Exhibit 10.1(ar)


 


SAUER-DANFOSS
INC.

409A DEFERRED COMPENSATION PLAN

FOR SELECTED EMPLOYEES AND US NONEMPLOYEE DIRECTORS


 


As
Amended and Restated as of January 1, 2008


 





















 


TABLE OF CONTENTS


 


	
  Article 1. Establishment and
  Purpose

  	
  3

  
	
   

  	
   

  
	
  1.1. Establishment

  	
  3

  
	
  1.2. Purpose

  	
  3

  
	
   

  	
   

  
	
  Article 2.
  Definitions

  	
  3

  
	
   

  	
   

  
	
  Article 3.
  Administration

  	
  7

  
	
   

  	
   

  
	
  3.1. Administration of the Plan

  	
  7

  
	
  3.2. Decisions Binding

  	
  8

  
	
  3.3. Indemnification

  	
  8

  
	
   

  	
   

  
	
  Article 4. Eligibility and
  Participation

  	
  8

  
	
   

  	
   

  
	
  4.1. Eligibility

  	
  8

  
	
  4.2. Participation

  	
  9

  
	
   

  	
   

  
	
  Article 5. Deferral
  Contributions

  	
  10

  
	
   

  	
   

  
	
  5.1. Amount Which May Be Deferred by a Participant

  	
  10

  
	
  5.2. Length of Deferral Period (i.e., Timing of
  Distributions)

  	
  10

  
	
  5.3. Form of Payment

  	
  11

  
	
  5.4. Non Revocation of Deferral

  	
  12

  
	
  5.5. Special Deferral Revocations and Special Distribution
  Provisions

  	
  12

  
	
  5.6. No Acceleration Of Benefits

  	
  13

  
	
   

  	
   

  
	
  Article 6. Deferred
  Compensation Accounts

  	
  13

  
	
   

  	
   

  
	
  6.1. Participants’ Accounts

  	
  13

  
	
  6.2. Earnings Credited on Deferred Amounts

  	
  13

  
	
  6.3. Charges Against Accounts

  	
  14

  
	
   

  	
   

  
	
  Article 7. Beneficiary
  Designation

  	
  14

  
	
   

  	
   

  
	
  Article 8. Rights of
  Participants

  	
  14

  
	
   

  	
   

  
	
  8.1. Contractual Obligation

  	
  14

  
	
  8.2. Unsecured Interest

  	
  14

  
	
  8.3. Service with the Company

  	
  14

  
	
   

  	
   

  
	
  Article 9. Amendment and
  Termination

  	
  15

  
	
   

  	
   

  
	
  Article 10. Miscellaneous

  	
  15

  
	
   

  	
   

  
	
  10.1. Notice

  	
  15

  
	
  10.2. Successors

  	
  15

  
	
  10.3. Nontransferability

  	
  15

  



 


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  10.4. Severability

  	
  15

  
	
  10.5. Costs of the Plan

  	
  15

  
	
  10.6. Gender and Number

  	
  15

  
	
  10.7. Governing Law

  	
  15

  



 


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SAUER-DANFOSS
INC.

409A DEFERRED COMPENSATION PLAN

FOR SELECTED EMPLOYEES US NONEMPLOYEE DIRECTORS


 


As
Amended and Restated as of January 1, 2008


 


Article 1.  Establishment and Purpose


 


1.1.          Establishment. 
Sauer-Danfoss Inc., a Delaware corporation (the “Company”), originally
established, effective as of January 1, 2005, a nonqualified deferred
compensation plan for selected employees of the Company or of a member of a
Related Group with the Company and for non-employee members of the Board of
Directors of the Company who are based in the United States. Such plan was
named the “Sauer-Danfoss Inc. 409A Deferred Compensation Plan for Selected
Employees and US Nonemployee Directors” (the “Plan”).  Effective January 1, 2008, the Plan is
amended and restated in its entirety to ensure compliance with Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”).


 


1.2.          Purpose.  The
primary purpose of the Plan is to provide US based members of the Board and
certain employees who constitute a select group of management or highly
compensated employees of the Company with the opportunity to voluntarily defer
all or a portion of their Compensation subject to the terms of the Plan and
Code Section 409A. Adoption of the Plan will help the Company attract and
retain key employees and directors.


 


Article 2.  Definitions


 


Whenever used herein, the
following terms shall have the meanings set forth below, and, when the defined
meaning is intended, the term is capitalized:


 


(a)           “Board” or “Board of Directors” means the Board of
Directors of the Company.


 


(b)           “Beneficiary” shall mean any legal or
natural person designated by a Participant to receive any benefits payable
under the Plan on account of the Participant’s death.  Each designation by a Participant shall be
filed with the Company during the Participant’s lifetime on a form designated
by and acceptable to the Committee, from time to time, for such purpose (the “Beneficiary Designation Form”) and may
include successive or contingent Beneficiaries.  A Participant, by filing a Beneficiary
Designation Form with the Company during the Participant’s lifetime, may
change a Beneficiary Designation at any time, and from time to time, without
the consent of or notice to any person previously designated by the
Participant.


 


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


 


(i)            Together
with securities of the Company already held by such person, any person (other
than those persons already in control of the Company as of the date of the
corporate transaction, or other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a corporation or
other entity owned directly or indirectly by the stockholders of the Company in



 


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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 more than fifty percent (50%) of the total 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 herein) 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 (as defined herein) 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 twelve (12) consecutive months, a majority of the individuals who
at the beginning of such period constitute the Board are replaced during such
period by individuals whose appointment or election is not endorsed by a
majority of the members of the Company’s Board prior to the date of the
appointment or election; or


 


(iii)          The
consummation of a plan of complete liquidation of the Company; or


 


(iv)          The
sale or disposition of all or substantially all the Company’s assets (i.e., greater than 80% of the total gross fair market value
of all of the assets of the Company immediately prior to such sale or
disposition) within a 12-month period ending on the date of the most recent
sale or disposition; or


 


(v)           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) more than 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 a Participant, if the Participant is part of a
purchasing group which consummates the Change-in-Control transaction.  A Participant shall be deemed “part of a
purchasing group” for purposes of the preceding sentence if the Participant is
an equity participant in the purchasing company or group (except for (A) passive
ownership of less than one percent (1%) of the stock of the purchasing company;
or (B) 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).


 


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Notwithstanding anything to the contrary, this definition of Change in
Control must comply, at all times, with Code Section 409A, any regulations
issued with respect to Code Section 409A and any other guidance issued the
IRS and authoritative on the issue.


 


(d)           “Code” means the Internal Revenue Code
of 1986, as amended.


 


(e)           “Committee” means the Compensation
Committee of the Board or such other committee appointed by the Board to
administer the Plan, as described in Article 3 herein.


 


(f)            “Company” means Sauer-Danfoss Inc., a
Delaware corporation.


 


(g)           “Company Officer” means any executive
officer of the Company, as defined by Regulation C, Rule 405 of the
Securities Act of 1933 and as determined by the Company and its legal counsel
from time to time.


 


(h)           “Compensation” means:


 


(i)            for
an Employee, the total amount of base compensation and annual incentive plan
bonus earned by such Employee by the Company or a member of the Related Group
with respect to services rendered during a Plan Year; and


 


(ii)           for
a US Nonemployee Director, the total amount of director cash compensation (and
any other incentive plan compensation which the Committee determines is
eligible for deferral under this Plan) earned by such US Nonemployee Director
by the Company for services rendered with respect to such US Nonemployee
Director’s Board duties during a Plan Year.


 


(i)            “Danfoss A/S” means 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.


 


(j)            “Deferral Period” means the time period
beginning with the date a deferral election takes effect and ending with the
date that a payment subject to the deferral election is scheduled to be
made.   As provided in Section 5.3(b),
the right to a series of installment payments is to be treated as a right to a
series of separate payments with a corresponding Deferral Period ending on the
date of each separately scheduled installment payment.


 


(k)           “Director” means a member of the Board
of Directors of the Company as of a given date.


 


(l)            “Disability” means a condition whereby a
Participant:


 


(i)            is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than 12
months; or


 


(ii)           is,
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits 


 


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for a period of not less than 3 months under an accident and health
plan covering employees of the Participant’s employer.


 


(m)          “Earnings Credit Rate” means a quarterly
interest rate, equal to 1/4 of the sum of the annual yield on 10-year U.S.
Treasury notes plus a credit risk spread over the 10-year Treasury note yield
based on the then current credit rating of the Company.  The Earnings Credit Rate will be redetermined
quarterly pursuant to the Plan.  For
purposes of this definition, the yield on 10-year U.S. Treasury notes shall be
such yield as published in the Wall Street Journal, or an equivalent yield if
the Wall Street Journal published rates become unavailable.  For purposes of this definition, the credit
risk spread over the 10-year Treasury note yield and the then current credit
rating of the Company will be determined in advance of each quarter by the
Company’s Treasurer, based on input from independent third parties including
the Company’s relationship banks and/or independent credit rating
agencies.    For purposes of Transition
Year Deferrals that relate to service prior to December 31, 2004 and that
would have been payable in 2005 absent any deferral election (i.e. deferred
2004 annual incentive plan payments), the Earnings Credit Rate shall at all
times be computed as a quarterly interest rate equal to 1⁄4 of the sum of the
annual yield on 10-year U.S. Treasury Notes plus 300 basis points (3%).


 


(n)           “Election to Defer Form” means the form designated by the Committee
for use by Employees and US Nonemployee Directors, as the case may be, and the
Employer to make certain elections as to deferring Compensation.  This form may be changed at any time by the
Committee as it deems necessary or advisable.


 


(o)           “Election to Extend Deferral Form” means the form designated by the Committee
for use by Employees and US Nonemployee Directors, as the case may be, and the
Employer to further extend the Deferral Period related to payment of their
deferred compensation under the Plan. 
This form may be changed at any time by the Committee as it deems
necessary or advisable.


 


(p)           “Election to Change Form of Distribution” means the form designated by the Committee
for use by Employees and US Nonemployee Directors, as the case may be, and the
Employer to change the form in which paymentof their deferred compensation
under the Plan will be paid to them (i.e., lump sum
or installments).  This form may be
changed at any time by the Committee as it deems necessary or advisable.


 


(q)           “Employee” means any full-time, salaried
employee of the Company or of a member of a Related Group with the Company.


 


(r)            “Executive Office” means the executive
office of the Company, as the same shall from time to time exist.


 


(s)           “Murmann Group” means any one or more
of:


 


(i)            Klaus
Murmann;


 


(ii)           any
member of Klaus Murmann’s immediate family;


 


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(iii)                               any entity a majority of the voting interests of which are owned,
directly or indirectly, by Klaus Murmann and/or any member or members of his
immediate family; or


 


(iv)                              any 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.


 


(t)                                    “Participant”
means any Employee or US Nonemployee Director who has participated in, and
accrued a benefit under the Plan.


 


(u)                                 “Plan”
means the Sauer-Danfoss Inc. 409A Deferred Compensation Plan for Selected
Employees and US Nonemployee Directors, as amended from time to time.


 


(v)                                 “Plan
Year”, generally, means the twelve month period ending each December 31.  So long as the Company and its Related Group
continue to pay their employees on a bi-weekly schedule, the beginning of a
Plan Year will coincide with the beginning of the payroll period that is first
paid after January 1st and
the end of a Plan Year will coincide with the end of payroll period that falls
latest in the following December.


 


(w)                               “Related Group”
shall mean a controlled group of corporations (as defined in Code §414(b)),
trades or businesses (whether or not incorporated) which are under common
control (as defined in Code §414(c)) or an affiliated service group (as defined
in Code §414(m) or in Code §414(o)).


 


(x)                                   “Transition
Year Deferrals” shall mean any Compensation which would have
been earned and/or payable during calendar year 2005 but for an election made
by the Participant in accordance with Code Section 409A (and any
corresponding IRS or Department of Treasury guidance) to defer such
Compensation under this Plan and which such deferral election had not been
revoked, as previously allowed by the Plan and certain transitional rules to
Code Section 409A.


 


(y)                                 “US
Nonemployee Director” means a Director who is not an Employee
and who is based in the United States.


 


Article 3.  Administration


 


3.1.                              Administration of the Plan.  The
Plan shall be administered:


 


(a)                                  by the Committee, with respect to Company
Officers and US Nonemployee Directors; and


 


(b)                                 by the Executive Office, with respect to
Employees other than Company Officers.


 


Subject to the provisions set forth herein,
the Committee and the Executive Office shall, for their respective
constituencies, have full power to determine the terms and conditions of each
Employee’s or US Nonemployee Director’s participation in the Plan; to construe
and interpret the Plan and any agreement or instrument entered into under the
Plan; to establish, amend or waive rules and regulations for the Plan’s
administration; to amend (subject to the provisions of Article 9 herein)
the 


 


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terms and conditions of the Plan and any
agreement or instrument entered into under the Plan; and to make other
determinations which may be necessary or advisable for the administration of
the Plan.  Notwithstanding the foregoing,
subject to the terms of the Plan, the Committee and the Executive Office may,
for their respective constituencies, delegate any or all of its authority
granted under the Plan to a committee appointed by the Board or to an executive
or executives of the Company.


 


3.2.                              Decisions Binding.  For
their respective constituencies, all determinations and decisions of the
Committee and the Executive Office as to any disputed question arising under
the Plan, including questions of construction and interpretation, shall be
final, conclusive and binding on all parties.


 


3.3.                              Indemnification.  Each
person who is or shall have been a member of the Committee or the Executive
Office or who is or shall have been a delegate pursuant to Section 3.1
shall be indemnified and held harmless by the Company against and from any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim, action,
suit or proceeding to which such person may be a party, or which such person
may be involved by reason of any action taken or failure to act under the Plan
unless such action or failure to act is the result of intentional
misconduct.  The Company shall, subject
to the requirements and limitations of Delaware law, pay such loss, cost,
liability or expense imposed on or incurred by such person promptly upon demand
by such person, whether or not such person has actually advanced such amount
prior thereto.


 


Except with respect to
intentional misconduct, the Company shall also indemnify each such person who
is or shall have been a member of the Committee and the Executive Office
against and from any and all amounts paid by such person in settlement thereof,
with the Company’s approval, or paid by such person in satisfaction of any
judgment in any such action, suit or proceeding against such person, provided
such person shall give the Company an opportunity, at its own expense, to
handle and defend the same before such person undertakes to handle and defend
it on his or her own behalf.


 


The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company’s Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.


 


Article 4.  Eligibility and Participation


 


4.1.                              Eligibility.


 


(a)                                  Selection and Designation.  Eligibility to participate in this Plan shall be limited to US
Nonemployee Directors and Employees who constitute a select group of management
or highly compensated employees of the Company or of a member of a Related
Group with the Company. The Committee shall, in its discretion, select the
Company Officers who are eligible to participate in the Plan. The Executive
Office shall, in its discretion, select the Employees, other than Company
Officers, who are eligible to participate in the Plan. All US Nonemployee
Directors shall be immediately eligible to participate in the Plan unless
otherwise removed from eligibility to participate by written action of the
Committee. The Company’s Vice President-Human Resources or Director — HR
Services shall notify such selected Company Officers, Employees and US
Nonemployee Directors of 


 


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their eligibility in writing.  No
Employee or US Nonemployee Director shall be allowed to vote in any matter
affecting his or her eligibility or participation in this Plan.  Once granted, eligibility will continue on a
year to year basis, except as provided in Section 4.1(b) or unless
such eligibility is discontinued due to amendment or termination of the Plan as
provided in Section 9.


 


(b)                                 Ineligibility Event Mid-Year.  In
the event a Participant no longer meets the requirements for eligibility to
participate in the Plan, such Participant shall become an inactive Participant
as of the January 1 of the Plan Year immediately following the Plan Year
that includes the ineligibility event trigger. 
Notwithstanding this, such Participant shall retain all of the rights
described under the Plan, except the right to make any further deferrals
hereunder as of the immediately following January 1; provided, however,
that such a Participant shall continue to make deferrals for the remainder of
the Plan Year in which he or she becomes ineligible to participate.


 


4.2.                              Participation.


 


(a)                                  No Eligibility Until
Notification.  When an Employee is selected for eligibility
to participate under the Plan by the Committee or the Executive Office, as the
case may be, or a US Nonemployee Director becomes eligible, such Employee or US
Nonemployee Director, as the case may be, shall be notified in writing by the
Company’s Vice President-Human Resources or Director — HR Services of such
eligibility to participate. 
Notwithstanding any eligibility designation under Section 4.1
above, an Employee or US Nonemployee Director, as the case may be, shall not be
eligible for the first time unless and until notification is provided to them
of such designation.


 


(b)                                 Election to Participate. 
Subject to Code Section 409A nonqualified deferred compensation
plan aggregation rules, an Employee or US Nonemployee Director, as the case may
be, who becomes newly eligible to participate in the Plan under Section 4.1
and paragraph (a) above must submit the Election to Defer Form within
thirty (30) days of the date he/she first becomes eligible due to notification
pursuant to paragraph (a) immediately above.  However, such deferral elections shall be
prospective and shall apply only to Compensation that would otherwise be paid
to the Employee or US Nonemployee Director, as the case may be, after the
Election to Defer Form is filed. 
Notwithstanding the foregoing, no deferral elections shall be permitted
under the Plan until such time as determined by the Company.  Additionally, at the time a Participant files
his/her first Election to Defer Form under this paragraph (b), the
Participant must also make the timing-of-distribution election (specifically
relating to a specified, fixed date for distribution) described in Section 5.2
and the form-of-distribution election described in Section 5.3 related to
his/her total amounts accumulated under the Plan.  In the event that a Participant does not make
a timing-of-distribution election (specifically relating to a specified, fixed
date for distribution) and/or a form-of-distribution election with respect to
his or her initial deferral election under the Plan, such Participant shall be
deemed to have initially elected to receive his or her deferred compensation in
the form of a lump-sum on a date which is six (6) months following his or
her date of termination of service (unless earlier acceleration due to death,
Disability or a Change in Control).


 


(c)                                  Annual Submission of
Election to Defer Form.  Before the beginning of each Plan Year, each
eligible Employee or US Nonemployee Director, as the case may be, 


 


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may elect to defer Compensation that would otherwise be paid to the
Employee or US Nonemployee Director, as the case may be, with respect to
such  Plan Year.  This election must be made on the Election to
Defer Form (or any successor form thereto for this purpose) provided by
the Committee.  The election may be
amended at any time but any election as in effect on the last business day
before the first day of the Plan Year with respect to which the election is
made shall govern.  An Employee or US
Nonemployee Director, as the case may be, must file a new Election to Defer Form for
each Plan Year as to which he or she wishes to defer Compensation.  Notwithstanding the foregoing, no such
elections shall be permitted under the Plan until such time as determined by
the Company.


 


(d)                                 Failure to Submit Annual Election to Defer Form.  If an eligible Employee or US Nonemployee
Director, as the case may be, fails to submit the appropriate annual Election
to Defer Form as required under this Section 4.1, he or she will be
deemed to have elected not to participate in the Plan for the Plan Year to
which such form otherwise would apply.


 


(e)                                  Affect of Deferral of Annual Incentive Bonus in Year
of Termination.  Notwithstanding
anything in the Plan to the contrary, upon the earliest to occur for the
Participant of the triggering events listed in Section 5.2(a), any
outstanding Election to Defer Form shall not be given effect to the extent
any amounts covered by such Election to Defer Form are otherwise payable
after such triggering event.  As such, no
further deferrals shall be made to the Plan with respect to any Compensation
payable to the Participant under the Company’s annual incentive plan after such
triggering event.  Payment of previously
deferred amounts shall be made pursuant to Article 5.


 


Article 5.  Deferral Contributions


 


5.1.                              Amount Which May Be
Deferred by a Participant.  A Participant may elect to defer up to one
hundred percent (100%) of Compensation in any Plan Year.  Participants shall make their elections to
defer Compensation under the Plan prior to the beginning of each Plan Year, or
not later than thirty (30) calendar days following notification of initial
eligibility to participate for a partial Plan Year, as applicable.


 


5.2.                              Length of Deferral Period
(i.e., Timing of Distributions).


 


(a)                                  General Rule. 
Payment of the Participant’s deferred amounts for any given Plan Year
shall commence no later than ninety (90) days following the earliest to occur of the following events:


 


(i)                                     the Participant’s death;


 


(ii)                                  the Participant’s Disability;


 


(iii)                               a six (6) month anniversary following a Change in Control of the
Company;


 


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(iv)                              the six (6) month anniversary following the Participant’s
termination from service with the Company or a member of the Related Group; or


 


(v)                                 a specified, fixed date chosen by the
Participant, if any, that is at least two years following the date on which the
initial deferral election takes effect.


 


(b)                                 Subsequent Deferral Election.  A
Participant may elect to extend a Deferral Period previously selected under
subparagraph (v) of paragraph (a) immediately above for a given Plan
Year by filing an Election to Extend Deferral Period Form (or any
successor form thereto from time to time) with the Company that specifies the
later fixed date on which the Deferral Period for such Plan Year will
expire.  This Election to Extend Deferral
Period Form must be filed at least one year (i.e.,
twelve (12) months) before the expiration of the original Deferral Period
specified by the Participant under subparagraph (v) of paragraph (a) immediately
above with respect to such Plan Year. 
This Election to Extend Deferral Period Form will not be effective
until at least one year (i.e., twelve
(12) months) after the date on which such form has been filed.  Under the Election to Extend Deferral Period
Form, all payments scheduled under the extended specified, fixed date for a given
Plan Year must occur five years or later from the date such payments were
originally scheduled to be received under the then designated and enforceable
specified, fixed date election for such Plan Year.  A Participant may make multiple subsequent
deferral elections under this paragraph (b) for any given Plan Year but
any time requirements set forth herein must be separately satisfied with
respect to each subsequent distribution election.  Notwithstanding the foregoing, subsequent
deferral elections made on an Election to Extend Deferral Period Form must
comply, at all times, with Code Section 409A, any regulations issued with
respect to Code Section 409A and any other guidance issued the IRS and
authoritative on the issue.


 


5.3.                              Form of Payment.


 


(a)                                  Upon Death, Disability or a
Change in Control.  In the event of a Participant’s death or
Disability, or in the event of a Change in Control of the Company,
notwithstanding anything to the contrary, payment of deferred compensation to a
Participant shall be made in a single lump sum, in cash, in accordance with the
timing rules set forth in Section 5.2 above.


 


(b)                                 Upon Termination of Service
or a Specified, Fixed Date.


 


(i)                                     General Rule.  At the time a Participant files an Election to Defer Form for a
given Plan Year, the Participant must elect the form in which the Participant’s
entire account will be distributed if such distribution event occurs due to
reason of the Participant’s termination of service or the Participant’s
selection of specified, fixed distribution date.  The Participant must elect either:


 


(A)                              A lump sum payment; or


 


(B)                                Annual installment payments over a period not longer than ten years.


 


For purposes of the Plan and
Code Section 409A, the right to a series of installment payments is to be
treated as a right to a series of separate payments.


 


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(ii)                                  Subsequent Change in Form Election.  A
Participant may elect to change his/her form of distribution (i.e., from lump
sum to installments or vice versa) by filing an Election to Change Form of
Distribution (or any successor form thereto from time to time) with the Company
that specifies the newly elected form of distribution.  This Election to Change Form of
Distribution must be filed at least one year (i.e.,
twelve (12) months) before the expiration of the then designated and
enforceable Deferral Period specified by the Participant under subparagraph (v) of
paragraph (a) of Section 5.2 immediately above with respect to such
Plan Year.  This Election to Change Form of
Distribution will not be effective until at least one year (i.e., twelve (12) months) after the date on which such form
has been filed.  Under the Election to
Change Form of Distribution, any change in form of distribution (i.e., from lump sum to installments or vice versa) cannot
accelerate any payment scheduled under the then designated and enforceable
Deferral Period for such Plan Year and shall additionally require an automatic
delay in the timing of distribution to five (5) years from the date all
such payments are then scheduled to be made under then designated and
enforceable Deferral Period for such Plan Year. 
A Participant may make multiple subsequent changes in form elections
under this subparagraph (ii) for any given Plan Year but any time
requirements set forth herein must be separately satisfied with respect to each
subsequent distribution election. 
Notwithstanding the foregoing, subsequent change in form elections made
on an Election to Change Form of Distribution must comply, at all times,
with Code Section 409A, any regulations issued with respect to Code Section 409A
and any other guidance issued the IRS and authoritative on the issue.


 


5.4.                              Non Revocation of Deferral.  
After the beginning of a Plan Year, a Participant may not increase or
decrease the amount of Compensation deferred for that Plan Year under Section 5.1
nor may the Participant revoke such deferral election for the Plan Year, except
to the extent that such revocation would be allowable by the provisions
of Section 5.5 below.


 


5.5.                              Special Deferral Revocations
and Special Distribution Provisions.


 


(a)                                  Unforeseeable Emergency. 
Notwithstanding Section 5.2, 5.3 and 5.4, for their respective
constituencies, the Committee and the Executive Office shall have the authority
to alter the timing or manner of payments of deferred amounts in the event that
a Participant establishes, to the satisfaction of the Committee or the
Executive Office, as appropriate, the occurrence of an unforeseeable emergency.  In such event, the Committee or the Executive
Office, as appropriate, may, in its sole discretion:


 


(i)                                     Authorize the cessation of deferrals by such
Participant under the Plan; and/or


 


(ii)                                  Provide that all, or a portion, of the amount
previously deferred by the Participant shall immediately be paid in a lump-sum
cash payment.


 


For purposes of this paragraph (a), “unforeseeable emergency” shall
mean a severe financial hardship to the Participant resulting from an illness
or accident of the Participant, the Participant’s spouse, Beneficiary or a
dependent (as defined in Internal Revenue Code Section 152(a)) of the
Participant, loss of the Participant’s property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond 


 


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the control of the Participant. 
In any event, payment may not be made to the extent such emergency is or
may be relieved:


 


(A)                              through reimbursement or compensation by insurance or otherwise;


 


(B)                                by liquidation of the Participant’s assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship;
and


 


(C)                                by cessation of deferrals under the Plan.


 


Withdrawals of amounts because of a severe financial hardship may only
be permitted to the extent reasonably necessary to satisfy the hardship plus
amounts necessary to pay taxes reasonably anticipated as a result of the
emergency distribution.  Examples of
situations that are not considered to be severe financial hardships include the
need to send a Participant’s child to college or the desire to purchase a home.


 


The severity of the financial hardship shall be judged by the Committee
or the Executive Office, as appropriate. 
The decision of the Committee or the Executive Office, as appropriate,
with respect to the severity of financial hardship and the manner in which, if
at all, the Participant’s future deferral opportunities shall be ceased, and/or
the manner in which, if at all, the payment of deferred amounts to the Participant
shall be altered or modified, shall be final, conclusive, and not subject to
appeal.


 


Distribution on account of an unforeseeable emergency shall be made no
later than fifteen (15) days following the date the distribution is approved by
the Committee or the Executive Office, as appropriate.


 


5.6.                              No Acceleration Of Benefits. 
Notwithstanding any other terms in this Plan document, the Plan does not
permit the acceleration of the time or schedule of any payment under the Plan,
except as may be allowed by Treasury Regulations or any other Department of
Treasury or IRS guidance issued under Code Section 409A.


 


Article 6.  Deferred Compensation Accounts


 


6.1.                              Participants’ Accounts.  The
Company shall establish and maintain an individual bookkeeping account for
deferrals made by each Participant, and earnings credited to the
deferrals.  Each account shall be
credited as soon as practicable after the date the amount deferred otherwise
would have become due and payable to the Participant.  The establishment and maintenance of such
accounts, however, shall not be construed as entitling any Participant to any
specific assets of the Company.


 


6.2.                              Earnings Credited on
Deferred Amounts.  In addition to deferred compensation amounts
credited to the unfunded accounts described in Section 6.1, there shall be
credited to each account, on the last day of each calendar quarter, an amount
determined by multiplying the account balance on the first day of such calendar
quarter by the Earnings Credit Rate, determined as of the first day of such
calendar quarter.  If there are changes
to a Participant’s deferred compensation balance during a calendar quarter due
to contributions or distributions, the earnings credited will be adjusted on a
pro rata basis, using the Earnings Credit Rate as of the first day of such
calendar 


 


13

















 


quarter. 
For information purposes only, the Company will, at least annually,
issue a statement to each Participant reflecting the unfunded account balance
relating to that Participant.  Any such
statement to a Participant shall not in any way alter the Participant’s rights,
duties or responsibilities as set forth in the Plan or the Participant’s
elections relating to the Plan.


 


6.3.                              Charges Against Accounts. 
There shall be charged against each Participant’s deferred compensation
account any payments made to the Participant or to the Participant’s
Beneficiary.


 


Article 7.  Beneficiary Designation


 


Each Participant shall
designate a Beneficiary or Beneficiaries who, upon the Participant’s death,
will receive the amounts that otherwise would have been paid to the Participant
under the Plan.  All designations shall
be signed by the Participant, and shall be made on a Beneficiary Designation
Form.  Each designation shall be
effective as of the date delivered to the Company.


 


Participants may change
their designations of Beneficiary by completing a new Beneficiary Designation
Form.  The payment of amounts deferred
under the Plan shall be in accordance with the last unrevoked written
designation of Beneficiary that has been signed by the Participant and
delivered by the Participant to the Company prior to the Participant’s death.


 


In the event that all the
Beneficiaries named by a Participant pursuant to this Article 7 predecease
the Participant, the deferred amounts that would have been paid to the
Participant or the Participant’s Beneficiaries under the Plan shall be paid
first to the Participant’s spouse, if any. 
If the Participant is not survived by a spouse, then the benefits shall
be paid to the Participant’s surviving children in equal shares.  In the event no spouse or children exist, any
benefit payable under the Plan shall, upon the death of the Participant, be
paid to the Participant’s estate.


 


In the event a Participant
does not designate a Beneficiary, or for any reason such designation is
ineffective, in whole or in part, the amounts that otherwise would have been
paid to the Participant or the Participant’s Beneficiaries under the Plan shall
be paid first to the Participant’s spouse, if any.  If the Participant is not survived by a
spouse, then the benefits shall be paid to the Participant’s surviving children
in equal shares.  In the event no spouse
or children exist, any benefit payable under the Plan shall, upon the death of
the Participant, be paid to the Participant’s estate.


 


Article 8.  Rights of Participants


 


8.1.                              Contractual Obligation.  The
Plan shall create a contractual obligation on the part of the Company to make
payments from the Participants’ accounts when due.  Payment of account balances shall be made out
of the general funds of the Company.


 


8.2.                              Unsecured Interest.  No
Participant or party claiming an interest in deferred amounts or contributions
of a Participant shall have any interest whatsoever in any specific asset of
the Company.  To the extent that any
party acquires a right to receive payments under the Plan, such right shall be
equivalent to that of an unsecured general creditor of the Company.


 


8.3.                              Service with the Company.  Neither
the establishment of the Plan, nor any action taken hereunder, shall in any way
obligate the Company or any other member of the Related Group 


 


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to continue the employment of an Employee or
US Nonemployee Director, as the case may be, as an executive or in any other
capacity.


 


Article 9.  Amendment and Termination


 


The Company hereby reserves
the right to amend, modify or terminate the Plan at any time by action of the
Committee, with respect to changes impacting Company Officers and US
Nonemployee Directors, and by the Executive Office, with respect to changes
impacting Employees other than Company Officers. No such amendment or
termination shall in any material manner adversely affect any Participant’s
rights to deferred amounts (including earnings and appreciation thereon)
without the consent of the Participant.


 


Article 10.  Miscellaneous


 


10.1.                        Notice.  Any
notice or filing required or permitted to be given to the Company under the
Plan shall be sufficient if in writing and hand delivered, or sent by regular
mail to the Vice President — Human Resources. 
Such notice, if mailed, shall be addressed to the offices of the Company
in Ames, Iowa.  Notice sent to a
Participant by regular mail shall be at such address as is given in the records
of the Company.  Notices shall be deemed
given as of the date of delivery or, if delivery is made by regular mail, as of
the date shown on the postmark.


 


10.2.                        Successors.  All
obligations of the Company under the Plan shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company.


 


10.3.                        Nontransferability. 
Participant’s rights to deferred amounts, contributions and earnings
credited thereon under the Plan may not be sold, transferred, assigned or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.  In no event
shall the Company make any payment under the Plan to any assignee or creditor
of a Participant.


 


10.4.                        Severability.  In
the event any provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect any remaining parts of
the Plan, and the Plan shall be construed and enforced as if illegal or invalid
provision had not been included.


 


10.5.                        Costs of the Plan.  All
costs of implementing and administering the Plan shall be borne by the Company.


 


10.6.                        Gender and Number. 
Except where otherwise indicated by the context, any masculine term used
herein also shall include the feminine; the plural shall include the singular,
and the singular shall include the plural.


 


10.7.                        Governing Law.  The
Plan shall be governed by and construed in accordance with the laws of the
state of Iowa without giving effect to any choice or conflict of law provision
or rule.


 


Executed at Ames, Iowa, this
           day of
                          ,
2008


 


15

















 


SAUER-DANFOSS INC.


 


	
  By

  	
   

  	
   

  
	
   

  	
   

  
	
  Approved This 4th Day of December, 2008

  
	
   

  	
   

  
	
   

  	
   

  
	
      /s/
  Ronald H. Hanson

  	
   

  
	
  Ronald H. Hanson

  	
   

  
	
  Vice President – Human
  Resource

  	
   

  
	
  Sauer-Danfoss Inc.

  	
   

  



 


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