Murmann,**age 42, has been a director of the Company since April 21, 1994, and ViceChairman of the Company since May 5, 2004. Dr. Murmann is ManagingDirector of Sauer Holding GmbH, an investment company controlled by the Murmannfamily, a position he has held for more than the past five years.  He previously served from 2000 to 2002 asManager of HAKO Holding GmbH & Co., a global manufacturer of indoorand outdoor cleaning equipment based in Germany.  Dr. Murmann is the son of Klaus H.Murmann, Chairman Emeritus of the Company.

 

Dr. Murmann’slong-term perspective on the Company as a member of the Company’s foundingMurmann family, as well as the investment and managerial experience he hasgained in his professional career, have made him a valuable contributor to theBoard throughout his tenure.

 

**Sven Ruder****, age 53, has been a directorof the Company since July 10, 2008. Mr. Ruder became the President and Chief Executive Officer of theCompany on January 1, 2009.  Heserved as the President of the Motion Controls division of Danfoss A/S from January 2001through December 2008.  Mr. Ruderserves on the Boards of Directors of Danfoss Turbocor Compressors BV, aprivately held joint venture between Danfoss A/S and Turbocor BV, and ofDanfoss Turbocor Compressors, Inc., a subsidiary of Danfoss TurbocorCompressors BV that is engaged in the manufacture of air conditioning andrefrigeration compressors.**

 

**As the only member of the Board who is employed as a memberof the Company’s management, Mr. Ruder brings a unique perspective to theBoard.  In addition, his extensive managerialexperience and expertise, along with his knowledge of the industry in which theCompany operates, give him important insights into the Company’s operations,its competitive position in the marketplace, and its strategic vision, all ofwhich are invaluable to the Board.**

 

**Steven H. Wood,**age 52, has been a director of the Company since January 1, 2003. Mr. Woodis currently the Chief Financial Officer of Becker-Underwood, Inc., asupplier of non-pesticide specialty chemical and biological products within theagricultural, landscape, turf, and horticulture industries. He was formerlyVice President and Corporate Controller for Metaldyne Corporation, a globaldesigner and supplier of metal-based components, assemblies and modules for theautomotive industry, from May 2004 until May 2006. From 2000 until2003, he was the Executive Vice President and Chief Financial Officer of MaytagCorporation, and from 1996 to 2000 he was Vice President-Financial Reportingand Audit of Maytag. Mr. Wood held various other financial leadershippositions within Maytag from 1989 to 1996. Prior to joining Maytag, he was anauditor for nine years with Ernst & Young, a public accounting firm,and successfully completed the examination for Certified Public Accountants. Heis Chairman of the Audit Committee and a member of the Compensation Committeeof the Board.

 

Mr. Wood wasoriginally selected as a director, and continues to be a valued member of theBoard, due to his financial expertise and his strong background in managing andoverseeing the financial operations of other publicly traded companies.

 

**Section 16(a) Beneficial OwnershipReporting Compliance**

 

Based solely upon areview of copies of reports that persons required to file reports under Section 16(a) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), furnishedto the Company, the Company believes that, for the year ended December 31,2009, all filings required to be made by reporting persons with respect to theCompany were timely made in accordance with the requirements of the ExchangeAct.

 

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**Codeof Conduct and Code of Ethics**

** **

The Company’s WorldwideCode of Legal and Ethical Business Conduct (the “Code of Conduct”) has been ineffect for a number of years and was last updated on January 1, 2007.The Code of Conduct applies to every employee, agent, representative,consultant and director of the Company. The Code of Conduct  requires that the Company’s employees,agents, representatives, consultants and directors avoid conflicts of interest,comply with all laws and other legal requirements, conduct business in anhonest and ethical manner and otherwise act with integrity and in the Company’sbest interests.

 

Overall administrationof the Code of Conduct is the responsibility of the Audit Committee. Day-to-dayadministration of the Code of Conduct is the responsibility of the CorporateBusiness Conduct Committee that assists the Company’s employees in complyingwith the requirements of the Code of Conduct. Employees are encouraged toreport any conduct that they believe in good faith to be an actual or apparentviolation of the Code of Conduct.

 

The Company has alsoadopted the Sauer-Danfoss Inc. Code of Ethics for Chief Executive Officer,Chief Financial Officer, Principal Accounting Officer or Controller and OtherSenior Finance Staff (the “Code of Ethics”). The Code of Ethics is intended tocomply with the provisions of Section 406 of the Sarbanes-Oxley Act of2002 and regulations of the SEC. The Code of Ethics is intended to promotehonesty and integrity, the avoidance of conflicts of interests, full, accurate,and timely disclosure of financial reports, and compliance with laws andregulations and other matters.

 

**Changes to Procedures forStockholders to Recommend Nominees**

**For Election to theCompany’s Board of Directors**

 

The Company made no materialchanges during 2009 to the procedure by which stockholders may recommendnominees for election to the Company’s Board of Directors.

 

**Audit Committee**

 

TheCompany has an Audit Committee that is currently composed of three directors,none of whom is an employee of the Company. The Audit Committee currentlyconsists of Messrs. Wood (Chairman), Kirchhoff, and Loughrey. All of themembers of the Audit Committee are independent within the meaning of theSecurities and Exchange Commission’s (“SEC”) regulations, the current listingstandards of the New York Stock Exchange and the Company’s Corporate GovernanceGuidelines. In addition, the Board has determined that at least one member ofthe Audit Committee meets the New York Stock Exchange listing standard ofhaving accounting or related financial management expertise.

 

TheBoard has also determined that Steven H. Wood meets the SEC’s criteria of an “auditcommittee financial expert.” Mr. Wood’s extensive background andexperience includes presently serving as Chief Financial Officer ofBecker-Underwood, Inc., a supplier of non-pesticide specialty chemical andbiological products within the agricultural, landscape, turf, and horticultureindustries, and formerly serving as Vice President and Corporate Controller ofMetaldyne Corporation, a global designer and supplier of metal-basedcomponents, assemblies and modules for the automotive industry, and before thatas Executive Vice President and Chief Financial Officer of Maytag Corporation.Prior to joining Maytag, he was an auditor for nine years with Ernst &Young, a public accounting firm, and successfully completed the examination forCertified Public Accountants.Mr. Wood is independent as that term isused in the New York Stock Exchange’s listing standards relating to directorindependence.

 

**Item 11.  Executive Compensation**

 

**COMPENSATION DISCUSSION AND ANALYSIS**

 

Sauer-Danfoss Inc. (the“Company” or “we”) presents this Compensation Discussion and Analysis (“CD&A”)to discuss its executive compensation program. Our Chief Executive Officer (the“CEO”), Chief Financial Officer (the “CFO”) and other executive officersparticipate in the executive compensation program.

 

The Summary CompensationTable on page 18 and the subsequent disclosure tables reflect compensationpaid to our CEO, CFO and to certain other executive officers (collectively, the“Named Executive Officers” or “NEOs”). In general, this CD&A discussionapplies equally to each of the NEOs. Where needed for clarification, we haveprovided information on the treatment of individual NEOs.

 

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Under SEC rules, we arereporting information in the Summary Compensation Table for Sven Ruder asCEO, for  Karl J. Schmidt and Jesper V. Christensen as CFOs and for HansJ. Cornett, Henrik Krabsen and Wolfgang Schramm as the three most highlycompensated executive officers of the Company, other than the CEO and CFO.

 

Mr. Schmidt and Mr. Christenseneach served as CFO for a portion of 2009. Accordingly, we are reporting Summary Compensation Table information forboth Mr. Schmidt and Mr. Christensen. We are also reporting Summary Compensation Table information for ThomasK. Kittel, who would have been reportable among the top three most highly compensatedexecutive officers had he retained his executive officer position at year-end.

 

Mr. Ruder and Mr. Christensenwere first appointed to their roles in 2009. Therefore, Summary Compensation Table information is only presented for2009 for Mr. Ruder and Mr. Christensen.  Mr. Krabsen was not among the top threemost highly compensated executive officers in 2007 and 2008.  Therefore, Summary Compensation Tableinformation is only presented for 2009 for Mr. Krabsen.

 

**Role of Compensation Committee and Management inExecutive Compensation Matters**

 

The Compensation Committeeof our Board of Directors (the “Committee”) consists of three independentdirectors as defined by current New York Stock Exchange listing standards. TheCommittee has the final say and ultimate authority in all matters relating toour executive compensation program. The Committee’s authority encompasses areassuch as:

 

·      The overall design of ourexecutive compensation program

 

·      The determination ofindividual compensation elements and amounts for specific executives

 

·      The determination ofincentive compensation performance measures and targets

 

From time to time, the Committeeuses Hewitt Associates, LLP (“Hewitt”) as its consultant with respect toexecutive compensation matters. At the request of the Committee in 2009, Hewittprovided historical return on net assets results for a broad range ofindustrial companies to assist the Committee in developing performance targetsunder the Company’s long-term incentive plan. Hewitt also provided theCommittee with an update on current marketplace trends with respect toexecutive compensation practices.  Hewitt’ssole consulting relationship with the Company is related to the work donedirectly for the Committee.  Total feespaid to Hewitt for compensation consulting services were less than $75,000 ineach of the three years from 2007 through 2009.

 

Management’s role withrespect to executive compensation matters is limited to making recommendationsto the Committee, based on Management’s understanding of the Company’scompensation and performance objectives. Management’s recommendations to theCommittee include the CEO’s annual performance evaluations of the otherexecutive officers along with the CEO’s recommendation for annual base salarychanges for each such officer based on individual performance and marketcomparisons.  The Committee considersManagement’s input and recommendations, but exercises independent judgment inmaking final decisions with respect to all matters affecting our executivecompensation program.

 

**2009 Actions In Response To Economic & MarketDownturn**

 

The general economic climate entering 2009 wasprojected to have a significant impact on the Company and our markets.  In response to the economic and marketclimate, Mr. Ruder proposed the following temporary actions, which wereapproved by the Committee in a February 2009 teleconference meeting:

 

·      15% base salary reductionfor the CEO, effective March 1, 2009

 

·      10% base salary reductionfor the Executive Officers and Vice Presidents, effective March 1, 2009

 

·      Suspension of the AnnualIncentive Award program for 2009

 

·      Suspension of the Long-TermIncentive Award program for 2009

 

While these actions temporarily diminished ourability to fulfill some of the executive compensation objectives stated below,they were an appropriate and necessary response to the economic climate in2009.

 

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In March 2010, the Committee approvedManagement’s recommendation to restore the CEO, Executive Officer and VicePresident base salaries to their pre-reduction levels, effective May 1,2010.  The base salary foregone duringthe reduction period was not repaid as part of this action.  The Committee also approved a reinstatementof the Annual and Long-Term Incentive Award programs, beginning in 2010.

 

**Executive Compensation Goals and Objectives**

 

The Sauer-Danfoss TotalRewards Strategy, adopted and approved by the Committee in 2007 and reviewedannually, provides a general framework for Total Rewards offerings to allemployees on a global basis.

 

Our executive compensationprogram fits within our Total Rewards Strategy and is designed to meet certaingoals and objectives. Specifically, we designed our executive compensationprogram to enable us to:

 

·      Attract, motivate and retainquality leaders

 

·      Promote teamwork andcooperation on a global basis

 

·      Tie executive compensationlevels to changes in shareholder value

 

·      Tie executive compensationlevels to business results

 

·      Preserve the taxdeductibility of our executive compensation

 

We design our executivecompensation program to reward performance. Within the program, we combine individual, business unit, division andcompany-wide performance elements. For our senior executives and NamedExecutive Officers, company-wide performance elements generally have thegreatest impact on total compensation. We stress company-wide performance elements for the Named ExecutiveOfficers because they have the greatest impact on shareholder value creation.  Company-wide performance elements also helpus to promote global teamwork and cooperation among business units anddivisions.

 

As noted above, we suspendedour Annual Incentive Award and Long-Term Incentive Award programs for2009.  We will reinstate these incentiveprograms, in modified form, during 2010 to reestablish the link between Companyperformance and executive compensation.

 

We design our executivecompensation program to be market-based. In comparing our executive compensation program to market, we considersuch items as the balance between fixed and variable compensation and theannual and long-term incentive target opportunities.  In our market comparisons, we generally lookto survey data related to durable goods manufacturing companies with comparablerevenue size.

 

Based on a review of surveydata from a variety of external sources, we believe that our executivecompensation program coming into 2009 was comparable to, and competitive with,the market median of compensation programs for similarly sized companies insimilar industries.  The temporaryactions taken during 2009 in response to the economic outlook, includingexecutive officer base salary reductions and suspension of our incentive plans,moved us away from these market medians.

 

We also consider internalequity in the administration of our executive compensation program.Periodically, we perform a formal job evaluation process for all executivepositions, rating them on a point-factor basis. We then use the positionratings to help ensure that our executive compensation program is aligned forcomparable positions on a global basis.

 

The Committee routinelyreviews our executive compensation program and its individual elements in lightof the goals and objectives outlined above.

 

**Elements Of Executive Compensation Program**

 

Our executive compensationprogram is comprised of the following elements which are described in furtherdetail below:

 

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·                  Base Salary

 

·                  AnnualIncentive Awards

 

·                  Long-TermIncentive Awards

 

·                  Retirement &Savings Plans

 

·                  Additional CashCompensation and Perquisites

 

·                  Other PotentialPost-Employment Compensation

 

***Base Salary***

 

We provide a base salary toour CEO and executive officers.  TheCommittee determines the base salary levels for the CEO and for each of ourexecutive officers on an annual basis. One key factor in the Committee’s determination of base salaries is acomparison to market data. In planning for 2009 base salary adjustments, theCommittee initially reviewed market survey information for similar positions incompanies similar to ours in size and industry. We target our base salaries at the 50th percentile for similar positions within thecomparator and/or market survey benchmark group.  The following factors also impact base salarydeterminations and will cause the base salaries to differ from the 50th percentile target:

 

·                  The Board’sannual performance evaluation of the CEO relative to established objectives

 

·                  The CEO’sannual performance evaluations of the other officers relative to establishedobjectives

 

·                  Individualexperience and expertise

 

·                  Internal equity

 

As noted earlier, theCommittee approved a recommendation to temporarily reduce the base salary ofour CEO and our other officers, effective March 1, 2009.  As a result of these reductions, the basesalary of many of our Named Executive Officers for 2009 was below the benchmarkmarket median, as detailed in the following table:

 
| ** **                                                    | ** ** | **Base Salary** | ** ** | **Base Salary** | ** ** | **Range In**  | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                                    | ** ** | **Before**           | ** ** | **After**            | ** ** | **Comparison**     | ** ** |
| ** **                                                    | ** ** | **Reduction**        | ** ** | **Reduction**        | ** ** | **To Median** | ** ** |
|                                                          |       |                 |       |                 |       |               |       |
| Sven Ruder                                                    |       |                 |       |                 |       |               |       |
| President & Chief  Executive Officer (A)             |       | $                    | 625,600    |                 | $          | 531,800            |       | < 85 | % |
|                                                          |       |                 |       |                 |       |               |       |
| Karl J. Schmidt                                               |       |                 |       |                 |       |               |       |
| EVP & Chief  Financial Officer (B)                   |       | $                    | 327,000    |                 | $          | 294,300            |       | < 85 | % |
|                                                          |       |                 |       |                 |       |               |       |
| Jesper V. Christensen                                         |       |                 |       |                 |       |               |       |
| EVP & Chief  Financial Officer (A) (B)          |       | $                    | 339,900    |                 | $          | 305,900            |       | 85% to 95 | % |
|                                                          |       |                 |       |                 |       |               |       |
| Hans J. Cornett                                               |       |                 |       |                 |       |               |       |
| EVP & Chief  Marketing Officer (A)                   |       | $                    | 389,300    |                 | $          | 350,400            |       | < 85 | % |
|                                                          |       |                 |       |                 |       |               |       |
| Wolfgang Schramm                                              |       |                 |       |                 |       |               |       |
| EVP & President —  Controls Division            |       | $                    | 312,000    |                 | $          | 280,800            |       | < 85 | % |
|                                                          |       |                 |       |                 |       |               |       |
| Henrik Krabsen                                                |       |                 |       |                 |       |               |       |
| EVP & President —  Work Function Division       |       | $                    | 312,000    |                 | $          | 280,800            |       | < 85 | % |
|                                                          |       |                 |       |                 |       |               |       |
| Thomas K. Kittel                                              |       |                 |       |                 |       |               |       |
| EVP & President —  Propel Division (A) (B) |       | $                    | 389,300    |                 | $          | 350,400            |       | 105% to 115 | % |

 

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Notes:              (A) Eurodenominated base salaries for Messrs. Ruder, Christensen, Cornett andKittel converted to USD using an exchange rate (USD / Euro) of 1.3903.

 

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(B) Tablereflects annualized base salary levels for Named Executive Officers who servedfor less than a full year in 2009.

 

As the senior leadershipteam for Sauer-Danfoss, the CEO and executive officers are expected to focusefforts towards meeting or exceeding the annual financial plan for 2009 aspresented to and agreed by the Board of Directors.  At its meeting in March of 2010, theBoard of Directors met with Mr. Ruder to discuss his performance againstthe Sauer-Danfoss Key Initiatives for 2009 and his individual objectives for2009.  Mr. Ruder also discussed andconfirmed his 2009 performance ratings of the other executive officers with theBoard of Directors at this meeting.

 

In a typical year, theseindividual performance ratings and certain other factors would be considered bythe Committee in determining base salary adjustments for Mr. Ruder and theother executive officers.  The normalmerit pay review process for our officers, however, has been suspended for 2009and 2010.

 

Base salaries are one of themost readily comparable elements of compensation between differentcompanies.  We consider maintainingadequate annual base salary levels to be critical to achieving the stated goalof attracting, motivating and retaining quality leaders.  By considering individual performance ratingsin the annual base salary review process, our strongest performing executiveofficers will generally receive the largest percentage increases in annual basesalary each year.  This helps us meet ourgoal of motivating quality leaders and strengthens the tie between executivecompensation and business results.

 

***Annual Incentive Awards***

 

As noted above, the AnnualIncentive Award program was suspended temporarily in 2009 due to the economicand market challenges facing the Company. The following discussion relates to the Annual Incentive Award programprior to suspension.

 

We provide an AnnualIncentive Award opportunity to our executive officers and other senior businessleaders.  Annual Incentive Awardopportunities to our Named Executive Officers are provided under the Company’sOmnibus Incentive Plan.  The AnnualIncentive Awards are designed to pay out a target percentage of a participant’sbase salary based upon achievement of certain pre-approved financialperformance targets on a Divisional, Business Unit, and/or Total Companybasis.  In recent years prior tosuspension of the Annual Incentive Award Program, the performance targets werebased on Earnings Before Interest and Taxes (“EBIT”) margins.  To promote teamwork and cooperation acrossDivisions and Business Units, the Named Executive Officers participated in theAnnual Incentive Plan on a Total Company basis beginning in 2006.

 

For 2008 and prior years,actual payouts under the Annual Incentive Awards could range from 25% to 200%of target, depending upon achieved EBIT margins.  Below certain minimum EBIT margin thresholds,no payout was to be made under the Annual Incentive Awards.

 

The Committee determined thetarget percentage of each executive officer’s base salary for Annual IncentiveAward purposes based on a review of market survey information for similarpositions in comparable companies and also based on internal equity.

 

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The following table providesa summary of how the Named Executive Officers’ target annual incentive awardsprior to suspension, as a percentage of base salary, compared to the marketsurvey:

 
| ** **                                              | ** ** | ** **     | ** ** | **Average**           | ** ** |
|---------------------------------------------------------|------------|----------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **Sauer-**     | ** ** | **Target**            | ** ** |
| ** **                                              | ** ** | **Danfoss**    | ** ** | **Percentage**        | ** ** |
| ** **                                              | ** ** | **Target**     | ** ** | **For Similar**  | ** ** |
| ** **                                              | ** ** | **Annual**     | ** ** | **Positions At** | ** ** |
| ** **                                              | ** ** | **Incentive**  | ** ** | **Comparable**        | ** ** |
| ** **                                              | ** ** | **Percentage** | ** ** | **Companies**         | ** ** |
|                                                    |       |           |       |                  |       |
| Sven Ruder                                              |       |           |       |                  |       |
| President & Chief  Executive Officer           |       | 60%            |       | 90%                   |       |
|                                                    |       |           |       |                  |       |
| Karl J. Schmidt                                         |       |           |       |                  |       |
| EVP & Chief  Financial Officer                 |       | 60%            |       | 60%                   |       |
|                                                    |       |           |       |                  |       |
| Jesper V. Christensen                                   |       |           |       |                  |       |
| EVP & Chief  Financial Officer                 |       | 60%            |       | 60%                   |       |
|                                                    |       |           |       |                  |       |
| Hans J. Cornett                                         |       |           |       |                  |       |
| EVP & Chief  Marketing Officer                 |       | 60%            |       | 50%                   |       |
|                                                    |       |           |       |                  |       |
| Wolfgang Schramm                                        |       |           |       |                  |       |
| EVP & President —  Controls Division      |       | 60%            |       | 50%                   |       |
|                                                    |       |           |       |                  |       |
| Henrik Krabsen                                          |       |           |       |                  |       |
| EVP & President —  Work Function Division |       | 60%            |       | 50%                   |       |
|                                                    |       |           |       |                  |       |
| Thomas K. Kittel                                        |       |           |       |                  |       |
| EVP & President —  Propel Division        |       | 60%            |       | 40%                   |       |

 

The Sauer-Danfoss TargetAnnual Incentive percentage for Messrs. Cornett, Schramm, Krabsen andKittel are above the average annual incentive plan targets for similarpositions at comparable companies.  Thisstems from the Company’s desire to maintain internal equity within itsexecutive office team with respect to target incentive compensation levels.

 

The Committee reviews andapproves the financial measures and performance levels that are required toearn the target payout at the beginning of each year. These performance levelsare generally tied to our annual operating budgets.  Our annual budgeting process produces aggressivegoals which are considered to have a reasonable chance of being met throughstrong operating performance.  We usedEBIT margin performance factors in the past to encourage and rewardprofitability on a Total Company and/or Divisional or Business Unit basis.

 

We have determined in pastyears that the Annual Incentive Award EBIT margin targets and their basis forcomputation involve confidential financial information and that disclosurecould result in competitive harm to the Company.  Therefore, we have not disclosed thesetargets within this CD&A.

 

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The following table, whichshows the six-year payout history under the Annual Incentive awards for ourTotal Company measure, provides an indication of the difficulty in meeting theperformance goals.

 
| **Year** | ** ** | **Earned  Payout  As A  Percentage  Of Target** | ** ** |
|----------|------------|-----------------------------------------------------------|------------|
| 2009     |       | N/A                                                       |       |
| 2008     |       | 0                                                         | %          |
| 2007     |       | 0                                                         | %          |
| 2006     |       | 113                                                       | %          |
| 2005     |       | 45                                                        | %          |
| 2004     |       | 136                                                       | %          |

 

Under the Omnibus IncentivePlan, the Committee reserves the discretion to reduce, but not increase, thefinal payouts to executive officers. From 2004 through 2008, the Committee did not reduce payout levels on adiscretionary basis.

 

With a clear relationshipbetween financial results and payouts, our Annual Incentive Awards programencourages our senior leadership to drive business results.  As a market-based program, it also helps usattract, motivate and retain quality leaders. Finally, the design of the shareholder-approved Omnibus Incentive Planand the Annual Incentive Awards made thereunder helps ensure the taxdeductibility of Long-Term Incentive Awards earned and paid out.

 

***Long-Term Incentive Awards***

 

As noted above, theLong-Term Incentive Award program was suspended temporarily in 2009 due to theeconomic and market challenges facing the Company.  The following discussion relates to theLong-Term Incentive Award program prior to suspension.

 

We provide Long-TermIncentive Awards to our executive officers and other senior businessleaders.  The Omnibus Incentive Plan setsforth the terms and conditions under which our Long-Term Incentive Awards aremade.  The Company’s established practiceis to make Long-Term Incentive Award grants once each year, at the time of itsregularly scheduled first quarter Compensation Committee meeting.  The Omnibus Incentive Plan allows for avariety of forms of Long-Term Incentive Awards (e.g., Stock Options,Performance Units, Restricted Stock). The Omnibus Incentive Plan also providesfor a variety of performance measures for performance-based Long-Term IncentiveAwards (e.g., Return on Sales, Return on Net Assets, Total ShareholderReturn).

 

In 2008, consistent withpast practice, the Committee determined that the Long-Term Incentive Awardswould be made 100% in the form of Performance Units.  In addition, the Committee determined thataverage Return on Net Assets (RONA) over a three-year performance period wouldbe the performance measure used for the Long-Term Incentive Awards.  The three-year performance period promotesperformance over a reasonable timeframe and builds an employee retentioncomponent into the Long-Term Incentive Awards.

 

The Committee has chosenPerformance Units as the award vehicle under the Company’s Long-Term Incentiveprogram based on management recommendations and its own evaluation.  Among other advantages, Performance Unitsprovide the Compensation Committee with the flexibility to choose to makepayouts in either cash or shares at the time of grant.

 

The Performance Units linkpayouts under the Company’s Long-Term Incentive program to the Company’sachieved RONA performance.  We use RONAas the performance measure because we view this metric over an extended periodof time to be an important driver in shareholder value creation.  The Committee set a three-year target foraverage RONA considering the Company’s expected performance throughout theeconomic cycle and considering median RONA performance compiled by Hewitt forsimilarly sized companies in the Industrial Machinery sector.

 

Beginning in 2007, a salesgrowth modifier was added to the Long-Term Incentive Plan’s performance targetsto encourage long-term growth in addition to profitability.  Depending upon the average sales growth overthe three-year performance period, the earned payout under the 2008 performanceunit grant can be increased by up to 20%.

 

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Actual payouts under the2007 and 2008 Long-Term Incentive Award grants can range from 46% to 156% oftarget, depending upon achieved average RONA and sales growth over thethree-year performance period. Below certain minimum average RONA thresholds,no payout will be made under the Long-Term Incentive Awards.  Because the Company’s RONA performance wasbelow the threshold, no payout was earned under the 2007 Long-Term IncentiveAward.

 

The RONA thresholds, targetsand maximums, along with the corresponding payout levels, are as follows:

 
| ** **                | ** ** | **Grant  Year** | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** |
|---------------------------|------------|-----------------|------------|---------------|------------|------------|------------|-------------|------------|
| RONA Targets              |       | 2008            |       | 10            | %          | 14         | %          | 16          | %          |
|                      |       | 2007            |       | 10            | %          | 14         | %          | 16          | %          |
|                      |       |            |       |          |       |       |       |        |       |
| Performance Unit Payout % |       | 2008            |       | 46            | %          | 90         | %          | 130         | %**        |
|                      |       | 2007            |       | 46            | %          | 90         | %          | 130         | %**        |

 

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**        For the 2007 and 2008 grantyears, the earned payout based on RONA performance may be increased by a salesgrowth modifier of 10% to 20% depending upon the Company’s average sales growthover the three-year performance period. The 10% and 20% sales growth modifiers result from three-year average salesgrowth of 5% and 15%, respectively. Between 5% and 15% sales growth, themodifier increases on a linear basis. With the sales growth modifier, the maximum payout under the 2007 and2008 performance unit grants is 156% (130% × 120% sales growthmodifier).

 

The Committee determines thetarget percentage of a participant’s base salary for Long-Term Incentive Awardpurposes each year, without consideration of prior awards, based on a review ofmarket survey information for similar positions in comparable companies andbased on internal equity.

 

Dividend equivalents onoutstanding Performance Units are paid at the same time and at the same rate asdividends declared by the Company’s Board of Directors on its commonstock.  During the performance period,the dividend equivalents are paid based on the target number of PerformanceUnits held by each participant.  By tyingthe payment of dividend equivalents into the Company’s common stock dividends,the participants have incentive to focus on cash flow measures that driveshareholder value and returns.  TheCompany suspended its common stock dividends in 2009.  Dividend equivalent payments on outstandingPerformance Units were similarly suspended during 2009.

 

To promote share ownership,the Committee generally requires that earned Performance Units under theLong-Term Incentive Awards program be paid to participants 100% in shares ofCompany stock, with a number of shares withheld from the payout equal to thevalue needed to cover the Company’s minimum statutory tax withholdingrequirements.  In April of 2010, inlight of the pending tender offer from Danfoss A/S and Danfoss Acquisition, Inc.for the outstanding shares of the Company, the Committee authorized a change inthe future payout format of all presently outstanding 2008 Grant YearPerformance Units from stock to cash, based on the final tender offerprice.  This change to a cash payout wasmade contingent upon the completion of the tender offer and planned follow-on mergerprocess.  The Committee did not alter theperformance criteria that will determine whether any payout is actually earnedon the outstanding 2008 Grant Year Performance Units.

 

The Performance Unit AwardAgreements generally provide for automatic forfeiture upon a termination fromservice prior to the end of the performance period and/or the payout date.  The Performance Unit Award Agreementsgenerally provide for pro-rata, post-employment payouts of earned PerformanceUnits under the following situations:

 

·                  Retirement atfull, normal retirement age

 

·                  Death

 

The Long-Term IncentiveAwards are subject to immediate vesting and payout, at the target level, upon aChange In Control of the Company, as defined in the Omnibus IncentivePlan.  Under the Omnibus Incentive Plan,the Company has the right to seek a reimbursement of amounts previously paid toany Participant who engaged in misconduct or was aware of and 

 

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failed to report misconduct when suchmisconduct leads to a restatement of financial earnings.  The Company also has certain automaticforfeiture rights under Section 304 of the Sarbanes-Oxley Act of 2002.

 

At the time of his hiring inApril 2007, Mr. Schramm was granted 10,000 shares of restricted stockunder the Company’s Omnibus Incentive Plan. 5,000 restricted shares vested on his one-year service anniversary (April 2008)and the remaining 5,000 restricted shares vested on his two-year serviceanniversary (April 2009).  Therestricted share issuance to Mr. Schramm served as a recruiting measureand as a short-term retention measure. The restricted share issuance bridged the period from Mr. Schramm’shire date until he would be eligible to receive any earned payouts under theCompany’s 2007 Performance Unit Award Agreement at the end of calendar year2009.

 

Prior to his hiring in January of2009, Mr. Ruder had served the Company as a non-employee director,beginning in 2008.  While he was a non-employeedirector, Mr. Ruder was granted 1,500 shares of restricted stock with athree-year vesting period ending in June of 2011.  In April of 2010, the Board of Directorsof the Company authorized an accelerated vesting of all non-employee director restrictedshares, including those held by Mr. Ruder, in light of a pending tenderoffer for the outstanding shares of the Company from Danfoss A/S and DanfossAcquisition, Inc.

 

With a clear relationshipbetween financial results and payouts, our Long-Term Incentive Awards programhelps us tie our executive compensation levels to achieved businessresults.  As an equity-based program, italso ties our executive compensation levels into returns earned by ourshareholders.  As a market-based program,it also helps us attract, motivate and retain quality leaders.  Finally, the design of theshareholder-approved Omnibus Incentive Plan and Long-Term Incentive Awardsgranted thereunder helps ensure the tax deductibility of Long-Term IncentiveAwards ultimately paid out.

 

***Retirement & Savings Plans***

 

The Retirement &Savings Plans in which our executive officers participate consist of thefollowing:

 

·                  LocalRetirement Plans

 

·                  SupplementalRetirement and/or Savings Plans

 

·                  ElectiveDeferred Compensation Plans for Cash Compensation

 

·                  ElectiveDeferred Compensation Plans for Long-Term Incentive Compensation

 

Our Local Retirement Plansare made available to all eligible employees, including the Named ExecutiveOfficers, and vary by country.  The LocalRetirement Plans are a combination of defined contribution and/or definedbenefit savings plans.  In recent years,the Company has moved towards providing the majority of its retirement benefitsin the form of defined contribution plans. Our Named Executive Officers generally participate in theircountry-specific Local Retirement Plans on the same terms and conditions madeavailable to all other participants in the respective plans. Our LocalRetirement Plans are described in further detail in the Pension Benefits Tableand narrative beginning on page 23.

 

Our Supplemental Retirementand/or Savings Plans are made available to those U.S. officers and employeeswhose annual compensation exceeds certain limits imposed by the IRS and whoseretirement benefits under the Local Retirement Plans are limited as aresult.  The Supplemental Retirementand/or Savings Plans operate to replace the retirement benefits that would belost as a result of the IRS limits. Messrs. Schmidt, Cornett, Krabsen andSchramm participate in the Supplemental Retirement and/or Savings Plans.

 

Our Local Retirement Planbenefits and our Supplemental Retirement and/or Savings Plan benefits aredetermined primarily by considering base salary.  Payouts under the Annual Incentive PlanAwards or the Long-Term Incentive Plan Awards generally do not impact theamount a participant will receive under these plans.

 

The Elective DeferredCompensation Plans for Cash Compensation are made available to U.S. VicePresidents and executive officers as a means to allow them to save, on atax-deferred basis, all or a portion of their annual cash compensation (BaseSalary and Annual Incentive Award). Deferred compensation under these plans represents an unfunded,unsecured liability of the Company. During the deferral period, participants’ deferred compensation accountsare credited with a variable earnings credit that is tied to ten-year U.S.treasury yields and a credit risk spread based on the Company’s creditprofile.  Mr. Krabsen has elected toparticipate in the Elective Deferred Compensation Plans for Cash Compensation.

 

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The Elective DeferredCompensation Plan for Long-Term Incentive Compensation has been made availableto Messrs.  Schmidt and Cornett as a means to allow them to defer thereceipt of their payouts under the Company’s Long-Term Incentive Awardsprogram.  The determination of whether toextend the invitation to participate is made by the Committee on agrant-by-grant basis and depends, in part, on the Company’s exposure tocompensation deduction limitations under Internal Revenue Code Section 162(m).  During the deferral period, the deferredcompensation retains its original form (i.e., Performance Units). At theend of the deferral period, the deferred Performance Units are paid in the sameform, shares or cash, as originally determined by the Committee.  During the deferral period, dividendequivalents earned on the deferred Performance Units are also deferred andrepresent an unfunded, unsecured liability of the Company.  During the deferral period, the deferreddividend equivalent accounts are credited with a variable earnings credit thatis tied to ten-year U.S. treasury yields and a credit risk spread based on theCompany’s credit profile.  Mr. Schmidthas previously elected to participate in the Elective Deferred CompensationPlan for Long-Term Incentive Compensation. Pursuant to a prior deferral election, Mr. Schmidt received apayout of 26,703 performance units on April 3, 2009, payable in shares ofCompany stock.  The deferred performanceunit payout was valued at $71,831 based on a share value of $2.69 on the payoutdate.

 

Executives participating inthe Elective Deferred Compensation Plan for Long-Term Incentive Compensationcan experience adverse capital gains tax consequences if the Company’s sharevalue declines during the deferral period. A decline in share value during the deferral period causes the netshares received by the participant, after payroll tax withholding, to have alower tax basis.  A later sale of theselower tax basis shares results in a greater capital gain or lower taxable lossthan would have resulted had the shares not been deferred.  The Committee has agreed to make a capitalgains tax protection payment to participants if their deferred PerformanceUnits are paid out at a time when the shares are lower in value than on thedate when the Performance Units would have originally been paid, based on afixed formula.  At this time of hisdeferred performance unit payout, Mr. Schmidt received a tax basisprotection payment of $164,622 in accordance with the pre-determined fixedformula.

 

The Elective DeferredCompensation Plan for Long-Term Incentive Compensation was last made availablein 2006.  At the end of 2009, there were92,346 Deferred Performance Units held by former executive officers of theCompany.

 

The Supplemental Retirementand/or Savings Plans and the Elective Deferred Compensation Plans are describedin further detail in the Nonqualified Deferred Compensation Table and narrativebeginning on page 24.

 

Based on observed marketpractices, we believe our Retirement & Savings Plans are comparable tothose found in the marketplace for senior executives.  These plans help us attract, motivate andretain quality leaders.  In addition, theelective deferred compensation programs can help ensure the corporate taxdeductibility of compensation in years when an executive’s compensation mightotherwise exceed the tax deductible compensation limits of Internal RevenueCode Section 162(m).

 

***Additional Cash Compensation and Perquisites***

 

We provide a few additionalelements of cash compensation and/or perquisites to our executives.  These elements include:

 

·                  RelocationStipend and/or Relocation Expenses

 

·                  AutomobileAllowances and/or Company Cars

 

·                  Paid Time Off(PTO) Sell Back

 

·                  Spousal Travel

 

The relocation stipend paidto Mr. Schmidt was put in place at the time he relocated to ourLincolnshire, Illinois office.  TheCompensation Committee determined that relocating executives should be given astipend to assist them with the higher cost of housing in the Chicagoarea.  The stipends have a limited term(60 months) and ended in August 2008 for Mr. Schmidt.

 

During 2008, the Committeeauthorized Mr. Cornett to relocate his primary office from the Company’sLincolnshire, Illinois office to its Neumünster, Germany facility.  Mr. Cornett received the Company’sstandard relocation assistance from the Company during 2008.  The full cost of Mr. Cornett’srelocation assistance, $34,864, has been included in the Other CompensationColumn of the Summary Compensation Table.

 

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Upon his hiring date in2007, the Committee authorized that Mr. Schramm move to the Company’sPlymouth, Minnesota facility.  Mr. Schrammreceived the Company’s standard relocation assistance from the Company.  The full cost of Mr. Schramm’srelocation assistance, $32,349 in 2007 and $5,805 in 2008, has been included inthe Other Compensation Column of the Summary Compensation Table.  Also included in 2008 is an additional$40,000 that the Committee authorized for payment to Mr. Schramm in orderto cover certain duplicate housing costs resulting from the soft U.S. realestate market.

 

Automobile allowances arepaid to Messrs. Schmidt, Schramm and Krabsen in lieu of providing companycars for their use. Mr. Cornett received an automobile allowance duringthe period of his U.S. employment.  AsEuropean-based officers, Messrs. Ruder, Christensen, Cornett and Kittelare provided a company car for business and personal use.  Automobile allowances or allowing the use ofa company car are common in the market for senior executives and are used by usto attract, motivate and retain quality leaders.

 

The Company’s Paid Time Off(PTO) plan allows U.S. employees, including officers, to sell back up to80 hours of paid time off (i.e. vacation) per year.  This may be preferable for employees who arenearing their maximum PTO accrual and would otherwise begin to lose the valueof their full PTO benefit. Mr. Schmidt utilized the PTO sell-back optionin 2008.  The resulting cash payment tohim has been included in the Other Compensation Column of the SummaryCompensation Table.  The PTO sell-backoption was discontinued in 2009.

 

Similarly, departing U.S.employees are able to receive a cash payout of their remaining PTO accrualbalance upon their termination of employment. Mr. Schmidt received such apayout upon his termination of employment in May 2009.  Mr. Cornett received a payout of hisaccrued U.S. PTO balance upon his transfer to Germany as his PTO eligibilitywill now be based on German PTO provisions. These cash payments have been included in the Other Compensation Columnof the Summary Compensation Table.

 

Due to a high frequency ofinternational travel, we allow spouses to accompany executives on up to twointernational trips per year.  TheCompany pays coach class airfare for any such spousal trips.  The executive is responsible for any incometaxes resulting from such Company-paid spousal trips.

 

***Other Potential Post-EmploymentCompensation***

 

The Company has entered intoEmployment Agreements with the Named Executive Officers that provide thepotential for post-employment compensation in certain instances(i.e., triggers).

 

For Messrs. Schmidt,Cornett, Krabsen, Kittel and Schramm, the triggers that would provide forpost-employment compensation are as follows:

 

·                  Termination Dueto Death or Disability

 

·                  Termination ByThe Company Without Cause

 

·                  Termination ByThe Executive With Good Reason

 

·                  Change inControl of the Company and Termination by the Company Without Cause or by theExecutive With Good Reason Within Two Years following the Change in Control

 

Messrs. Ruder andChristensen have European-style Employment Agreements where post-employmentcompensation is primarily covered through the use of extended notice periods.  For terminations initiated by the Companywithout cause or by the employee due to breach of contractual obligations, Mr. Ruderhas a 24-month notice period and Mr. Christensen has an 18-monthnotification period, during which time they would be eligible to receive theirnormal compensation, even if no longer working for the Company.

 

Based on observed marketpractices, the triggers which can lead to post-employment compensation arecomparable to those found in the marketplace for CEOs and other seniorexecutives.  The material terms of theEmployment Agreements, including the provisions relating to potentialpost-employment compensation, are discussed in detail in the Potential PaymentsUpon Termination or Change in Control section beginning on page 26.

 

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**KarlSchmidt Resignation and Post-Employment Compensation**

 

InApril 2009, Mr. Schmidt announced his resignation from the Company,effective April 30, 2009.  TheCompany and Mr. Schmidt agreed that the resignation would be treated underthe Termination Without Cause / Termination With Good Reason provisions of hisemployment agreement.

 

As a result of this treatmentand pursuant to his employment agreement, Mr. Schmidt was paid or providedthe following amounts upon his termination of employment:

 

·                  $784,800 -Separation Payment Payable in Two Installments (May 2009 and December 2009)

 

·                  $20,129 CobraContinuation Payment in Lieu of Medical Plan Continuation For 12 Months

 

·                  $18,875****- Accrued Paid Time Off at Termination Date

 

·                  OutplacementServices — Reimbursed Up To $20,000 Value

 

**Thomas Kittel Retirement andPost-Employment Compensation**

 

In August 2009, Mr. Kittelannounced his intention to retire from the Company, effective September 30,2009.  The Company and Mr. Kittelagreed that his retirement would be treated under the Termination Without Cause/ Termination With Good Reason provisions of his employment agreement.

 

As a result of thistreatment and pursuant to his employment agreement, Mr. Kittel was paid orprovided the following amounts in Euro upon his retirement:

 

·                  126,000 Euro —Salary Continuation For Six-Month Period

 

·                  9,870 Euro —Local Retirement Plan Contributions During Salary Continuation Period

 

·                  563,333 Euro —Separation Payment Payable in March 2010

 

·                  Retention ofCompany Car for Five-Month Period plus 2,500 Euro for fuel and lubricants

 

·                  OutplacementServices - Up To 20,000 Euro Value

 

**Hans J. Cornett Resignation andPost-Employment Compensation**

 

In October 2009, Mr. Cornettannounced his intention to resign from the Company, effective December 31,2009.  Pursuant to his terminationagreement, Mr. Cornett was paid or provided the following amounts upon histermination of employment:

 

·                  147,000 Euro —Salary Continuation For Seven-Month Period

 

·                  6,391 Euro —Local Retirement Plan Contributions During Salary Continuation Period

 

·                  105,000 Euro —Separation Payment Payable in July 2010

 

·                  OutplacementServices - Up To 20,000 Euro Value

 

**Henrik Krabsen Resignation andPost-Employment Compensation**

 

In January 2010, Mr. Krabsenannounced his intention to resign from the Company, effective January 31,2010.  The Company and Mr. Krabsenagreed that the resignation would be treated under the Termination WithoutCause / Termination With Good Reason provisions of his employment agreement.

 

As a result of this treatmentand pursuant to his employment agreement, Mr. Krabsen was paid or providedthe following amounts upon his termination of employment:

 

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·                  $421,200 —Separation Payment in One Installment (February 2010)

 

·                  $22,641 CobraContinuation Payment in Lieu of Medical Plan Continuation For 12 Months

 

·                  $28,507****- Accrued Paid Time Off at Termination Date

 

·                  OutplacementServices — Reimbursed Up To $20,000 Value

 

**Analysis ofRisks Inherent in Compensation Policies & Practices**

 

Management believes that the compensation policiesand practices for all employees, including executive officers and non-executiveofficers, do not create risks that would reasonably be expected to have amaterial adverse effect on the Company. The incentive compensation programs extended to certain key employeesother than executive officers, when available, are patterned after theincentive compensation programs for our executive officers and are reviewed onan annual basis by the Compensation Committee.

 

**StockOwnership Guidelines**

 

The Company has no formalstock ownership guidelines due, in part, to the closely-held nature of theCompany.  The Committee stronglyencourages share ownership among the senior executives and monitors such shareownership on an annual basis.

 

**FinancialAccounting and Tax Impacts of Executive Compensation Program**

 

Internal Revenue Code (“IRC”)Section 162(m) limits U.S. and state tax deductions for compensationin excess of $1,000,000 paid to the CEO and to the other Named ExecutiveOfficers during any taxable year.

 

The Company’s OmnibusIncentive Plan has been designed to meet the qualifying criteria for theperformance-based compensation exception to IRC Section 162(m).  Incentive awards granted under the OmnibusIncentive Plan are designed to be fully deductible for U.S. and state taxpurposes.

 

The cash-based elements ofour executive compensation program, including Base Salary and Annual IncentiveAwards, are treated as a financial statement expense in the year incurred.  The Long-Term Incentive Awards are accountedfor pursuant to the Rules of the Accounting Standards Codification withfinancial statement expense recognized over the three-year performance period.

 

**Compensation Committee Interlocks and InsiderParticipation**

 

The Committee’s membersduring 2009 were Johannes F. Kirchhoff, F. Joseph Loughrey, andSteven H. Wood, none of whom is or has ever been an officer or employee ofthe Company. Johannes F. Kirchhoff and members of his family are owners ofFAUN Umwelttechnik GmbH & Co. KG, which purchasedproducts from the Company in 2009 for an aggregate purchase price ofapproximately $2.0 million.

 

17

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**Compensation Committee Report**

 

*The information contained in the following report shall notbe deemed to be “soliciting material” or “filed” or incorporated by referencein future filings with the Securities and Exchange Commission, or subject tothe liabilities of Section 18 of the Exchange Act, except to the extentthat the Company specifically incorporates it by reference into a documentfiled under the Securities Act of 1933 or the Securities Exchange Act.*

 

TheCompensation Committee has reviewed and discussed the Compensation Discussionand Analysis (CD&A) with management and, based on the review anddiscussion, has recommended to the Board that the CD&A be included in theCompany’s Proxy Statement and be incorporated by reference into the Company’sAnnual Report on Form 10-K for the year ended December 31, 2009, asfiled with the Securities and Exchange Commission.

 
|   | COMPENSATION COMMITTEE:                                              |
|--------|----------------------------------------------------------------------|
|   |                                                                 |
|   |                                                                 |
|   | Johannes F. Kirchhoff,  Chairman  F. Joseph Loughrey  Steven H. Wood |

 

**SUMMARYCOMPENSATION TABLE**

 
| **Name and********Principal Position**        | ** ** | **Year** | ** ** | **Salary********($)** | ** ** | **Stock  Awards  (2)********($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  (3)********($)** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings  (4)********($)** | ** ** | **All Other  Compensation  (5)********($)** | ** ** | **Total********($)** | ** ** |
|-----------------------------------------------|------------|----------|------------|-----------------------|------------|-----------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|----------------------|------------|
| Sven Ruder (1)                                |       | 2009     |       | 547,431               |       | 0                                 |       | 0                                                            |       | 0                                                                                                 |       | 53,834                                      |       | 601,265              |       |
| President &  Chief Executive Officer |       |     |       |                  |       |                              |       |                                                         |       |                                                                                              |       |                                        |       |                 |       |
| Jesper V. Christensen (1)                     |       | 2009     |       | 203,911               |       | 0                                 |       | 0                                                            |       | 0                                                                                                 |       | 25,100                                      |       | 229,011              |       |
| Executive Vice President &           |       |     |       |                  |       |                              |       |                                                         |       |                                                                                              |       |                                        |       |                 |       |
| Chief Financial Officer                       |       |     |       |                  |       |                              |       |                                                         |       |                                                                                              |       |                                        |       |                 |       |
| Karl J. Schmidt                               |       | 2009     |       | 107,155               |       | 0                                 |       | 0                                                            |       | 2,679                                                                                             |       | 1,018,415                                   |       | 1,128,249            |       |
| Executive Vice President &           |       | 2008     |       | 327,032               |       | 304,016                           |       | 0                                                            |       | 5,697                                                                                             |       | 53,611                                      |       | 690,356              |       |
| Chief Financial Officer                       |       | 2007     |       | 313,038               |       | 422,198                           |       | 0                                                            |       | 5,528                                                                                             |       | 45,832                                      |       | 786,596              |       |
| Hans J. Cornett (1)                           |       | 2009     |       | 356,844               |       | 0                                 |       | 0                                                            |       | 134                                                                                               |       | 436,279                                     |       | 793,257              |       |
| Executive Vice President &           |       | 2008     |       | 349,939               |       | 294,363                           |       | 0                                                            |       | 5,298                                                                                             |       | 98,466                                      |       | 748,066              |       |
| Chief Marketing Officer                       |       | 2007     |       | 301,942               |       | 401,087                           |       | 0                                                            |       | 5,623                                                                                             |       | 36,275                                      |       | 744,927              |       |
| Henrik Krabsen                                |       | 2009     |       | 286,920               |       | 0                                 |       | 0                                                            |       | 13,224                                                                                            |       | 25,028                                      |       | 325,172              |       |
| Executive Vice President &           |       |     |       |                  |       |                              |       |                                                         |       |                                                                                              |       |                                        |       |                 |       |
| President Work Function Division              |       |     |       |                  |       |                              |       |                                                         |       |                                                                                              |       |                                        |       |                 |       |
| Thomas K. Kittel (1)                          |       | 2009     |       | 269,255               |       | 0                                 |       | 0                                                            |       | 65,033                                                                                            |       | 1,064,343                                   |       | 1,398,631            |       |
| Executive Vice President &           |       | 2008     |       | 409,780               |       | 379,840                           |       | 0                                                            |       | 36,390                                                                                            |       | 99,343                                      |       | 925,353              |       |
| President Propel Division                     |       | 2007     |       | 341,979               |       | 438,219                           |       | 0                                                            |       | 0                                                                                                 |       | 49,760                                      |       | 829,958              |       |
| Wolfgang Schramm                              |       | 2009     |       | 286,920               |       | 0                                 |       | 0                                                            |       | 4,923                                                                                             |       | 25,058                                      |       | 316,901              |       |
| Executive Vice President &           |       | 2008     |       | 311,908               |       | 289,527                           |       | 0                                                            |       | 4,637                                                                                             |       | 73,599                                      |       | 679,671              |       |
| President Controls Division                   |       | 2007     |       | 214,615               |       | 666,468                           |       | 0                                                            |       | 1,154                                                                                             |       | 50,670                                      |       | 932,907              |       |

 

----

***Footnotes To Summary Compensation Table***

 

(1)                                  Certaincompensation items earned by Messrs. Ruder, Christensen, Cornett andKittel were valued in Euros and were converted to U.S. dollars for this tableand all other tables using a weighted average annual exchange rate (USD/Euro)of 1.3903, 1.4635 and 1.3673 for 2009, 2008 and 2007, respectively.

 

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(2)                                  These amountsrepresent the annual grant date value of equity compensation in the form ofPerformance Units and/or Restricted Stock to each Named Executive Officer. Forpurposes of determining the grant date value, the Performance Units weretreated as paying out at target values, as this would have been the expectationas of the grant date.  Based on achievedperformance below threshold levels, Performance Units granted in 2007 willexpire with no payouts.  It is alsolikely that the 2008 Performance Unit grants will expire with no payouts, asachieved performance is expected to be below threshold levels.

 

Assuming a maximum achievedpayout with respect to the 2007 grants and using the grant date value, theamounts reflected above would be $658,629, $625,696, $683,622 and $892,130 for Messrs. Schmidt,Cornett, Kittel and Schramm, respectively. Assuming a maximum achieved payout with respect to the 2008 grants and using the grant date value, theamounts reflected above would be $474,265, $459,206, $592,550 and $451,662 for Messrs. Schmidt,Cornett, Kittel and Schramm, respectively.

 

As noted in the CD&A,there were no stock awards made in 2009 as the Company’s Long-Term IncentiveAward program was suspended.

 

Further informationconcerning the Company’s accounting for Performance Units and Restricted Stockcan be found in footnote number 13 to its consolidated financialstatements filed as part of its Form 10-K for the year ended December 31,2009.

 

(3)                                  Based onachieved performance below threshold levels, there were no payouts earned in2007 and 2008 under the Company’s Annual Incentive Award program.  As noted in the CD&A, the AnnualIncentive Award program was suspended in 2009.

 

(4)                                  These amountsrepresent the aggregate increase in the actuarial present value of all definedbenefits and actuarial plans, including supplemental plans, accrued during theyear plus above-market earnings on nonqualified deferred compensation, using120% of the applicable federal long-term rate as the basis for marketearnings.  The amounts are detailed inthe following table.

 
| **Name**         | ** ** | **Year** | ** ** | **Change In Value  Of German  Pension Plan********($)** | ** ** | **Change In Value  Of US Qualified  Retirement Plan  ($)** | ** ** | **Above-Market  Earnings On Non-  Qualified Deferred  Compensation********($)** | ** ** | **Total********($)** | ** ** |
|------------------|------------|----------|------------|---------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|----------------------|------------|
| Karl J. Schmidt  |       | 2009     |       | 0                                                       |       | 2,468                                                      |       | 211                                                                             |       | 2,679                |       |
|             |       | 2008     |       | 0                                                       |       | 5,411                                                      |       | 286                                                                             |       | 5,697                |       |
|             |       | 2007     |       | 0                                                       |       | 5,504                                                      |       | 24                                                                              |       | 5,528                |       |
|             |       |     |       |                                                    |       |                                                       |       |                                                                            |       |                 |       |
| Hans J. Cornett  |       | 2009     |       | 0                                                       |       | 134                                                        |       | 0                                                                               |       | 134                  |       |
|             |       | 2008     |       | 0                                                       |       | 5,298                                                      |       | 0                                                                               |       | 5,298                |       |
|             |       | 2007     |       | 0                                                       |       | 5,623                                                      |       | 0                                                                               |       | 5,623                |       |
|             |       |     |       |                                                    |       |                                                       |       |                                                                            |       |                 |       |
| Henrik Krabsen   |       | 2009     |       | 0                                                       |       | 5,039                                                      |       | 8,185                                                                           |       | 13,224               |       |
|             |       |     |       |                                                    |       |                                                       |       |                                                                            |       |                 |       |
| Thomas K. Kittel |       | 2009     |       | 65,033                                                  |       | 0                                                          |       | 0                                                                               |       | 65,033               |       |
|             |       | 2008     |       | 36,390                                                  |       | 0                                                          |       | 0                                                                               |       | 36,390               |       |
|             |       | 2007     |       | 0                                                       |       | 0                                                          |       | 0                                                                               |       | 0                    |       |
|             |       |     |       |                                                    |       |                                                       |       |                                                                            |       |                 |       |
| Wolfgang Schramm |       | 2009     |       | 0                                                       |       | 4,923                                                      |       | 0                                                                               |       | 4,923                |       |
|             |       | 2008     |       | 0                                                       |       | 4,637                                                      |       | 0                                                                               |       | 4,637                |       |
|             |       | 2007     |       | 0                                                       |       | 1,154                                                      |       | 0                                                                               |       | 1,154                |       |

 

The actuarial present valueof Mr. Kittel’s German pension plan benefit declined by $27,511 in 2007,due to a 1% increase in the discount rate used to determine the present value.  In accordance with SEC disclosure rules, theCompany is not reporting this decrease in the Summary Compensation Table.

 

(5)                                  The All OtherCompensation amounts represent the following amounts and are explained ingreater detail in the Additional Cash Compensation and Perquisites section ofthe CD&A:

 

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| **Name**               | ** ** | **Year** | ** ** | **Dividend  Equivalents Paid  On Outstanding  Performance  Units  ($)** | ** ** | **Relocation  Stipend or  Relocation  Costs  ($)** | ** ** | **Auto  Allowance  ($)** | ** ** | **Company  Car  ($)** | ** ** | **PTO Sellback  PTO Payout ($)** | ** ** | **Post-  Employment  Compensation and  Tax Basis Protection  Payments  ($)** | ** ** | **Company  Contributions To  401(k) Plan and to  Supplemental  Retirement Plans  ($)** | ** ** | **Other  Perquisites  ($)** | ** ** | **Total  ($)** | ** ** |
|------------------------|------------|----------|------------|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|----------------------------------|------------|------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------|------------|
| Sven Ruder             |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 0                        |       | 28,548                |       | 0                                |       | 0                                                                            |       | 25,123                                                                                      |       | 163                         |       | 53,834         |       |
|                   |       |     |       |                                                                    |       |                                               |       |                     |       |                  |       |                             |       |                                                                         |       |                                                                                        |       |                        |       |           |       |
| Jesper V.  Christensen |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 0                        |       | 16,239                |       | 0                                |       | 0                                                                            |       | 8,698                                                                                       |       | 163                         |       | 25,100         |       |
|                   |       |     |       |                                                                    |       |                                               |       |                     |       |                  |       |                             |       |                                                                         |       |                                                                                        |       |                        |       |           |       |
| Karl J. Schmidt        |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 5,300                    |       | 0                     |       | 18,875                           |       | 989,551                                                                      |       | 4,689                                                                                       |       | 0                           |       | 1,018,415      |       |
|                   |       | 2008     |       | 0                                                                       |       | 12,613                                             |       | 12,720                   |       | 0                     |       | 6,288                            |       | 0                                                                            |       | 14,854                                                                                      |       | 7,136                       |       | 53,611         |       |
|                   |       | 2007     |       | 0                                                                       |       | 18,920                                             |       | 12,720                   |       | 0                     |       | 0                                |       | 0                                                                            |       | 14,192                                                                                      |       | 0                           |       | 45,832         |       |
|                   |       |     |       |                                                                    |       |                                               |       |                     |       |                  |       |                             |       |                                                                         |       |                                                                                        |       |                        |       |           |       |
| Hans J. Cornett        |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 0                        |       | 33,478                |       | 0                                |       | 387,047                                                                      |       | 15,591                                                                                      |       | 163                         |       | 436,279        |       |
|                   |       | 2008     |       | 0                                                                       |       | 34,864                                             |       | 9,540                    |       | 10,267                |       | 24,195                           |       | 0                                                                            |       | 14,870                                                                                      |       | 4,730                       |       | 98,466         |       |
|                   |       | 2007     |       | 0                                                                       |       | 0                                                  |       | 12,720                   |       | 0                     |       | 9,385                            |       | 0                                                                            |       | 13,523                                                                                      |       | 647                         |       | 36,275         |       |
|                   |       |     |       |                                                                    |       |                                               |       |                     |       |                  |       |                             |       |                                                                         |       |                                                                                        |       |                        |       |           |       |
| Henrik Krabsen         |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 12,720                   |       | 0                     |       | 0                                |       | 0                                                                            |       | 12,308                                                                                      |       | 0                           |       | 25,028         |       |
|                   |       |     |       |                                                                    |       |                                               |       |                     |       |                  |       |                             |       |                                                                         |       |                                                                                        |       |                        |       |           |       |
| Thomas K.              |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 0                        |       | 28,362                |       | 0                                |       | 1,014,626                                                                    |       | 21,192                                                                                      |       | 163                         |       | 1,064,343      |       |
| Kittel                 |       | 2008     |       | 32,374                                                                  |       | 0                                                  |       | 0                        |       | 28,400                |       | 0                                |       | 0                                                                            |       | 32,692                                                                                      |       | 5,877                       |       | 99,343         |       |
|                   |       | 2007     |       | 17,896                                                                  |       | 0                                                  |       | 0                        |       | 22,667                |       | 0                                |       | 0                                                                            |       | 6,814                                                                                       |       | 2,383                       |       | 49,760         |       |
|                   |       |     |       |                                                                    |       |                                               |       |                     |       |                  |       |                             |       |                                                                         |       |                                                                                        |       |                        |       |           |       |
| Wolfgang               |       | 2009     |       | 0                                                                       |       | 0                                                  |       | 12,750                   |       | 0                     |       | 0                                |       | 0                                                                            |       | 12,308                                                                                      |       | 0                           |       | 25,058         |       |
| Schramm                |       | 2008     |       | 0                                                                       |       | 45,805                                             |       | 12,750                   |       | 0                     |       | 0                                |       | 0                                                                            |       | 13,954                                                                                      |       | 1,090                       |       | 73,599         |       |
|                   |       | 2007     |       | 0                                                                       |       | 32,349                                             |       | 9,563                    |       | 0                     |       | 0                                |       | 0                                                                            |       | 2,308                                                                                       |       | 6,450                       |       | 50,670         |       |

 

The values reflected forcompany cars are based on the annual operating costs to the Company.  Other perquisites include spousal travel,airline club fees and insurance premiums.

 

**GRANTS OFPLAN-BASED AWARDS TABLE**

 

As noted in CD&A, theCompany suspended its Annual Incentive Award and Long-Term Incentive Awardprograms in 2009 in response to the economic downturn.  As a result, the Grants of Plan-Based AwardsTable is not relevant for 2009 as there is no data to report.

 

**SUMMARYCOMPENSATION AND GRANTS OF PLAN-BASED AWARDS NARRATIVE**

 

Each of the Named ExecutiveOfficers has an Employment Agreement with Sauer-Danfoss Inc. and/or one ofits Affiliates which detail, among other things, the components of such officer’scompensation.

 

The German EmploymentAgreements for Messrs. Ruder, Christensen, Cornett and Kittel were writtento comply with German employment law and contain provisions similar to thosemade available to other senior executives based in Germany.  The German Employment Agreements containlonger notice periods for a Company-initiated termination, without cause, thanare typical for U.S.-style agreements. The notice periods for Messrs. Ruder and Christensen are 24 monthsand 18 months, respectively.  The noticeperiods in effect for Messrs. Cornett and Kittel, prior to theirterminations of employment, were seven months.

 

The U.S. EmploymentAgreements for Messrs. Schmidt and Krabsen, first entered into in December of2002, were replaced, effective December 31, 2008 with agreementscontaining substantially similar terms and written to comply with IRC Section 409A.  The Employment Agreements for Messrs. Schmidtand Krabsen have evergreen clauses and continue in effect until termination ofemployment. Mr. Schramm’s Employment Agreement was entered into on April 16,2007 and contains a two-year term, automatically renewable for successiveone-year terms in the absence of written notice by either party.  The U.S. Employment Agreements contain aminimum 30-day notice period.

 

Rights of the officers tocertain post-employment compensation under the terms of the EmploymentAgreements are discussed in the Potential Payments upon Termination or Changein Control section beginning on page 26.

 

The officer EmploymentAgreements provide for base salary levels, which increase under the Company’sannual salary review process, as described in the CD&A.  The U.S. Employment Agreements provide thatan officer’s base salary cannot be decreased without the officer’s consent,unless as part of a blanket decrease to the base salaries of all officers.  As noted in the CD&A, a blanket decreasewas made to the base salaries of all officers, effective March 1,2009.  This blanket decrease wasdiscussed with, and agreed to, by the officers.

 

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**Stock Awards**

 

Amounts listed in the StockAwards column represent the grant date value of Performance Units granted underthe Company’s Omnibus Incentive Plan for the given reporting year.  For purposes of determining the performancepayout expectations as of the grant date, we have generally assumed that thePerformance Units would payout at their target value.

 

Messrs. Cornett,Krabsen and Schramm have outstanding Performance Unit grants at December 31,2009 under the Company’s Omnibus Incentive Plan.  The Performance Units outstanding at year-endare detailed later in the Outstanding Equity Awards At Fiscal Year-End Table.

 

Messrs. Ruder andChristensen do not hold outstanding Performance Unit grants as no PerformanceUnit grants have been made since they started employment at Sauer-Danfoss.  Messrs. Schmidt and Kittel did not holdoutstanding Performance Unit grants at year-end as their unpaid, unvestedPerformance Units were forfeited upon their termination of employment withSauer-Danfoss in 2009.  Mr. Cornett’soutstanding performance units were forfeited upon his termination of employmenton December 31, 2009.  Mr. Krabsen’soutstanding performance units were forfeited upon his termination of employmenton January 31, 2010.

 

The performance unit award agreementscall for the payout of Performance Units based on average Return on Net Asset(RONA) performance over a three-year performance period.  The Performance Unit awards generally allowfor a percentage payout of the target number of Units, depending upon RONAperformance. Below established RONA thresholds, there is no payout under thePerformance Unit awards.  Beginning in2007, a sales growth modifier was added to the performance measurements forpurposes of determining earned Performance Unit payouts.

 

The Performance Unit awardagreements include forfeiture upon termination of service from the Companyprior to payment, except terminations due to Retirement, Disability or Death,in which case pro-rated payouts will be made, based on final RONA performance.  The Compensation Committee can makeexceptions to the automatic forfeiture provisions, in its sole discretion.

 

The performance unit awardagreements also call for a payout, at target levels, of Performance Units inthe event of a Change in Control of the Company, as defined in the agreements.

 

By decision of theCompensation Committee, earned Performance Units are generally payable inshares of Company stock, with a number of shares withheld to cover the Company’sminimum statutory tax withholding requirements.

 

The Performance Unit AwardAgreements allow for the payment of dividend equivalents, as declared by theCompany’s Board of Directors.  Thepractice of the Board has been to authorize the payment of dividendequivalents, based on the number of target Performance Units held, at the sametime and at the same rate as dividends declared on the Company’s commonstock.  Beginning in 2009, the Board hadsuspended the payment of dividends on the Company’s common stock.  As a result, dividend equivalents onoutstanding Performance Units were also suspended.

 

**Non-Equity Incentive Compensation**

 

Amounts reflected in theNon-Equity Incentive Compensation represent amounts granted to and earned bythe Named Executive Officers under the Company’s Annual Incentive Awardprogram.  The Annual Incentive Awardprogram is performance-based and in the past has been tied to the Company’sperformance against predetermined targets for Earnings Before Interest &Taxes (EBIT) margins.

 

Annual Incentive Awardpayouts are based on a range of 25% to 200% of pre-established payout targetsdepending upon EBIT margin performance. Below certain minimum threshold EBIT margin levels, there is no payoutunder the Annual Incentive Award program. For 2007 and 2008, the EBIT margin performance levels were belowthreshold and, therefore, no earned payouts are reflected.  For 2009, as noted in the CD&A, theAnnual Incentive Program was suspended and therefore no payouts were made.

 

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**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR-END**

 
| ** **             | ** ** | **Stock Awards**                                                         | ** ** |
|------------------------|------------|--------------------------------------------------------------------------|------------|
| **Name**               | ** ** | **Number of Shares or  Units of Stock That  Have Not Vested********(#)** | ** ** | **Market Value of Shares  or Units of Stock That  Have Not Vested********($)** | ** ** | **Equity Incentive Plan  Awards: Number of  Unearned Shares, Units  or Other Rights That  Have Not Vested********(#)** | ** ** | **Equity Incentive Plan Awards:  Market or Payout Value of  Unearned Shares, Units or  Other Rights That Have Not  Vested********($)** | ** ** |
|                   |       |                                                                     |       |   |   |   |   |   |   |
| Sven Ruder (1)         |       |                                                                     |       |   |   | 1,500 |   | $18,015 |   |
|                   |       |                                                                     |       |   |   |   |   |   |   |
| Hans J. Cornett (2)    |       | None                                                                     |       | $0 |   |   |   |   |   |
| Hans J. Cornett (3)(4) |       |                                                                     |       |   |   | 7,168 |   | $86,088 |   |
|                   |       |                                                                     |       |   |   |   |   |   |   |
| Henrik Krabsen (2)     |       | None                                                                     |       | $0 |   |   |   |   |   |
| Henrik Krabsen (3)(4)  |       |                                                                     |       |   |   | 7,050 |   | $84,671 |   |
|                   |       |                                                                     |       |   |   |   |   |   |   |
| Wolfgang Schramm (2)   |       | None                                                                     |       | $0 |   |   |   |   |   |
| Wolfgang Schramm (3)   |       |                                                                     |       |   |   | 7,050 |   | $84,671 |   |

 

----

***Footnotes To Outstanding Equity Awards At Fiscal Year-End Table***

 

(1)          Restricted shares granted toMr. Ruder during his period of service as a non-employee director.  The restricted share value is based on a pershare value of $12.01 as of December 31, 2009.

 

(2)          2007 Performance Unit Awardsgranted on March 20, 2007 (April 16, 2007 for Mr. Schramm), witha Performance Period from January 1, 2007 through December 31,2009.  Achieved RONA performance for thethree-year Performance Period was below the minimum threshold and, therefore,no payouts were earned under the 2007 Performance Unit Awards.

 

(3)          2008 Performance Unit Awardsgranted on March 12, 2008, with a Performance Period from January 1,2008 through December 31, 2010. These amounts represent the threshold number of units for each NamedExecutive Officer and the value of those units based on a per share value of$12.01 as of December 31, 2009. Actual earned Performance Units will fully vest on the payout date in February of2011.

 

(4)          The outstanding 2008Performance Units held by Messrs. Cornett and Krabsen at year-end wereforfeited upon their termination of employment.

 

**OPTIONEXERCISES AND STOCK VESTED**

 
| ** **                    | ** ** | **Stock Awards**                                     | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|
| **Name of Executive Officer** | ** ** | **Number of Shares  Acquired on Vesting********(#)** | ** ** | **Value Realized  on Vesting********($)** | ** ** |
| Karl J. Schmidt (1)           |       | 7,286                                                |       | $20,692 |   |
| Hans J. Cornett (1)           |       | 6,922                                                |       | $19,658 |   |
| Henrik Krabsen (1)            |       | 3,412                                                |       | $9,690 |   |
| Thomas K. Kittel (2)          |       | 4,059                                                |       | $35,516 |   |
| Wolfgang Schramm (3)          |       | 5,000                                                |       | $18,750 |   |

 

----

***Footnotes To Option Exercises and Stock Vested Table***

 

(1)          Amounts and values representearned Performance Units, payable in shares, granted on June 1, 2006 to Messrs. Schmidt,Cornett and Krabsen.  The 2006Performance Unit Award Agreements included a Performance Period from January 1,2006 

 

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through December 31,2008.  Based upon achieved RONAperformance during the Performance Period, participants earned a payout underthese awards equal to 37.5% of target. The earned Performance Units fullyvested on the payout date of March 25, 2009.  The values reflected above for Messrs. Schmidt,Cornett and Krabsen are based on the per share value of $2.84 on the payoutdate.

 

(2)          Amounts and values representearned Performance Units, payable in cash, granted on June 1, 2006 to Mr. Kittel.  The 2006 Performance Unit Award Agreementsincluded a Performance Period from January 1, 2006 through December 31,2008.  Based upon achieved RONAperformance during the Performance Period, Mr. Kittel earned a payoutunder these awards equal to 37.5% of target. The earned Performance Units fullyvested on the payout date of March 25, 2009.  The value reflected above for Mr. Kittelis based on the December 31, 2008 closing share price of $8.75, inaccordance with the terms of Mr. Kittel’s 2006 Performance Unit AwardAgreement.

 

**(3)****        **Amounts and values reflected represent vesting ofrestricted shares granted to Mr. Schramm on April 16, 2007. Theserestricted shares vested on April 16, 2009, the two-year anniversary ofhis hire date.  The value reflected isbased on the per share value of $3.75 on the vesting date.

 

**PENSIONBENEFITS**

 
| **Name**         | ** ** | **Plan name**                                  | ** ** | **Number of years  of credited  service********(#)** | ** ** | **Present Value of  Accumulated  Benefit********($)** | ** ** |
|------------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Karl J. Schmidt  |       | Sauer-Danfoss  Employee’s Retirement Plan |       | 7.3                                                  |       | 33,458                                                |       |
| Hans J. Cornett  |       | Sauer-Danfoss  Employee’s Retirement Plan |       | 7.7                                                  |       | 33,510                                                |       |
| Henrik Krabsen   |       | Sauer-Danfoss  Employee’s Retirement Plan |       | 9.0                                                  |       | 39,745                                                |       |
| Thomas K. Kittel |       | German Company  Pension Scheme                 |       | 21.9                                                 |       | 347,309                                               |       |
| Wolfgang Schramm |       | Sauer-Danfoss  Employee’s Retirement Plan |       | 2.7                                                  |       | 10,714                                                |       |

 

**PENSION BENEFITS NARRATIVE**

 

**Sauer-Danfoss Employees’ Retirement Plan**

 

The Pension Benefits tableabove details the present value of the accumulated retirement benefits accruedby Messrs. Schmidt, Cornett, Krabsen and Schramm under the Sauer-DanfossEmployees’ Retirement Plan (the “U.S. Retirement Plan”).  The amounts shown represent the present valueof the retirement benefits that each of them would be eligible to receive atnormal retirement age (65), based on years of service through December 31,2009 and discounted to a December 31, 2009 present value.

 

Messrs. Krabsen andSchramm participate in the U.S. Retirement Plan under the plan’s cash balanceformula.  Under the cash balance formula,participants are provided an annual credit, equal to 2% of eligible pay, totheir cash balance accounts.  Thecumulative account balances earn annual interest credits, tied to the one-yeartreasury bill rate.  At the normalretirement date, age 65, the accumulated cash balance is converted into amonthly annuity for payment and is paid out as either a single-life annuity oras a joint and survivor annuity.  For thecash balance formula, eligible pay is generally limited to a participant’s basesalary.

 

Mr. Schmidtparticipated in the U.S. Retirement Plan under the plan’s cash balance formulaup to the date of his employment termination. Mr. Schmidt’s vested benefit upon termination is reflected in theabove table.  Mr. Cornettparticipated in the U.S. Retirement Plan, prior to his transfer to aGerman-based employment status in late 2008. Mr. Cornett’s vested benefit in the U.S. Retirement Plan isreflected in the above table.

 

Under the U.S. RetirementPlan, reduced early retirement benefits may be taken beginning at age 55. Messrs. Schmidt(age 56) and Cornett (age 59) are currently eligible for early retirementunder the above-named plan.  Upon earlyretirement, the normal age 65 retirement benefit is subject to reduction foreach month by which the participant is less than age 65 when early retirementbenefit payments commence.

 

Mr. Schramm has not yetserved the requisite five years to be vested in his benefits under the U.S.Retirement Plan.

 

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**Sauer-Danfoss Supplemental Retirement Plan**

 

The Internal Revenue Codegenerally limits to $195,000, indexed for inflation, the amount of any annualbenefit that may be paid from the U.S. Retirement Plan.  Moreover, the U.S. Retirement Plan mayconsider no more than $245,000, as indexed for inflation, of a participant’sannual compensation in determining that participant’s retirement benefit.

 

In recognition of these twolimitations, the Company has adopted a Supplemental Executive Savings andRetirement Benefit Plan (the “U.S. Supplemental Savings Plan”).  The U.S. Supplemental Savings Plan isdesigned to provide supplemental retirement benefits to the extent that aparticipant’s benefits under the U.S. Retirement Plan are limited by either the$185,000 annual benefit limitation or the $230,000 annual compensationlimitation.

 

Messrs. Schmidt,Cornett, Krabsen and Schramm are covered by the U.S. Supplemental Savings Planbecause their cash balance account contributions are limited by the InternalRevenue Code limitations on qualified plans. This separate plan is discussed in the Nonqualified DeferredCompensation narrative which follows below.

 

**German Company Pension Scheme**

 

The Pension Benefits tableabove details the present value of the accumulated retirement benefit accruedby Mr. Kittel under the German Company Defined Benefit PensionScheme.  The amount shown represents theretirement annuity that Mr. Kittel would be eligible to receive at normalretirement age (65), based on years of service through December 31, 2009,discounted to a December 31, 2009 present value using a discount rate of5.30%.

 

The German Company DefinedBenefit Pension Scheme is a pension plan covering a majority of the Company’sGerman employees.  The plan is similar innature to a defined benefit plan in the United States, with the exception thatthe plan is unfunded. Under the plan, a monthly pension is paid to employeeswho retire after attaining the age of 65, calculated pursuant to a formulabased on (i) a percentage of each employee’s base monthly salary as of theend of October of each year and (ii) the participant’s years ofservice. Mr. Kittel had completed 21.9 years of service in the planas of December 31, 2009.

 

The German Company DefinedBenefit Pension Scheme was replaced by a defined contribution retirement planfor German employees, effective October 1, 2007.  Mr. Kittel’s defined benefit pensionbenefit was effectively frozen as of October 1, 2007 with no furtherbenefit accruals for additional service. Messrs. Ruder, Christensen, Kittel and Cornett receivedcontributions into the German defined contribution plan during 2009.  These contributions are reflected in the AllOther Compensation column of the Summary Compensation Table.

 

**NONQUALIFIEDDEFERRED COMPENSATION**

 
| **Name (a)**           | ** ** | **Executive  Contributions In  Last FY ($)** | ** ** | **Registrant  Contributions In  Last FY ($)** | ** ** | **Aggregate  Earnings In  Last FY ($)** | ** ** | **Aggregate  Withdrawals Or  Distributions ($)** | ** ** | **Aggregate  Balance At Last  FYE ($)** | ** ** |
|------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------|------------|
| Karl J. Schmidt (2)(3) |       | 0                                            |       | 0                                             |       | (152,950                                | )          | 140,727                                          |       | 0                                       |       |
| Hans J. Cornett        |       | 0                                            |       | 0                                             |       | 1,876                                   |       | 0                                                |       | 16,054                                  |       |
| Henrik Krabsen (1)(2)  |       | 0                                            |       | 2,508                                         |       | 19,676                                  |       | 0                                                |       | 243,722                                 |       |
| Wolfgang Schramm (1)   |       | 0                                            |       | 2,508                                         |       | 193                                     |       | 0                                                |       | 7,455                                   |       |

 

----

***Footnotes To Nonqualified Deferred Compensation Table***

 

(1)          The amounts reflected asRegistrant Contributions in the Last Fiscal Year for Messrs. Krabsen andSchramm relate to Company contributions to the Supplemental Executive Savingsand Retirement Plan and are included under All Other Compensation in theSummary Compensation Table.

 

(2)          $211 and $8,185 of theamounts shown as Aggregate Earnings in the Last Fiscal Year for Messrs. Schmidtand Krabsen, respectively, represent above-market earnings on nonqualified,deferred compensation and are included under Change in Pension Value andNonqualified Deferred Compensation Earnings in the Summary CompensationTable.  Above-market earnings arecomputed using 120% of the applicable federal long-term rate as the basis formarket earnings.

 

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(3)          ($161,820) of the amountshown as Aggregate Earnings in the Last Fiscal Year for Mr. Schmidtresults from a decrease in the value of deferred Performance Units,attributable to the underlying decline in the Company’s common stockvalue.  The deferred Performance Unitsare payable in Company stock and, therefore, their value fluctuates withchanges in the Company’s stock value.

 

**NONQUALIFIED DEFERRED COMPENSATION NARRATIVE**

 

The nonqualified deferredcompensation amounts shown above reflect participants’ balances in thefollowing three nonqualified deferred compensation plans or arrangements:

 

·                  ElectiveDeferred Compensation Plans for Cash Compensation

 

·                  ElectiveDeferred Compensation Plans for Long-Term Incentive Compensation

 

·                  SupplementalExecutive Savings & Retirement Plan

 

The elective deferredcompensation plans provide a means for eligible executives to save a portion oftheir compensation, on a tax-deferred basis, for retirement and other purposes.

 

The Supplemental ExecutiveSavings and Retirement Plan operates to provide additional Companycontributions to Messrs. Schmidt, Krabsen and Schramm, whose Companycontributions into their qualified retirement plans are limited by IRSrules.  These additional contributionsallow the affected executives to receive, on a percentage of compensationbasis, the same level of Company contributions towards retirement that allother U.S. employees enjoy.  Mr. Cornettmaintains a balance in the Supplemental Executive Savings and Retirement planrelating to Company contributions and earnings thereon stemming from the timeof his U.S. employment.

 

The key provisions of thethree nonqualified, deferred compensation plans are reflected below.

 

**Elective Deferred Compensation Plans for CashCompensation**

 

·**                 **Plan availableto selected U.S. employees

 

·                  May electdeferral of all or a portion of Base Salary and Annual Incentive Award

 

·                  Unfunded,unsecured liability of the Company

 

·                  Deferredcompensation earned after 2004 subject to a variable earnings credit tied toten-year U.S. treasury yields plus a credit risk spread based on the Company’scredit profile (2009 annualized return—8.7%)

 

·                  Deferredcompensation earned prior to 2005 subject to a variable earnings credit tied toten-year U.S. treasury yields plus 3% (2009 annualized return—6.0%)

 

·                  Payouts to bemade in cash

 

·                  Deferralelections and payout options comply with Internal Revenue Code Section 409Arules

 

**Elective Deferred Compensation Plan for Long-TermIncentive Compensation**

 

·**                 **Plan availableto selected U.S. employees

 

·                  May electdeferral of all or a portion of payouts under Long-Term Incentive Plan

 

·                  Unfunded,unsecured liability of the Company

 

·                  Deferralsretain the form of Performance Units

 

·                  DeferredPerformance Units are paid out in cash or shares as originally determined bythe Compensation Committee

 

·                  Dividendequivalents earned on the deferred units are credited at the same rate asdividends on the Company’s common shares and are deferred until PerformanceUnit payout

 

·                  Deferred dividendequivalents credited with a variable earnings credit tied to ten-year U.S.treasury yields plus a credit risk spread based on the Company’s credit profile(2009 annualized return—8.7%)

 

·                  Deferreddividend equivalents and earnings thereon paid out in cash at end of deferralperiod

 

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** **

**Supplemental Executive Savings and Retirement Plan**

 

·**                 **Non-electiveplan available to any cash balance participants in the Company’s qualifiedretirement plans whose retirement benefits are limited by IRS rules

 

·                  Unfunded,unsecured liability of the Company

 

·                  A portion ofthe deferred compensation balance earns interest credits based on one-yeartreasury bill rates similar to cash balance account earnings (2009 annualizedreturn—0.40%)

 

·                  A portion ofthe deferred compensation balance is self-directed by the participants and cangenerate earnings or loss based on actual performance from investment optionsin the Company’s 401(k) plan.  Aparticipant’s actual, annualized return or loss will depend on the hypotheticalinvestment strategy that the participant employs.  Messrs. Schmidt, Cornett, Krabsen andSchramm realized gains of 23.4%, 21.7%, 27.6% and 5.9%, respectively, withrespect to their hypothetical investment strategy in 2009.

 

·                  Amounts payablein cash, generally on the six-month anniversary of employment termination

 

·                  Alternativepayout options for reasons such as death and disability comply with InternalRevenue Code Section 409A rules

 

**POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE INCONTROL**

 

Each Named Executive Officerhas entered into an Employment Agreement with Sauer-Danfoss which provides forthe payment of certain amounts upon a termination of employment for variousreasons.  These amounts are in additionto the amounts shown above in the Pension Benefits Table and the NonqualifiedDeferred Compensation Table.

 

Upon termination ofemployment for any reason, a Named Executive Officer will receive base salary,vacation pay, and Annual Incentive Awards that have been earned, but not yetpaid.

 

The post-employmentcompensation payments to Messrs. Ruder and Christensen in the event of anytermination initiated by the Company without cause will generally be covered bytheir respective notice periods and by general provisions of German employmentlaw.

 

Under the terms of theirEmployment Agreements, Messrs. Schmidt, Cornett, Krabsen, Kittel andSchramm are to receive additional payments if the termination from employmentoccurs in any of the following circumstances:

 

·                  Following aChange in Control of the Company

 

·                  Terminationinitiated by the Company without cause

 

·                  Terminationinitiated by the Named Executive Officer with good reason

 

·                  Death ordisability

 

The table set forth belowshows the estimated value of these potential post-employment payments assuminga triggering event had occurred on December 31, 2009.

 

The estimated payouts for Messrs. Ruder,Christensen and Schramm are based on the lower base salaries in effect for 2009following the temporary base salary reduction. The estimated payouts for Messrs. Ruder, Christensen and Schrammalso reflect no post-employment compensation payouts related to the AnnualIncentive Award due to the suspension of the Annual Incentive Award program for2009.  For Mr.  Schramm, theacceleration of outstanding Performance Units following a Change in Control isbased on the closing share price on December 31, 2009 of $12.01.

 

The amounts shown for Messrs. Schmidt,Cornett, Krabsen and Kittel represent their actual post-employment compensationas discussed in the CD&A.  Thepost-employment compensation for Messrs. Schmidt, Cornett and Kittel hasalso been included in the Summary Compensation Table as their terminationagreements were effective on or before December 31, 2009.  Mr. Krabsen left the Company during2010, so his post-employment compensation is not included in the SummaryCompensation Table.

 

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**POTENTIALPAYMENTS UPON TERMINATION OR CHANGE IN CONTROL**

 
| **Named  Executive  Officer** | ** ** | **Description**                             | ** ** | **Salary  Continuation  During Notice  Period  $ ** | ** ** | **Lump Sum  Payment  $** | ** ** | **Retirement,  Medical &  Company Car  Continuation  $** | ** ** | **PTO  Accrual  Payout  $** | ** ** | **Outplacement  Services  $** | ** ** | **Total Paid To  NEO  $** | ** ** | **Accelerated  Vesting Of  Performance  Units  $** | ** ** |
|-------------------------------|------------|---------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------|------------|--------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|---------------------------|------------|----------------------------------------------------|------------|
|                          |       | Termination Upon Death                      |       | 265,895                                                  |       | —                   |       | —                                                       |       | —                      |       | —                        |       | 265,895                   |       | N/A                                                |       |
| Sven Ruder                    |       | Termination Without Cause / For Good Reason |       | 1,063,580                                                |       | 0                        |       | —                                                       |       | —                      |       | 27,806                        |       | 1,091,386                 |       | N/A                                                |       |
|                          |       | Termination Following Change of Control     |       | 1,063,580                                                |       | 0                        |       | —                                                       |       | —                      |       | 27,806                        |       | 1,091,386                 |       | 0                                                  |       |
|                          |       |                                        |       |                                                     |       |                     |       |                                                         |       |                        |       |                          |       |                      |       |                                               |       |
|                          |       | Termination Upon Death                      |       | 152,933                                                  |       | —                   |       | —                                                       |       | —                      |       | —                        |       | 152,933                   |       | N/A                                                |       |
| Jesper V. Christensen         |       | Termination Without Cause / For Good Reason |       | 458,799                                                  |       | 0                        |       | —                                                       |       | —                      |       | 27,806                        |       | 486,605                   |       | N/A                                                |       |
|                          |       | Termination Following Change of Control     |       | 458,799                                                  |       | 0                        |       | —                                                       |       | —                      |       | 27,806                        |       | 486,605                   |       | 0                                                  |       |
|                          |       |                                        |       |                                                     |       |                     |       |                                                         |       |                        |       |                          |       |                      |       |                                               |       |
| Karl J. Schmidt               |       | Actual Post-employment Compensation         |       | 0                                                        |       | 784,800                  |       | 20,129                                                       |       | 18,875                      |       | 20,000                        |       | 843,804                   |       | N/A                                                |       |
|                          |       |                                        |       |                                                     |       |                     |       |                                                         |       |                        |       |                          |       |                      |       |                                               |       |
| Hans J. Cornett               |       | Actual Post-employment Compensation         |       | 204,374                                                  |       | 145,982                  |       | 8,885                                                        |       | —                      |       | 27,806                        |       | 387,047                   |       | N/A                                                |       |
|                          |       |                                        |       |                                                     |       |                     |       |                                                         |       |                        |       |                          |       |                      |       |                                               |       |
| Henrik Krabsen                |       | Actual Post-employment Compensation         |       | 0                                                        |       | 421,200                  |       | 22,641                                                       |       | 28,507                      |       | 20,000                        |       | 492,348                   |       | N/A                                                |       |
|                          |       |                                        |       |                                                     |       |                     |       |                                                         |       |                        |       |                          |       |                      |       |                                               |       |
| Thomas K. Kittel              |       | Actual Post-employment Compensation         |       | 175,178                                                  |       | 783,202                  |       | 28,440                                                       |       | —                      |       | 27,806                        |       | 1,014,626                 |       | N/A                                                |       |
|                          |       |                                        |       |                                                     |       |                     |       |                                                         |       |                        |       |                          |       |                      |       |                                               |       |
|                          |       | Termination Upon Death or Disability        |       | —                                                   |       | —                   |       | 17,910                                                       |       | —                      |       | —                        |       | 17,910                    |       | N/A                                                |       |
| Wolfgang Schramm              |       | Termination Without Cause / For Good Reason |       | 421,200                                                  |       | 0                        |       | 17,910                                                       |       | —                      |       | 20,000                        |       | 459,110                   |       | N/A                                                |       |
|                          |       | Termination Following Change of Control     |       | 421,200                                                  |       | 0                        |       | 28,080                                                       |       | —                      |       | 20,000                        |       | 469,280                   |       | 184,077                                            |       |

 

**Key Employment Agreement Provisions**

 

In return for the agreementby Sauer-Danfoss to make the other potential post-employment payments asdetailed above, the Named Executive Officers agree to certain conduct duringthe term of their employment and immediately thereafter. Specifically, theNamed Executive Officers, by signing the Employment Agreements, agree to thefollowing:

 

·                  A Covenant NotTo Compete with the Company for a period of up to 18 months following anytermination of employment

 

·                  Non-Disclosureof Company Confidential Information

 

·                  Assignment ofany and all Development rights on intellectual property conceived of or devisedwhile employed

 

·                  Non-Solicitationof Company personnel for a period of up to 18 months following anytermination of employment

 

**DIRECTORCOMPENSATION**

 
| **Name**               | ** ** | **Fees Earned or  Paid in Cash********($)** | ** ** | **Stock  Awards  (1)($)** | ** ** | **Change in  Pension Value  and Nonqualified  Deferred  Compensation  Earnings  (2)($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total********($)** | ** ** |
|------------------------|------------|---------------------------------------------|------------|---------------------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|
| Jørgen M. Clausen |       | 84,000                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 94,110               |       |
| Sven Murmann           |       | 64,000                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 74,110               |       |
| Steven H. Wood         |       | 57,250                                      |       | 10,110                    |       | 5,521                                                                                    |       |                             |       | 72,881               |       |
| F. Joseph Loughrey     |       | 58,000                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 68,110               |       |
| Johannes F. Kirchhoff  |       | 56,500                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 66,610               |       |
| Niels B. Christiansen  |       | 44,000                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 54,110               |       |
| Kim Fausing            |       | 44,000                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 54,110               |       |
| Bill Hoover            |       | 43,250                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 53,360               |       |
| Frederik Lotz          |       | 33,750                                      |       | 10,110                    |       |                                                                                     |       |                             |       | 43,860               |       |
| Per Have               |       | 1,500                                       |       | 0                         |       |                                                                                     |       |                             |       | 1,500                |       |

 

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----

***Footnotes To Director Compensation Table***

 

(1)          These amounts represent thegrant date fair value of restricted shares issued to the non-employee directorsduring the calendar year 2009. Information concerning the Company’s accounting for restricted stockunder FAS 123R can be found in footnote number 13 to its consolidatedfinancial statements filed as part of its Form 10-K for the year ended December 31,2009.

 

At December 31, 2009 Messrs. Clausen,Murmann, Wood, Loughrey and Kirchhoff each held 4,500 shares of unvestedrestricted stock.  At December 31,2009 Messrs. Christiansen, Fausing and Hoover each held 3,000 shares ofunvested restricted stock.

 

On June 1, 2009, 1,500previously restricted shares vested and became unrestricted for Messrs. Clausen,Murmann, Wood, Loughrey and Kirchhoff.

 

(2)          Mr. Wood participatesin the Sauer-Danfoss Inc. 409A Deferred Compensation Plan for SelectedEmployees and U.S. Non-employee Directors. In 2009 he elected to defer 75% of the fees reflected under Fees Earnedor Paid in Cash in this table.  Theamount reported under Change in Pension Value and Nonqualified DeferredCompensation Earnings reflects above-market earnings on his deferred directorfees, using 120% of the applicable federal long-term rate as the basis formarket earnings.

 

**DIRECTOR COMPENSATION NARRATIVE**

 

Non-employee directors earncash-based director’s fees according to the following schedule, effective January 1,2009:

 

·                  As Chairman, Mr. Clausenreceives a retainer of $75,000 per year

 

·                  As ViceChairman, Mr. Murmann receives a retainer of $55,000 per year

 

·                  All othernon-employee directors receive retainers of $35,000 per year

 

·                  Allnon-employee directors receive $1,500 for each Board meeting attended

 

·                  Allnon-employee directors receive $750 for participation in a telephonic meeting

 

·                  Non-employeedirectors receive an annual retainer of $7,000 for service on the CompensationCommittee and $7,000 for service on the Audit Committee. Messrs. Kirchhoff,Loughrey and Wood serve on both the Audit Committee and the CompensationCommittee.

 

Non-employee directorsreceive an annual grant of restricted shares of Sauer-Danfoss Inc. commonstock under the Company’s Non-Employee Director Stock Option and RestrictedStock Plan.  The terms of each restrictedshare grant can vary in accordance with the plan document.  For the past several years the annual grantshave consisted of 1,500 shares with a three-year vesting period.  The restricted shares are forfeitable upontermination of service from the Board for any reason prior to the vesting date,unless otherwise determined by the Board, in its sole discretion.  The restricted shares provide for voting anddividend rights during the period of restriction.

 

U.S. non-employee directorscan elect to defer a portion of their cash-based director’s fees byparticipating in the Sauer-Danfoss Inc. 409A Deferred Compensation Planfor Selected Employees and U.S. Non-Employee Directors.  The terms of such deferral are similar tothose made available to Sauer-Danfoss employees and have been describedpreviously in the Nonqualified Deferred Compensation Narrative.

 

Mr. David J. Anderson,former President and Chief Executive Officer of the Company, served as Co-ViceChairman of the Board, in a non-voting capacity, from January 1, 2009through June 11, 2009, the date of the 2009 annual shareholdersmeeting.  Mr. Anderson received$22,000 in compensation during 2009 for such service.

 

Mr. Ruder serves as thesole employee member of the Board and is not entitled to any compensation forsuch service.  At December 31, 2009,Mr. Ruder held 1,500 shares of unvested, restricted stock that had beengranted to him during 2008 in his previous capacity as a non-employee director.

 

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In April 2010, theBoard of Directors of the Company authorized the accelerated vesting of alloutstanding restricted shares in light of the pending tender offer for all ofthe Company’s outstanding shares from Danfoss A/S and Danfoss Acquisition, Inc.

 

**Item 12.  Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters**

 

**EQUITY COMPENSATION PLANINFORMATION**

 

Information concerning securities authorized for issuance under theCompany’s equity compensation plans is set forth in Part II of the Company’sOriginal Form 10-K.

 

**SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT**

 

The following table setsforth certain information as of April 23, 2010, with respect to shares ofcommon stock of the Company that were owned beneficially by:  (i) each beneficial owner of more than5% of the outstanding shares of common stock; (ii) each of the directors; (iii) eachof the named executive officers of the Company; and (iv) all executiveofficers and directors of the Company as a group.

 
| **Beneficial  Owners, Directors, and Executive Officers**                                    | ** ** | **Number  of Shares Beneficially********Owned (1)** | ** ** | **Percent  of  Outstanding  Shares** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                   | ** ** | ** **                                          | ** ** | ** **                           | ** ** |
| Danfoss A/S (2)                                                                              |       | 36,629,787                                          | (3)        | 75.7                                 | %          |
|                                                                                         |       |                                                |       |                                 |       |
| Danfoss Murmann  Holding A/S (2)                                                             |       | 18,241,962                                          |       | 37.7                                 | %          |
|                                                                                         |       |                                                |       |                                 |       |
| Sven Ruder,  Director, President and Chief Executive Officer                                 |       | 1,500                                               |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Jesper V. Christensen,  Executive Vice President and Chief Financial Officer, Treasurer      |       | 0                                                   |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Hans J. Cornett,  Former Executive Vice President and Chief Marketing Officer                |       | 38,658                                              | (4)        | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Henrik Krabsen,  Former Executive Vice President and President — Work Function Division |       | 28,682                                              | (4)        | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Thomas K.  Kittel, Former Executive Vice President and President — Propel Division      |       | 164,564                                             | (4)        | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Karl J. Schmidt,  Former Executive Vice President and Chief Financial Officer                |       | 42,498                                              | (4)        | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Wolfgang  Schramm, Executive Vice President and President — Controls Division           |       | 18,365                                              |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Niels B.  Christiansen, Director                                                             |       | 3,000                                               |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Jørgen Clausen,  Director and Chairman                                                  |       | 71,500                                              |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Kim Fausing,  Director                                                                       |       | 3,000                                               |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Per Have,  Director                                                                          |       | 0                                                   |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| William E.  Hoover, Jr., Director                                                       |       | 3,000                                               |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| Johannes F.  Kirchhoff, Director                                                             |       | 14,900                                              |       | *                                    |       |
|                                                                                         |       |                                                |       |                                 |       |
| F. Joseph  Loughrey, Director                                                                |       | 15,500                                              | (5)        | *                                    |       |

 

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| Sven Murmann,  Director and Vice Chairman                     |   | 14,500  |   | *      |   |
|---------------------------------------------------------------|--------|---------|--------|--------|--------|
|                                                          |   |    |   |   |   |
| Steven H. Wood,  Director                                     |   | 10,500  |   | *      |   |
|                                                          |   |    |   |   |   |
| All directors  and executive officers as a group (15 persons) |   | 207,491 | (6)    | *      |   |

 

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*Represents lessthan 1%.

 

(1)                                  Unless otherwise indicated in thefollowing notes, each of the stockholders named in this table has sole votingand investment power with respect to the shares shown as beneficiallyowned.  The following footnotes describethose shares which are beneficially owned by more than one person listed above.

 

(2)                                  The mailing address for each of theseentities is Nordborgvej 81, 6430 Nordborg, Denmark.

 

(3)                                  These shares include 18,241,962 sharesowned directly by Danfoss Murmann Holding A/S (the “Holding Company”), and18,387,825 shares owned directly by Danfoss A/S.  As a result of its 100% voting power over theHolding Company, Danfoss A/S has shared voting and dispositive power over the18,241,962 shares owned directly by the Holding Company.  Danfoss A/S disclaims beneficial ownership ofall of these shares except for the 18,387,825 shares it owns directly.

 

(4)                                  The number of shares beneficially ownedby former officers is reported as of the time each such officer separated fromservice with the Company, except to the extent such officers have provided moreupdated information to the Company.

 

(5)                                  Mr. Loughrey disclaims beneficialownership with respect to 3,000 of these shares which are owned directly by hiswife.

 

(6)                                  This number includes stock owned by thespouses and children of certain directors and executive officers.  It excludes stock owned by Messrs. Cornett,Krabsen, Kittel and Schmidt, all of whom are former officers of the Company.

 

**Item13.  Certain Relationships and RelatedTransactions, and Director Independence**

 

**TRANSACTIONSWITH RELATED PERSONS**

** **

In connection with theacquisition of Danfoss Fluid Power on May 3, 2000, the Company enteredinto several agreements with Danfoss A/S to purchase ongoing operationalservices from Danfoss A/S. These services include rental of shared facilities,administrative support and information technology support. Fees are paid on amonthly basis. Total expense recognized for goods and services purchased fromDanfoss A/S for 2009 was approximately $43.8 million.  The Company also sold products to Danfoss A/Stotaling approximately $3.2 million in 2009. Danfoss A/S is the beneficial owner of more than 5% of the outstandingcommon stock of the Company.

 

On November 9,2009, the Company entered into a Credit Agreement (Danfoss Credit Agreement)with Danfoss A/S, which allows the Company to borrow up to $690 millionunder an unsecured revolving credit facility. The Danfoss Credit Agreementreplaced a $490 million revolving credit facility and a $50 millionterm loan, both with Danfoss A/S, which had been entered in March 2009 andDecember 2008, respectively. Information regarding these relationships andloan transactions is set forth in Notes 8 and 15 in the Notes toConsolidated Financial Statements on pages F-21 through F-23 and F-38through F-39 of the Company’s Original Form 10-K, respectively, and isincorporated herein by reference.

 

For a number of years,the Company has sold products to FAUN Umwelttechnik GmbH &Co. KG, which is owned by Johannes F. Kirchhoff, a director of theCompany, and members of his family. These sales are made pursuant to purchaseorders entered into in the ordinary course of business. Sales in 2009 totaledapproximately $2.0 million.

 

**REVIEW,APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS**

** **

The Company has awritten policy pursuant to which the Company informs all of its directors andexecutive officers, as well as other personnel who serve in positions that givethem routine knowledge of potential transactions with related persons, thatthey must inform specified individuals in management of transactions that meetthe definitions provided in Item

 

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404(a) ofRegulation S-K (“related-person transactions”). Potential related-person transactions are reviewed by the Company’sAudit Committee, which has the authority to approve or deny any suchtransaction.  At least once per quarter,the Company’s Secretary inquires of the individuals designated to receivereports of potential related-person transactions and relays any previouslyunreported transactions to the Audit Committee.

 

**DIRECTOR INDEPENDENCE**

 

The Company’s Board ofDirectors currently has ten members, three of whom meet the New York StockExchange standard for independence.  TheBoard has an Audit Committee and a Compensation Committee. All members of theAudit Committee and Compensation Committee are independent directors.  The corporate governance listing standards ofthe New York Stock Exchange provide that a company of which more than 50% of thevoting power is held by an individual, a group or another company (a “controlledcompany”) need not comply with the Exchange’s listing standards requiring thata majority of the Board be independent and that listed companies have anominating/corporate governance committee and a compensation committee eachcomposed entirely of independent directors with a written charter thataddresses specific items.  The Companyconsiders itself to be a controlled company because approximately 75.7% of thevoting power of the Company’s common stock is owned or controlled by DanfossA/S.  Accordingly, the Company haselected to utilize the exemption from the requirement that a majority of theBoard be independent and from the provisions relating to a nominating/corporategovernance committee.

 

The Board has adoptedCorporate Governance Guidelines (the “Guidelines”) that provide, among otherthings, that at least three directors must be independent. The Guidelines canbe viewed on the Company’s investor relations website athttp://ir.sauer-danfoss.com, and the Company will mail, without charge, a copyof the Guidelines upon written request to Kenneth D. McCuskey, CorporateSecretary at 2800 East 13th Street, Ames, Iowa 50010. To be considered “independent”under the Guidelines, a person must be determined by the Board to have nomaterial relations, directly or indirectly, with the Company or its affiliatesor any other director or elected officer of the Company, and must otherwise beindependent as that term is defined under the listing standards of the New YorkStock Exchange, but also without the appearance of any conflict in serving as adirector. In addition to applying these guidelines, the Board shall considerall relevant facts and circumstances in making an independence determination.

 

The Board undertook itsannual review of director independence with respect to the three personsconsidered independent at its meeting on March 9, 2010. The Boarddetermined whether the three persons under consideration met the objectivelisting standards of the New York Stock Exchange regarding the definition of “independentdirector,” which standards provide that a director is not independent if:

 

·        The directoris, or has been within the last three years, an employee of the Company, or animmediate family member is, or has been within the last three years, anexecutive officer of the Company.

 

·        The directorhas received, or has an immediate family member who has received, during anytwelve-month period within the last three years, more than $120,000 in directcompensation from the Company, other than director and committee fees andpension or other forms of deferred compensation for prior service (providedsuch compensation is not contingent in any way on continued service).

 

·        (A) The director is a current partner or employee of a firm that is the Company’sinternal or external auditor; (B) the director has an immediate familymember who is a current partner of such firm; (C) the director has animmediate family member who is a current employee of such a firm and personallyworks on the Company’s audit; or (D) the director or an immediate familymember was within the last three years a partner or employee of such a firm andpersonally worked on the Company’s audit within that time.

 

·        The directoror an immediate family member is, or has been within the last three years,employed as an executive officer of another company where any of the Company’spresent executive officers at the same time serves or served on that company’scompensation committee.

 

·        The directoris a current employee, or an immediate family member is a current executiveofficer, of a company that has made payments to, or received payments from, theCompany for property or services in an amount which, in any of the last threefiscal years, exceeds the greater of $1 million or 2% of such other company’sconsolidated gross revenues.

 

The Board alsoconsidered whether there were any other transactions or relations between eachof said three persons or any member of his immediate family and the Company andits subsidiaries and affiliates that would affect the independence of suchpersons and concluded that there were none.

 

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As a result of itsreview, the Board affirmatively determined that Johannes F. Kirchhoff, F.Joseph Loughrey and Steven H. Wood are independent of the Company and itsmanagement under the standards set forth in the Guidelines.

 

**Item 14.  Principal Accountant Fees and Services**

 

**FEESTO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2009 AND 2008**

** **

The following tablepresents fees for professional services rendered by KPMG LLP for the audit ofthe Company’s Annual Financial Statements for the years ended December 31,2009 and 2008 and fees billed for other services rendered by KPMG LLP duringthose periods:

 
| ** **             | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees             |       | $        | 1,405,000  |     | $          | 2,373,000 |   |
| Audit Related Fees (1) |       | 58,000   |       | 42,000   |       |
| Tax Fees (2)           |       | 257,000  |       | 296,000  |       |
| All Other Fees         |       | 0        |       | 0        |       |
|                        |            |          |            |          |            |  |  |

 

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(1)             Consistsprincipally of statutory accounting consultations.

 

(2)             Consists ofinternational and U.S. tax planning and compliance services, and expatriate taxservices.

 

**POLICYREGARDING PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

** **

The Audit Committee’spolicy is to pre-approve all audit and non-audit services provided by theindependent registered public accounting firm. These services may include auditservices, audit related services, tax services and other services that are notprohibited from being provided by the independent registered public accountingfirm by the Sarbanes-Oxley Act of 2002 or rules issued thereunder (“PermittedServices”). Pre-approval is granted on an annual basis, generally at the firstmeeting of the Audit Committee held during each year, and any pre-approvalshall be detailed as much as possible as to the particular service or categoryof services and shall generally be subject to a specific budget. The Committeemay delegate pre-approval authority to one or more of its members with respectto Permitted Services when expedition of services is necessary, and hasdelegated such pre-approval authority to its Chairman. The independentregistered public accounting firm and management are required to periodicallyreport to the full Audit Committee (generally at each regular quarterly meetingof the Audit Committee, but the Audit Committee may request a report at anytime), regarding the extent of services provided by the independent registeredpublic accounting firm in accordance with any pre-approval, and the fees forthe services performed to date. All audit fees, audit related fees, tax feesand other fees paid in 2009 and 2008 were pre-approved by the Audit Committee.

 

**PART IV**

 

**Item 15. Exhibits and Financial Statement Schedules.**

 

(a)                                  The followingdocuments are filed as a part of this report.

 

(3)                                  Exhibits

 
| **Exhibit No.** | ** ** | **Description  of Document**                                                                                                                                                                            |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 24                   |       | Powers of Attorney granted by directors and executive officers  (incorporated herein by reference to the signature page of the Original  Form 10-K filed with the SEC on March 4, 2010). |
| 31.1                 |       | Certification by the Chief Executive Officer Pursuant to  Rule 13a-14(a).                                                                                                                          |
| 31.2                 |       | Certification by the Chief Financial Officer Pursuant to  Rule 13a-14(a).                                                                                                                          |

 

(b)                                 The exhibitsthat are listed under Item 15(a)(3) above are filed or incorporatedby reference hereunder.

 

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**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|   | SAUER-DANFOSS INC. |
|--------|-------------------------|
|   |                    |   |
|   |                    |   |
|   |                    | /s/ KENNETH D. MCCUSKEY |
|   | By:                     | Kenneth D. McCuskey*Vice President and Chief Accounting  Officer, Secretary* |

 

Date: April 28, 2010

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe dates indicated.

 
| **Signature**             | ** ** | **Title**                                                       | ** ** | **Date**       |
|---------------------------|------------|-----------------------------------------------------------------|------------|----------------|
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ SVEN RUDER            |       | Director and President and Chief Executive Officer              |       | April 28, 2010 |
| Sven Ruder                |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ JESPER V. CHRISTENSEN |       | Executive Vice President and Chief Financial Officer, Treasurer |       | April 28, 2010 |
| Jesper V. Christensen     |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ KENNETH D. MCCUSKEY   |       | Vice President and Chief Accounting Officer, Secretary          |       | April 28, 2010 |
| Kenneth D. McCuskey       |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| *                         |       | Director                                                        |       | April 28, 2010 |
| Niels B. Christiansen     |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| *                         |       | Director                                                        |       | April 28, 2010 |
| Jørgen M. Clausen    |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| *                         |       | Director                                                        |       | April 28, 2010 |
| Kim Fausing               |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| *                         |       | Director                                                        |       | April 28, 2010 |
| Per Have                  |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| *                         |       | Director                                                        |       | April 28, 2010 |
| William E. Hoover, Jr.    |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| *                         |       | Director                                                        |       | April 28, 2010 |
| Johannes F. Kirchhoff     |       |                                                            |       |           |

 

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| **Signature**      | ** ** | **Title** | ** ** | **Date**       |
|--------------------|------------|-----------|------------|----------------|
|               |       |      |       |           |
|               |       |      |       |           |
| *                  |       | Director  |       | April 28, 2010 |
| F. Joseph Loughrey |       |      |       |           |
|               |       |      |       |           |
|               |       |      |       |           |
| *                  |       | Director  |       | April 28, 2010 |
| Sven Murmann       |       |      |       |           |
|               |       |      |       |           |
|               |       |      |       |           |
| *                  |       | Director  |       | April 28, 2010 |
| Steven H. Wood     |       |      |       |           |

 

 
| *By:   | /s/ Kenneth D. McCuskey |   |
|--------|-------------------------|--------|
|   | Kenneth D. McCuskey     |   |
|   | Attorney-in-Fact        |   |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description  of Document**                                                                                                                                                                             |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 24                   |       | Powers of Attorney granted by directors and executive officers  (incorporated herein by reference to the signature page of the Original  Form 10-K filed with the SEC on March 4, 2010) . |
| 31.1                 |       | Certification by the Chief Executive Officer Pursuant to  Rule 13a-14(a).                                                                                                                           |
| 31.2                 |       | Certification by the Chief Financial Officer Pursuant to  Rule 13a-14(a).                                                                                                                           |

 

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