Exhibit 10.1(u)


 





 


 


Employment Agreement

for Kenneth D. McCuskey


 


Sauer-Danfoss Inc.


December 31, 2008


 

















 


EXECUTIVE EMPLOYMENT AGREEMENT


 


THIS AGREEMENT (this “Agreement”) is made as of the
31st day of December, 2008 (the “Effective Date”), by and between Sauer-Danfoss
Inc. (the “Company”) and Kenneth D. McCuskey (the “Executive”).  The existing Employment Agreement between the
Company and the Executive dated December 1, 2002 shall terminate by mutual
agreement as of December 30, 2008 and will be replaced, in its entirety by
this Agreement.


 


WHEREAS, the Company desires to provide for the continued employment of the Executive on the terms
and conditions set forth herein, in the best interest of the Company and its
constituencies; and


 


WHEREAS, the Executive desires to continue to be employed by the Company as provided
herein; and


 


NOW, THEREFORE, in consideration of the premises and
the respective covenants, promises and agreements of the parties herein
contained, the parties agree as follows:


 


1.             Employment.  The Company
agrees to continue to employ the Executive and the Executive agrees to continue to be
employed on a full-time basis by the Company for the period and upon the terms
and conditions specified herein.


 


2.             Term; Employment Period. 
The term of this Agreement (the “Term”) shall begin on the Effective
Date and continue until terminated according to Section 6 of this
Agreement.  The period during which the
Executive is employed by the Company is referred to as the “Employment Period.”  The date on which the termination of the
Executive’s employment becomes effective is referred to as the “Termination
Date”.


 


3.             Position and Duties. 
During the Employment Period, the Executive shall serve as Vice
President, Chief Accounting Officer of the Company and shall have such
responsibilities, duties and authority as set forth in the Bylaws of the
Company and such additional responsibilities, duties and authority as the
Company’s President and Chief Executive Officer or the Company’s Board of
Directors (the “Board”) shall determine from time to time.  During the Employment Period, the Executive
shall report to the Company’s Executive Vice President and Chief Financial
Officer or designee.  The Executive shall
fully comply with the Company’s Worldwide Code of Legal and Ethical Business
Conduct as in effect from time to time, or any successor or similar Code.  The Executive shall devote substantially all
his working time and efforts to the business and affairs of the Company and
shall use his best efforts to carry out his responsibilities faithfully and
efficiently in a professional and ethical manner.  Notwithstanding the foregoing, it is
understood that during the Employment Period, subject to any conflict of
interest policies of the Company and Section 9, the Executive may (a) serve
in any capacity with any civic, charitable, educational or professional
organization provided that such service does not materially interfere with his
duties and responsibilities to the 


 


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Company,
(b) make and manage personal investments of his choice, and (c) with
the prior consent of the Company’s President and Chief Executive Officer, which
shall not be unreasonably withheld, serve on the board of directors of one (1) for-profit
business enterprise.  The Executive may
serve from time to time as a director and/or member of a committee of the
Company and/or as a director and/or member of a committee and/or officer of one
or more subsidiaries or related or affiliated companies or joint ventures of
the Company.  The Executive agrees to
fulfill his duties as such director, member of committee or officer without
additional compensation other than the compensation provided for in this
Agreement.


 


4.             Place of Performance. 
During the Employment Period, the Executive’s place of performance of
his services shall be at the Company’s Ames, Iowa USA offices, except for
required travel by the Executive on the Company’s business or as may be
reasonably required by the Company.


 


5.             Compensation and Benefits.


 


(a)           Salary.  During the
Employment Period, the Company shall pay to the Executive an initial annual
base salary of Two Hundred Twenty Nine Thousand Seven Hundred Dollars
($229,700) on an annualized basis (as the same may be increased from time to
time, the “Base Salary”), such salary to be paid in periodic installments in
accordance with the Company’s payroll practices as in effect from time to
time.  The Base Salary shall be reviewed
annually by the Compensation Committee of the Board and may be increased from
time to time in accordance with normal business practices of the Company and,
if so increased, shall not thereafter be reduced.  Notwithstanding the foregoing, the Base
Salary may be reduced at any time and from time to time as part of across-the-board
reductions applied similarly to all of the Company’s senior executives.  All payments of Base Salary or other
compensation hereunder shall be less such deductions or withholdings as are
required by applicable law and regulations.


 


(b)           Annual Incentive. 
During the Employment Period, the Executive shall be eligible to earn an
annual incentive under the Company’s 2006 Omnibus Incentive Plan, or a
successor plan thereto, as in effect from time to time (the “Incentive Plan”),
subject to achievement of performance goals determined in accordance with the
terms of the Incentive Plan (such annual incentive referred to herein as the “Annual
Incentive”).  Except as otherwise
specifically provided in this Agreement, the Executive shall only be eligible
to receive the Annual Incentive if the Executive is employed by the Company
through the last day of the fiscal year for which the Annual Incentive is to be
paid.  The actual amount of any Annual
Incentive and the timing for payment shall be determined by and in accordance
with the terms of the Incentive Plan.


 


(c)           Expenses.  During the
Employment Period, the Company shall promptly reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred by the Executive in
connection with the business of the Company and the performance of his duties
under this Agreement in accordance with the terms of the Company’s policies and
upon presentation of expense statements or vouchers or such other supporting
information as the Company may customarily require of its senior executives;
provided 


 


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however,
in no event shall any such reimbursement be provided later than December 31
of the calendar year following the calendar year in which such business expense
was incurred.


 


(d)           Benefit Plans. 
During the Employment Period, the Executive shall be entitled to
participate in all of the employee benefit plans, long term incentive plans,
retirement plans, programs, agreements and arrangements provided to senior executives
of the Company, as such are in effect, subject to the eligibility requirements
and terms and conditions of such plans, programs, agreements and
arrangements.  The Company reserves the
right, in its sole discretion, to adopt, modify, amend or terminate such plans,
programs, agreements and arrangements at any time.


 


(e)           Perquisites. 
During the Employment Period, the Executive shall be entitled to
participate in those perquisites provided to senior executives of the Company,
as such are in effect, subject to the eligibility, payment requirements and
other terms and conditions of such perquisites, as outlined in the underlying
Company policy.  The Company reserves the
right, in its sole discretion, to adopt, modify, amend or terminate such
perquisites at any time.


 


(f)            Vacations.  During the
Employment Period, the Executive shall be entitled to paid vacation time, paid
holidays and personal days, determined in accordance with the Company’s policy
with respect to its senior executives, as such are in effect, it being
understood that the Executive shall be entitled to not less than four weeks’
paid vacation in any 12-month period during the Employment Period.


 


6.             Termination of Employment.


 


(a)           Accrued Benefits. 
In the event of the termination of the Executive’s employment hereunder
for any reason, the Executive (or his estate or representative, as applicable)
shall be entitled to receive any Base Salary, Annual Incentive, vacation time
and expenses that have in each case accrued but are unpaid as of the Termination
Date as well as any post-termination benefits to which he may be entitled
according to the Company’s retirement, insurance and other benefit plans,
programs and arrangements as in effect immediately prior to the Termination
Date, other than medical benefit plans (the “Accrued Benefits”).  Accrued Benefits will be paid in accordance
with the underlying plan or policy.  If
no underlying plan or policy exists for a particular component of the Accrued
Benefits, such component will be paid no later than sixty (60) days following
the Termination Date.


 


(b)           Retirement.  The Executive’s
employment shall terminate as of the date of his Retirement (as defined in the
retirement benefit plan in effect immediately prior to such Retirement).  Upon the termination of the Executive’s
employment because of his Retirement, the Executive shall be entitled to
receive the Accrued Benefits.


 


(c)           Death.  The Executive’s
employment shall terminate as of the date of his death.  Upon the termination of the Executive’s
employment because of his death, the 


 


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Executive’s
estate or representative, as the case may be, shall be entitled to receive the
following:


 


(i)    the Accrued Benefits; and


 


(ii)   a lump sum payment in cash equal to one year’s Base
Salary as in effect on the Termination Date with such amount being payable no
later than thirty (30) days following the Termination Date; and


 


(iii)  a lump sum payment in cash
equal to the actual annual incentive compensation such Executive would have
received, if any, under the Incentive Plan for the fiscal year which includes
his Termination Date and assuming that the Executive had been employed through
the last day of such fiscal year, multiplied by a fraction (the numerator of which shall
be the number of whole months worked by the Executive during the Company’s
fiscal year in which the Termination Date occurs and the denominator of which
shall be the number 12) (the “Pro Rata Annual Incentive”).  The Pro Rata Annual Incentive shall be payable
in accordance with the terms of the relevant underlying Incentive Plan and at
the same time payments are made to other Company executives pursuant to such
Incentive Plan.


 


In addition, those
immediate family members who were participating in the Company’s medical
benefit plans as of the date of the Executive’s death shall continue to
participate in the Company’s medical benefit plans at active employee
contribution rates for the one-year period immediately following the date of
the Executive’s death.  Any continuing
medical coverage pursuant to this clause is intended to be exempt from Code Section 409A
to the extent permitted under Treasury Regulation §1.409A-1(B)(9)(v)(B) or
§1.409A-3(I)(1)(iv)(B).  However, if it
is determined that the continuing medical coverage pursuant to this clause does
not qualify for exemption under Code Section 409A the medical coverage
will expire as of the date of the Employee’s death.  If the medical coverage expires early, as
provided in the previous sentence, the Company shall provide Executive’s
immediate family members with a lump sum cash payment equal to twelve (12)
times the then applicable monthly premium for the relevant medical plan which
the Executive participated in.  Such lump
sum payment amount, if any, will be paid no later than sixty (60) days after
the date on which such medical coverage expires.


 


(d)           Disability.  The Executive’s
employment may be terminated by the Company during the Employment Period if the
Executive is incapable of performing his principal duties because of physical
or mental incapacity for a period of 180 consecutive days in any 12-month
period (“Disability”).  In the event that
the Executive’s employment is to be terminated by the Company for Disability:


 


(i)    this Agreement shall terminate on the date specified
in the notice of termination delivered to the Executive by the Company; and


 


(ii)   the Executive shall as of such date resign from all of
his positions, duties and authorities hereunder.


 


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In the event of a
termination due to Disability, the Executive (or his representative, as
applicable) shall be entitled to receive the following:


 


(1) the Accrued Benefits; and


 


(2) the Pro Rata Annual Incentive as defined in Section 6(c)(iii) above.  The Pro Rata Annual Incentive shall be
payable in accordance with the terms of the relevant underlying Incentive Plan
and at the same time payments are made to other Company executives pursuant to
such Incentive Plan; and


 


 (3) a lump
sum payment in cash equal to one year’s Base Salary as in effect on the
Termination Date (the “Disability Payment”). 
The Disability Payment shall be payable on the seven month anniversary
of such termination.


 


In addition, the
disabled Executive shall be eligible for the continuation of medical benefit
plans at the levels in effect as of the Termination Date, at no additional cost
to the Executive than that which was in effect as of the Termination Date, for
the one-year period immediately following the Termination Date; provided,
however, that such medical benefits shall be reduced to the extent
comparable medical benefits are made available to the Executive from a
successor employer, and the Executive shall be obligated to report such
benefits to the Company.  Any continuing
medical coverage pursuant to this clause is intended to be exempt from Code Section 409A
to the extent permitted under Treasury Regulation §1.409A-1(B)(9)(v)(B) or
§1.409A-3(I)(1)(iv)(B).  However, if it
is determined that the continuing medical coverage pursuant to this clause does
not qualify for exemption under Code Section 409A the medical coverage
will expire as of the Termination Date. 
If the medical coverage expires early, as provided in the previous
sentence, the Company shall provide Executive with a lump sum cash payment
equal to twelve (12) times the then applicable monthly premium for the relevant
medical plan which the Executive participated in.  Such lump sum payment amount, if any, will be
paid no later than sixty (60) days after the date on which such medical
coverage expires.


 


It is acknowledged
and agreed by the Executive that he shall be precluded from terminating his
employment for Good Reason in the event that his employment is terminated under
this Section 6(d).


 


(e)           For Cause; Without Good Reason. 
The Executive’s employment hereunder may be terminated during the
Employment Period:


 


(i)    by the Company for Cause (as defined below); or


 


(ii)   by the Executive without Good Reason (as defined
below).


 


In the event that
the Company terminates the Executive’s employment hereunder for Cause, the
Termination Date shall be the date specified in the notice of termination for
Cause delivered by the Company to the Executive.  In the event that the Executive terminates
his employment hereunder without Good Reason, the Termination Date shall be no
earlier than 30 days following the date on which a notice of termination is
delivered 


 


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by the Executive
to the Company.  In the event that the
Executive’s employment is terminated under this Section 6(e), the
Executive shall be entitled to the Accrued Benefits.


 


(f)            Without Cause; For Good Reason. The Executive’s employment may be
terminated during the Employment Period:


 


(i)    by the Company without Cause; or


 


(ii)   by the Executive for Good Reason.


 


In the event that
the Executive’s employment is terminated under this Section 6(f) (whether
by the Company or by the Executive), the Termination Date shall be no earlier
than 30 days following the date on which a notice of termination is delivered
by one party to the other.  In the event
that the Executive’s employment is terminated under this Section 6(f), the
Executive (or his estate or representative, as the case may be) shall be
entitled to receive:


 


(1) the Accrued Benefits; and


 


(2) executive level career outplacement services
by a mutually agreeable outplacement firm and paid for, as actually incurred by
Executive, by the Company.  The Executive
must commence the outplacement services no later than sixty (60) days following
his Termination Date and in no event shall such services be provided beyond December 31
of the second year following the year of termination or, if earlier, the first
acceptance by the Executive of an offer of employment; and


 


(3) the Pro Rata Annual Incentive as defined in Section 6(c)(iii) above.  The Pro Rata Annual Incentive shall be
payable in accordance with the terms of the relevant underlying Incentive Plan
and at the same time payments are made to other Company executives pursuant to
such Incentive Plan; and


 


(4) a lump sum payment in cash equal to the
Executive’s Base Salary and Target Incentive Opportunity as in effect on the
Termination Date multiplied by one and one/half (1.5) (the “Separation Payment”).  The Separation Payment shall be payable as
follows:


 


(A) an amount equal
to the least of the following:


 


(I) the Separation
Payment amount; or


 


(II) two (2) times
the Executive’s Base Salary as in effect on the Termination Date; or


 


(III) two (2) times
the annual compensation limit under Code Section 401(a)(17) (i.e.,
$460,000 for 2008)


 


shall be paid to the Executive in a lump sum thirty
(30) days following 


 


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Executive’s Termination Date; and


 


(B) the
remainder of the Separation Payment amount, if any, shall be paid to the
Executive in a lump sum on the seventh month anniversary of the Executive’s
Termination Date.


 


In addition, an
Executive whose employment is terminated under this Section 6(f) shall
be eligible for the continuation of medical plan benefits at the levels in
effect as of the Termination Date at no additional cost to the Executive than
that which was in effect as of the Termination Date for a period of one year; provided,
that such medical benefits shall be reduced to the extent comparable medical
benefits are made available to the Executive from a successor employer, and the
Executive shall be obligated to report such benefits to the Company.  Any continuing medical coverage pursuant to
this clause is intended to be exempt from Code Section 409A to the extent
permitted under Treasury Regulation §1.409A-1(B)(9)(v)(B) or
§1.409A-3(I)(1)(iv)(B).  However, if it
is determined that the continuing medical coverage pursuant to this clause does
not qualify for exemption under Code Section 409A the medical coverage
will expire as of the Termination Date. 
If the medical coverage expires early, as provided in the previous
sentence, the Company shall provide Executive with a lump sum cash payment
equal to twelve (12) times the then applicable monthly premium for the relevant
medical plan which the Executive participated in.  Such lump sum payment amount, if any, will be
paid no later than sixty (60) days after the date on which such medical
coverage expires.


 


(g)           Definition of “Cause” and “Good Reason”.


 


For purposes of this Agreement, “Cause” means:


 


(i)            the willful failure of the Executive to perform his
material duties with the Company as provided in this Agreement, and which
failure is not cured (if capable of cure) within 15 days after receipt by the
Executive of written notice from the Company of such failure, which notice
identifies the manner in which the Executive has willfully failed to perform;


 


(ii)           the engaging by the Executive in willful conduct which
is demonstrably injurious to the Company, monetarily or otherwise;


 


(iii)          the conviction (treating a nolo contendere plea as a
conviction) of the Executive of any crime or offense constituting a felony
(whether or not any right to appeal has been or may be exercised); or


 


(iv)          a failure by the Executive to comply with any material
provision of this Agreement, which failure is not cured (if capable of cure)
within 15 days after receipt by Executive of written notice from the Company of
such non-compliance by the Executive.


 


Termination of the Executive for Cause shall mean
termination by action of the Company’s Board of Directors, at a meeting duly
called and held upon at least 15 days’ written notice to the Executive
specifying the particulars of the action or inaction alleged 


 


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to constitute Cause and at which meeting the Executive
and his counsel were entitled to be present and given adequate opportunity to
be heard.  For purposes of clauses (i) and
(ii) of this definition, action or inaction by the Executive shall not be
considered “willful” unless done or omitted by him (A) intentionally or
not in good faith and (B) without reasonable belief that his action or
inaction was in the best interest of the Company, and shall not include failure
to act by reason of total or partial incapacity due to physical or mental
illness.


 


For purposes of this Agreement, “Good Reason” means
without the Executive’s written consent:


 


(i)        a material adverse alteration in the
nature or status of the Executive’s position, duties, responsibilities or
authority which is inconsistent with those in effect as of the Effective Date;


 


(ii)       a material reduction in the Executive’s Base Salary or
level of employee benefits (other than across-the-board reductions applied
similarly to all of the Company’s senior executives);


 


(iii)      failure to pay or provide any of the compensation set
forth in this Agreement (except for an across-the-board reduction of
compensation applied similarly to all of the Company’s senior executives) which
is not cured within 15 days after receipt by the Company from the Executive of
written notice thereof;


 


(iv)      the relocation of the Executive’s principal place of
employment more than 50 miles from its location as of the Effective Date except
for required travel on the Company’s business; or


 


(v)       a failure by the Company to comply with any material
provision of this Agreement, which failure is not cured (if capable of cure)
within 15 days after receipt by the Company of written notice from the
Executive of such non-compliance by the Company.


 


Notwithstanding the foregoing, in order to terminate
employment for Good Reason, the Executive must provide notice of termination
within sixty (60) days of the event that he believes is providing him a Good
Reason termination.  Continuation of
employment without notice of termination during the sixty (60) day period
following such event shall constitute Executive’s acceptance of such event and
any changes stemming from such event and will make null and void the Executive’s
right to terminate for Good Reason with respect to such event.


 


(h)           Change in Control Severance Provisions.  Section 7
provides for payment to the Executive if his employment is terminated for
certain reasons following a Change in Control as defined in Section 7.  The Executive acknowledges that in the event
he becomes entitled to the payment specified in Section 7(a), the payment
will be in lieu of any other payments to be made under the terms of this
Agreement.


 


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(i)            Release Agreement. 
Notwithstanding anything to the contrary contained in this Section 6,
the Executive shall be required to execute the Company’s then current standard
release agreement as a condition to receiving any of the payments and benefits
provided for in this Section 6 or Section 7 of this Agreement.  It is acknowledged and agreed that the then
current standard release agreement shall not diminish or terminate the
Executive’s rights under this Agreement including, but not limited to, those
specified in Sections 6(j), 8 and 22.


 


(j)            No Mitigation. 
Upon termination of the Executive’s employment with the Company, subject
to the Executive’s affirmative obligations under Section 6(d) and
6(f), the Executive shall be under no obligation to seek other employment or
otherwise mitigate the obligations of the Company under this Agreement.


 


(k)           Definition of the Company. 
Whenever this Agreement refers to the Executive’s employment with the
Company, or the termination of the Executive’s employment with the Company, the
term “Company” shall include Sauer-Danfoss Inc. and any of its subsidiaries or
related or affiliated companies or joint ventures that employ the
Executive.  In addition, when used in
Sections 9, 10, 11 and 12 of this Agreement, the term “Company” shall include
Sauer-Danfoss Inc. and any of its subsidiaries or related or affiliated
companies or joint ventures.


 


7.             Change in Control.


 


(a)           Employment
Terminations After a Change in Control. 
During the term of this Agreement, in the event the Executive’s
employment with the Company is terminated within two years following a Change
in Control (as such term is defined in Section 7(b) herein), unless
such termination is (i) by the Company for Cause (as the term Cause is
defined in Section 6(g) herein), (ii) by reason of Death,
Disability, or Retirement, or (iii) by the Executive without Good Reason
(as the term Good Reason is defined in Section 6(g) herein), then in
lieu of all other benefits provided to the Executive under the provisions of
this Agreement, the Company shall pay to the Executive and provide him with the
following:


 


(i)            The Accrued Benefits (in full satisfaction for these
amounts owed to the Executive).


 


(ii)           A lump sum payment in cash equal to ten percent (10%)
of the Executive’s Base Salary in effect on the Termination Date in lieu of
medical plan benefits.  The Executive’s
participation in these and all other medical benefits shall cease upon the
termination of Executive’s employment with the Company under circumstances
which entitle the Executive to the payments set forth in this Section 7(a).  The lump sum payment amount under this clause
will be paid no later than sixty (60) days after the date on which such medical
coverage expires.  Any lump sum payment
pursuant to this clause is intended to be exempt from Code Section 409A to
the extent permitted under Treasury Regulation §1.409A-1(B)(9)(v)(B) or
§1.409A-3(I)(1)(iv)(B).


 


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(iii)          The Pro Rata Annual Incentive as defined in Section 6(c)(iii) above.  The Pro Rata Annual Incentive shall be
payable in accordance with the terms of the relevant underlying Incentive Plan
and at the same time payments are made to other Company executives pursuant to
such Incentive Plan.  This payment will be in lieu of any other
payment to be made to the Executive under the Incentive Plan for the respective
plan year.


 


(iv)          A lump-sum payment in cash equal to the Executive’s
Base Salary and Target Incentive Opportunity in effect on the Termination Date
multiplied by one and a half (1.5) (the “CIC Separation Payment”).  The CIC Separation Payment shall be payable
as follows


 


(A) an amount equal
to the least of the following:


 


(I) the CIC
Separation Payment amount; or


 


(II) two (2) times
the Executive’s Base Salary as in effect on the Termination Date;


 


(III) two (2) times
the annual compensation limit under Code Section 401(a)(17) (i.e.,
$460,000 for 2008)


 


shall be paid to the Executive in a lump sum thirty
(30) days following Executive’s Termination Date; and


 


(B) the
remainder of the CIC Separation Payment amount, if any, shall be paid to the
Executive in a lump sum on the seventh month anniversary of the Executive’s
Termination Date.


 


The parties agree that,
in the event of the termination of Executive’s employment with the Company
under circumstances which entitle the Executive to the payments set forth in
this Section 7(a), such payment and benefits (including an Excise Tax
Payment provided in Section 7(c) herein) shall be deemed to
constitute liquidated damages payable by the Company to the Executive in full
satisfaction of the Company’s obligations hereunder or otherwise, and the
Company agrees that the Executive shall not be required to mitigate his damages
by seeking other employment or otherwise.


 


In the event that the
Executive’s employment with the Company is terminated under circumstances which
entitle the Executive to the payments set forth in this Section 7(a) (whether
by the Company or by the Executive), the Termination Date shall be no earlier
than 30 days following the date on which a notice of termination is delivered
by one party to the other.


 


(b)           Definition of “Change
in Control”.  “Change in Control” of
the Company means, and shall be deemed to have occurred upon any of the
following events:


 


(i)            Any person (other than
those persons in control of the Company as of the Effective Date, or other than
a trustee or other fiduciary holding securities under 


 


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an employee
benefit plan of the Company, or a corporation or other entity owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing thirty
percent (30%) or more of the combined voting power of the Company’s then
outstanding securities; provided, however, that a Change in Control shall not
result from (a) Danfoss A/S, as defined below, acquiring securities of the
Company from the Murmann Group, as such term is defined below, either directly,
or indirectly by acquiring voting control of Danfoss Murmann Holding A/S or its
successor; or (b) the Murmann Group acquiring securities of the Company
from Danfoss A/S either directly, or indirectly by acquiring voting control of
Danfoss Murmann Holding A/S or its successor; or


 


(ii)           During any period of
two (2) consecutive years (not including any period prior to the Effective
Date), individuals who at the beginning of such period constitute the Board
(and any new Director, whose election by the Company’s stockholders was
approved by a vote of at least two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning of the period or whose
election or nomination for election was so approved), cease for any reason to
constitute a majority thereof; or


 


(iii)          The consummation of: (A) a
plan of complete liquidation of the Company; or (B) the sale or
disposition of all or substantially all the Company’s assets; or (C) a
merger, consolidation, or reorganization of the Company with or involving any
other corporation, other than a merger, consolidation, or reorganization that
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least fifty
percent (50%) of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such merger,
consolidation, or reorganization.


 


However, in no event
shall a “Change in Control” be deemed to have occurred with respect to the
Executive, if the Executive is part of a purchasing group which consummates the
Change in Control transaction. The Executive shall be deemed “part of a
purchasing group” for purposes of the preceding sentence if the Executive is an
equity participant in the purchasing company or group (except for (i) passive
ownership of less than one percent (1%) of the stock of the purchasing company;
or (ii) ownership of equity participation in the purchasing company or
group which is otherwise not significant as determined prior to the Change in
Control by a majority of the nonemployee continuing Directors).


 


For purposes of (b)(i) of
this Section 7, (A) Danfoss A/S shall be deemed to mean any one or
more of  Danfoss A/S, any of its
subsidiaries or related or affiliated companies or joint ventures, or any
successor of the foregoing; and (B) the Murmann Group shall be deemed to
mean any one or more of (i) Klaus Murmann, (ii) any member of his
immediate family, (iii) any entity a majority of the voting interests of
which are owned, 


 


12

















 


directly or indirectly,
by Klaus Murmann and/or any member or members of his immediate family, or (iv) trust,
a majority of which is owned by, or a majority of the beneficiaries of which
consist of, directly or indirectly, Klaus Murmann, and/or any member or members
of his immediate family.


 


 (c)          Excise Tax Payment.  In the event that any portion of the
severance benefits or any other payment under this Agreement or under any other
agreement with or plan of the Company (in the aggregate “Total Payments”) would
constitute an “Excess Parachute Payment,” such that an “Excise Tax” is due, the
Company shall provide to the Executive, in cash, an additional lump sum payment
in an amount to cover the full cost of the excise tax and the Executive’s state
and federal income and employment taxes on this excise tax payment (and to
cover the resulting excise and income and employment taxes resulting from such
payment, and so on). For this purpose, the Executive shall be deemed to be in
the highest marginal tax rate. The lump
sum payment amount under this clause will be on the later of:


 


(i) sixty
(60) days after written notification from the Executive that such Excise Tax is
due; or


 


(ii) the
seven month anniversary following the Executive’s Termination Date.


 


For purposes of this
Agreement, the terms “Excise Tax” and “Excess Parachute Payment” shall have the
meanings assigned to such terms in Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended.


 


(d)           Subsequent
Recalculation.  In the event the
Internal Revenue Service subsequently adjusts the excise tax computation herein
described, the Company shall reimburse the Executive for the full amount
necessary to make the Executive whole (less any amounts received by the
Executive that the Executive would not have received had the computations
initially been computed as subsequently adjusted), including the value of any
underpaid excise tax, and any related interest and/or penalties due to the
Internal Revenue Service.


 


8.             Indemnification. 
In addition to any rights to indemnification to which the Executive is
entitled under the Company’s Restated Certificate of Incorporation or Bylaws,
agreement with the Company, vote of stockholders or disinterested directors or
otherwise, the Company shall indemnify the Executive at all times during and
after the Employment Period to the maximum extent permitted under the Delaware
Business Corporation Act or any successor provision thereof, and any and all
applicable state law of the State of Delaware, and shall pay the Executive’s
expenses (including reasonable attorneys’ fees and expenses, which shall be
paid in advance by the Company as incurred, subject to recoupment in accordance
with applicable law) in defending any civil action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding to the
maximum extent permitted under such applicable state laws for the Executive’s
action or inaction on behalf of the Company under the terms of this Agreement.  The provisions of this Section 8 shall
survive the termination of the Executive’s employment or the termination of the
other provisions of this Agreement.


 


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9.             Covenant Not to Compete. 
Without the consent of the Company, the Executive shall not, directly or
indirectly, anywhere in the world, at any time during the Employment Period and
for a period of eighteen (18) months following the termination of Executive’s
employment with the Company for any reason, be associated or in any way
connected as an owner, investor, partner, director, officer, employee, agent,
or consultant with any business entity directly engaged in the manufacture
and/or sale of products competitive with any material product or product lines
of the Company; provided, however, that the Executive shall not be deemed to
have breached this undertaking if his sole relation with such entity consists
of his holding, directly or indirectly, an equity interest in such entity not
greater than two percent (2%) of such entity’s outstanding equity interest, and
the class of equity in which the Executive holds an interest is listed and
traded on a broadly recognized national or regional securities exchange.  For purposes hereof, the term “material product
or product line of the Company” shall mean any product or product line of the
Company, the aggregate gross sales of which during any calendar year during the
five (5) year period preceding the Executive’s undertaking such
association with such a competitor were at least $10 million.


 


The Executive
acknowledges that: (a) the services to be performed by him under this
Agreement are of a special, unique, unusual, extraordinary, and intellectual
character; (b) the business of the Company is worldwide in scope and its
products are marketed throughout the world; (c) the Company competes with
other businesses that are or could be located in any part of the world; and (d) the
provisions of this Section 9 are reasonable and necessary to protect the
Company’s business.


 


If any covenant in this Section 9
is held to be unreasonable, arbitrary, or against public policy, such covenant
will be considered to be divisible with respect to scope, time, and geographic
area, and such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and enforceable
against the Executive.


 


The period of time
applicable to any covenant in this Section 9 will be extended by the
duration of any violation by the Executive of such covenant.


 


The Executive will, while
the covenants under this Section 9 are in effect, give notice to the
Company, within ten days after accepting any other employment, of the identity
of the Executive’s employer.  The Company
may notify such employer that the Executive is bound by this Agreement and, at
the Company’s election, furnish such employer with a copy of this Agreement or
relevant portions thereof.


 


10.           Disclosure of Confidential Information. 
Without the consent of the Company, the Executive shall not disclose to
any other person Confidential Information (as defined below) concerning the
Company or the Company’s trade secrets of which the Executive has gained
knowledge during his employment with the Company.  Any trade secrets of the Company or any of
its subsidiaries or related or affiliated companies or joint ventures will be
entitled to all of the protections and benefits under the Iowa Code 


 


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Annotated
Section 550.1 through 550.8 and any other applicable law.  If any information that the Company deems to
be a trade secret is found by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement.  The Executive hereby waives
any requirement that the Company submit proof of the economic value of any
trade secret or post a bond or other security. 
None of the foregoing obligations and restrictions apply to any part of
the Confidential Information that the Executive demonstrates was or became
generally available to the public other than as a result of a disclosure by the
Executive.


 


The Executive will not
remove from the premises of the Company (except to the extent such removal is
for purposes of the performance of the Executive’s duties at home or while
traveling, or except as otherwise specifically authorized by the Company), any
document, record, notebook, plan, model, component, device, or computer
software or code, whether embodied in a disk or in any other form, that
contains Confidential Information (collectively, the “Proprietary Items”).  The Executive recognizes that, as between the
Company and the Executive, all of the Proprietary Items, whether or not
developed by the Executive, are the exclusive property of the Company.  Upon termination of this Agreement by either
party, or upon the request of the Company during the Employment Period, the
Executive will return to the Company all of the Proprietary Items in the
Executive’s possession or subject to the Executive’s control, and the Executive
shall not retain any copies, abstracts, sketches, or other physical embodiment
of any of the Proprietary Items.


 


For purposes of this
Agreement, Confidential Information shall include any and all information
concerning the business and affairs of the Company, including, without
limitation, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current, and planned research and development,
current and planned distribution methods and processes, customer lists, current
and anticipated customer requirements, price lists, market studies, business
plans, computer software and programs (including object code and source code),
computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information), historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and plans, the
names and backgrounds of key personnel, agents, personnel training and
techniques and materials, insurance products, premium structures, information
relating to suppliers and supplies, sales and marketing information and
strategy, notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing, and any information, however documented,
that is a trade secret within the meaning of the Iowa Code Annotated Section 550.1
through 550.8.


 


15

















 


11.           Developments. 
During the course of employment with the Company, Executive may conceive
enhancements to the products manufactured or sold by the Company or may
conceive new products which perform functions similar to products manufactured
or sold by the Company or may conceive other new products related to the
business of the Company or may develop ideas, plans and opportunities.  Executive shall disclose promptly and fully
to the Company any and all ideas, business developments, plans and
opportunities, new products or systems, inventions, discoveries, enhancements
and improvements  (“Developments”),
whether or not patentable or subject to copyrights, conceived or made by
Executive during the Employment Period, during work hours or otherwise and on
the Company’s premises or otherwise. 
Employee recognizes that pursuant to this arrangement that the Company
may develop a new product that generates widespread market appeal.


 


Executive
agrees that all Developments shall be the sole property of the Company, and
Executive hereby assigns to the Company, without further compensation, all of
his right, title, and interest in and to such Developments and any and all
related patents, patent applications, copyrights, copyright applications,
trademarks, and trade names in the United States and elsewhere.  Executive shall assist the Company in
obtaining and enforcing patent, copyright, and any other forms of legal protection
for the Developments in any country. 
Upon request, Executive will sign all applications, assignments,
instruments and papers to perform all acts necessary or desired by the Company
to assign all such Developments completely to the Company and to enable the
Company, its successors, assigns and nominees, to secure and enjoy the full and
exclusive benefits and advantages thereof. 
Executive will not, at any time, either during the term of this
Agreement or thereafter, disclose to others, or use for his own benefit or the
benefit of others, any of the Developments. 
Executive agrees that the enhancement and development of all
Developments capable of copyright protection is “Work For Hire” within the
meaning of the Copyright Act of 1976. 
These obligations shall continue beyond the Termination Date with
respect to Developments, whether patentable or not, conceived or made by
Executive during his employment with the Company, and shall be binding upon
Executive’s assigns, personal representatives, administrators and other legal
representatives.


 


12.           Nonsolicitation. 
Without the written consent of the Company, the Executive shall not at
any time during the Term and for a period of eighteen (18) months following the
termination of Executive’s employment with the Company for any reason (a) employ
or retain or arrange to have any other person, firm, or other entity employ or
retain or otherwise participate in the employment or retention of any person
who is an employee or consultant of the Company; or (b) solicit or arrange
to have any other person, firm, or other entity solicit or otherwise
participate in the solicitation of business from any entity that was a customer
of the Company at any time during the Employment Period, whether or not the
Executive had personal contact with such customer.


 


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13.           Injunctive Relief and Additional Remedy;
Essential and Independent Covenants.


 


(a)           The Executive acknowledges that the injury that would
be suffered by the Company as a result of a breach of the provisions of this
Agreement (including, without limitation, any provision of Sections 9, 10,
11,and 12) would be irreparable and that an award of monetary damages to the
Company for such a breach would be an inadequate remedy.  Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically
enforce any provision of this Agreement, and the Company will not be obligated
to post bond or other security in seeking such relief.  Without limiting the Company’s rights under
this Section 13 or any other remedies of the Company, if the Executive
breaches any of the provisions of Sections 9, 10, 11 or 12, the Company will
have the right to cease making any payments otherwise due to the Executive
under this Agreement.


 


(b)           The covenants by the
Executive in Sections 9, 10, 11 and 12 are essential elements of this
Agreement, and without the Executive’s agreement to comply with such covenants,
the Company would not have entered into this Agreement with the Executive.  The Company and the Executive have been
afforded the opportunity to consult their respective counsel and have been
advised, or had the opportunity to obtain advice, in all respects concerning
the reasonableness and propriety of such covenants (including, without
limitation, the time period of restriction and the geographical area of
restriction set forth in Section 9), with specific regard to the nature of
the business conducted by the Company and its subsidiaries and related or
affiliated companies or joint ventures. 
The Executive’s covenants in Sections 9, 10, 11 and 12 are independent
covenants and the existence of any claim by the Executive against the Company
under this Agreement or otherwise, will not excuse the Executive’s breach of
any covenant in Sections 9, 10, 11 or 12.


 


14.           Severability. 
It is the desire and intent of the parties that this Agreement shall be
enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought.  Accordingly, if any particular provision or
portion of this Agreement shall be adjudicated to be invalid or unenforceable,
this Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.


 


15.           Withholding. 
Any other provision of this Agreement notwithstanding, the Company may
withhold from amounts payable under this Agreement (a) all federal, state,
local and foreign taxes and social security taxes that are required to be
withheld by applicable laws or regulations as the Company shall determine in
its sole discretion, and (b) other ordinary and customary payroll
deductions.


 


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16.           Notices.  All notices,
requests, consents and other communications provided for in this Agreement
shall be in writing and shall be given by hand delivery or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:


 


If to the Company:


 


Sauer-Danfoss Inc.


250 Parkway Drive


Lincolnshire, Illinois
61069


Attention:  President


 


If to the Executive, to his residence address set
forth on the records of the Company, or to such other address as either party
furnishes to the other in writing in accordance with this Section 16.  All such notices shall be effective when
actually received by the addressee.


 


17.           Governing Law. 
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without regard to its
conflicts of laws provisions, except to the extent that the laws of the State
of Iowa are made applicable for purposes of Section 10 of this Agreement.


 


18.           Assignment.  Neither this
Agreement nor any rights or duties hereunder may be assigned by the Executive
without the prior written consent of the Company.  The Company shall have the right at any time
to assign this Agreement to its successors and assigns; provided, however,
that the assignee or transferee is the successor to all or substantially all of
the business and assets of the Company and such assignee or transferee
expressly assumes all of the obligations, duties and liabilities of the Company
specified in this Agreement.


 


19.           Amendments.  Any
alterations or amendments to this Agreement shall only be in writing and signed
by each party to this Agreement.


 


20.           Binding Effect. 
Except as otherwise provided, this Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective legal
representatives, heirs, successors and assigns.


 


21.           Execution in Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constituted
one and the same instrument.


 


22.           Arbitration. 
Any dispute, controversy or question arising under, out of, or relating
to this Agreement (or the breach thereof), or, the Executive’s employment with
the Company or termination thereof, other than those disputes relating to
Executive’s 


 


18





















 


alleged
violations of Sections 9, 10, 11 and 12 of this Agreement, shall be referred
for binding arbitration in Des Moines, Iowa to a neutral arbitrator selected by
the Executive and the Company and this shall be the exclusive and sole means
for resolving such dispute.  Such
arbitration shall be conducted in accordance with the National Rules for
Resolution of Employment Disputes of the American Arbitration Association.  The arbitrator shall have the discretion to
award reasonable attorneys’ fees, costs and expenses to the prevailing party.  Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.  This Section 22 does not apply to any
action by the Company to enforce Sections 9, 10, 11 and 12 of this Agreement
and does not in any way restrict the Company’s rights under Section 13 of
this Agreement.


 


23.           Entire Agreement. 
This Agreement sets forth the entire agreement and understanding of the
parties and supersedes all prior understandings, agreements or representations
by or between the parties, whether written or oral, which relate in any way to
the subject matter hereof, except as expressly provided in Section 8
regarding indemnification agreements. 
Without limiting the generality of the foregoing, all existing
employment agreements, change in control agreements and patent and confidential
information agreements are hereby terminated and of no further force or effect.


 


24.           Survivorship. 
The provisions of this Agreement necessary to carry out the intention of
the parties as expressed herein shall survive the termination or expiration of
this Agreement, including, without limitation, Sections 8, 9, 10, 11, 12 and
13.


 


25.           Waiver.  Except as
provided herein, the waiver by either party of the other party’s prompt and
complete performance, or breach or violation, of any provision of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach or violation, and the failure by any party hereto to exercise any right
or remedy which it may possess hereunder shall not operate nor be construed as
a bar to the exercise of such right or remedy by such party upon the occurrence
of any subsequent breach or violation.


 


26.           Captions.  The captions
of this Agreement are for convenience and reference only and in no way define,
describe, extend or limit the scope or intent of this Agreement or the intent
of any provision hereof.


 


27.           Construction. 
The parties acknowledge that this Agreement is the result of arm’s-length
negotiations between sophisticated parties each afforded representation by
legal counsel.  Each and every provision
of this Agreement shall be construed as though both parties participated
equally in the drafting of same, and any rule of construction that a
document shall be construed against the drafting party shall not be applicable
to this Agreement.


 


IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.


 


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  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Kenneth D. McCuskey

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SAUER-DANFOSS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Jim Remus

  
	
   

  	
  Name: Jim Remus

  
	
   

  	
  Title: Director – HR
  Services

  



 


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