Document:

Exhibit 10.1(f)

 

AMENDMENT NO. 2 TO LEASE

 

THIS AMENDMENT NO. 2 TO LEASE (“Amendment”) made as
of the 28th day of
March, 2007, by and between ST. PAUL PROPERTIES, INC., a Delaware corporation (“Landlord”)
and SAUER-DANFOSS US COMPANY, a Delaware corporation (“Tenant”).

 

WITNESSETH:

 

WHEREAS, Landlord and Sauer-Sundstrand Company (“Sauer”) were the
parties to a certain Lease Agreement dated September 17, 1997 (the “Original
Lease”), for premises described therein (the “Premises”); and

 

WHEREAS, Tenant is the successor by merger to Sauer; and

 

WHEREAS, Landlord and Tenant entered into that certain Amendment No. 1
to Lease dated as of December 9, 2002 (the “First Amendment”; the Original
Lease and the First Amendment are collectively, the “Lease”); and

 

WHEREAS, Landlord and Tenant wish further to amend the Lease to reflect
certain additional agreements between them.

 

NOW, THEREFORE, in consideration of the Premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as set forth below.

 

1.              Defined
Terms. Unless otherwise
indicated, capitalized terms shall be defined in the manner set forth in the
Lease.

 

2.              Extension
of Term. The Term of the
Lease is hereby extended for a period of eighty five (85) months commencing March 1,
2008 (the “Second Extension Commencement Date”) and ending on March 31, 2015
(such period the “Second Extension Term”).

 

3.              Base
Rent. During the Second
Extension Term, Tenant shall pay base rent for the Premises in the amount of:

 

(a)             for the period beginning on the Second
Extension Commencement Date and ending on the last day of the twelfth calendar
month of the Second Extension Term, $551,143.76 per annum ($45,928.63 per
month);

 

(b)             for the period beginning on the first day of
the thirteenth (13th) full calendar month of the Second Extension
Term and ending on the last day of the twenty fourth (24th)
full calendar month of the Second Extension Term, $562,240.44 per annum
($46,853.37 per month);

 

(c)             for the period beginning on the first day of
the twenty fifth (25th ) full calendar month of the Second
Extension Term and ending on the last day of the thirty

 

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sixth (36th) full calendar month of the Second Extension
Term, $573,337.20 per annum ($47,778.10 per month);

 

(d)          for the period beginning on the first day of the thirty seventh (37th ) full calendar month of the Second Extension Term and ending on
the last day of the forty eighth (48th) full calendar
month of the Second Extension Term, $585,173.88 per annum ($48,764.49 per
month);

 

(e)           for the period beginning on the first day of the forty ninth (49th) full calendar month of the Second Extension Term and ending on the
last day of the sixtieth (60th) full calendar month of the Second Extension
Term, $597,010.56 per annum ($49,750.88 per month);

 

(f)           for the period beginning on the first day of the sixty first (61st) full calendar month of the Second Extension Term and ending on the
last day of the seventy second (72nd) full calendar
month of the Second Extension Term, $608,847.12 per annum ($50,737.26 per
month); and

 

(g)          for the period beginning on the first day of the seventy third (73rd) full calendar month of the Second Extension Term and ending on the
last day of the eighty fifth (85th) full calendar
month of the Second Extension Term, $620,683.80 per annum ($51,723.65),

 

without
deduction or setoff therefrom, payable at the time and in the manner set forth
in the Original Lease for the payment of base rent. Notwithstanding the
foregoing, the parties agree that, provided that Tenant is not then in default
under the Lease, Tenant shall not be obligated to pay base rent for the months
of March, April and May, 2008 (the amount of such base rent is herein the “Abated
Rent”). Tenant’s right to the Abated Rent may, at Landlord’s option, be revoked
by written notice to Tenant if, at any time Tenant defaults under this Lease,
and such default is not cured within the time period allowed for the cure
thereof under the Lease, if any. In such event, Tenant shall be required to
repay the Abated Rent, within fifteen (15) days after Landlord’s written demand
therefor, it being understood and agreed that any failure to repay as provided
in this subparagraph shall constitute an additional default under Paragraph 18
of the Original Lease.

 

The parties agree that, Tenant elects to obtain the Increased
Contribution pursuant to Paragraph 8(b) of the Work Letter attached to
this Amendment as Exhibit A, and made a part hereof, during the
Second Extension Term, the base rent shall be increased to amortize the
Increased Contribution on a straight line basis over the Second Extension Term,
together with interest on said Increased Contribution at the rate of eight and
one half percent (8.5%) per annum. All other provisions of this Paragraph 3
shall apply during the Second Extension Term.

 

4.              Amendments.

 

(a)           The
second paragraph of Paragraph 11.A of the Original Lease is hereby deleted and
the following substituted therefor:

 

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“If Landlord grants its
consent to any sublease or assignment, Tenant shall pay Landlord, as Additional
Rent, one hundred percent (100%) of any amounts payable to Tenant under the
Lease, as assigned, or the sublease in excess of (i) the base rent and
Operating Costs payable by Tenant under this Lease; and (ii) any marketing
costs, legal fees and/or brokerage commissions incurred by Tenant in obtaining
the assignment or sublease. Tenant shall also pay Landlord’s attorneys’ fees
and costs for review and negotiation of any assignment and/or sublease
documents whether or not the assignment or sublease is approved by Landlord. In
addition, if Tenant has any options to extend or renew the Term, such options
shall not be available to any subtenant or assignee, directly or indirectly. If
Tenant assigns this Lease or sublets all or a portion of the Premises without
first obtaining Landlord’s consent, as required by this Paragraph 11.A. said
assignment or sublease shall be null and void and of no force or effect.
Landlord’s consent to an assignment, sublease or other transfer of any interest
of Tenant in this Lease or in the Premises shall not be deemed to be a consent
to any subsequent assignment, transfer, use or occupation.”

 

(b)           Paragraph 30 of the Rider to Lease and Paragraph 4 of the First
Amendment are hereby deleted.

 

5.             Additional Agreements.

 

(a) Right of Termination. Subject
to the terms and conditions of this Paragraph 5(a), Tenant shall have the right
to terminate the Lease effective as of February 29, 2012 (the “Termination
Date”) by giving written notice thereof (the “Termination Notice”) to Landlord
not later than May 31, 2011; provided however, it shall be a condition
precedent to the exercise of such option that, within thirty (30) days after
the date of the Termination Notice, Tenant delivers to Landlord a termination
fee (the “Termination Fee”) in the amount of $420,995.83, it being understood
and agreed that (i) to the extent Tenant has elected to take the Increased
Contribution, said $420,995.83 will be increased to incorporate the unamortized
Increased Contribution, together with interest thereon at the rate of eight and
one-half percent (8.5%) per annum, which $420,995.83 together with the
unamortized Increased Contribution and interest thereon as provided above shall
then be the “Termination Fee”; and (ii) (A) if the Termination Fee is
not paid by 5:00 p.m. on March 30, 2012; or (B) if the
Termination Fee is paid by check and said check is stopped or does not clear,
then, in either case, Tenant shall be deemed to have waived its right to
terminate the Lease and the Lease shall continue through March 31, 2015,
unless earlier terminated by Landlord

 

In addition to the foregoing, the following
shall be conditions precedent to the exercise of the termination option granted
by this Paragraph: (i) Tenant shall not be in default under any of the
terms and conditions of the Lease as of the date of either of the Termination
Date or the date of the Termination Notice; and (ii) in the Termination
Notice, Tenant shall include a representation that the reason for termination
of the Lease is Tenant’s requirement for premises in excess of 74,000
contiguous rentable square feet in which to conduct its business. If Tenant
satisfies all of the foregoing conditions, base rent, Operating Costs and other
expenses due and payable by Tenant under the Lease shall be paid through and
apportioned as of the Termination Date, as applicable, and

 

3

 

neither Landlord nor Tenant shall have any rights, estates, liabilities
or obligations accruing under the Lease after the Termination Date, except such
rights and obligations which, by the terms of the Lease, expressly survive the
expiration or termination of the Lease. The right to terminate granted herein
shall be personal to Tenant and shall not accrue to any assignee, sublessee or
successor to the interest of Tenant under the Lease.

 

(b)         AS-IS. On the Second Extension Commencement Date, Tenant shall take the
Premises in their then AS-IS, WHERE-IS AND WITH ALL FAULTS CONDITION, and any
and alterations shall be made by Tenant in accordance with the Work Letter and
otherwise in accordance with Paragraph 7 of the Original Lease.

 

(c)         Brokerage. The parties agree that, except for United Properties Brokerage, LLC,
as to Landlord, and Equis Corporation, as to Tenant, neither party has been
represented by any broker, agent or other person in connection with this
transaction contemplated by this Amendment and each party agrees to defend,
indemnify and hold the other party harmless from and against any claims by any
other broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with either party with regard to the
transaction contemplated by this Amendment.

 

(d)         Renewal of Lease. Landlord hereby grants to Tenant two (2) consecutive
five-year options to renew the Lease as to the Premises, upon the terms and
conditions of this subparagraph (d) if:

 

(i)              Tenant is not in default under the Lease, as
the same may have been renewed beyond any time to cure at the time such option
is exercised; and

 

(ii)             Tenant gives Landlord written notice of the
exercise of the renewal of this Lease not earlier than April 1, 2014, and
not later than June 30, 2014 Second Extension Term (the “First Renewal
Notice of Exercise”) or, if the Lease has been previously renewed, not earlier
than April 1, 2019 or June 30, 2019 months prior to the end of the
Second Extension Term as previously renewed pursuant to this subparagraph (d) (the
“Second Renewal Notice of Exercise”; the First Renewal Notice of Exercise and
the Second Renewal Notice of Exercise may be referred to singly as a “Renewal
Notice of Exercise” or collectively as the “Renewal Notices of Exercise”), time
being of the essence. Tenant’s failure to notify Landlord of its intent to
exercise either option to renew the Term granted herein on or before the dates
specified in this subparagraph (ii) for such renewal shall be deemed a
waiver of Tenant’s right to exercise its option to renew; it being understood
and agreed that if Tenant fails timely to exercise said option as to the first
renewal term, its right to exercise said option as to the second renewal term
shall be deemed waived.

 

If Tenant elects to renew
the Lease under this subparagraph (d), the following terms and conditions shall
apply as to each renewal:

 

(i)              the renewal term in question shall commence
upon the expiration of the Second Extension Term or the first renewal term
described above, as the case may be, and continue thereafter for a period of
five (5) years;

 

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(ii)             Base Rent for the Premises for the extension
term shall be Market Rent (as defined in subparagraph (e) below); and

 

(iii)            all of the other terms and conditions
contained in this Lease, as it may have been amended from time to time, shall
be as set out in this Lease, it being understood that there shall be no rights
of renewal or extension except as provided in this subparagraph (d), and, upon
the exercise of the rights of renewal granted by this subparagraph (d) subject
to the terms and conditions herein, this subparagraph (d) shall be of no
further force or effect and Tenant shall have no right to further renew or
extend the term of the Lease.

 

Within fifteen (15) days after request
thereof from Landlord, Tenant shall execute and deliver to Landlord those
instruments which Landlord may request to evidence the renewal(s) described
in this subparagraph (d). The rights of Tenant under this subparagraph (d) shall
not be severed from this Lease or separately sold, assigned, or otherwise
transferred, and shall expire on the expiration or earlier termination of this
Lease. Notwithstanding the foregoing, the renewal option contemplated by this
subparagraph (d) shall automatically terminate and become null and void
and of no further force and effect upon the earlier to occur of (i) the
expiration or termination of this Lease, (ii) the termination of the
Tenant’s right to possession of the Premises, or (iii) the failure of
Tenant to timely or properly exercise the rights granted by this subparagraph
(d). The right contemplated by this subparagraph (d) shall not be
available to any assignee, sublessee, or successor to Tenant’s interests
hereunder.

 

(e)           Market
Rent. “Market Rent” means the amount of base rent, which may or may not
include concessions, improvements and other matters (exclusive of Operating
Costs) which Landlord would receive by then renting similar space (including
similar square footage) for premises in the project in which the Building is
located. Within twenty (20) days after Tenant exercises any right to renew the
term pursuant to subparagraph (d), Landlord shall give Tenant notice of Market
Rent for the renewal term (the “Market Rent Notice”). If Tenant does not agree
with Landlord’s determination of Market Rent as set forth in the Market Rent
Notice, Tenant shall so notify Landlord in writing within ten (10) days
after Tenant’s receipt of the Market Rent Notice (“Tenant’s Notice”). Landlord
and Tenant shall, for ten (10) days after Landlord’s receipt of Tenant’s
Notice, negotiate in good faith to come to an agreement as to Market Rent for
the renewal term in question. If Landlord and Tenant are unable to agree upon
Market Rent within said ten day period, then, notwithstanding the provisions of
subparagraph (d), Tenant shall have the right to rescind the applicable Renewal
Notice of Exercise by written notice (the “Rescission Notice”) to Landlord
given not later than twenty (20) days after the date of Tenant’s Notice, it
being understood and agreed that if the Rescission Notice is not given within
such time period, Tenant shall be deemed to have waived its right to rescind
the applicable Renewal Notice of Exercise. In such case, to the extent that the
applicable Renewal Notice of Exercise is effectively exercised, Landlord and
Tenant shall execute and deliver an amendment to this Lease which amendment
shall be executed and delivered within ten (10) days following the
determination of the Market Rent. Tenant’s failure to give Tenant’s Notice
within the time period provided above shall be deemed an acceptance of Landlord’s
determination of Market Rent, and the Term

 

5

 

shall be deemed renewed pursuant to the applicable Renewal Notice of
Exercise and the Market Rent Notice.

 

6.            Reference
to and Effect on the Lease.

 

(a)            Upon the effectiveness of this Amendment,
each reference in the Lease to “this Lease”, “hereunder”, “hereof”, “herein” or
words of like import referring to the Lease shall mean and be a reference to
the Lease as amended hereby.

 

(b)            Except as specifically set forth above, the
Lease remains in full force and effect and is hereby ratified and confirmed.

 

(c)            Wherever there exists a conflict between this
Amendment and the Lease, the provisions of this Amendment shall control.

 

7.            Governing
Law. This Amendment shall be
governed by and construed in accordance with the laws of the State of
Minnesota.

 

8.            Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.

 

9.            Counterparts. This Amendment may be executed in
counterparts, all of which, when taken together, shall constitute one and the
same original.

 

10.          Time
of Essence. Time shall be of
the essence as to each and every term and provision of this Amendment and the
Lease.

 

[signature page follows]

 

6

 

IN
WITNESS WHEREOF, this Amendment has been executed as of the date first written above.

 

	
  ST.
  PAUL PROPERTIES, INC.

  	
   

  	
  SAUER-DANFOSS
  US COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  [ILLEGIBLE]

  	
   

  	
  By:

  	
  /s/ Karl Schmidt

  
	
   

  	
  Its:

  	
    V.P.

  	
   

  	
   

  	
  Its:

  	
  EVP & CFO

  
							

 

7

 

 

EXHIBIT A

 

WORK LETTER

[Tenant Performs Work]

 

This Work Letter (“Work Letter”) is dated March 21,
2007, and is a part of that certain Amendment No. 2 to Lease dated of even
date herewith amending that certain lease (the “Original Lease”) dated September 17,
1997, between ST. PAUL PROPERTIES, INC., a Delaware corporation, as landlord (“Landlord”)
and Sauer-Sundstrand Company, as tenant, as Sauer-Sundstrand Company’s interest
has been assigned to SAUER DANFOSS US COMPANY, a Delaware corporation (“Tenant”)
and as the Original Lease has been amended (the “Original Lease, as amended is
hereinafter the “Lease”), relating to certain demised premises (“Premises”)
with a street address at 3500 Annapolis Lane North, Plymouth, Minnesota (the “Building”),
which Premises are more fully identified in the Lease. Capitalized terms used
herein, unless otherwise defined in this Work Letter, shall have the respective
meanings ascribed to them in the Lease.

 

1.             Work. Tenant, at its sole cost and expense, shall
perform, or cause to be performed, the work (the “Work”) in the Premises
provided for in the Approved Plans (as defined in Paragraph 2 hereof). Subject
to Tenant’s satisfaction of the conditions specified in this Work Letter,
Tenant shall be entitled to a disbursement of Landlord’s Contribution as
defined in Paragraph 8(b) below.

 

2.             Pre
Construction Activities.

 

(a)           On
or before Second Extension Commencement Date, Tenant shall submit the following
information and items to Landlord for Landlord’s review and approval:

 

(i)            A construction schedule containing the major
components of the Work, including the scheduled commencement date of
construction of the Work and the estimated date of completion of construction.

 

(ii)           An itemized statement of estimated construction costs, including fees
for permits and architectural and engineering fees.

 

(iii)          Evidence satisfactory to Landlord in all respects of Tenant’s ability
to pay the cost of the Work as and when payments become due.

 

(iv)          The names and addresses of architects, contractors and material
suppliers of all tiers to be engaged by Tenant for the Work (individually, a “Tenant
Contractor,” and collectively, “Tenant’s Contractors”). Landlord has the right
to approve or reasonably disapprove all or any one or more of Tenant’s Contractors.
Landlord may, at its election, designate a list of approved contractors for
performance of those portions of work involving electrical, mechanical,
plumbing, heating, air conditioning or life safety systems, from which Tenant
must select its contractors for such designated portions of work.

 

A-1

 

(v)           Certified copies of insurance policies or certificates of insurance as
hereinafter described. Tenant shall not permit Tenant’s Contractors to commence
work until the required insurance has been obtained and copies of policies or
certificates have been delivered to Landlord.

 

(vi)          At Landlord’s election, payment and performance bonds issued by an
insurance company with an A.M. Best rating of at least A ,X and qualified
to conduct business in the State of Minnesota, for all of Tenant’s Contractors
naming Landlord (or an agent, designee or representative appointed by Landlord’s
written notice to Tenant given prior to Tenant’s procurement of paid bonds) as
a dual obligee.

 

(vii)         The Plans (as hereinafter defined) for the Work, which Plans shall be
subject to Landlord’s approval in accordance with Paragraph 2(b) below.

 

Tenant
will update such information and items by notice to Landlord of any changes.

 

(b)           As
used herein the term “Approved Plans” shall mean the Plans (as hereinafter
defined), as and when approved in writing by Landlord. As used herein, the term
“Plans” shall mean the full and detailed architectural and engineering plans
and specifications covering the Work (including, without limitation,
architectural, mechanical and electrical working drawings for the Work), which
Plans shall include “tie ins” to existing utility service at the Building, it
being understood and agreed that Landlord shall not be obligated to provide
additional utility capacity or tie ins at other than the location of such
utility service in the Building. The Plans shall be subject to Landlord’s
approval and the approval of all local governmental authorities requiring
approval of the work and/or the Approved Plan. Landlord shall give its approval
or reasonable disapproval (giving general reasons in case of disapproval) of
the Plans within ten (10) working days after their delivery to Landlord.
Landlord agrees not to unreasonably withhold its approval of said Plans;
provided, however, that Landlord shall not be deemed to have acted unreasonably
if it withholds its approval of the Plans because, in Landlord’s reasonable
opinion: the Work as shown in the Plans is likely to adversely affect Building
systems, the structure of the Building or the safety of the Building and/or its
occupants; the Work as shown on the Plans might impair Landlord’s ability to
furnish services to Tenant or other tenants; the Work would increase the cost
of operating the Building; the Work would violate any governmental laws, rules or
ordinances (or interpretations thereof); the Work contains or uses hazardous or
toxic materials or substances; the Work would adversely affect the appearance
of the Building; the Work might adversely affect another tenant’s premises; the
Work might, in Landlord’s sole opinion, adversely affect Landlord’s ability to
re lease the Premises; or the Work is prohibited by any mortgage or trust deed
encumbering the Building. The foregoing reasons, however, shall not be
exclusive of the reasons for which Landlord may withhold consent, whether or
not such other reasons are similar or dissimilar to the foregoing. If Landlord
notifies Tenant that changes are required to the final Plans submitted by
Tenant, Tenant shall, within ten (10) business days thereafter, submit to
Landlord, for its approval, the Plans amended in accordance with the changes so
required. The Plans shall also be revised, and the Work shall be changed, all
at Tenant’s cost and expense, to incorporate any work required in the Premises
by any local governmental field inspector. Landlord’s approval of the Plans

 

A-2

 

shall in no way be deemed to be (i) an acceptance or approval of any
element therein contained which is in violation of any applicable laws,
ordinances, regulations or other governmental requirements, or (ii) an
assurance that work done pursuant to the Approved Plans will comply with all
applicable laws (or with the interpretations thereof) or satisfy Tenant’s
objectives and needs.

 

(c)           No Work shall be undertaken or commenced by Tenant in the Premises
until (i) Tenant has delivered, and Landlord has approved, all items shown
in Paragraph 2(a) above, (ii) all necessary building permits and
other consents and approvals have been applied for and obtained by Tenant, and (iii) Tenant
has complied with Landlord’s requirements pursuant to Section 2(a)(iii) above.

 

(d)          It is understood and agreed that Landlord’s Contribution shall be used
solely for improvements to the Premises and the Building, and will not be used
for the purchase, installation, maintenance or repair of any personal property
owned or to be owned by Tenant.

 

3.             Delays. In the event Tenant fails to deliver in sufficient and accurate
detail the information required under Paragraph 2 above on or before the
respective dates specified in said Paragraph 2, or in the event Tenant, for any
reason, fails to complete the Work on or before the Second Extension
Commencement Date (as defined in the foregoing Amendment No. 2 to Lease),
Tenant shall be responsible for Rent and all other obligations under the Lease
from and after the Second Extension Commencement Date regardless of the degree
of completion of the Work on such date, and no such delay in completion of the
Work shall relieve Tenant of any of its obligations under the Lease.

 

4.             Supervisory Fees. Tenant shall pay Landlord a supervisory fee
in the amount of $1,500.00 to defray Landlord’s administrative and overhead
expense incurred to review the Plans and coordinate with Tenant’s on site
project manager the staging and progress of the Work.

 

5.             Change Orders. All changes to the Approved Plans requested
by Tenant must be approved by Landlord in advance of the implementation of such
changes as part of the Work. All delays caused by Tenant initiated change
orders, including, without limitation, any stoppage of work during the
change order review process, are solely the responsibility of Tenant and shall
cause no delay in the commencement of the Lease or the Rent and other
obligations therein set forth. All increases in the cost of the Work resulting
from such change orders shall be borne by Tenant.

 

6.             Standards And Conditions of Tenant’s
Performance. All work done
in or upon the Premises by Tenant shall be done according to the standards
stated in this Paragraph 6, except as the same may be modified in the Approved
Plans approved by or on behalf of Landlord and Tenant.

 

(a)           Tenant’s
Approved Plans and all design and construction of the Work shall comply with
all applicable statutes, ordinances, regulations, laws, codes and industry
standards, including, but not limited to, requirements of Landlord’s fire
insurance underwriters.

 

A-3

 

(b)        Tenant shall, at its own cost and expense, obtain all required building
permits, occupancy permits and other consents and approvals which may be
required by the City of Plymouth, the State of Minnesota, the United States of
America or any other governmental entity or agency with jurisdiction. Tenant’s
failure to obtain such permits shall not cause a delay in the commencement of
the Term or the obligation to pay Rent or any other obligations under the
Lease.

 

(c)         Tenant’s Contractors shall be licensed contractors, possessing good
labor relations, capable of performing quality workmanship and working in
harmony with Landlord’s contractors and subcontractors and with other
contractors and subcontractors in the Building, and Tenant shall take such
steps as are necessary to ensure that there are no labor disputes or strikes
during the course of the Work. All work shall be coordinated with any other
construction or other work in the Building in order not to adversely affect
construction work being performed by or for Landlord or its tenants.

 

(d)        After five (5) days prior notice to Tenant, except in the case of
an emergency when no notice shall be required, Landlord shall have the right,
but not the obligation, to perform, on behalf of and for the account of Tenant,
subject to reimbursement by Tenant, any work which pertains to patching of the
Work and other work in the Building.

 

(e)         Tenant shall use only new, first class materials in the Work, except
where explicitly shown in the Approved Plans. All Work shall be done in a good
and workmanlike manner. Tenant shall obtain contractors’ warranties in favor of
both Landlord and Tenant of at least one (1) year duration from the
completion of the Work against defects in workmanship and materials on all work
performed and equipment installed in the Premises as part of the Work.

 

(f)         Tenant and Tenant’s Contractors shall make all efforts and take all
steps appropriate to assure that all construction activities undertaken comport
with the reasonable expectations of all tenants and other occupants of a fully
occupied (or substantially fully occupied) first class building and do not
unreasonably interfere with the operation of the Building or with other tenants
and occupants of the Building. In any event, Tenant shall comply with all
reasonable rules and regulations existing from time to time at the
Building. Tenant and Tenant’s Contractors shall take all precautionary steps to
minimize dust, noise, odors, and construction traffic, and to protect their
facilities and the facilities of others affected by the Work and to properly
police same. Construction equipment and materials are to be kept within the
Premises and delivery and loading of equipment and materials shall be done at
such locations and at such time as Landlord shall direct so as not to burden
the construction or operation of the Building. If and as required by Landlord,
the Premises shall be sealed off from the balance of the Building so as to
minimize the disbursement of dirt, debris and noise.

 

(g)        Landlord shall have the right to order Tenant or any of Tenant’s
Contractors who violate the requirements imposed on Tenant or Tenant’s
Contractors in performing work to cease work and remove its equipment and
employees from the Building. No such action by Landlord shall delay the
commencement of the Lease or the obligation to pay Rent or any other
obligations therein set forth.

 

A-4

 

(h)           Utility
costs or charges for any service to the Premises shall be the responsibility of
Tenant from the date Tenant is obligated to commence or commences the Work and
shall be paid for by Tenant at Landlord’s standard rates then in effect. Tenant
shall pay for all support services provided by Landlord’s contractors at Tenant’s
request or at Landlord’s discretion resulting from breaches or defaults by
Tenant under this Work Letter. Tenant shall arrange and pay for removal of
construction debris and shall not place debris in the Building’s waste
containers. If required by Landlord, Tenant shall sort and separate its waste
and debris for recycling and/or environmental law compliance purposes.

 

(i)            Tenant
shall permit access to the Premises, and the Work shall be subject to
inspection by Landlord and Landlord’s architects, engineers, contractors and
other representatives, at all times during the period in which the Work is
being constructed and installed, and following completion of the Work.

 

(j)            Tenant
shall proceed with its work expeditiously, continuously and efficiently, and
shall use its best efforts to complete the same on or before the Commencement
Date. Tenant shall notify Landlord upon completion of the Work and shall
furnish Landlord (and Landlord’s title insurance company, if any) with such
further documentation as may be necessary under Paragraph 8 below.

 

(k)           Tenant
shall have no authority to deviate from the Approved Plans in performance of
the Work, except as authorized by Landlord and its designated representative in
writing. Tenant shall within thirty (30) days after completion of the Work
furnish to Landlord “as built” drawings of the Work prepared by a certified
architect.

 

(l)            Landlord
shall have the right to run utility lines, pipes, conduits, duct work and
component parts of all mechanical and electrical systems where necessary or
desirable through the Premises, to repair, alter, replace or remove the same,
and to require Tenant to install and maintain proper access panels thereto.

 

(m)          Tenant
shall impose on and enforce all applicable terms of this Work Letter against
Tenant’s architect and Tenant’s Contractors.

 

7.             Insurance and Indemnification.

 

(a)           In
addition to any insurance which may be required under the Lease, Tenant shall
secure, pay for and maintain or cause Tenant’s Contractors to secure, pay for
and maintain during the continuance of construction and fixturing work within
the Building or Premises, insurance in the following minimum coverages and the
following minimum limits of liability.

 

(i)            Worker’s Compensation and Employer’s
Liability Insurance with limits of not less than such amounts as may be
required from time to time by law.

 

A-5

 

(ii)           Commercial General Liability Insurance (including Contractors’
Protective Liability) in an amount not less than $2,000,000.00 (combined single
limit). Such insurance shall provide for explosion and collapse, completed
operations coverage and broad form blanket contractual liability coverage and
shall insure Tenant’s Contractors against any and all claims for bodily injury,
including death resulting therefrom, and damage to the property of others and
arising from its operations under the contracts whether such operations are
performed by Tenant’s Contractors or by anyone directly or indirectly employed
by any of them.

 

(iii)          Comprehensive Automobile Liability Insurance, including the ownership,
maintenance and operation of any automotive equipment, owned, hired, or non
owned in an amount not less than $500,000.00 for each person in one accident,
and $1,000,000.00 for injuries sustained by two or more persons in any one
accident and property damage liability in an amount not less than $1,000,000.00
for each accident. Such insurance shall insure Tenant’s Contractors against any
and all claims for bodily injury, including death resulting therefrom, and
damage to the property of others arising from its operations under the
contracts, whether such operations are performed by Tenant’s Contractors, or by
anyone directly or indirectly employed by any of them.

 

(iv)          “All risk” builder’s risk insurance upon the entire Work to the full
insurable value thereof. This insurance shall include the interests of Landlord
and Tenant (and their respective contractors and subcontractors of any tier to
the extent of any insurable interest therein) in the Work and shall insure
against the perils of fire and extended coverage and shall include “all risk”
builder’s risk insurance for physical loss or damage including, without
duplication of coverage, theft, vandalism and malicious mischief. If portions
of the Work stored off the site of the Building or in transit to said site are
not covered under said “all risk” builder’s risk insurance, then Tenant shall
effect and maintain similar property insurance on such portions of the Work.
Any loss insured under said “all risk” builder’s risk insurance shall be
adjusted between Landlord and Tenant and made payable to Landlord, as trustee
for the insureds, as their interests may appear.

 

All policies (except the worker’s compensation
policy) shall be endorsed to include as additional insured parties the parties
listed on, or required by, the Lease, Landlord’s contractors, Landlord’s
architects, and their respective beneficiaries, partners, directors, officers,
employees and agents, and such additional persons as Landlord may designate.
The insurance policy endorsements shall also provide that all additional
insured parties shall be given thirty (30) days’ prior written notice of any
reduction, cancellation or non renewal of coverage and shall provide that the
insurance coverage afforded to the additional insured parties thereunder shall
be primary to any insurance carried independently by said additional insured
parties. Additionally, where applicable, each policy shall contain a cross
liability and severability of interest clause.

 

(b)           Without
limitation of the indemnification provisions contained in the Lease, to the
fullest extent permitted by law Tenant agrees to indemnify, protect, defend and
hold harmless Landlord, the parties listed, or required by, the Lease to be named
as

 

A-6

 

additional insureds. Landlord’s contractors, Landlord’s architects, and
their respective beneficiaries, partners, directors, trustees, officers,
employees and agents, from and against all claims, liabilities, losses, damages
and expenses of whatever nature arising out of or in connection with the Work
or the entry of Tenant or Tenant’s Contractors into the Building and the
Premises, without limitation, mechanic’s liens, the cost of any repairs to the
Premises or Building necessitated by activities of Tenant or Tenant’s
Contractors, bodily injury to persons or damage to the property of Tenant, its
employees, agents, invitees, licensees or others. It is understood and agreed
that the foregoing indemnity shall be in addition to the insurance requirements
described above and shall not be in discharge of or in substitution for same or
any other indemnity or insurance provision of the Lease.

 

8.           Landlord’s
Contribution: Excess Amounts.

 

(a)            Upon completion of the Work, Tenant shall
furnish Landlord with full and final waivers of liens and contractors’ and
architects’ affidavits and statements, in such form as may be required by
Landlord, Landlord’s title insurance company and Landlord’s construction or permanent
lender, if any, from all parties performing labor or supplying materials or
services in connection with the Work showing that all of said parties have been
compensated in full and waiving all liens in connection with the Premises and
Building. Tenant shall submit to Landlord a detailed breakdown of Tenant’s
total construction costs, together with such evidence of payment as is
satisfactory to Landlord.

 

(b)            Upon completion of the Work and Tenant’s
satisfaction of all requirements of this Work Letter, and provided that Tenant
is not then in default under this Lease, Landlord shall make a dollar
contribution in the amount of up to $450,000.00 (“Landlord’s Contribution”) for
application to the extent thereof to the cost of the Work. It is understood and
agreed that all Work, including any portion of the Work to be performed with
the Increased Contribution shall be completed on or before May 31, 2008.
In addition to the foregoing, Tenant understands and agrees that the Landlord’s
Contribution shall be payable on a one-time only basis; that is, Tenant shall
not have the right to perform Work as to which the Landlord’s Contribution is,
for example, $250,000, and at a later time (even if before May 31, 2008),
perform additional Work and receive any additional Landlord’s Contribution
monies, even if, in the first performance of the Work, Tenant did not utilize
all of Landlord’s Contribution.

 

If the cost of the Work
exceeds Landlord’s Contribution, Tenant shall have sole responsibility for the
payment of such excess cost. If the cost of the Work is less than Landlord’s
Contribution, Landlord shall be entitled to any payment or credit for such
excess amount. Notwithstanding anything herein to the contrary, Landlord may
deduct from Landlord’s Contribution any amounts due to Landlord or its
architects or engineers pursuant to this Work Letter before disbursing any
other portion of Landlord’s Contribution.

 

The parties agree that
Tenant shall have the right, provided Tenant is not then in default under the
Lease, at any time prior to the Second Extension Commencement Date, time being
of the essence, to notify Landlord that it wishes Landlord to increase

 

A-7

 

Landlord’s Contribution by up to $100,000 (the “Increased
Contribution”), in which case Landlord’s Contribution shall be increased by the
amount requested by Tenant, and payment of which Increased Contribution shall
be subject to all of the terms and conditions of this Work Letter. If Tenant
requests the Increased Contribution, then base rent during the Second Extension
Term shall be increased to reflect the Increased Contribution as set forth in
Paragraph 3 of the foregoing Amendment No. 2 to Lease.

 

9.             On Site Project Manager. As a condition of Tenant’s right to commence
and perform the Work, Tenant shall engage the services of an on site project
manager approved in advance by and reasonably acceptable to Landlord, who will
be charged with the task of performing daily supervision of the Work. Such on
site manager shall be familiar with all rules and regulations and
procedures of the Building and all personnel of the Building engaged directly
or indirectly in the management, operation and construction of the Building.
Such on site project manager shall be accountable and responsible to Tenant and
to Landlord and, where necessary, shall serve as a liaison between Landlord and
Tenant with respect to the Work. The entire cost and expense of the on site
project manager shall be borne and paid for by Tenant (subject to Tenant’s
right to use all or any part of Landlord’s Contribution to reimburse Tenant for
the same.)

 

10.           Miscellaneous.

 

(a)           Time
is of the essence of this Work Letter.

 

(b)           If Tenant fails to make any payment relating to the Work as required
hereunder, Landlord, at its option, may complete the Work pursuant to the
Approved Plans and continue to hold Tenant liable for the costs thereof and all
other costs due to Landlord. Tenant’s failure to pay any amounts owed by Tenant
hereunder when due or Tenant’s failure to perform its obligations hereunder
shall also constitute a default under the Lease and Landlord shall have all the
rights and remedies granted to Landlord under the Lease for nonpayment of any
amounts owed thereunder or failure by Tenant to perform its obligations
thereunder.

 

(c)           Notices under this Work Letter shall be given in the same manner as
under the Lease.

 

(d)           The headings in this Work Letter are for convenience only.

 

(e)           This Work Letter sets forth the entire agreement of Tenant and Landlord
regarding the Work. This Work Letter may only be amended if in writing, duly
executed by both Landlord and Tenant.

 

(f)            All amounts due from Tenant hereunder shall
be deemed to be Rent due under the Lease.

 

11.           Limitation of Landlord’s Liability. If Landlord is ever adjudged by any court
to be liable to Tenant, Tenant specifically agrees to look solely to Landlord’s
interest in the Phase for the recovery of any judgment from Landlord, it being
agreed that none of Landlord, its directors, officers, shareholders, managing
agents, employees or agents shall be personally liable

 

A-8

 

for
any such judgment. In no event shall Landlord ever be liable to Tenant, Tenant’s
agents, servants or employees, or to any person or entity claiming by or
through Tenant, for any consequential, indirect, special or similar types of
damages.

 

12.           Lease Provisions. The terms and provisions of the Lease are
hereby amended and supplemented. In the event of any conflict between the
provisions of the Lease and the provisions of this Work Letter, the provisions
of this Work Letter shall control. All amounts payable by Tenant to Landlord
under this Work Letter shall be deemed to be Additional Rent under the Lease
and, upon any default in the payment of same, Landlord shall have all of the
rights and remedies provided for in the Lease. The pursuit of any remedies by
Tenant in connection with any breach by Landlord of its obligations under this
Work Letter shall be subject to the provisions of Paragraph 11 hereof and
subject to any other limitations stated in the Lease.

 

A-9Exhibit
10.1(q)

 

 

 

Employment Agreement

for Karl J. Schmidt

 

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 Karl J. Schmidt (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 Executive Vice President and Chief Financial
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 President and Chief Executive Officer or the
Chief Executive Officer’s 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 

 

2

 

duties and
responsibilities to the 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 Chicago USA offices (in
Lincolnshire, IL), 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 Three Hundred Twenty Seven Thousand Dollars
(US$327,000) 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 

 

3

 

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 

 

4

 

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.

 

5

 

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 

 

6

 

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)

 

7

 

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

 

8

 

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 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 

 

9

 

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.

 

(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 

 

10

 

409A to the extent
permitted under Treasury Regulation §1.409A-1(B)(9)(v)(B) or
§1.409A-3(I)(1)(iv)(B).

 

(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.

 

11

 

(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 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).

 

12

 

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, 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 

 

13

 

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.

 

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 

 

14

 

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 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 

 

15

 

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.

 

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 

 

16

 

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.

 

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 

 

17

 

applicable laws or
regulations as the Company shall determine in its sole discretion, and (b) other
ordinary and customary payroll deductions.

 

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 alleged violations of Sections 9, 10, 11 and 12 of this Agreement,
shall be referred for 

 

18

 

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.

 

19

 

	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Karl J.
  Schmidt

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SAUER-DANFOSS
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jim Remus

  
	
   

  	
  Name: Jim Remus

  
	
   

  	
  Title: Director
  – HR Services

  

 

20

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