Document:

Exhibit 10.26

AMERICAN EQUITY INVESTMENT LIFE HOLDING
COMPANY

INDEPENDENT INSURANCE AGENT STOCK OPTION PLAN

WHEREAS, the Board of
Directors of American Equity Investment Life Holding Company (the “Company”)
deems it in the best interest of the Company that independent insurance agents
(“Agents”) who are significant producers for the Company’s wholly owned
operating subsidiary, American Equity Investment Life Insurance Company, be
given an opportunity to acquire an interest in the operation and growth of the
Company as a means of assuring their maximum effort and continued association
with the Company; and

WHEREAS, the Board
believes that the Company can best obtain these and other benefits by granting
stock options to Agents designated from time to time, pursuant to this Plan;

NOW, THEREFORE, the Board
does hereby adopt this Independent Insurance Agent Stock Option Plan, effective
as of January 1, 2007, with such terms and conditions set forth below.

ARTICLE
I

DEFINITIONS

Except where the context otherwise indicates,
the following definitions apply:

1.1                                 “Agent” means an
individual who has been validly appointed by American Equity as a sales agent
for American Equity’s products in applicable jurisdictions and who has a valid
and existing agent’s contract with American Equity in effect and not terminated
prior to any grant of Options under this Plan.

1.2                                 “Agreement”
means a written agreement granting an Option that is executed by the Company
and the Optionee.

1.3                                 “American Equity”
means American Equity Investment Life Insurance Company, a life insurance
company domiciled in the State of Iowa.

1.4                                 “Board” means
the Board of Directors of the Company.

1.5                                 “Code” means the
Internal Revenue Code of 1986, as amended.

1.6                                 “Committee”
means the Executive Committee of the Board.

1.7                                 “Common Stock”
means the common stock, par value $1.00 per share, of the Company.

1.8                                 “Company” means
American Equity Investment Life Holding Company, an Iowa corporation.

 

1.9                                 “Date of Exercise”
means the date on which the Company receives notice of the exercise of an
Option and payment of the exercise price in accordance with the terms of
Article VII hereof.

1.10                           “Date of Grant”
means the date on which an Option is granted under the Plan.

1.11                           “Director” means
a member of the Board of Directors of the Company.

1.12                           “Disability”
means permanent and total disability within the meaning of Section 22(e)(3) of
the Code, as determined by the Committee.

1.13                           “Fair Market Value”
of a Share as of a particular date means (1) the closing sale price reported
for such Share on the national securities exchange or national market system on
which such stock is principally traded as of such date, or (2) if the
Shares are not then listed on a national securities exchange or national market
system, or the value of such Shares is not otherwise determinable, such value
as determined by the Committee in good faith in its sole discretion.

1.14                           “Option” means
an option to purchase Shares granted under the Plan.

1.15                           “Option Period”
means the period during which an Option may be exercised.

1.16                           “Option Price”
means the price per Share at which an Option may be exercised, provided,
however, that the Option Price shall not be less than the Fair Market Value of
a Share as of the Date of Grant. The Option Price of any Option shall be
subject to adjustment to the extent provided in Article IX hereof, but subject
to Section 6.2 hereof.

1.17                           “Optionee” means
an Agent to whom an Option has been granted under this Plan.

1.18                           “Plan” means the
American Equity Investment Life Holding Company Independent Insurance Agent
Option Plan.

1.19                           “Share” means a
share of Common Stock.

ARTICLE
II

PURPOSE

The Plan is intended to assist the Company
and American Equity in attracting and retaining Agents of outstanding ability
and to promote the identification of their interests with those of the
stockholders of the Company.

2

 

ARTICLE
III

ADMINISTRATION

The Committee shall administer the Plan and
shall have plenary authority and discretion, subject to the provisions of the
Plan, to determine the terms (which terms need not be identical) of all Options
including, but not limited to, which Agents shall be granted Options, the time
or times at which Options are granted, the Option Price, the number of Shares
subject to an Option, any provisions relating to vesting, any circumstances in
which Options terminate or Shares may be repurchased by the Company, the period
during which Options may be exercised and any other terms, conditions or
restrictions on Options. In making these determinations, the Committee may
adopt rules from time to time regarding sales production criteria for the
granting of Options, and such other factors as the Committee in its discretion
shall deem relevant. Subject to the provisions of the Plan, the Committee shall
have plenary authority to construe and interpret the Plan and the Agreements,
to prescribe, amend and rescind rules and regulations relating to the Plan and
to make all other determinations deemed necessary or advisable for the
administration of the Plan, including, but not limited to, any determination to
accelerate the vesting or exercisability of outstanding Options. The
determinations of the Committee on the matters referred to in this Article III
shall be binding and final.

ARTICLE
IV

ELIGIBILITY

Options may be granted only to Agents who
meet the requirements established by the Committee from time to time, including
without limitation rules regarding sales production criteria.

ARTICLE
V

STOCK SUBJECT TO THE PLAN

5.1           Number of Shares Reserved.  Subject to adjustment as provided in Article
IX hereof, the maximum number of Shares that may be issued under the Plan is
2,500,000 Shares.

5.2           Terminated Options Available for Grant.  If an Option expires or terminates for any
reason without having been fully exercised, the unissued Shares which had been
subject to such Option shall become available for the grant of additional
Options.

ARTICLE
VI

OPTIONS

6.1           Option Period.  The Option Period for Options granted to
eligible individuals shall be determined by the Committee and specifically set
forth in the Agreement; provided, however, that (a) an Option shall not be
exercisable after ten years from its Date of Grant; (b) an Option granted to an
Agent whose agent’s contract with American Equity is terminated for any

3

 

reason,
with or without cause, shall expire upon such termination and shall thereby be
forfeited; and (b) in the case of the death or Disability of an Optionee, the Option
Period shall expire unless exercised within one (1) year after the date of
death or the cessation of service by the Optionee by reason of the
Disability.  In the event of the death of
the Optionee, his or her Options may be exercised by the Optionee’s designated
beneficiary.  Nothing contained herein
shall be construed to extend the ultimate term of the Option beyond the period
of time as set out above.

6.2           No Reissuance at Reduced Price.  Notwithstanding anything to the contrary in
this Plan, no Option shall be issued in exchange for or as a reissuance of any
outstanding Option or the Option Price for any outstanding Option shall not be
changed, if the effect of such exchange or change would be to reduce the Option
Price for any outstanding Option, except as necessary to reflect the effect of
a stock split, stock dividend or similar event as described in Article IX
hereof or a “Change of Control,” as hereinafter defined.

ARTICLE
VII

EXERCISE OF OPTIONS

7.1           Notice of Exercise.  An Option may, subject to the terms of the
applicable Agreement under which it is granted, be exercised in whole or in
part by the delivery to the Company of written notice of the exercise, in such
form as the Committee may prescribe, accompanied by full payment of the Option Price
for the Shares with respect to which the Option is exercised as provided in
Section 7.2 hereof.

7.2           Payment of Exercise Price.  Payment of the aggregate Option Price for the
Shares with respect to which an Option is being exercised shall be made in cash;
provided, however, that the Committee, in its sole discretion, may provide in
an Agreement that part or all of such payment may be made by the Optionee in
one or more of the following manners:

a.                                       By delivery (including constructive delivery) to the Company
of Shares valued at Fair Market Value on Date of Exercise;

b.                                      By delivery on a form prescribed by the Committee of a
properly executed exercise notice and irrevocable instructions to a registered
securities broker approved by the Committee to sell Shares together with prompt
delivery of cash to the Company.

7.3           Minimum Exercise.  No Option may be exercised for less than one
hundred (100) shares or, if fewer, the number of Shares remaining subject to
the Option.

7.4           Minimum Vesting Period.  In the absence of a specified vesting
schedule established by the Committee and set forth in the applicable agreement
evidencing the grant of any options, all options will vest six months after the
date of grant.  However, should the agent’s
contract of any Optionee be terminated for any reason (except to the extent
provided in Section 7.6, by reason of death or Disability) with or without
cause, prior to the expiration of six months

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or the vesting schedule established by the Committee,
whichever is the later, the Optionee will forfeit all options not fully vested
on the effective date of such termination.

7.5           Acceleration of Vesting.  If an Option contains a vesting schedule or
has not become totally exercisable as of the date of any of the following
events, such vesting schedule shall be accelerated, and/or any other
restrictions on exercise shall be removed:

(i)         The
death of the Optionee;

(ii)        The
Disability of the Optionee;

(iii)       A “Change
of Control” as hereinafter defined.

7.6           Change of Control.  For purposes of this Plan, unless otherwise
defined in an Agreement, a “Change of Control” shall be deemed to have occurred
on such date if:

(i)                                     Any person, organization or association of persons or
organizations acting in concert, excluding affiliates of the Company itself or
any benefit plan of the Company or any affiliate thereof, shall acquire more
than twenty percent (20%) of the outstanding voting stock of the Company in
whole or in part by means of an offer made publicly to the holders of all or
substantially all of the outstanding shares of any one or more classes of the
voting securities of the Company to acquire such shares for cash, other
property or a combination thereof; or

(ii)                                  Any person, organization or association of persons or
organizations acting in concert shall succeed in electing two or more directors
in any one election in opposition to those proposed by management; or

(iii)                               The Company transfers all or substantially all of its
operating properties and assets to another person, organization or association
of persons or organizations, excluding affiliates of the Company itself; or

(iv)                              The Company shall consolidate with or merge into any person,
firm, corporation or other entity unless the Company or one of its affiliates
shall be the continuing corporation or the successor corporation;

ARTICLE
VIII

RESTRICTIONS ON TRANSFER

Options shall not be transferable other than
by will or the laws of descent and distribution. An Option may be exercised
during the Optionee’s lifetime only by the Optionee or, in the event of his or
her legal disability, by his or her legal representative. The Shares acquired
pursuant to the Plan shall be subject to such restrictions and agreements
regarding sale, assignment, encumbrances, or other transfers or dispositions
thereof as are in effect among the stockholders of the Company at the time such
Shares are acquired or as the Committee shall deem appropriate or as are
required by applicable law.

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ARTICLE
IX

CAPITAL ADJUSTMENT

In the event of any change in the outstanding
Common Stock by reason of any stock dividend, splitup (or reverse stock split),
recapitalization, reclassification, reorganization, reincorporation,
combination or exchange of shares, merger, consolidation, liquidation or
similar change in corporate structure, the Committee shall, in its discretion
and to the extent necessary to compensate for the effect thereof, provide for
an equitable substitution for or adjustment in (i) the number and class of
Shares subject to outstanding Options, (ii) the Option Price of
outstanding Options, and (iii) the aggregate number and class of Shares that
may be issued under the Plan.

ARTICLE
X

TERMINATION OR AMENDMENT

The Board may amend, alter, suspend or
terminate the Plan in any respect at any time; provided, however, that no
amendment, alteration, suspension or termination of the Plan shall be made by
the Board without approval of each affected Optionee if such amendment,
alteration, suspension or termination would adversely affect his or her vested
rights or obligations under any Option granted prior to the date of such
amendment, alteration, suspension or termination or without shareholder
approval to the extent such approval is required by applicable law or an
exchange, market or other listing requirement. 
No Option may be granted nor any Shares issued under the Plan during any
suspension or after termination of the Plan.

ARTICLE
XI

MODIFICATION; EXTENSION AND RENEWAL OF OPTIONS; SUBSTITUTED OPTIONS

Subject to the terms and conditions of the
Plan, the Committee may modify, extend or renew the terms of any outstanding
Options, or accept the surrender of outstanding Options granted under the Plan
or options granted under any other plan of the Company (to the extent not
theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised). Subject to
Section 6.2 hereof, any such substituted Options may specify a longer term than
the surrendered options, or have any other provisions that are authorized by
the Plan. Notwithstanding the foregoing, however, no modification of an Option
shall, without the consent of the Optionee, alter or impair any of the Optionee’s
rights or obligations under such Option.

ARTICLE
XII

EFFECTIVENESS OF THE PLAN

The Plan and any amendment thereto shall be
effective on the date on which it is adopted by the Board.

6

 

ARTICLE
XIII

TAXES PAYABLE BY AGENT

Any and all taxes and other withholding
obligations payable in connection with or relating to the grant or exercise of
an Option, and/or the sale of any Shares by Optionee, shall be the sole
responsibility of the Optionee.

ARTICLE
XIV

TERM OF THE PLAN

Unless sooner terminated by the Board
pursuant to Article X hereof, the Plan shall terminate on January 1, 2010, and
no Options may be granted after such date. The termination of the Plan shall
not affect the validity of any Option outstanding on the date of termination.

ARTICLE
XV

INDEMNIFICATION OF COMMITTEE

In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys’ fees, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, any Agreement or any Option granted hereunder, and against all
amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Company.

ARTICLE
XVI

GENERAL PROVISIONS

16.1         No Other Rights Conferred.  The establishment of the Plan shall not
confer upon any Agent any legal or equitable right against the Company or any
member of the Committee or the Board, except as expressly provided in the Plan.

16.2         No Employment Contract.  The Plan does not constitute inducement or
consideration for the services of any Agent, nor is it a contract between the
Company or American Equity and any Agent. Participation in the Plan shall not
give an Agent any right to be retained under his or her applicable agent’s
contract with American Equity.

16.3         Plan Interest Not Subject to Creditor Claims.  The interests of any eligible individual
under the Plan are not subject to the claims of creditors and may not, in any
way, be assigned, alienated or encumbered except as provided in an Agreement.

7

 

16.4         Applicable Laws.  The Plan shall be governed, construed and
administered in accordance with the laws of the State of Iowa.

16.5         Representations Regarding Investment Intent;
Restrictive Legends.  The
Committee may require each person acquiring Shares pursuant to Options
hereunder to represent to and agree with the Company in writing that such
person is acquiring the Shares without a view to distribution thereof. The
certificates for such Shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer. All certificates for
Shares issued pursuant to the Plan shall be subject to such stock transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange or interdealer quotation system upon which the
Common Stock is then listed or quoted, and any applicable federal or state
securities laws. The Committee may place a legend or legends on any such
certificates to make appropriate reference to such restrictions. The
certificates for Shares acquired pursuant to an Option may also include any
legend which the Committee deems appropriate to reflect restrictions contained
in this Plan or in the applicable Agreement or to comply with the Iowa Business
Corporation Law.

16.6         Regulatory Approvals.  The Company shall not be required to issue
any certificate or certificates for Shares upon the exercise of Options, or
record any person as a holder of record of such Shares, without obtaining, to
the complete satisfaction of the Committee, the approval of all regulatory
bodies deemed necessary by the Committee, and without complying to the
Committee’s complete satisfaction, with all rules and regulations, under
federal, state or local law deemed applicable by the Committee and all
applicable listing or exchange requirements.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING
COMPANY

(“AEL”)

INDEPENDENT INSURANCE AGENT STOCK OPTION PLAN

Rules for Option Grants - 2007 Annuity
Production

Qualification Period: 

January 1, 2007 through December 31, 2007

RULES:

1.                                       Plan:       AEL has adopted an Independent Insurance
Agent Stock Option Plan (the “Plan”) under
which independent sales agents of American Equity Investment Life Insurance
Company (“American Equity”) may become eligible
to receive grants of options to acquire shares of the Common Stock of AEL. All
capitalized terms used in these Rules but not defined in this document shall
have the meaning specified in the Plan. 
All provisions of these rules are subject to and governed by the Plan,
and in the event of any conflict between the provisions of these rules and
those of the Plan, the Plan will control.

2.                                       2007
Production Requirements for Option Grants:

                                                                Subject to all terms and
conditions of these Rules and the Plan, Options may be granted to Agents in
accordance with the following tables:

	
  Net Paid Annuity Production

  	
  Basic Grant Eligibility

  
	
  $1,000,000

  	
  250 options

  
	
  Each $100,000 over
  $1,000,000

  	
  25 options

  

 

	
  Net Paid Annuity Production

  	
  Basic Grant Eligibility

  
	
  $2,000,000

  	
  100 options

  
	
  Each $100,000 over
  $2,000,000

  	
  100 options

  

                                                                Net Paid Annuity Production shall include
all first year premium received during the Qualification Period in connection
with any annuity offered and sold by American Equity; provided that, (i) within
the Qualification Period all documentation required to issue any such annuity
shall have been completed and submitted in form and content satisfactory to
American Equity in its sole discretion; (ii) internal roll-over premium shall
be excluded; and (iii) any premium refunded to a policyholder by American
Equity for any reason in its sole discretion shall be excluded.

A-1

 

3.                                       Conditions:

                                                a.             Agents who are eligible to receive
Options must each sign an Option Agreement in form and content approved by AEL.

                                                b.             Taxes on the exercise of any Option
or the sale of Shares acquired upon the exercise of any Option or otherwise
relating to any Option are the sole responsibility of the Agent.

                                                c.             No Option is transferable.

                                                d.             AEL has no obligation to facilitate
the payment of the exercise price by the Agent.

                                                e.             To be eligible to receive any
Option grant the Agent must have a valid and existing contract with American
Equity and be in good standing with American Equity throughout the
Qualification Period and any applicable vesting period.

6.                                       Right
of Set-Off.  AEL
reserves the right to apply all or any part of any Shares to satisfy any
indebtedness of the Agent to American Equity. Such indebtedness shall include
any debit balance, outstanding loan, indemnification obligation, or any other
debt or charge of any kind owed by the producer to American Equity whenever and
however such debt or charge is or was created.

7.                                       Interpretation.  AEL shall have the sole right to interpret
and administer these Rules, and all such interpretations and actions shall be
binding and conclusive on the Agents.

8.                                       Agents
Contracts.  All terms
and conditions of each Agent’s contract with American Equity are incorporated
by reference in these Rules, including without limitation the requirement for
arbitration of any disputes concerning the interpretation or administration of
these Rules.

A-2Exhibit
10.1

 

 

 

 

Employment Agreement

for Wolfgang Schramm

 

Sauer Danfoss Inc.

 

 

EXECUTIVE OFFICER EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE OFFICER
EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of
the 1st day of October, 2007 (the “Effective Date”), by and between Sauer-Danfoss Inc. (the “Company”) and Wolfgang
Schramm (the “Executive”).

 

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 an exclusive and full-time basis by the Company for the
period and upon the terms and conditions specified herein. During the Term (set
forth in Section 2 below), and consistent with the above, the Executive agrees
to serve the Company faithfully and to the best of the Executive’s ability, to
devote the Executive’s entire business time, energy and skill to such
employment, and to use the Executive’s best efforts, skill and ability to
promote the Company’s interests.

 

2.             Term;
Employment Period. The term of this Agreement
(the “Term”) shall begin on the Effective Date and shall end on the earlier of:

 

(a)           the second anniversary of
the Effective Date; or

 

(b)           such earlier date on which
the Term is terminated pursuant to Section 6;

 

provided, however, that upon the second anniversary of the Effective
Date, and upon each anniversary thereafter, the Term shall be automatically
extended for one (1) year unless either the Company or the Executive shall have
given written notice to the other at least ninety (90) days prior thereto that
the Term shall not be so extended. 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 & President, Control
Products Division of the Company and shall have such responsibilities, duties
and authority as set forth in the Bylaws of the Company or as otherwise are
consistent with such position as well as 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 and assign 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 or Rules of Conduct. 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 

 

2

 

responsibilities faithfully and efficiently in a professional and
ethical manner. Notwithstanding the foregoing, it is understood that during the
Employment Period, subject to any conflict of interest policies of the Company
and Section 9, the Executive may

 

(a)           serve in any capacity with
any civic, charitable, educational or professional organization provided that
such service does not materially interfere with his duties and responsibilities
to the 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 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 Assignment. Following a brief
introductory period where the Executive shall work out of his Michigan home,
the Executive’s place of assignment shall be the Company’s Plymouth, Minnesota
plant site. During the Employment Period, the Executive’s place of assignment
may be at any of the Company’s plant sites and offices located in Lincolnshire, IL/USA; Plymouth, MN/USA; Nordborg, Denmark;
Neumünster, Germany; or at any other location later defined as a Sauer-Danfoss
Inc. Executive Office or Headquarters location.

 

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 Thousand Dollars ($300,000) 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 regular
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 other  senior executives of the Company. 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 annual performance incentive plan, as in effect from time
to time, for executives at the Executive’s level (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”). The Annual Incentive shall be payable in a cash lump sum at such
time as it is ordinarily paid in accordance with the terms of the Incentive
Plan, but in no event later than the 15th day of the
third month following the end of each fiscal year of the Company. Except as
otherwise 

 

3

 

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 to which the Annual Incentive relates. The actual amount of any
Annual Incentive shall be determined by and in accordance with the terms of the
Company’s Incentive Plan and the Executive shall have no absolute right to an
Annual Incentive in any year.

 

(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
from time to time.

 

(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 and health plans,
programs, agreements and arrangements provided to senior executives of the
Company, as such are in effect from time to time, 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 from time
to time, subject to the eligibility requirements and terms and conditions of
such perquisites. The Company reserves the right, in its sole discretion, to
adopt, modify, amend or terminate such perquisites at any time.

 

(f)            Paid Time Off / Vacations. During the
Employment Period, the Executive shall be entitled to paid time off, vacation
time and paid holidays, in accordance with the Company’s local policies or
practice for its senior executives, as such are in effect from time to time. While
based in the US, the Executive shall accrue paid time off, exclusive of paid
holidays, at the rate of five weeks per calendar year. In 2007, the first year
of the Employment Period, a pro-rata amount of paid time-off will be accrued
over the course of the year.

 

6.             Termination
of Employment.

 

(a)           Termination Events.

 

(i)            Immediate Terminations. Executive’s
employment and the Term shall terminate immediately upon the occurrence of any
of the following:

 

(A)          Death:  the death of the Executive;

 

(B)           Disability:  the Disability of the
Executive, where “Disability” shall mean 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; provided such
Termination Date 

 

4

 

for Disability shall be set
forth in the notice of termination delivered to the Executive by the Company;

 

(C)           Retirement:  the Retirement of the Executive, where “Retirement”
shall have that meaning as currently in effect under the Company’s defined
contribution retirement plan on the day immediately preceding such Retirement;
and

 

(D)          For Cause:  notice of termination from
the Company for Cause, where “Cause” shall 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)           gross negligence or willful
misconduct in the performance of the Executive’s duties;

 

(III)         the engaging by the
Executive in willful conduct which is demonstrably injurious to the Company,
monetarily or otherwise, such as actual or attempted theft or embezzlement of
Company assets;

 

(IV)         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);

 

(V)           use of illegal drugs;

 

(VI)         commission or an act of
moral turpitude that in the judgment of the Board of Directors of the Company
can reasonably be expected to have an adverse effect on the business,
reputation or financial situation of the Company and/or the ability of the
Executive to perform the Executive’s duties;

 

(VII)        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 noncompliance by the Executive; or

 

(VIII)       breach of fiduciary duty to
the Company.

 

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 

 

5

 

Executive and his counsel
were entitled to be present and given adequate opportunity to be heard. For
purposes of clauses (I), (II) and (III) of the above definition, action or
inaction by the Executive shall not be considered “willful” unless done or
omitted by him (1) intentionally or not in good faith and (2) 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.

 

(ii)           Terminations Requiring Notice By
Either Party. The Executive’s employment
may be terminated either by the Company or by the Executive for any of the
below reasons provide notice of termination is delivered by one party to the
other. The notice of termination shall set forth the applicable Termination
Date; provided, however, in such event, the
Term shall terminate no earlier than thirty (30) days following the date on
which such notice of termination is delivered to the respective party. Notwithstanding
the foregoing, the Company may require that the Executive cease performing some
or all of the Executive’s duties and/or not be present at the Company’s offices
and/or other facilities.

 

(A)          Termination by Executive for Good
Reason. The Executive may resign the
Executive’s position for Good reason. As used herein, “Good Reason” means,
without the Executive’s written consent:

 

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

 

(II)           a failure by the Company to
pay or provide any of the compensation set forth in this Agreement;

 

(III)         a failure by the Company to
comply with any material provision of this Agreement; or

 

(IV)         resignation in compliance
with applicable law or rules of professional conduct.

 

Notwithstanding the
foregoing, in order to terminate employment for Good Reason, the Executive must
provide written notice of termination within sixty (60) days of the initial
existence of the condition that he believes is providing him a Good Reason
termination, explaining in detail such condition and the date upon which it
first arose. Continuation of employment without written notice of termination
during the sixty (60) day period following the initial existence of the
condition shall constitute such Executive’s acceptance of any change and make
null and void the Executive’s right to terminate for Good Reason with respect
to such event. Upon receipt of a written notice of termination for Good Reason
and underlying condition therefor, the Company will be allowed sixty (60) days
to cure such condition and thereby avoid a Good Reason termination.

 

6

 

(B)           Termination by the Company
Without Cause. The Company may terminate
the Executive’s position without Cause.

 

(C)           Termination by Executive Without
Good Reason. The Executive may resign the
Executive’s position without Good Reason.

 

(b)           Payments Upon a Termination Event.

 

(i)            Following a Termination for Any
Reason. 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:

 

(A)          Base Salary;

 

(B)           Annual Incentive;

 

(C)           paid time off; and

 

(D)          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”).

 

(ii)           Death. Upon the
termination of the Executive’s employment because of his death, in addition to
the Accrued Benefits set forth in subparagraph (i) immediately above, the
Executive’s estate or representative, as the case may be, shall also be
entitled to receive a lump sum payment in cash equal to a “Pro Rata” incentive
payment which is the product of the Executive’s Target Incentive Opportunity
(as defined in the Incentive Plan) as in effect on the Termination Date, 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”)).
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.

 

(iii)          Disability. Upon the
termination of the Executive’s employment because of his Disability, in
addition to the Accrued Benefits set forth in subparagraph (i) immediately
above, the Executive (or his representative, as applicable) shall be entitled
to:

 

(A)          a lump sum payment in cash
equal to the Pro Rata Annual Incentive; and

 

7

 

(B)           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.

 

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(b)(iii).

 

(iv)          Termination by Company For Cause
OR Termination by Executive Without Good Reason. Upon the
termination of the Executive’s employment by the Company for Cause or by the
Executive without Good Reason, Executive shall only be entitled to the Accrued
Benefits set forth in subparagraph (i) immediately above.

 

(v)           Termination by the Company
Without Cause OR Termination by the Executive For Good Reason. Upon the
termination of the Executive’s employment by the Company without Cause or by
the Executive for Good Reason, in addition to the Accrued Benefits set forth in
subparagraph (i) immediately above, the Executive (or his estate or
representative, as the case may be) shall be entitled to receive:

 

(A)          the Pro Rata Annual
Incentive;

 

(B)           a lump sum payment in cash
equal to the Executive’s Base Salary plus Target
Incentive Opportunity as in effect on the Termination Date multiplied
by one and one/half (1.5);

 

(C)           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, 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; and

 

(D)          executive level career
outplacement services, provided such services are performed by a mutually
agreeable outplacement firm and are performed within 12 months of the
Termination Date; to the extent the Executive incurs qualifying costs under
this provision, the Company will reimburse the Executive or pay such costs
directly, as appropriate.

 

(c)           Change in Control Severance
Provisions. Section 7 provides for
payment to the Executive if his employment is terminated for certain reasons
following a Change of Control as defined in Section 7. The Executive
acknowledges that in the event he becomes 

 

8

 

entitled
to the payment specified in Section 7(a), that payment will be in lieu of any
other payments to be made under the terms of this Agreement.

 

(d)           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(e), 8 and 22.

 

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

 

(f)            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)           Payments Related to 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 (2) years following a Change in Control (as such term is
defined in  paragraph (b) immediately
below), unless such termination is:

 

(i)            by the Company for Cause (as
the term Cause is defined in Section 6(a)(i)(D) above);

 

(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(ii)(A) above),

 

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:

 

(A)          his Accrued Benefits (in
full satisfaction for these amounts owed to the Executive);

 

(B)           a Pro Rata Annual Incentive
(with this payment being in lieu of any other payment to be made to the
Executive under the Incentive Plan for the respective plan year);

 

9

 

(C)           a lump-sum payment in cash
equal to the Executive’s Base Salary plus Target
Incentive Opportunity in effect on the Termination Date multiplied
by one and a half (1.5); and

 

(D)          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; provided, 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  paragraph (a).

 

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  paragraph (a), such
payment and benefits 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.

 

Additionally,
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  paragraph (a) (whether by the
Company or by the Executive), the Termination Date shall be no earlier than 30
days following the date on which a notice of termination is delivered by one
party to the other.

 

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

 

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

 

10

 

still
in office who either were Directors at the beginning of the period or whose
election or nomination for election was so approved), cease for any reason to
constitute a majority thereof; or

 

(iii)          The
consummation of:

 

(A)          a
plan of complete liquidation of the Company; or

 

(B)           the
sale or disposition of all or substantially all the Company’s assets; or

 

(C)           a
merger, consolidation, or reorganization of the Company with or involving any
other corporation, other than a merger, consolidation, or reorganization that
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least fifty
percent (50%) of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such merger,
consolidation, or reorganization.

 

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

 

For
purposes of (b)(i) of this Section 7, (A) Danfoss A/S shall be deemed to mean
any one or more of  Danfoss A/S, any of
its subsidiaries or related or affiliated companies or joint ventures, or any
successor of the foregoing; and (B) the Murmann Group shall be deemed to mean
any one or more of (i) Klaus Murmann, (ii) any member of his immediate family,
(iii) any entity a majority of the voting interests of which are owned,
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.
Notwithstanding anything to
the contrary contained in this Section 7 if, after taking into account all
amounts or benefits otherwise  to be paid
or payable (whether before or after the effective date of the Change of
Control), any amount or benefit to be paid or provided under this Section 7 or
any other plan or agreement would be an “Excess Parachute Payment,” within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”),
or any successor provision thereto, but for the application of this sentence,
then the payment and benefits to be so paid or provided under this Section 7 or
any other plan or agreement will be reduced to the minimum extent necessary
(but in no event less than zero) so that no portion of any such payment or
benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction will be made
only if and to the extent that the Executive and the 

 

11

 

Company
mutually agree that such reduction would result in an increase in the aggregate
payments and benefits to be provided to the Executive, determined on an
after-tax basis (taking into account any excise tax imposed pursuant to Section
4999 of the Code, or any successor provision thereto, any tax imposed by any
comparable provision of state law, and any applicable federal, state and local
income taxes). In the event that any payment or benefit intended to be provided
under this Section 7 or otherwise is agreed to be reduced pursuant to this
section, the Executive will be entitled to designate the payments and/or
benefits to be so reduced in order to give effect to this section. The Company
will provide the Executive with all information reasonably requested to make
such designation.

 

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

 

9.             Covenant
Not to Compete.

 

(a)           Competition. 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.

 

(b)           Acknowledgement of and Payment
for Noncompete. The Executive acknowledges
that:

 

(i)            the services to be performed
by him under this Agreement are of a special, unique, unusual, extraordinary,
and intellectual character;

 

12

 

(ii)           the business of the Company
is worldwide in scope and its products are marketed throughout the world;

 

(iii)          the Company competes with
other businesses that are or could be located in any part of the world; and

 

(iv)          the provisions of this
Section 9 are reasonable and necessary to protect the Company’s business.

 

As such, Executive
acknowledges and agrees that five percent (5%) of every payment made to him on
each payroll period of his Base Salary from the Company actually represents
consideration for agreeing to the noncompete provisions of this Section 9.

 

(c)           Blue Penciling. 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.

 

(d)           Automatic Extension for Violation. 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.

 

(e)           Agreement to Identify Subsequent
Employer. The Executive will, while
the covenants under this Section 9 are in effect, give notice to the Company,
within ten (10) days after accepting any other employment, of the identity of
the Executive’s employer. The Company may notify such employer that the
Executive is bound by this Agreement and, at the Company’s election, furnish
such employer with a copy of this Agreement or relevant portions thereof.

 

(f)            Penalty for Violation. In the event it
is determined that the Executive has violated the provisions of this Section 9,
the Executive, without any further
action by the Company or Executive, shall forfeit, as of the first day of any
such violation any amount owed to Executive under Section 6(b), other than the
Accrued Benefits. The Company shall be entitled to reimbursement from the
Executive of any fees and expenses (including attorneys’ fees) incurred by or
on behalf of the Company in enforcing the Company’s rights under this Section
9. By entering into this Agreement, the Executive hereby consents to a
deduction from any amounts the Company owes to Executive from time to time
(including amounts owed to the Executive as compensation as well as any other
amounts owed to Executive by the Company), to the extent of any amounts that
the Executive owes to the Company under this Section 9 as a forfeiture
following a payment to the Executive under Section 6(b), other than Accrued Benefits,
to which he is no longer entitled due to such violation. Whether or not the
Company elects to make any set-off in whole or in part, if the Company does not
recover by means of set-off the full amount the Executive owes to the Company,
the Executive agrees to pay immediately the unpaid balance to the Company.

 

13

 

10.           Disclosure of Confidential Information.

 

(a)           Nondisclosure. Without the
consent of the Company, the Executive shall not disclose to any other person
Confidential Information (as defined in paragraph (c) 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. In the event that the Executive is
requested or required to make disclosure of information subject to this
Section 10 under any court order, subpoena or other judicial process,
then, except as prohibited by law, the Executive will promptly notify the
Company, take all reasonable steps requested by the Company to defend against
the compulsory disclosure and permit the Company to control with counsel of its
choice any proceeding relating to the compulsory disclosure. The Executive
acknowledges that all information, the disclosure of which is prohibited by
this section, is of a confidential and proprietary character and of great value
to the Company and its subsidiaries and affiliates.

 

(b)           Safeguard and Return of
Proprietary Items. 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.

 

(c)           Definition of Confidential
Information. 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 

 

14

 

backgrounds of key
personnel, agents, personnel training and techniques and materials, insurance
products, premium structures, information relating to suppliers and supplies,
sales and marketing information and strategy, notes, analysis, compilations,
studies, summaries, and other material prepared by or for the Company
containing or based, in whole or in part, on any information included in the
foregoing, and any information, however documented, that is a trade secret
within the meaning of the Iowa Code Annotated Section 550.1 through 550.8.

 

(d)           Penalty for Violation. In the event it
is determined that the Executive has violated the provisions of this Section
10, the Executive, without any further
action by the Company or Executive, shall forfeit, as of the first day of any
such violation any amount owed to Executive under Section 6(b), other than the
Accrued Benefits. The Company shall be entitled to reimbursement from the
Executive of any fees and expenses (including attorneys’ fees) incurred by or
on behalf of the Company in enforcing the Company’s rights under this Section
10. By entering into this Agreement, the Executive hereby consents to a
deduction from any amounts the Company owes to Executive from time to time
(including amounts owed to the Executive as compensation as well as any other
amounts owed to Executive by the Company), to the extent of any amounts that
the Executive owes to the Company under this Section 10 as a forfeiture
following a payment to the Executive under Section 6(b), other than Accrued
Benefits, to which he is no longer entitled due to such violation. Whether or
not the Company elects to make any set-off in whole or in part, if the Company
does not recover by means of set-off the full amount the Executive owes to the
Company, the Executive agrees to pay immediately the unpaid balance to the
Company.

 

11.           Developments.

 

(a)           Agreement to Bring All
Developments to the Attention of the Company. 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.

 

(b)           Agreement that All Developments
are Property of the Company. 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

 

15

 

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.

 

(c)           Penalty for Violation. In the event it
is determined that the Executive has violated the provisions of this Section 11,
the Executive, without any further
action by the Company or Executive, shall forfeit, as of the first day of any
such violation any amount owed to Executive under Section 6(b), other than the
Accrued Benefits. The Company shall be entitled to reimbursement from the
Executive of any fees and expenses (including attorneys’ fees) incurred by or
on behalf of the Company in enforcing the Company’s rights under this Section
11. By entering into this Agreement, the Executive hereby consents to a
deduction from any amounts the Company owes to Executive from time to time
(including amounts owed to the Executive as compensation as well as any other
amounts owed to Executive by the Company), to the extent of any amounts that
the Executive owes to the Company under this Section 11 as a forfeiture
following a payment to the Executive under Section 6(b), other than Accrued
Benefits, to which he is no longer entitled due to such violation. Whether or
not the Company elects to make any set-off in whole or in part, if the Company
does not recover by means of set-off the full amount the Executive owes to the
Company, the Executive agrees to pay immediately the unpaid balance to the
Company.

 

12.           Nonsolicitation.

 

(a)           General Rule. 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:

 

(i)            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 

 

(ii)           solicit or arrange to have
any other person, firm, or other entity solicit or otherwise participate in the
solicitation of business from any entity that was a customer of the Company at
any time during the Employment Period, whether or not the Executive had
personal contact with such customer.

 

(b)           Penalty for Violation. In the event it
is determined that the Executive has violated the provisions of this Section
12, the Executive, without any further
action by the Company or Executive, shall forfeit, as of the first day of any
such violation any amount owed to Executive under Section 6(b), other than the
Accrued Benefits. The Company shall be entitled to reimbursement from the
Executive of any fees and expenses (including attorneys’ fees) incurred by or
on behalf of the Company in enforcing the Company’s rights under this Section
12. By entering into this Agreement, the Executive hereby consents to a
deduction from any amounts the Company owes to Executive from time to time
(including 

 

16

 

amounts
owed to the Executive as compensation as well as any other amounts owed to
Executive by the Company), to the extent of any amounts that the Executive owes
to the Company under this Section 12 as a forfeiture following a payment to the
Executive under Section 6(b), other than Accrued Benefits, to which he is no
longer entitled due to such violation. Whether or not the Company elects to
make any set-off in whole or in part, if the Company does not recover by means
of set-off the full amount the Executive owes to the Company, the Executive
agrees to pay immediately the unpaid balance to the Company.

 

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

 

(a)           Acknowledgement
by Executive.
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)           Adequate
Time to Consult with Legal Counsel. 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:

 

17

 

(a)           all federal, state, local
and foreign taxes and social security taxes that are required to be withheld by
applicable laws or regulations as the Company shall determine in its sole
discretion; and

 

(b)           other ordinary and customary
payroll deductions.

 

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 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. 

 

18

 

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
otherwise provided under Section 6(a)(ii)(A), 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.

 

	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: /s/ Wolfgang Schramm

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SAUER-DANFOSS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: /s/ Ronald C. Hanson

  	
   

  
	
   

  	
  Name: Ronald C. Hanson

  
	
   

  	
  Title: Vice President, Human
  Resources

  
				

 

19

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