<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-48299
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SAUER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3594 36-3482074
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2800 EAST 13TH STREET
AMES, IOWA 50010
(515) 239-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH D. MCCUSKEY
TREASURER AND SECRETARY
SAUER INC.
2800 EAST 13TH STREET
AMES, IOWA 50010
(515) 239-6364
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
LINDA C. QUINN, ESQ. JAMES W. KAPP, JR., ESQ. WILLIAM J. WILLIAMS, JR., ESQ.
SHEARMAN & STERLING SPENCER FANE BRITT & BROWNE LLP SULLIVAN & CROMWELL
599 LEXINGTON AVENUE 1000 WALNUT STREET, SUITE 1400 125 BROAD STREET
NEW YORK, NY 10022-6069 KANSAS CITY, MO 64106-2140 NEW YORK, NY 10004-2498
(212) 848-4000 (816) 474-8100 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT AGGREGATE OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share 10,350,000 shares $18.00 $186,300,000 $54,959(3)
$40,209(3)
==============================================================================================================================
</TABLE>
(1) Includes 1,350,000 shares of Common Stock which the U.S. Underwriters and
Managers have options to purchase to cover over-allotments, if any. The
shares of Common Stock are not being registered for the purpose of sales
outside the United States.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Total registration fee equals $54,959, of which $14,750 was previously paid.
The balance of $40,209 is being paid concurrently herewith.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 23, 1998
9,000,000 Shares
[SAUER INC. LOGO]
Common Stock
($.01 par value)
------------------
Sauer Inc. is issuing and selling 3,000,000 shares of its Common Stock, $.01 par
value (the "Common Stock"), and certain stockholders (the "Selling
Stockholders") named herein under "Principal and Selling Stockholders" are
selling 6,000,000 shares of Common Stock. Of the 9,000,000 shares of Common
Stock being offered, 4,275,000 shares are initially being offered in the United
States and Canada (the "U.S. Shares") by the U.S. Underwriters (the "U.S.
Offering") and 4,275,000 shares are initially being concurrently offered in
Germany and elsewhere outside the United States and Canada (the "International
Shares") by the Managers (the "International Offering" and, together with the
U.S. Offering, the "Combined Offering"). The final allocation of Common Stock
between the U.S. Underwriters and the Managers may differ from the amounts set
forth above. See "The Combined Offering." Shares of Common Stock are being
reserved for sale to employees, directors and certain other persons associated
with the Company at the initial public offering price. See "Underwriting." It is
expected that such sales will not exceed 5% of the Common Stock to be offered in
the Combined Offering. It is anticipated that the initial public offering price
will be between $15.00 and $18.00 per share.
The public offering price, the underwriting discounts and the commissions and
concession and discount to dealers for the International Offering will be the
same as in the U.S. Offering, except that purchasers will have the option to pay
the public offering price of the International Shares at the Deutsche mark
equivalent thereof. Prior to the Combined Offering, there has been no public
market for the Common Stock. For information relating to the factors considered
in determining the initial offering price to the public, see "The Combined
Offering -- Determination of Offering Price" and "Underwriting." The Common
Stock has been approved for listing on the New York Stock Exchange under the
symbol "SHS," subject to official notice of issuance, and application has been
made for the Common Stock to be listed on the Frankfurt Stock Exchange under the
symbol "SAR." Credit Suisse First Boston Aktiengesellschaft is acting as the
sponsor for the application for listing on the Frankfurt Stock Exchange.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 8
HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Per Share................................ $ $ $ $
Total(2)................................. $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $2,535,000.
(2) Klaus H. Murmann and K. Murmann & Co. KG, two of the Selling Stockholders,
have granted the U.S. Underwriters and the Managers an option, exercisable
by Credit Suisse First Boston Corporation for 30 days from the date of this
Prospectus, to purchase a maximum of 1,350,000 additional shares of Common
Stock to cover over-allotments, if any. If the option is exercised in full,
the total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ , Proceeds to Company will be $ and
Proceeds to Selling Stockholders will be $ .
Global Coordinator
CREDIT SUISSE FIRST BOSTON
The U.S. Shares are offered by the several U.S. Underwriters when, as and
if delivered to and accepted by the U.S. Underwriters and subject to their right
to reject orders in whole or in part. It is expected that the U.S. Shares will
be ready for delivery on or about , 1998, against payment in
immediately available funds.
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
DEUTSCHE MORGAN GRENFELL
Prospectus dated , 1998
<PAGE> 3
Sauer Inc. Farm Equipment Photo
<PAGE> 4
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY, THE
SELLING STOCKHOLDERS OR ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF
THE SHARES OF COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN
ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN THE
UNITED STATES AND GERMANY. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES
ARE REQUIRED BY THE COMPANY, THE SELLING STOCKHOLDERS AND THE UNDERWRITERS TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF
THE SHARES OF COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
------------------
CERTAIN OF THE INFORMATION CONTAINED IN THE "PROSPECTUS SUMMARY" AND IN
"BUSINESS" CONCERNING THE DEFINITION, SIZE AND DEVELOPMENT OF THE VARIOUS
PRODUCT MARKETS IN WHICH THE COMPANY PARTICIPATES, AND THE COMPANY'S GENERAL
EXPECTATIONS CONCERNING THE DEVELOPMENT OF SUCH PRODUCT MARKETS, ARE BASED ON
ESTIMATES PREPARED BY THE COMPANY USING DATA FROM VARIOUS SOURCES, WHICH DATA
THE COMPANY HAS NO REASON TO BELIEVE ARE UNRELIABLE, AND ON ASSUMPTIONS MADE BY
THE COMPANY, BASED ON SUCH DATA AND ITS KNOWLEDGE OF THE RELEVANT INDUSTRIES,
WHICH THE COMPANY BELIEVES TO BE REASONABLE. WHILE THE COMPANY IS NOT AWARE OF
ANY MISSTATEMENTS CONTAINED IN THESE SECTIONS, THE COMPANY'S ESTIMATES, IN
PARTICULAR AS THEY RELATE TO THE COMPANY'S GENERAL EXPECTATIONS CONCERNING THE
PRODUCT MARKETS IN WHICH THE COMPANY PARTICIPATES, INVOLVE RISKS AND
UNCERTAINTIES AND ARE SUBJECT TO CHANGE BASED ON VARIOUS FACTORS, INCLUDING
THOSE DISCUSSED UNDER THE CAPTION "RISK FACTORS" IN THIS PROSPECTUS.
DATA CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY," "BUSINESS"
AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" RELATING TO THE COMPANY'S SALES BY MARKET APPLICATION AND RELATED
MARKET SHARE DATA HAVE BEEN DERIVED FROM INTERNAL MANAGEMENT SOURCES. THE
DEVELOPMENT OF THESE DATA REQUIRES JUDGMENTS AS TO THE DEFINITION OF PRODUCT
CATEGORIES AND THE ALLOCATION OF SALES TO PARTICULAR CATEGORIES. THESE DATA ARE
NOT DERIVED FROM THE COMPANY'S ACCOUNTING RECORDS AND ARE NOT SUBJECT TO THE
CONTROLS PRESENT IN THE COMPANY'S ACCOUNTING SYSTEM. HOWEVER, MANAGEMENT
BELIEVES THAT THESE DATA HAVE BEEN DEVELOPED ON A REASONABLE BASIS AND
ACCURATELY REPRESENT THE COMPANY'S SALES BY PRODUCT CATEGORY IN ALL MATERIAL
RESPECTS.
BRAND NAMES AND TRADEMARKS APPEARING IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR HOLDERS.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON
STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENTS, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
As used herein, "Sauer" and "Company" refer to Sauer Inc. and its consolidated
subsidiaries. Unless otherwise indicated, the information in this Prospectus
does not give effect to the exercise of the over-allotment option. All share and
per share data contained in this Prospectus have been adjusted for a
12,500-for-1 stock split effective on April 22, 1998.
Certain information contained in this summary and elsewhere in this
Prospectus, including information with respect to the Company's plans and
strategy for its business, outlook, capital expenditure program and new
products, consists of forward-looking statements that involve risks and
uncertainties. For a discussion of important factors that could cause actual
results to differ materially from the forward-looking statements contained
herein, see "Risk Factors."
THE COMPANY
Sauer is a worldwide leader in the design, manufacture and sale of highly
engineered hydraulic systems and components ("mobile hydraulics") for use
primarily in demanding applications of off-highway mobile equipment. Sauer's
products include hydrostatic transmissions, open circuit piston pumps, gear
pumps and motors, valves, mechanical gear boxes and controls. Sauer is the
worldwide leader in hydrostatic transmissions, with an estimated 35% share
(based on sales) of the world market. In addition, Sauer is a world leader in
the production of gear pumps and motors, with both special designs and a
standard range of high performance units.
Mobile hydraulics are used in two critical vehicle systems: propulsion
drive systems, which transmit and control power for the propulsion of a vehicle,
and work function systems, which provide power for the work performed by the
vehicle. The function of mobile hydraulics is to transmit power from an engine,
diesel or gasoline fueled, to the location on the vehicle where it is required
(i.e., the propulsion or work function). Mobile hydraulics offer greater
flexibility of layout, more compact design, a higher performance-to-weight ratio
and greater productivity and reliability than other forms of motion control,
such as mechanical or electrical systems.
The Company is a leader in the design and manufacture of high performance
mobile hydraulics components and has the ability to bring these components
together in a total vehicle system using electronic sensors and microprocessor
controls programmed with the Company's proprietary software. Increasingly, the
propulsion and work function systems are being integrated with all other
elements of vehicle performance, including engine management and safety and data
gathering for productivity and maintenance, to achieve optimum vehicle
performance. Customers are looking to consolidate their supplier base, devote
their engineering resources to overall vehicle design and use a supplier's
expertise to design and supply hydraulic systems to achieve the vehicle's
performance objective. Because the components and systems supplied by Sauer are
usually the most technically advanced and highest value products on a vehicle
(excluding the engine), the Company is in a leading position to be selected by
customers as a key supplier and systems integrator. To meet the full range of
vehicle propulsion and work function demands, Sauer is increasingly working with
customers, suppliers and other component manufacturers to develop total
hydraulic systems, including braking, steering, cooling and an overall
microprocessor control system. Sauer's strong market position, technology
leadership and systems expertise have led to, and are expected to continue to
lead to, close working relationships with its customers.
Sauer sells to original equipment manufacturers ("OEMs") of off-highway
mobile equipment, including agricultural, construction, turf care, road building
and maintenance, material handling and oil field equipment. The Company's
principal OEM customers include AGCO Corp, Bomag GmbH, Case Corp., Caterpillar
Inc., Claas KGaA, Deere & Company, Ingersoll-Rand Company and its Melroe unit,
JCB Ltd., Liebherr GmbH, New Holland N.V., Svedala Industri AB and its Dynapac
Division and the Toro Company, most of which are customers in both North America
and Europe. Sauer sells its products directly to OEMs in North America, Europe
and Asia and through approximately 80 independent distributors. Sauer also sells
its products in
1
<PAGE> 6
Europe through sales subsidiaries in Belgium, France, Holland, Italy, Slovakia,
Spain, Sweden and the United Kingdom. With 13 manufacturing facilities in the
United States, Europe and China, the Company can adapt its products to local
market needs and has significant flexibility to meet customer delivery
requirements. In addition, Sauer licenses its hydrostatic transmission
technology to manufacturers that operate in Brazil, India and Japan.
INDUSTRY OVERVIEW
The United States, Europe and Japan are the primary markets in which mobile
hydraulic products are manufactured and sold. Over 80% of such products are
produced and incorporated into vehicles manufactured in these three regions.
International competition is primarily between large U.S. and German suppliers.
Historically Japanese companies have licensed mobile hydraulic technology from
U.S. and German companies and have focused almost exclusively on the East Asian
market.
Sales of the Company's products and systems have grown at a faster rate
than the underlying mobile hydraulic markets. The Company's revenues have grown
at a compound annual growth rate over a five-year and ten-year period of 22.0%
and 12.9%, respectively, in the United States, 6.5% and 2.5%, respectively, in
Europe (or 9.0% and 2.8%, respectively, excluding exchange rate effects), and
15.3% and 7.9%, respectively, in total. In the United States, as reported by the
National Fluid Power Association ("NFPA"), the five-year and ten-year compound
annual growth rates for mobile hydraulics have been 17.3% and 8.9%,
respectively. In Europe, as reported by the European Committee for Oil Hydraulic
& Pneumatic Transmission ("CETOP"), the rates have been 6.9% and 2.9%,
respectively. The CETOP data are for both mobile and industrial hydraulic
production. The Company believes that in Europe the mobile hydraulic market is
growing somewhat faster than the industrial hydraulic market. The Company
expects overall market growth rates to increase somewhat in Europe while
moderating in the United States.
GROWTH STRATEGY
Sauer's strategy is to be the technology leader, market leader and total
quality leader in the manufacture and supply of components and systems to
transmit and control hydraulic power in mobile equipment in major world markets,
although no assurance can be given that Sauer's efforts to become the technology
leader, market leader and total quality leader in the manufacture and supply of
such components and systems will be successful. Sauer competes based on
technological product innovation, quality and customer service. The key
components of Sauer's growth strategy are as follows:
Enhance Product Offering and Expand Content on Existing Vehicles. Sauer
has concentrated on significantly broadening and enhancing its product
offering. The Company's broader product line, including integrated
solutions utilizing microprocessor controls, provides a more complete
range of choice to the Company's OEM customers. Sauer intends to achieve
significant growth by increasing its sales content per vehicle to
existing customers.
Expand into New Mobile Hydraulic Vehicle Applications. Sauer plans to
develop mobile hydraulic products to enter into new vehicle markets,
such as industrial forklift trucks and agricultural and industrial
tractors, where hydrostatic transmissions have not been widely used;
however, there can be no assurance that Sauer will be successful in
developing products for any of these markets. The application of the
Company's hydrostatic technology to previously untapped markets
represents a significant future growth opportunity for the Company.
Capitalize on Global Presence; Build Asian Presence. Sauer is committed
to being a global company in order to serve the needs of its global
customers. The Company's customers manufacture and sell their products
throughout the world and require convenient access to their suppliers'
products and services. To meet this requirement, the Company has modern
manufacturing facilities in the United States and Europe and a network
of sales companies, licensees, distributors and authorized service
center locations around the world. The Company's presence in Asia is
currently limited. To expand its presence in the East Asian market, the
Company has recently established both a new manufacturing facility and
sales office in China.
2
<PAGE> 7
Improve Gross Margins Through Operating Effectiveness and Lower
Costs. The Company intends to improve margins by reducing overhead
costs, improving worker productivity, shortening production cycle times
and rationalizing its product mix. The Company is expanding and
equipping existing facilities and building new manufacturing facilities
to increase production capacity for new and existing products and to
enhance production efficiencies. For example, a portion of the Company's
1998-2000 capital expenditures will be used to upgrade machine tools to
reduce tool changeover times and improve machining tolerances, which
will improve product quality and reduce production times. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and
"Business -- Manufacturing." The major expansion of investment in
Slovakia, where total employment cost is approximately 15% of that in
Germany, will also improve margins in Europe. In addition, the Company
believes that the most important contribution to cost reduction comes
from investment in a skilled workforce able to adapt to new technology
and equipment.
Make Selective Acquisitions. Sauer may make selective acquisitions that
broaden the products and systems offered by the Company and enhance
Sauer's technological leadership, although no assurance can be given
that any acquisitions will be made or that, if made, any acquisition
will broaden the products offered by the Company or enhance its
technological position. In particular, Sauer seeks to take advantage of
the consolidation occurring in the electrohydraulics industry. Such
acquisitions are likely to involve smaller niche or regional companies,
and could also include larger acquisitions.
HISTORY AND ORGANIZATION
Sauer and its predecessor organizations have been active in the mobile
hydraulics industry since the 1960s. Established in 1987, the Company combined
the business of Sauer Getriebe AG ("Sauer Getriebe") in Europe and Sundstrand
Hydraulic Power Systems in North America. A predecessor to Sauer Getriebe was
founded in Germany in 1884. Sundstrand was founded in 1905 in the United States
and established its Hydro Transmission division in 1964. In 1967, Sauer
Getriebe, which was owned by Klaus H. Murmann, became a licensee of Sundstrand
to manufacture and sell hydrostatic transmissions in Europe. Recognizing the
need to serve their OEM customers on a more global basis, Sauer Getriebe and
Sundstrand combined their non-U.S. and U.S. mobile hydraulics transmission
businesses in an equal joint venture in 1987. In 1989, the Murmann family and
certain of the Company's executive officers bought Sundstrand's interest in the
joint venture. As a result of that transaction and a related restructuring in
1990, Sauer Inc. became the holding company for its operations. The Company's
United States operations are conducted through Sauer-Sundstrand Company (the
"U.S. Operating Company"), a wholly owned subsidiary of Sauer Inc., and the
Company's German operations are conducted through Sauer-Sundstrand GmbH & Co., a
German partnership (the "German Operating Company"), of which Sauer Inc. is a
general partner and 80% owner.
Upon completion of the Combined Offering, the Murmann family will own
approximately 56.7% of the outstanding Common Stock of the Company (or 51.7% if
the U.S. Underwriters' and Managers' over-allotment option is exercised in
full). See "Principal and Selling Stockholders" and "Description of Capital
Stock." The Murmann family also owns separate limited partnership interests in
the German Operating Company. Under the limited partnership agreement, the
German Operating Company is required to make an annual cash payment to the
limited partners of 8.5% (7.6% pro forma for the Combined Offering) of the
Company's consolidated income before taxes and before the Murmann family's
limited partnership interests. See "Relationship with Principal
Stockholder -- Murmann Family Limited Partnership Interests in the German
Operating Company."
The Company was incorporated under the name Sundstrand Venture Company in
Delaware on September 25, 1986. On January 22, 1990, the Company changed its
name to Sauer Inc. The Company's dual executive offices are located at 2800 East
13th Street, Ames, Iowa 50010, telephone number (515) 239-6000, and at Krokamp
35, 24539 Neumunster, Federal Republic of Germany, telephone number
011-49-4321-871-0.
3
<PAGE> 8
THE COMBINED OFFERING
Common Stock Offered:
U.S. Offering....................... 4,275,000 Shares(1)(2)
International Offering.............. 4,275,000 Shares(1)(2)
Employee Offering................... 450,000 Shares
---------------------------------------------------
Total............................ 9,000,000 Shares(1)
=====================================================
Offered by the Company.............. 3,000,000 Shares
Offered by the Selling
Stockholders.......................... 6,000,000 Shares(1)
Total............................ 9,000,000 Shares(1)
=====================================================
Outstanding after the Combined
Offering.............................. 27,225,000 Shares
New York Stock Exchange symbol........ SHS
Proposed Frankfurt Stock Exchange
symbol................................ SAR
Use of Proceeds....................... For general corporate purposes,
including repayment of approximately
$15.4 million of indebtedness
incurred in the acquisition, expected
to be consummated on May 1, 1998,
prior to the Combined Offering, of
the real estate and building for the
Company's main facility in Germany
currently owned by and leased from
the Murmann family, repayment of
$15.0 million of long-term
indebtedness of Sauer and funding of
a portion of the Company's 1998-2000
capital expenditure program. Pending
such application, the net proceeds
will be used to reduce approximately
$14.0 million of short-term
indebtedness. The Company will not
receive any proceeds from the sale of
Common Stock by the Selling
Stockholders.
Dividend Policy....................... The Company currently intends to pay
regular quarterly cash dividends of
$.07 on its Common Stock subject to
declaration by the Company's Board of
Directors. See "Dividend Policy."
Certain debt instruments to which the
Company or its subsidiaries are
parties restrict the ability of the
Company or its subsidiaries to pay
dividends or redeem or repurchase
capital stock. See "Management's
Discussion and Analysis of Financial
Condition and Results of
Operations -- Liquidity and Capital
Resources" and "Description of
Capital Stock -- Limitations on
Dividends and Other Financial
Restrictions on the Company and its
Subsidiaries."
Controlling Stockholder............... For information regarding the
Company's controlling stockholder,
see "Relationship with Principal
Stockholder."
- ---------------
(1) Excludes the 1,350,000 shares of Common Stock that may be purchased from
Klaus H. Murmann and K. Murmann & Co. KG pursuant to the over-allotment
option.
(2) The final allocation of Common Stock between the U.S. Offering and the
International Offering may differ from the initial allocation set forth
above.
4
<PAGE> 9
For additional information concerning the Combined Offering, including
information relating to the determination of the initial public offering price,
see "The Combined Offering."
RISK FACTORS
Prospective investors should consider all the information contained in this
Prospectus before making an investment in the Common Stock. In particular,
prospective investors should consider carefully the factors discussed under
"Risk Factors."
5
<PAGE> 10
SUMMARY FINANCIAL DATA
The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements,
including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME AND LOSS DATA
Net sales......................................... $274,492 $362,482 $446,774 $467,566 $535,173
Cost of sales..................................... 219,189 274,206 336,700 354,034 404,065
Selling, general and administrative expense....... 38,046 43,934 48,128 51,856 52,575
Research and development expense.................. 14,573 16,068 18,796 20,505 20,655
-------- -------- -------- -------- --------
Operating income.................................. 2,684 28,274 43,150 41,171 57,878
Income (loss) before income taxes and minority
interest........................................ (4,387) 23,103 38,209 35,784 51,565
Net income (loss)................................. $ (6,818) $ 11,374 $ 26,580 $ 18,898 $ 27,129
======== ======== ======== ======== ========
Basic and diluted net income (loss) per common
share........................................... $ (.30) $ .47 $ 1.10 $ .78 $ 1.12
======== ======== ======== ======== ========
Pro forma basic and diluted net income per common
share(1)........................................ $ 1.10
========
Basic and diluted weighted average common shares
outstanding..................................... 22,725 24,050 24,187 24,225 24,225
======== ======== ======== ======== ========
OTHER DATA
Backlog (at year-end)............................. $100,700 $187,400 $235,600 $227,000 $277,500
Capital expenditures.............................. 13,334 21,350 45,689 56,284 66,750
Depreciation and amortization..................... 16,557 18,204 19,898 24,830 25,835
EBITDA(2)......................................... 18,312 42,545 58,317 59,930 76,515
Cash flows from (used in):
Operating activities............................ 25,391 40,904 36,694 47,670 42,744
Investing activities............................ (12,978) (21,048) (45,544) (56,198) (70,311)
Financing activities............................ (12,857) (13,543) 13,235 9,268 23,351
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA
Total assets................................................ $390,903 $408,591
Current liabilities......................................... 139,302 127,030
Long-term debt.............................................. 75,198 66,468
Stockholders' equity........................................ 85,301 123,919
</TABLE>
- ---------------
(1) Pro forma basic and diluted net income per share is computed based upon: (i)
pro forma net income which gives effect to the elimination of interest
expense, net of income tax and minority interest, related to $15.0 million
of long-term indebtedness and (ii) the basic and diluted weighted average
common shares outstanding, as adjusted to reflect the sale by the Company of
909,091 shares of Common Stock offered by it hereby and the application of
the net proceeds therefrom to repay $15.0 million of long-term indebtedness
as described in "Use of Proceeds."
6
<PAGE> 11
(2) EBITDA for any relevant period presented above represents net income (loss),
plus provision for income taxes and net interest expense, plus depreciation
and amortization. EBITDA may not be comparable to similarly titled measures
reported by other companies. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which is determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditures and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs, and its discretionary use of EBITDA will be subject
to the Company's future cash needs relating to its capital expenditures,
working capital requirements, future debt service requirements and dividend
payments. See the Company's Consolidated Financial Statements and the
related notes thereto appearing elsewhere in this Prospectus.
(3) As adjusted to give effect to the issuance of 3,000,000 shares of Common
Stock in the Combined Offering (assuming an initial public offering price of
$16.50 per share and after deducting the estimated expenses of the Combined
Offering payable by the Company, including underwriting commissions on the
Common Stock sold by the Company) and the application of the net proceeds
therefrom to reduce approximately $14.0 million of short-term and $15.0
million of long-term indebtedness. Additionally, the application of the net
proceeds therefrom will be utilized to repay indebtedness incurred in
connection with the acquisition of the German facility, expected to be
consummated on May 1, 1998 prior to the Combined Offering. In connection
with the acquisition of the German facility, "As adjusted" gives effect to
recording: (i) approximately $17.7 million for the German facility at the
seller's historical cost basis, (ii) the mortgage of approximately $8.0
million at its carrying value and (iii) a reduction in additional paid-in
capital of approximately $5.8 million for the difference between the
appraised value and the seller's historical cost basis in the German
facility.
RECENT DEVELOPMENTS
Based on preliminary, unaudited data for the three-month period ended March
29, 1998, the Company expects to report net sales of $152.9 million and net
income of $6.5 million. Net sales of $152.9 million increased by $17.0 million,
or 12.5%, from first quarter 1997 net sales of $135.9 million. Net sales
increased by 15.0% excluding the impact of currency fluctuation. Compared to the
first quarter of 1997, North American sales increased by 17.7% and European
sales increased by 4.2%, or 10.6% excluding the impact of currency fluctuation.
East Asian sales decreased by $3.1 million, or 55.7%.
Operating margins for first quarter 1998 were down compared to first
quarter 1997 for both North America and Europe. Operating margins were adversely
affected by the significant investments being made in engineering, research and
development and manufacturing processes and capacity, including the move of the
Minneapolis operations and construction of the Lawrence plant.
Net income for first quarter 1998 of $6.5 million decreased by $1.4
million, or 17.7%, from first quarter 1997 net income of $7.9 million. In
addition to the impact of the lower operating margins, net income was also
impacted by an increase in interest expense of $.9 million. North American first
quarter 1998 net income of $6.5 million decreased by $.5 million, or 7.1%, from
first quarter 1997 net income of $7.0 million. European first quarter 1998 net
income of $1.7 million decreased by $1.7 million, or 50%, from first quarter
1997 net income of $3.4 million.
7
<PAGE> 12
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
significant degree of risk. Prospective investors should consider carefully the
following factors, together with the other information contained in this
Prospectus, in evaluating whether to purchase the Common Stock.
COMPETITION
The mobile hydraulics industry is intensely competitive, with competition
principally based on breadth of product offerings, systems capability, product
performance, quality, price, durability and availability of skilled aftermarket
support. There are a relatively small number of competitors, usually divisions
of large companies such as Mannesmann (Rexroth division), Eaton,
Aeroquip-Vickers, Linde AG and Parker Hannifin, that offer broad product ranges
across international markets. In addition, the Company competes with a large
number of smaller companies that typically offer a single, specialized product
on a more limited geographic basis. Certain of the Company's competitors have
greater financial and other resources and may have lower cost structures than
the Company and can thus better withstand adverse economic or market conditions.
Companies not currently in direct competition with the Company may introduce
competing products in the future. For example, the Company may face competition
from current and prospective OEM customers, who evaluate the Company's products
against the merits of manufacturing components internally. To remain
competitive, the Company must continue to make capital and operational
expenditures, invest in research and development, maintain and enhance quality
levels, deliver finished products on a reliable basis and compete favorably on
the basis of price. Failure of the Company to continue to compete effectively
could have a material adverse effect on the Company's business, financial
condition and results of operations.
PRICING AND COMPETITIVE PRESSURES FROM OEM CUSTOMERS
Approximately 70% of the Company's sales are directly to OEM customers.
Increasingly, OEM customers are seeking to use their positions as volume
purchasers in the mobile hydraulics market to obtain preferential pricing and to
obtain substantial quality assurance protection from suppliers. To remain
competitive with others selling to these OEMs, the Company will continue to face
significant limitations on its ability to raise and, in some cases, maintain
current price levels on sales to such customers. In addition, the Company
expects that additional capital and operating expenditures will be required to
meet the enhanced quality assurance protection its OEM customers require. These
developments could have a significant impact on the Company's operating results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CYCLICALITY; RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS
The capital goods industry in general and the mobile hydraulics industry in
particular are subject to economic cycles. Cyclical downturns have in the past
had and could in the future have a material adverse effect on the demand for the
Company's products and, consequently, on the Company's business, financial
condition and results of operations. Demand for the Company's products is
dependent upon the general condition of the off-highway mobile equipment
industry which may be affected by numerous factors, including levels of
construction activity, weather conditions and interest rates. The Company's
results of operations are also subject to price competition and the cost of
supplies and labor, both of which are affected by general economic conditions.
The Company derives substantial sales from cyclical industries, including the
turf care, material handling, construction and agricultural equipment
industries. Periods of economic recession in the United States or Europe or any
other major industrial market could cause a substantial decrease in the
Company's net sales and have a material adverse effect on the Company's
business, financial condition and results of operations. Currently, markets in
the East Asia region in which the Company does business are experiencing an
economic disruption. In 1997, the Company had sales of $15.5 million in East
Asia or 3.0% of the Company's total revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other
Matters -- Asian Crisis Impact."
RISKS RELATING TO GROWTH STRATEGY
A key element of the Company's growth strategy is its continued success in
developing new, enhanced hydraulic systems and components for its existing
markets and new applications of its technology to new
8
<PAGE> 13
market segments. The Company may not be successful in developing these new
products, or such products may not compete successfully in the market.
In pursuing its growth strategy, the Company intends to expand its presence
in existing markets and to enter new product markets, both of which will require
significant increases in manufacturing capacity and research, engineering and
development efforts. The Company has commenced an expansion program requiring
capital expenditures to construct new facilities and expand existing operations.
The expansion program may take longer or require more capital than is currently
planned. The Company may finance these capital expenditures from cash flow from
operations, bank or institutional borrowings or the issuance of equity or debt
securities. The Company may not be able to obtain such financing or, if
available, such financing may not be on terms acceptable to the Company.
The Company's expansion program and product development efforts are
expected to require significant expenditures in advance of anticipated revenues.
This may have a negative effect on the Company's operating results until such
time as these expenses are offset by increased revenues.
DEPENDENCE ON SKILLED PERSONNEL
The Company's future operating results and its development of new
technologies and products depend to a significant degree upon the continued
contribution of its technical, engineering and research personnel and skilled
labor force. This segment of the labor market in the United States and in the
United Kingdom is currently experiencing very tight supply conditions. The
Company competes for qualified technical, engineering and research personnel
with numerous other employers, some of which have greater financial and other
resources than the Company. The Company's continued success depends on its
ability to attract and retain a skilled labor force at all its facilities. While
the Company has been successful in attracting and retaining skilled employees in
the past, the Company may not continue to be successful in attracting or
retaining the personnel it requires to develop, manufacture and market its
products and expand its operations in the future.
INTERNATIONAL SALES; CURRENCY FLUCTUATIONS AND INVESTMENTS IN EMERGING MARKETS
In 1997, approximately 62% of the Company's net sales were generated in
U.S. dollars, 37% in European currencies and 1% in Chinese currency. The Company
expects that sales outside the United States will continue to account for a
significant portion of its net sales in future periods. International sales are
subject to various risks, including the impact of possible recessionary
environments in various economies, unexpected changes in regulatory
requirements, tariffs and other trade barriers, potentially adverse tax
consequences, trade or currency restrictions and, particularly in emerging
economies, potential political and economic instability and regional conflicts.
Any or all of these factors could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In 1997, approximately 38% of the Company's sales were made in currencies
other than the U.S. dollar, including 20% in Deutsche marks, 9% in British
pounds and 3% in Italian lira. The Company's financial statements, which are
presented in U.S. dollars, can be impacted by foreign exchange fluctuations
through both translation risk and transaction risk. Translation risk is the risk
that the financial statements of the Company for a particular period or as of a
certain date are affected by changes in the exchange rates that are used to
translate the financial statements of the Company's foreign operations from
foreign currency into U.S. dollars. Transaction risk is the risk of the Company
receiving its sales proceeds or holding its assets in a currency different from
that in which it pays its expenses and holds its liabilities. Transaction gains
and losses have not been significant given the Company's balanced global
manufacturing presence. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of Currency Fluctuations."
Since 1995, the Company has made substantial investments in two facilities
in Slovakia and has entered into a joint venture in Shanghai, China. Operations
in emerging economies such as Slovakia and China often are subject to numerous
risks and uncertainties, including political, economic and legal risks such as
unexpected changes in regulatory requirements, taxes, tariffs, customs, duties
and other trade barriers, difficulties in staffing and managing foreign
operations, foreign exchange controls that restrict or prohibit repatriation of
funds, and technology export and import restrictions or prohibitions. The
success of market reforms undertaken in these countries is also uncertain, and
further economic and political instability may
9
<PAGE> 14
occur. Legal systems in emerging economies have limited experience with
commercial transactions between private parties. The extent to which contractual
obligations will be honored and enforced is uncertain.
CONCENTRATION OF SUPPLIERS
As part of the Company's strategy to cut costs, the Company looks to
concentrate its purchases to fewer suppliers. The Company believes this move to
a more limited number of suppliers results in closer working and technical
relationships with its suppliers that contribute to advances in technology. In
addition, these suppliers, as a result of the increased volume of the Company's
purchases, are expected to provide more efficient and reliable service and more
competitive prices when selected as the single supplier. While this reliance on
a reduced number of suppliers has not in the past resulted in any disruption in
deliveries of supplies that materially affected the Company's business or
results of operations, in the future one or more of the Company's suppliers'
operations could be disrupted or a supplier could decide to discontinue
supplying the Company, in which case the Company's operations or operating
results could be adversely affected. Although the Company believes that in such
case it would be able to find an acceptable replacement supplier, it may take
time to find a new supplier and for such supplier to provide the needed
material. The new supplier may not provide financial terms or services as
advantageous as the replaced supplier.
TECHNOLOGICAL CHANGE
The hydraulic industry and markets for component parts of mobile hydraulics
are subject to technological change, evolving industry standards, changing
customer requirements and improvements in and expansion of product offerings.
Although the Company believes that it has the technological capabilities to
remain competitive, technological advances or developments by competitors or
others could result in the Company making significant capital expenditures in
order to remain competitive and to avoid material adverse effects on its
business, financial condition and results of operations.
CONCENTRATION OF OWNERSHIP OF THE COMPANY; MURMANN FAMILY'S LIMITED PARTNERSHIP
INTERESTS
Upon completion of the Combined Offering, the Murmann family, the Company's
principal stockholders, will own approximately 56.7% of the outstanding Common
Stock of the Company (or 51.7% if the over-allotment option is exercised in
full). See "Relationship with Principal Stockholder." Accordingly, persons
purchasing Common Stock in the Combined Offering will not, either alone or
acting collectively, be able to elect any members of the Company's Board of
Directors or control any corporate actions.
The Murmann family also owns limited partnership interests in the German
Operating Company. Pursuant to the limited partnership agreement, the consent of
the limited partners is required for the German Operating Company to take
certain actions. In addition, under the limited partnership agreement, the
German Operating Company is required to make an annual cash payment to the
limited partners of 8.5% (7.6% pro forma for the Combined Offering) of the
Company's consolidated income before taxes and before the Murmann family's
limited partnership interests. See "Relationship with Principal
Stockholder -- Murmann Family Limited Partnership Interests in the German
Operating Company."
ASIAN ECONOMIC CRISIS
The Company has a 60% interest in a joint venture located in Shanghai,
China and makes export sales into Asia. Several countries in Asia are
experiencing a severe economic crisis, which will affect the joint venture
business and export sales. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Other Matters -- Asian Crisis
Impact." In addition, the Asian crisis may have an impact on sales of the
Company's customers in Asia, which could adversely impact the Company's sales.
The Company does not expect the impact of the Asian crisis on its joint venture
business, export sales and sales to customers, individually or in the aggregate,
to have a material adverse effect on its financial condition or results of
operations, although there can be no assurance in this regard.
LIABILITIES RELATED TO NEUMUNSTER FACILITIES
The German Operating Company has leased its principal facilities from Sauer
GmbH & Co. Hydraulik KG ("Sauer Hydraulik"), which is wholly owned by the
Murmann family. Effective May 1, 1998, the Company will purchase such facilities
from Sauer Hydraulik. See "Use of Proceeds." Pursuant to the purchase agreement
and the lease, the German Operating Company is, and will continue to be,
obligated to
10
<PAGE> 15
fully indemnify Sauer Hydraulik against all liabilities incurred in connection
with the premises and the conduct of the business, including environmental
liabilities, and is responsible for all environmental damages to the premises,
including the cost of clean-up of such damages, regardless of whether the
liabilities or damages were incurred by, or result from the use of, a previous
owner of the facilities. The Company does not believe that these liabilities
under the purchase agreement and the lease will have a material adverse effect
on its business, results of operations or financial condition, although there
can be no assurance in this regard. See "Business -- Environmental Matters."
NO PRIOR TRADING MARKET FOR COMMON STOCK
Prior to the Combined Offering, there has been no public market for the
Common Stock. Although the Common Stock has been approved for listing on the New
York Stock Exchange, subject to official notice of issuance, and application has
been made for the Common Stock to be listed on the Frankfurt Stock Exchange, an
active trading market may not develop or be sustained either in the United
States or in Germany after the Combined Offering. The initial public offering
price will be negotiated among the Company, the representatives of the Selling
Stockholders and the representatives of the Underwriters and may not be
indicative of prices that will prevail in the trading market after the Combined
Offering, and the market price of shares of Common Stock after the Combined
Offering might fall below the initial public offering price. See "The Combined
Offering -- Determination of Offering Price" and "Underwriting" for a discussion
of factors to be used to determine the initial public offering price.
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value per share. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Subject to applicable United States federal securities laws and the
agreement described below, after completion of the Combined Offering, the
Murmann family and management may sell or distribute any and all of the shares
of Common Stock they own. Sales or distribution by the Murmann family or
management of substantial amounts of Common Stock, or the perception that such
sales or distribution could occur, could adversely affect the prevailing market
price for the Common Stock. The Murmann family has advised the Company that its
current intent is to continue to hold at least 50.1% of the Common Stock
outstanding following the Combined Offering. However, the Murmann family is not
subject to any contractual obligation to retain any shares of Common Stock,
except that the Murmann family, as well as members of management, have agreed
not to sell or otherwise dispose of any shares of the Common Stock for a period
of 180 days after the date of this Prospectus without the prior written consent
of Credit Suisse First Boston Corporation, as representative of the U.S.
Underwriters and Managers, subject to certain exceptions. The Company has agreed
to register shares held by the Murmann family for future sales from time to time
upon request. See "Shares Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-Laws may render more difficult or have the effect of discouraging
unsolicited takeover bids from third parties or the removal of incumbent
management of the Company. See "Description of Capital Stock -- Certain
Provisions of the Restated Certificate of Incorporation and By-Laws That May
Have an Anti-Takeover Effect." Although such provisions do not have a
substantial practical significance to investors while the Principal Stockholder
controls the Company, such provisions could have the effect of depriving
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices should the Principal Stockholder's voting power decrease to less
than 50%. In addition, certain of the Company's and its subsidiaries' credit
agreements contain default provisions with respect to certain changes in control
of Sauer. See "Description of Capital Stock -- Limitations on Dividends and
Other Financial Restrictions on the Company and its Subsidiaries."
11
<PAGE> 16
THE COMBINED OFFERING
GENERAL
Of the 9,000,000 shares of Common Stock being sold in the Combined
Offering, the Company is issuing and selling 3,000,000 shares of Common Stock
and the Selling Stockholders are selling 6,000,000 shares of Common Stock. In
addition, Klaus H. Murmann and K. Murmann & Co. K.G. have granted the
Underwriters and Managers an option to purchase up to an aggregate of 1,350,000
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. Upon completion of the Combined Offering, the Murmann
family will own approximately 56.7% of the outstanding Common Stock (or 51.7% if
the over-allotment option is exercised in full). See "Principal and Selling
Stockholders." The Company will not receive any proceeds from the sale of the
Common Stock by the Selling Stockholders.
The Common Stock is being offered by the U.S. Underwriters in the U.S.
Offering and by the Managers in the International Offering.
The U.S. Underwriters and Managers have reserved for sale, at the initial
public offering price, up to 450,000 shares of Common Stock (or 5% of the shares
offered in the Combined Offering, assuming the over-allotment option is not
exercised) for employees, directors and certain other persons associated with
the Company who have expressed an interest in purchasing such shares in the
Combined Offering. The number of shares available for sale to investors in the
Combined Offering will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
U.S. Underwriters or the Managers to investors on the same terms as the other
shares offered hereby.
The U.S. Offering
An offering of 4,275,000 shares of Common Stock will be made by the U.S.
Underwriters to the public in the United States and on a private placement basis
in Canada. Credit Suisse First Boston Corporation, Smith Barney Inc. and
Deutsche Morgan Grenfell Inc. are the representatives of the U.S. Underwriters.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol SHS, subject to official notice of issuance.
The International Offering
An offering of 4,275,000 shares of Common Stock will be made by the
Managers in Germany and elsewhere outside the United States and Canada. The
offering of 4,275,000 shares of Common Stock in Germany will be a public
offering. Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG and
Smith Barney Inc. are the Managers. Application has been made for the Common
Stock to be listed on the Frankfurt Stock Exchange under the symbol SAR. Credit
Suisse First Boston Aktiengesellschaft is acting as the sponsor for such
application.
The final allocation of Common Stock between the U.S. Underwriters and
Managers may differ from the amounts set forth above.
DETERMINATION OF OFFERING PRICE
Prior to the Combined Offering, there has not been any public market for
the Common Stock. The initial public offering price will be determined by
negotiation among the Company, the representatives of the Selling Stockholders
and the representatives of the U.S. Underwriters and Managers. In determining
the initial public offering price, consideration will be given to, among other
things, the current financial position and results and future prospects of the
Company, the general condition of the German, United States and other securities
markets, prices of similar securities of German and U.S. companies, market
conditions for initial public offerings and other relevant factors. The prices
at which the shares of Common Stock will trade in the public market could be
lower than the initial public offering price.
12
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the issuance of the
3,000,000 shares of Common Stock being sold by the Company in the Combined
Offering are estimated to be $44.5 million, assuming an initial public offering
price of $16.50 per share (the midpoint of the initial offering price range),
and after deducting the estimated expenses of the Combined Offering payable by
the Company, including underwriting commissions with respect to the Common Stock
sold by the Company. Such net proceeds will be used by the Company for general
corporate purposes, including approximately $15.4 million to repay indebtedness
expected to be incurred prior to the Combined Offering in connection with the
acquisition, expected to be consummated on May 1, 1998 prior to the Combined
Offering, of the real estate and building of its main facility in Germany owned
by the Murmann family, $15.0 million to repay long-term indebtedness of Sauer
under a revolving credit agreement and the remainder to fund a portion of the
Company's 1998-2000 capital expenditure program. The anticipated indebtedness to
be incurred to acquire the principal German facility prior to the Combined
Offering will be owed to the Murmann family, bears interest at a rate of 5% per
year and matures on November 1, 1998. The long-term indebtedness to be repaid
bears interest at a rate of 7.05% per year as of December 31, 1997 and matures
in August 2001. See "Relationship with Principal Stockholder" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company presently expects capital expenditures to be in the range of
$150-$230 million during the 1998-2000 period. The Company expects these capital
expenditures to be used primarily for the construction of new manufacturing
facilities and the purchase of manufacturing equipment for all its business
units to increase production capacity for new and existing products, to increase
production efficiencies and for replacement purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Pending such application, the
net proceeds will be used to reduce approximately $14.0 million of short-term
indebtedness under a revolving credit facility used to fund working capital,
which bears interest at a rate of 4.29% per year as of December 31, 1997,
matures at various times over the next year and is callable at any time. Repaid
amounts of such short-term indebtedness will be reborrowed to pay capital
expenditures as they are incurred.
DILUTION
The pro forma net tangible book value of the Company at December 31, 1997
prior to the Combined Offering was $76.5 million, or $3.16 per share, reflecting
a reduction in additional paid-in capital for the difference between the
appraised value and the seller's historical cost basis of the acquisition of the
German facility expected to be consummated on May 1, 1998 prior to the Combined
Offering. Pro forma net tangible book value per share is determined by dividing
the pro forma net tangible book value of the Company (tangible assets less
liabilities) by the number of outstanding shares of Common Stock. After giving
effect to the issuance of 3,000,000 shares of Common Stock being sold by the
Company in the Combined Offering (assuming an initial public offering price of
$16.50 per share and after deducting the estimated expenses of the Combined
Offering payable by the Company, including underwriting commissions), at
December 31, 1997, the pro forma net tangible book value of the Company would
have been $121.0 million, or $4.44 per share, representing an immediate increase
in net tangible book value of $1.28 per share to the existing stockholders and
an immediate dilution of $12.06 per share to the new investors in the Combined
Offering. The following table illustrates the per share dilution to the new
investors in the Combined Offering at December 31, 1997 (assuming an initial
public offering price of $16.50 per share and after deducting the estimated
expenses payable by the Company including underwriting commissions):
<TABLE>
<CAPTION>
PER
SHARE
------
<S> <C>
Assumed initial public offering price....................... $16.50
Pro forma net tangible book value at December 31, 1997 prior
to the Combined Offering.................................. 3.16
Increase in net tangible book value attributable to
purchasers in the Combined Offering....................... 1.28
Pro forma net tangible book value after the Combined
Offering.................................................. 4.44
------
Dilution in net tangible book value to purchasers of shares
of Common Stock in the Combined Offering.................. $12.06
======
</TABLE>
13
<PAGE> 18
The following table summarizes, as of December 31, 1997, the difference
between the number of shares of Common Stock purchased or to be purchased from
the Company, the total consideration paid or to be paid and the average
consideration paid or to be paid by the existing stockholders and the new
investors in the Combined Offering, assuming an initial public offering price of
$16.50 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing Stockholders................... 24,225,000 89.0% $ 74,759 60.2% $ 3.09
Purchasers of Common Stock in the
Combined Offering..................... 3,000,000 11.0 49,500 39.8 16.50
---------- ----- -------- ----- ------
Total......................... 27,225,000 100.0% $124,259 100.0% $ 4.56
========== ===== ======== ===== ======
</TABLE>
DIVIDEND POLICY
The Company expects to pay dividends in the future consistent with its cash
requirements and growth needs. The amount of dividends will be dependent upon
the Company's current and expected future financial performance, general
business conditions and other relevant factors. The Company currently expects to
pay quarterly dividends of $.07 per share. This anticipated dividend policy
could be changed and the Company could pay no dividends. The Company is a
holding company with no business operations of its own. The Company is therefore
dependent upon payments, dividends and distributions from its operating
subsidiaries for funds to pay dividends to holders of Common Stock.
Certain of the financing agreements restrict Sauer's ability to pay
dividends to its stockholders or redeem or repurchase capital stock. In
addition, the Company's ability to pay dividends on the Common Stock is
effectively limited by certain restrictive covenants contained in the credit
agreements to which the U.S. Operating Company and the German Operating Company
are parties, which effectively limit the amount of dividends the U.S. Operating
Company or the German Operating Company can distribute to Sauer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Capital
Stock -- Limitations on Dividends and Other Financial Restrictions on the
Company and its Subsidiaries."
14
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997. This table should be read in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current maturities of long-term
debt)..................................................... $ 61,230 $ 48,958
======== ========
Long-term debt.............................................. $ 75,198 $ 66,468
-------- --------
Minority interest in net assets of consolidated companies... 32,799 32,799
-------- --------
Stockholders' equity:
Common Stock, $.01 par value.............................. 249 279
Additional paid-in capital................................ 74,723 113,311
Cumulative translation adjustment......................... 256 256
Retained earnings......................................... 12,773 12,773
Common Stock in treasury (at cost)........................ (2,700) (2,700)
-------- --------
Total stockholders' equity........................ 85,301 123,919
-------- --------
Total capitalization........................................ $193,298 $223,186
======== ========
</TABLE>
- ---------------
(1) As adjusted to give effect to the issuance of 3,000,000 shares of Common
Stock in the Combined Offering (assuming an initial public offering price of
$16.50 per share and after deducting the estimated expenses of the Combined
Offering payable by the Company, including underwriting commissions on the
Common Stock sold by the Company) and the application of the net proceeds
therefrom to reduce $15.0 million of long-term indebtedness and to reduce
approximately $14.0 million of short-term indebtedness. Additionally, the
net proceeds therefrom will be utilized to repay indebtedness to be incurred
in the acquisition of the German facility, expected to be consummated on May
1, 1998 prior to the Combined Offering. In connection with the acquisition
of the German facility, "As Adjusted" gives effect to recording the
approximately $8.0 million carrying value of the mortgage and an
approximately $5.8 million reduction in additional paid-in-capital for the
difference between the appraised value and the seller's historical cost.
15
<PAGE> 20
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Combined Offering, there will be 27,225,000
shares of Common Stock outstanding. Of the outstanding shares, 9,000,000 shares
sold in the Combined Offering will be freely tradeable without restriction under
the Securities Act (except for any shares purchased by affiliates of the
Company). Beginning 90 days after the date of this Prospectus, an additional
18,225,000 shares (including those owned by the Murmann family) will be eligible
for sale in the U.S. public market subject to compliance with the applicable
provisions of Rule 144. In addition, the Murmann family has the right pursuant
to an agreement, dated as of May 1, 1998, to require the Company to register
from time to time upon request all or any portion of the 15,428,125 shares
(14,078,125 shares if the over-allotment option is exercised in full) owned by
the Murmann family for sale in the U.S. public market. The Murmann family has
advised the Company that it has no current plans to exercise its registration
rights; however, subject to its agreement described below, it is not under any
contractual restriction against doing so. Sales or distributions of substantial
amounts of Common Stock by the Murmann family or management, or the perception
that such sales or distribution could occur, could adversely affect the
prevailing market price for the Common Stock.
The 27,225,000 outstanding shares (including those owned by the Murmann
family) may also be sold on the Frankfurt Stock Exchange upon listing of the
shares on the Frankfurt Stock Exchange. The sale of shares of Common Stock over
the Frankfurt Stock Exchange may affect the market price of the securities on
the Frankfurt Stock Exchange, which in turn may affect the market price of the
Common Stock in the United States.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares of Common Stock
are required to be aggregated) who is deemed an affiliate is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the then outstanding number of shares of such class
(approximately 272,250 shares after the Combined Offering) or the average weekly
trading volume in composite trading on all national securities exchanges during
the four calendar weeks preceding the filing of the required notice of such
sale. As defined in Rule 144, an "affiliate" of an issuer is a person that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such issuer. Klaus Murmann and
the Murmann family are affiliates of the Company.
While the Murmann family has advised the Company that its current intent is
to continue to hold at least 50.1% of the Common Stock outstanding following the
Combined Offering, it is not subject to any contractual obligation to retain any
shares of Common Stock. However, the Company, the Murmann family, members of
management and directors have agreed not to offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 relating to, any additional shares of
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Credit Suisse First Boston
Corporation on behalf of the U.S. Underwriters and the Managers, subject to
certain exceptions, including that any such restriction shall not apply to
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof. See "Underwriting."
16
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical Consolidated Financial Statements
(including the notes thereto) appearing elsewhere in this Prospectus. The
selected historical consolidated financial data have been derived from the
Consolidated Financial Statements of the Company for each of the fiscal years in
the five-year period ended December 31, 1997, which have been audited by Arthur
Andersen LLP, independent public accountants.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME AND LOSS DATA
Net sales........................................ $274,492 $362,482 $446,774 $467,566 $535,173
-------- -------- -------- -------- --------
Costs and expenses:
Cost of sales.................................. 219,189 274,206 336,700 354,034 404,065
Selling, general and administrative............ 38,046 43,934 48,128 51,856 52,575
Research and development....................... 14,573 16,068 18,796 20,505 20,655
-------- -------- -------- -------- --------
Total costs and expenses..................... 271,808 334,208 403,624 426,395 477,295
-------- -------- -------- -------- --------
Operating income................................. 2,684 28,274 43,150 41,171 57,878
Nonoperating income (expenses):
Interest expense............................... (8,018) (6,675) (6,932) (6,523) (8,305)
Interest income................................ 884 989 275 564 698
Royalty income................................. 1,139 1,094 1,695 1,156 1,150
Other, net..................................... (1,076) (579) 21 (584) 144
-------- -------- -------- -------- --------
Nonoperating expenses, net..................... (7,071) (5,171) (4,941) (5,387) (6,313)
-------- -------- -------- -------- --------
Income (loss) before income taxes and minority
interest....................................... (4,387) 23,103 38,209 35,784 51,565
Provision for income taxes....................... (1,439) (7,281) (5,182) (10,243) (15,944)
-------- -------- -------- -------- --------
Income (loss) before minority interest........... (5,826) 15,822 33,027 25,541 35,621
Minority interest in income of consolidated
companies(1)................................... (992) (4,448) (6,447) (6,643) (8,492)
-------- -------- -------- -------- --------
Net income (loss)................................ $ (6,818) $ 11,374 $ 26,580 $ 18,898 $ 27,129
======== ======== ======== ======== ========
Basic and diluted net income (loss) per common
share.......................................... $ (.30) $ .47 $ 1.10 $ .78 $ 1.12
======== ======== ======== ======== ========
Pro forma basic and diluted net income per common
share(2)....................................... $ 1.10
========
Basic and diluted weighted average common shares
outstanding.................................... 22,725 24,050 24,187 24,225 24,225
======== ======== ======== ======== ========
Cash dividends declared per common share......... $ 0 $ .08 $ .32 $ .32 $ .32
======== ======== ======== ======== ========
OTHER DATA
Backlog (at year-end)............................ $100,700 $187,400 $235,600 $227,000 $277,500
Capital expenditures............................. 13,334 21,350 45,689 56,284 66,750
Depreciation and amortization.................... 16,557 18,204 19,898 24,830 25,835
EBITDA(4)........................................ 18,312 42,545 58,317 59,930 76,515
Cash flows from (used in):
Operating activities........................... 25,391 40,904 36,694 47,670 42,744
Investing activities........................... (12,978) (21,048) (45,544) (56,198) (70,311)
Financing activities........................... (12,857) (13,543) 13,235 9,268 23,351
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets........................... $200,288 $235,146 $304,237 $337,527 $390,903
Current liabilities.................... 82,629 92,705 144,557 126,944 139,302
Long-term debt......................... 36,200 34,451 27,582 56,334 75,198
Stockholders' equity................... 27,628 37,962 59,491 70,874 85,301
</TABLE>
- ---------------
(1) Includes Murmann family's limited partnership interests of $532, $(1,744),
$(2,954), $(2,707) and $(4,001) for 1993, 1994, 1995, 1996 and 1997,
respectively.
(2) Pro forma basic and diluted net income per share is computed based upon: (i)
pro forma net income which gives effect to the elimination of interest
expense, net of income tax and minority interest, related to $15.0 million
of long-term indebtedness and (ii) the basic and diluted weighted average
common shares outstanding, as adjusted to reflect the sale by the Company of
909,091 shares of Common Stock offered by it hereby and the application of
the net proceeds therefrom to repay $15.0 million of long-term indebtedness
as described in "Use of Proceeds."
(3) EBITDA for any relevant period presented above represents net income (loss),
plus provision for income taxes and net interest expense, plus depreciation
and amortization. EBITDA may not be comparable to similarly titled measures
reported by other companies. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which is determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditures and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs, and its discretionary use of EBITDA will be subject
to the Company's future cash needs relating to its capital expenditures,
working capital requirements, future debt service requirements and dividend
payments. See the Company's Consolidated Financial Statements and the
related notes thereto appearing elsewhere in this Prospectus.
RECENT DEVELOPMENTS
Based on preliminary, unaudited data for the three-month period ended March
29, 1998, the Company expects to report net sales of $152.9 million and net
income of $6.5 million. Net sales of $152.9 million increased by $17.0 million,
or 12.5%, from first quarter 1997 net sales of $135.9 million. Net sales
increased by 15.0% excluding the impact of currency fluctuation. Compared to the
first quarter of 1997, North American sales increased by 17.7% and European
sales increased by 4.2%, or 10.6% excluding the impact of currency fluctuation.
East Asian sales decreased by $3.1 million, or 55.7%.
Operating margins for first quarter 1998 were down compared to first
quarter 1997 for both North America and Europe. Operating margins were adversely
affected by the significant investments being made in engineering, research and
development and manufacturing processes and capacity, including the move of the
Minneapolis operations and construction of the Lawrence plant.
Net income for first quarter 1998 of $6.5 million decreased by $1.4
million, or 17.7%, from first quarter 1997 net income of $7.9 million. In
addition to the impact of the lower operating margins, net income was also
impacted by an increase in interest expense of $.9 million. North American first
quarter 1998 net income of $6.5 million decreased by $.5 million, or 7.1%, from
first quarter 1997 net income of $7.0 million. European first quarter 1998 net
income of $1.7 million decreased by $1.7 million, or 50%, from first quarter
1997 net income of $3.4 million.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and notes thereto included elsewhere in this
Prospectus. The Company's financial statements are stated in U.S. dollars and
have been prepared in accordance with U.S. GAAP.
OVERVIEW
The Company designs, manufactures and sells its products in North America
and Europe and sells its products throughout the rest of the world either
directly or through distributors. Recently, the Company has begun to manufacture
its products in East Asia at its new manufacturing plant in Shanghai, China.
Sauer's products are used by original equipment manufacturers ("OEMs") of
off-highway mobile equipment, including construction, road building and
maintenance, agricultural, turf care, material handling and oil field equipment.
These markets are typically cyclical depending on general economic conditions,
interest rates and weather. The effect of cyclicality is moderated somewhat
because the Company has substantial sales and operations in North America and
Europe, markets whose economic cycles may vary. There have been, however, times
- -- as in 1991 -- when cycles coincided, resulting in losses for both the North
American and European operations of the Company. Over the last three years the
Company's sales have been stronger in North America than in Europe, reflecting
stronger economic and market conditions in North America than in Europe.
Likewise, the effect of cyclicality can be moderated somewhat by the Company
selling to different market segments. For example, the turf care market might be
strong while the agricultural market is weak.
The Company sells primarily the same components and systems in North
America and Europe to many of the same large, global OEMs. The market segments
are also the same between North America and Europe with the exception of the
turf care market, which is primarily a North American market segment.
While the Company's customers may be the same for North America and Europe,
they can have very different needs. For example, North American customers
typically require higher power transmissions than those required in Europe,
while European customers have historically demanded more sophisticated controls.
Operating profit margins during the past three years have differed between
North America and Europe. North American margins have been significantly higher
than those in Europe, which have been declining. North American margins have
benefited from the stronger market conditions mentioned above. European margins
have been hurt by the sluggish economic conditions and higher labor costs,
especially those in Germany. The European margins have also been hurt by the
start-up costs of moving production into Slovakia. See Note 15 of Notes to
Consolidated Financial Statements included elsewhere in this Prospectus.
The Company expects overall market growth rates to increase somewhat in
Europe while moderating in North America. Sales growth is expected to come
primarily from volume increases as price increases are expected to be minimal,
reflecting the pressure on pricing from OEM customers.
In pursuing its growth strategy, the Company is making significant
investments in engineering, research and development as well as in manufacturing
processes and capacity. The Company expects these increased expenditures to have
an impact in the short term on operating margins.
IMPACT OF CURRENCY FLUCTUATIONS
The Company has operations and sells its products in many different
countries of the world and therefore conducts its business in various
currencies. The Company's financial statements, which are presented in U.S.
dollars, can be impacted by foreign exchange fluctuations through both
translation risk and transaction risk. Translation risk is the risk that the
financial statements of the Company, for a particular period or as of a certain
date, may be affected by changes in the exchange rates that are used to
translate the financial statements of the Company's operations from foreign
currencies into U.S. dollars. Transaction risk is the risk
19
<PAGE> 24
from the Company receiving its sale proceeds or holding its assets in a currency
different from that in which it pays its expenses and holds its liabilities.
With respect to translation risk, fluctuations of currencies against the
U.S. dollar can be substantial and therefore significantly impact comparisons
with prior periods. The impact is a reporting consideration only and does not
affect the underlying results of operations. As shown in the table below, the
translation impact on making prior period comparisons with respect to the
Company's net sales can be material. However, historically the impact on net
income has not been significant.
<TABLE>
<CAPTION>
PERCENTAGE SALES GROWTH
OVER PRIOR YEAR
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
As Reported................................................. 23.3% 4.7% 14.5%
Without Currency Impact..................................... 18.9 6.1 18.9
</TABLE>
With respect to transaction risk, the impact on the Company's operating
results is not significant. With its various manufacturing plants located
primarily in its customers' countries of operation, generally the Company sells
in the same currency in which it incurs its expenses.
OTHER MATTERS
Year 2000 Compliance -- The Company is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
The Company has plans in place to upgrade its business systems software in the
U.S. and Europe that will modify the software to make it Year 2000 compliant.
The upgrades are obtained from the Company's software vendors under the normal
ongoing maintenance agreements. The upgrades will be implemented primarily by
the Company's information technology staff, with support from outside
contractors as needed. The cost of the Company's information technology staff to
upgrade the business systems software is not separately accounted for or
estimated. The cost of outside contractors is not expected to be material to the
Company's results of operations. The Company's manufacturing operations make
extensive use of computer controlled machine tools. The Company is currently
evaluating Year 2000 compliance impact on these machine tools and has determined
they will need to be upgraded to make them Year 2000 compliant. The Company does
not have an estimate of the cost of upgrading these machine tools. As part of
the evaluation the Company is working with the suppliers of the machine tools to
understand their plans. The Company's products are not affected by the Year 2000
issue. The Company does not currently have any information concerning the Year
2000 compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers does not successfully and
timely achieve Year 2000 compliance, the Company's business or operations could
be adversely affected.
Euro Currency Conversion -- The Company has formed a team to evaluate and
plan for the Euro currency conversion. The Company's business systems are
multi-currency functional and the Company's European operations transact
business today in various European currencies. The Company does not have an
estimate of the cost to implement the Euro currency, but does not expect the
cost to have a material effect on the Company's financial condition or results
of operations.
Asian Crisis Impact -- Several countries in Asia are experiencing a severe
economic crisis, characterized by reduced economic activity, lack of liquidity,
highly volatile foreign currency exchange and interest rates and unstable stock
markets. The Company has a 60% interest in a joint venture located in Shanghai,
China, which manufactures and sells high power hydrostatic transmissions, and
the Company also has export sales into Asia. The joint venture business and
export sales will be affected by the economic crisis. With total assets of $10.5
million located in China and total Asian sales for 1997 of $15.5 million, the
Company expects the crisis to have some effect on results of operations. Many of
the Company's customers also sell into Asia. Any impact on their sales could
have an impact on the Company's sales. The Company does not believe this impact
on its sales, either individually or together with the impact of the Asian
crisis on export sales and the joint venture business, will have a material
adverse effect on its financial condition or results of operations, although
there can be no assurance in this regard.
20
<PAGE> 25
NEW ACCOUNTING PRINCIPLES
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." These changes did not
have any impact on the Company's financial position or results of operations.
RESULTS OF OPERATIONS
The Company's net sales by product line and geographic area, showing the
percentage change from the prior year, as reported and without the impact of
currency fluctuation, are set forth in the following table:
<TABLE>
<CAPTION>
1995 1996 1997
------ ---------------------------- ----------------------------
(U.S. DOLLARS IN MILLIONS, EXCEPT PERCENTAGES)
--------------------------------------------------------------------
% CHANGE % CHANGE
------------------- -------------------
NET NET AS W/O NET AS W/O
AMOUNT AMOUNT REPORTED CURRENCY AMOUNT REPORTED CURRENCY
------ ------ -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales by product line:
Hydrostatic Transmissions... $340.0 $350.9 3.2% 5.0% $408.8 16.5% 21.5%
Gear Pumps and Motors ...... 63.1 64.2 1.8 1.7 64.4 0.3 2.2
Electrohydraulics and
other.................... 43.7 52.5 20.0 21.6 62.0 18.0 21.5
------ ------ ------
Total............... $446.8 $467.6 4.7% 6.1% $535.2 14.5% 18.9%
====== ====== ======
Net sales by geographic area:*
North America............... $241.1 $263.5 9.3% 9.3% $323.0 22.6% 22.6%
Europe...................... 199.4 189.1 (5.2) (2.0) 196.7 4.0 14.8
East Asia................... 6.3 15.0 138.1 143.3 15.5 3.3 7.0
------ ------ ------
Total.................... $446.8 $467.6 4.7% 6.1% $535.2 14.5% 18.9%
====== ====== ======
</TABLE>
- ---------------
* Net sales are attributed to geographic area based on location of customer.
1997 COMPARED TO 1996
Net sales -- Net sales for 1997 of $535.2 million increased by $67.6
million, or 14.5%, from 1996 net sales of $467.6 million. Net sales increased by
18.9% excluding the impact of currency fluctuation. Unit volume growth accounted
for the majority of the growth in net sales, with net price increases accounting
for less than 1% of the growth. Sales of hydrostatic transmissions accounted for
the major portion of the growth in net sales, growing by 21.5%, excluding the
impact of currency fluctuation. This growth came from the strong North American
and European growth of 22.6% and 14.8%, respectively. Gear pumps and motors
showed little growth in net sales, affected by the slower growing European
markets, the principal market for the Company's gear pumps and motors, compared
to the North American market. Electrohydraulics' and other products' net sales
grew by 21.5%, excluding the impact of currency fluctuation, reflecting the
strong growth of the Company's electrohydraulic valve business in North America.
Cost of sales -- Cost of sales for 1997 of $404.1 million was 75.5% of net
sales, compared to 75.7% of net sales for 1996. The slight improvement (decrease
in cost of sales as a percent of net sales) can be attributed to the favorable
impact of increased production volumes from net sales growth offsetting the
current year's unfavorable impact of increased capital investment in
manufacturing capacity. Cost of sales as a percentage of net sales improved in
North America, while that in Europe worsened in 1997 compared to 1996.
Selling, general and administrative expenses -- Selling, general and
administrative expenses for 1997 of $52.6 million increased by $0.7 million, or
1.4%, from 1996 expenses of $51.9 million. The small increase reflects general
inflation, partially offset by the cost reduction efforts in Germany and the
favorable impact of currency fluctuations in translation. As a percentage of net
sales, 1997 expenses were 9.8% compared to 11.1%
21
<PAGE> 26
for 1996. This improvement is a result of the growth in net sales compared to
the relatively fixed nature of these expenses, along with the cost reduction
efforts referred to above.
Research and development expenses -- Research and development expenses for
1997 of $20.7 million increased by $0.2 million, or 1.0%, from 1996 expenses of
$20.5 million. Without the impact of currency fluctuations the increase was
4.2%. This reflects normal increases in wage rates and other general inflation.
Nonoperating expenses, net -- Net nonoperating expenses for 1997 of $6.3
million increased by $0.9 million from 1996 net nonoperating expenses of $5.4
million. Net interest expense for 1997 of $7.6 million increased by $1.6 million
from 1996 net expense of $6.0 million due to the increase of 1% in the weighted
average interest rate for 1997 compared to 1996 and the increase of $4.1 million
in the average daily short-term borrowings for 1997 compared to 1996. Other,
net, increased by $.7 million due to changes in gains and losses relating to
disposals of fixed assets and currency transactions.
Provision for income taxes -- Provision for income taxes for 1997 of $15.9
million increased by $5.7 million from the 1996 provision of $10.2 million. The
increase comes from the increase in net income before income taxes and minority
interest of $15.8 million and the increase in the effective tax rate for 1997 of
30.9% from the 1996 rate of 28.6%.
Net income -- Net income of $27.1 million increased by $8.2 million from
1996 net income of $18.9 million, reflecting the 14.5% increase in net sales.
North America accounted for the increase which was in line with its increase in
net sales. European 1997 net income remained unchanged compared to 1996, due to
level sales between years and the weaker Deutsche mark which had a negative
impact on U.S. dollar intersegment purchases from North America, but from which
North America benefited on intersegment purchases from Europe.
1996 COMPARED TO 1995
Net sales -- Net sales for 1996 of $467.6 million increased by $20.8
million, or 4.7%, from 1995 net sales of $446.8 million. Net sales increased by
6.1% excluding the impact of currency fluctuation. Unit volume growth accounted
for the majority of the growth in net sales. Hydrostatics sales grew by 5.0%,
excluding the impact of currency fluctuation, with the North American market
growth of 9.3% being offset by the decrease in European sales of 2.0%. Gear
pumps and motors showed little growth in net sales due to the decrease in
European sales, the principal market for the Company's gear pumps and motors.
Electrohydraulics' and other products' net sales grew by 21.6%, excluding the
impact of currency fluctuation, attributable primarily to a new product
introduction by the Company's United Kingdom business unit.
Cost of sales -- Cost of sales for 1996 of $354.0 million were 75.7% of net
sales, compared to 75.3% of net sales for 1995. The slight increase in cost of
sales as a percentage of net sales was attributable to the Company's European
business and was caused by the negative impact on cost of sales from a reduction
of inventories causing lower production volumes in 1996 compared to the 1995
positive impact on cost of sales from an increase in inventories resulting in
higher production volumes. Cost of sales as a percentage of net sales improved
in North America for 1997 compared to 1996.
Selling, general and administrative expenses -- Selling, general and
administrative expenses for 1996 of $51.9 million increased by $3.8 million, or
7.9%, from 1995 expenses of $48.1 million. As a percentage of net sales, 1996
expenses were 11.1% compared to 10.8% for 1995. The increase in 1996 expenses
was due to normal increases in wage rates and general inflation and a $1.5
million write-off of goodwill relating to the 1994 acquisition of Control
Concepts, Inc.
Research and development expenses -- Research and development expenses for
1996 of $20.5 million increased by $1.7 million, or 9.0%, from 1995 expenses of
$18.8 million. Without the impact of currency fluctuations, the increase was
11.3%. The increase relates primarily to the U.S. and is the result of increased
investment in product development by adding engineers.
Nonoperating expenses, net -- Net nonoperating expenses for 1996 of $5.4
million increased by $0.5 million from 1995 net nonoperating expenses of $4.9
million. Net interest expense for 1996 of $6.0 million
22
<PAGE> 27
decreased by $0.7 million from 1995 net expense of $6.7 million, reflecting the
decrease of 2.4% in the weighted average interest rates from 1995 to 1996 more
than offsetting the increase in the average daily short-term borrowings from
1995 to 1996. Royalty income for 1996 of $1.2 million decreased by $0.5 million
from 1995 income of $1.7 million. A major part of the royalty income comes from
the Company's Japanese licensee and is a percentage of the licensee's sales,
primarily made in Japan in Japanese yen. The decrease in royalty income reflects
a decrease in the rate of royalty paid by the Company's Japanese licensee under
a new ten-year contract effective April 1, 1996.
Provision for income taxes -- Provision for income taxes for 1996 of $10.2
million increased by $5 million from the 1995 provision of $5.2 million. The
increase comes from the increase in the effective tax rate for 1996 of 28.6%
from the 1995 rate of 13.6%. The low 1995 rate resulted from the use of $7.2
million of operating loss and foreign tax credit carryforwards to lower the 1995
tax provision.
Net income -- Net income of $18.9 million decreased by $7.7 million from
1995 net income of $26.6 million. The decrease was related to the European
business, with North America showing a slight increase in 1996 net income
compared to 1995. European 1995 net income was strong due to the increased
production levels from increases in inventories mentioned above and due to the
benefit of the strong Deutsche mark in 1995 in making U.S. dollar intersegment
purchases from North America. The use of operating loss and foreign tax credit
carryforwards to lower the 1995 income tax provision (as mentioned above) also
contributed to the higher 1995 net income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have been from internally
generated funds and borrowings under its credit facilities. Net cash provided by
operating activities was $36.7 million, $47.7 million and $42.7 million for
1995, 1996 and 1997, respectively. Net borrowing increases under short- and
long-term credit facilities were $21.8 million, $18.6 million and $35.7 million
for 1995, 1996 and 1997, respectively. The cash provided by operating activities
and borrowings has funded capital expenditures of $45.7 million, $56.3 million
and $66.8 million for 1995, 1996 and 1997, respectively, along with a dividend
for each of the three years of approximately $7.8 million.
Net cash provided by operating activities for 1997 of $42.7 million
decreased $5.0 million from $47.7 million for 1996. The decrease comes from
increases in inventories and accounts receivable being partially offset by an
increase in accounts payable and net income. Net cash provided by operating
activities for 1996 of $47.7 million increased by $11.0 million from $36.7
million for 1995. The increase relates primarily to decreases in inventories in
1996 compared to the increases in inventories and accounts receivable in 1995.
Capital expenditures for the years 1995-1997 totaled $168.7 million. These
expenditures were primarily for investments in machine tools for all of the
Company's manufacturing plants, including the new leased plants in Slovakia and
China, and the building of a new plant in West Branch, Iowa for the manufacture
of gear pumps and motors. These investments have been made to increase
production capacity, flexibility and efficiency, to improve product quality and
for replacement purposes.
The Company believes that increased levels of capital expenditures will be
required over the next three years to expand capacity, improve efficiency and
remain competitive. As a result, the Company expects capital expenditures to be
in the range of $150-$230 million during 1998-2000. Capital expenditures will be
applied primarily to the building of a new manufacturing facility in the United
States, to the acquisition of the real estate and building of its main facility
in Germany currently leased, to the purchase of manufacturing equipment for each
of its manufacturing plants to increase production capacity for new and existing
products, to increase production efficiencies, to improve product quality and
for replacement purposes. The new U.S. manufacturing plant will produce medium
power hydrostatic transmissions. The additional plant will free up capacity at
the Company's Ames facility which will be used to expand the production of high
power hydrostatic transmissions. The Company's manufacturing plants in Slovakia
and China, which started production in 1995 and 1997, respectively, are still
under development and will require further investment in production machinery to
increase their operating capacity and efficiency. The Company plans to fund this
increased level of capital expenditures from internally generated funds,
increased borrowings under its credit
23
<PAGE> 28
facilities and funds obtained from the sale of shares in the Combined Offering.
These sources of funds are expected to be sufficient to support the planned
capital expenditures and the Company's working capital requirements.
The Company currently leases the real estate and building of its main
facility in Germany from the Murmann family. As mentioned above, the Company is
acquiring the facility to eliminate the related party relationship with the
Murmann family. The Company is purchasing the facility at fair market value as
determined by an independent appraiser, with a note that will be repaid with the
proceeds of the Combined Offering. The purchase price for the facility will be
approximately $23.4 million, which Sauer-Sundstrand GmbH will pay by assuming
approximately $8.0 million in indebtedness of Sauer Hydraulik and by issuing a
note of approximately $15.4 million note to Sauer Hydraulik. See "Use of
Proceeds" and Note 17 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus. The Company intends to repay the note of
approximately $15.4 million with a portion of the net proceeds of the Combined
Offering.
Dividend Restrictions. At December 31, 1997, the Company had $52.0 million
of unused lines of credit, consisting primarily of committed U.S. lines of
credit and uncommitted European lines of credit. The Company's credit facility
restricts the Company's ability to pay dividends to its stockholders or to
redeem or repurchase its capital stock, except from executive officers. Pursuant
to such agreement, $17.6 million of dividends could be paid by the Company as of
December 31, 1997. In addition, the Company's ability to pay dividends is
effectively limited by certain restrictive covenants contained in the U.S.
Operating Company's and German Operating Company's credit agreements, which
limit the amount of dividends the U.S. Operating Company and German Operating
Company can distribute to the Company. During 1997, the U.S. Operating Company
made distributions to the Company of $19.5 million. At December 31, 1997, an
additional $2.9 million was not restricted as to payments of dividends by the
U.S. Operating Company. The German Operating Company did not make distributions
to the Company during 1997. At December 31, 1997, $2.7 million were not
restricted as to the payment of dividends. In addition, Klaus H. Murmann has
entered into two loan agreements pursuant to which he has agreed not to agree to
change the dividend policy of the Company; however, Mr. Murmann has informed the
Company that he intends to repay the loans with a portion of the proceeds of the
Combined Offering immediately upon its completion.
OUTLOOK
The Company expects 1998 net sales to continue to show the positive growth
over 1997 as was reflected for the first quarter of 1998, although with some
moderation. North American sales growth is not expected to continue at the high
rate reported for the first quarter, while European sales growth is expected to
continue at or about the first quarter rate. East Asian sales are expected to
continue to show a decrease compared to 1997.
Net income for 1998 is expected to show only a slight increase over 1997.
The Company expects operating margins to be flat for 1998 compared to 1997.
Operating margins will continue to be impacted by the investments being made to
pursue the Company's growth strategy.
This "Outlook" section contains forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. The Company's forward-looking
statements rely heavily on its interpretation of what it considers key economic
assumptions. Significant factors which could affect such forward-looking
statements include general economic conditions, foreign currency movements and
pricing and product initiatives taken by competitors. See "Risk Factors",
"Business" and other information contained herein for a discussion of important
factors that could cause actual results to differ materially from the
forward-looking statements.
24
<PAGE> 29
BUSINESS
THE COMPANY
Sauer is a worldwide leader in the design, manufacture and sale of highly
engineered hydraulic systems and components ("mobile hydraulics") for use
primarily in demanding applications of off-highway mobile equipment. Sauer's
products include hydrostatic transmissions, open circuit piston pumps, gear
pumps and motors, valves, mechanical gear boxes and controls. Sauer is the
worldwide leader in hydrostatic transmissions, with an estimated 35% share
(based on sales) of the world market. In addition, Sauer is a world leader in
the production of gear pumps and motors, with both special designs and a
standard range of high performance units.
Mobile hydraulics are used in two critical vehicle systems: propulsion
drive systems, which transmit and control power for the propulsion of a vehicle,
and work function systems, which provide power for the work performed by the
vehicle. The function of mobile hydraulics is to transmit power from an engine,
diesel or gasoline fueled, to the location on the vehicle where it is required,
i.e., the propulsion or work function. Mobile hydraulics offer greater
flexibility of layout, more compact design, a higher performance-to-weight ratio
and greater productivity and reliability than other forms of motion control,
such as mechanical or electrical systems. Mobile hydraulics also allow the
vehicle to perform functions which could be difficult and costly to perform
using mechanical shafts, gear boxes, clutches, belts and pulleys such as
rotating the drum on a concrete transit mixer at variable speed independent of
the vehicle engine speed. As a result, mobile hydraulics are the dominant
technology for the propulsion and work function of off-highway equipment as well
as for the work function of on-highway special purpose vehicles.
The Company is a leader in the design and manufacture of high performance
mobile hydraulics components and has the ability to bring these components
together in a total vehicle system using electronic sensors and microprocessor
controls programmed with the Company's proprietary software. Increasingly, the
propulsion and work function systems are being integrated with all other
elements of vehicle performance, including engine management and safety and data
gathering for productivity and maintenance to achieve optimum vehicle
performance. Customers are looking to consolidate their supplier base, devote
their engineering resources to overall vehicle design and use a supplier's
expertise to design and supply hydraulic systems to achieve the vehicle's
performance objective. Because the components and systems supplied by Sauer are
usually the most technically advanced and highest value products on a vehicle
(excluding the engine), the Company is in a leading position to be selected by
customers as a key supplier and systems integrator. To meet the full range of
vehicle propulsion and work function demands, Sauer is increasingly working with
customers, suppliers and other component manufacturers to develop total
hydraulic systems, including braking, steering, cooling and an overall
microprocessor control system. Sauer's strong market position, technology
leadership and systems expertise have led to, and are expected to continue to
lead to, close working relationships with its customers.
Sauer sells to original equipment manufacturers ("OEMs") of off-highway
mobile equipment, including agricultural, construction, turf care, road building
and maintenance, material handling and oil field equipment. The Company's
principal OEM customers include AGCO Corp., Bomag GmbH, Case Corp., Caterpillar
Inc., Claas KGaA, Deere & Company, Ingersoll-Rand Company and its Melroe unit,
JCB Ltd., Liebherr GmbH, New Holland N.V., Svedala Industri AB and its Dynapac
Division and the Toro Company, most of which are customers in both North America
and Europe. Sauer sells its products directly to OEMs in North America, Europe
and Asia, and through approximately 80 independent distributors. Sauer also
sells its products in Europe through sales subsidiaries in Belgium, France,
Holland, Italy, Slovakia, Spain, Sweden and the United Kingdom. With 13
manufacturing facilities in the United States, Europe and China, the Company can
adapt its products to local market needs and has significant flexibility to meet
customer delivery requirements. In addition, Sauer licenses its hydrostatic
transmission technology to manufacturers that operate in Brazil, India and
Japan.
25
<PAGE> 30
The following table sets forth the Company's net sales by product line in
dollars and as a percentage of total net sales for the years indicated:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hydrostatic
Transmissions(1)...... $216,534 78.9% $280,254 77.3% $339,945 76.0% $350,847 75.0% $408,802 76.4%
Gear Pumps and Motors... 41,724 15.2 49,827 13.7 63,094 14.1 64,218 13.7 64,414 12.0
Electrohydraulics and
Other(2).............. 16,234 5.9 32,401 9.0 43,735 9.9 52,501 11.3 61,957 11.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total........... $274,492 100.0% $362,482 100.0% $446,774 100.0% $467,566 100.0% $535,173 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) Includes certain electrohydraulic products.
(2) Includes open circuit piston pumps and mechanical gear boxes.
The following table sets forth the Company's net sales by market
application, in dollars and as a percentage of total net sales, for the years
indicated:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture.............. $ 41,298 15.0% $ 65,424 18.0% $ 76,596 17.1% $ 84,183 18.0% $ 99,925 18.7%
Construction............. 38,125 13.9 53,749 14.8 69,955 15.7 71,335 15.3 76,441 14.3
Turf care................ 48,105 17.5 69,828 19.3 81,532 18.2 85,017 18.2 104,578 19.5
Road-building and
maintenance............ 41,687 15.2 49,960 13.8 65,983 14.8 56,333 12.0 67,972 12.7
Other.................... 17,748 6.5 19,537 5.4 28,540 6.4 31,964 6.8 34,334 6.4
Distribution and
aftermarket............ 87,529 31.9 103,984 28.7 124,168 27.8 138,734 29.7 151,923 28.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total............ $274,492 100.0% $362,482 100.0% $446,774 100.0% $467,566 100.0% $535,173 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The United States, Europe and Japan are the primary markets in which mobile
hydraulic products are manufactured and sold. Over 80% of such products are
produced and incorporated into vehicles manufactured in these three regions.
International competition is primarily between large U.S. and German suppliers.
Historically, Japanese companies have licensed mobile hydraulic technology from
U.S. and German companies and have focused almost exclusively on the East Asian
market.
Sales of the Company's products and systems have grown at a faster rate
than the underlying mobile hydraulic markets. The Company's revenues have grown
at a compound annual growth rate over a five-year and ten-year period of 22.0%
and 12.9%, respectively, in the United States, 6.5% and 2.5%, respectively, in
Europe (or 9.0% and 2.8%, respectively, excluding exchange rate effects) and
15.3% and 7.9%, respectively, in total. In the United States, as reported by the
National Fluid Power Association ("NFPA"), the five- and ten-year compound
annual growth rates for mobile hydraulics have been 17.3% and 8.9%,
respectively. In Europe, as reported by the European Committee for Oil Hydraulic
& Pneumatic Transmission ("CETOP"), the rates have been 6.9% and 2.9%,
respectively. The CETOP data are for both mobile and industrial hydraulic
production. The Company believes that in Europe the mobile hydraulic market is
growing somewhat faster than the industrial hydraulic market. The Company
expects overall market growth rates to increase somewhat in Europe while
moderating in the United States.
The following table sets forth the Company's net sales by customers'
geographic market, in dollars and as a percentage of total net sales, for the
years indicated:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America........... $155,716 56.7% $212,717 58.7% $241,072 54.0% $263,500 56.4% $322,973 60.3%
Europe.................. 113,365 41.3 143,574 39.6 199,394 44.6 189,060 40.4 196,676 36.7
East Asia............... 5,411 2.0 6,191 1.7 6,308 1.4 15,006 3.2 15,524 3.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total........... $274,492 100.0% $362,482 100.0% $446,774 100.0% $467,566 100.0% $535,173 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
See Note 15 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus for additional geographic market information.
26
<PAGE> 31
COMPETITIVE ADVANTAGES
Sauer believes it has a strong competitive position in the mobile
hydraulics industry that reflects the Company's core strengths.
Technology Leadership
Sauer has a long-standing tradition of developing industry-leading
technology and is committed to continue to enhance the capabilities of its
products. The Company provides superior, highly engineered hydraulic systems and
components that address the most demanding applications of its target end-user
markets. In the past, Sauer's customers have been willing to pay a premium for
the Company's industry-leading, highly engineered systems and components. The
Company's design principles for hydrostatic transmissions are now the worldwide
standard for almost all new product development in this area and Sauer's vast
experience, with production of more than ten million hydrostatic pump and motor
units since 1964, provides a significant advantage over competitors that have
more recently changed to Sauer's type of design. The Company has reinvested a
significant percentage of net sales in engineering, research and development in
recent years and plans to continue doing so to remain on the leading
technological edge in its markets. The Company's engineering, research and
development efforts have included the development of new products and testing,
evaluation and improvement of existing products and the development of
proprietary software for its microprocessor-based systems. To meet its
customers' needs, Sauer has developed systems that integrate hydraulics,
hydrostatics and mechanics with electronic sensors and controls utilizing the
Company's proprietary software. These systems are designed to work effectively
and more efficiently by performing more vehicle propulsion and work functions at
economical cost and increasingly integrating all vehicle functions, including
engine management and safety.
Customization and Integration with Customers
Many of the products which the Company designs and manufactures are
customized to meet customers' specifications. By providing high performance and
customized products, the Company has distinguished itself from the commodity
segment of the hydraulic components market and achieved, for many of its
products, higher operating margins than its competitors. The Company has the
ability to adjust its production cycle to manufacture products in large or small
quantities according to customers' demands. This allows the Company to
"mass-customize" its products without incurring additional costs, thus providing
value-added services to its customers. The Company's design engineers work
closely with its customers in providing product proposals and prototypes and in
developing high quality, specialized products. The design of a Company product
or system is often created in collaboration with the design of the customer's
vehicle of which the Company's product or system will be a component part.
Strong U.S. and European Presence
The Company's ability to design and manufacture mobile hydraulic products
in both the United States and Europe provides it with a competitive advantage.
This dual manufacturing and engineering capability permits the Company to adapt
its products to meet market needs in North America and Europe and provides
flexibility to meet OEM customers' delivery requirements. In addition, the dual
manufacturing capability allows the Company to manufacture and sell in Europe
and in North America on the basis of local currencies, thereby reducing the
impact on the Company's operating income of exchange rate fluctuations between
those currencies. The Company is expanding its presence in East Asia through a
100% owned sales and marketing office in Shanghai and a 60% owned manufacturing
facility in the Pudong area of Shanghai. Management believes that the Company
enjoys a competitive advantage through its ability to supply and service the
international requirements of its customers directly to the locations where they
are doing business.
27
<PAGE> 32
Customer, Market and Geographic Diversification
During 1997, no single customer accounted for more than 10% of the
Company's net sales. In 1997, net sales in North America, Europe and the East
Asia region accounted for approximately 60%, 37% and 3%, respectively, of the
Company's total net sales. In addition to the Company's geographically
diversified customer base, the Company has been able to adapt and sell its
products for use in a wide range of applications and industries. These
applications include construction, road repair and maintenance, agricultural,
turf care, material handling, oil field equipment and an extensive range of
specialized machinery. This diversification reduces the Company's dependence on
any one customer, any one market or any one geographic market.
Stable Aftermarket Sales
A further source of income support is the Company's diversified aftermarket
service. The large installed base of components, in particular hydrostatic
transmissions, provides the Company with a relatively stable source of revenues
which exhibits countercyclical tendencies. The aftermarket services provided
include service and repair of products at the Company's own manufacturing and
sales facilities and sales of service parts to more than 200 independent
authorized service centers. With direct end-user support on a convenient
worldwide basis, margins on aftermarket service and parts sales are higher than
those on new unit sales to OEMs.
Reputation for Quality and Service
Sauer and its predecessor organizations have been active in the mobile
hydraulics market since the 1960s. The Company believes it has a widely
recognized reputation in the mobile hydraulics market for engineering
innovation, customized solutions, industry leading performance, product
reliability and durability and aftermarket service. Sauer's OEM customers are
increasingly seeking to use their positions as volume purchasers in the
hydraulic market to require quality assurance protection. To meet this demand,
the Company is investing in product development and in new manufacturing
technology and facilities. A key focus of these efforts is to reduce cycle time,
in both the development and production stages. Response to customers is being
significantly enhanced by integrating order processing with production
scheduling in many of the Company's facilities. The Company intends to leverage
its strong name recognition to attract new customers requiring high-performance,
specialty hydraulic systems and components.
GROWTH STRATEGY
Sauer's strategy is to be the technology leader, market leader and total
quality leader in the manufacture and supply of components and systems to
transmit and control hydraulic power in mobile equipment in major world markets,
although no assurance can be given that Sauer's efforts to become the technology
leader, market leader and total quality leader in the manufacture and supply of
such components and systems will be successful. The key components of Sauer's
growth strategy are as follows:
Enhance Product Offering and Expand Content of Existing Vehicles
Over the last several years, Sauer has significantly broadened and enhanced
its mobile hydraulics product offering. The Company's broader product line,
including integrated solutions utilizing microprocessor controls, provides a
more complete range of choice to the Company's OEM customers. Mobile hydraulics
are growing at a higher rate than the machinery and equipment markets they serve
as hydraulics replace other power transmission types and existing hydraulic
systems grow in scope and sophistication. For example, the high power
transmission line of products introduced by Sundstrand has been replaced by two
new lines, Series 90 and Series 42. Both new series are more compact, have added
features, a broader range of control types and superior controllability than the
products they replace. These enhancements have allowed the Company to achieve
higher unit selling prices and, together with similar advances in electronic
controls, sensors and microprocessors, reach new sectors of the market such as
small bulldozers, industrial forklift trucks and forestry equipment.
28
<PAGE> 33
Sauer intends to achieve significant growth by increasing the sales content
to existing customers. The move by Sauer's customers to fewer suppliers and the
benefits of Sauer's integrated systems to these customers open opportunities for
the Company to both add existing products and to design new products to increase
sales content per customer vehicle. Because the components and systems supplied
by Sauer are usually the most technically advanced and highest value products on
a vehicle (excluding the engine), the Company is in a leading position to be
selected by customers as a key supplier and systems integrator. The Company's
reputation for technical excellence and close working relationships with its
customers' engineers enhances these opportunities. For example, in 1995, the
Company sold only a hydrostatic transmission to U.S. manufacturers of concrete
transit mixer trucks. Today, the Company sells four additional products on the
same vehicle with a more than fourfold increase in dollar content per vehicle.
Expand into New Mobile Hydraulic Vehicle Applications
Sauer plans to develop mobile hydraulic products to enter into new vehicle
markets. Potential new vehicle markets include industrial forklift trucks and
agricultural and industrial tractors, where hydrostatic transmissions have not
been widely used, however there can be no assurance that Sauer will be
successful in developing products for any of these markets. Entering these new
vehicle markets would also provide the Company with the opportunity to sell
related products. For example, Sauer is in the forefront of developing new
proprietary hydro-mechanical propulsion drives for tractors. Hydro-mechanical
transmissions offer the benefits of hydrostatic transmissions (e.g., infinitely
variable speed and controllability) with the benefits of mechanical
transmissions (e.g., efficiency at constant vehicle speed at high power levels).
The Company is working with several major OEMs to further develop the
application of the Company's hydro-mechanical technology. Already one tractor
manufacturer, Fendt in Germany, has introduced new tractor designs using the
Company's hydro-mechanical technology and has received favorable response from
customers.
Capitalize on Global Presence; Build Asian Presence
Sauer is committed to being a global company in order to serve the needs of
its global customers. The Company's customers manufacture and sell their
products throughout the world and require convenient access to their suppliers'
products and services. To meet this requirement, the Company has modern
manufacturing facilities in the United States, Europe and East Asia and a
network of sales companies, licensees, distributors and authorized service
center locations around the world. The Company believes that a significant
factor in its market share growth has been its reputation for on-time delivery
to meet rapidly expanding demand.
In increasing its global operations, the Company intends to expand its
presence in East Asia, one of the three leading geographic markets for hydraulic
systems products. To capitalize on this market, the Company has established a
100% owned sales and marketing office in Shanghai and a 60% owned manufacturing
facility in the Pudong area of Shanghai and has developed strong licensee
relationships, such as with Daikin, the Company's licensee in Japan. The Company
intends to make a long-term investment of management resources and capital to
build up its East Asian presence.
Improve Gross Margins Through Operating Efficiencies and Lower Costs
The Company intends to improve margins by reducing overhead costs,
improving worker productivity, shortening production cycle times and
rationalizing its products mix. The Company is expanding and equipping existing
facilities and building new manufacturing facilities to increase production
capacity for new and existing products and to enhance production efficiencies.
For example, a portion of the Company's 1998-2000 capital expenditures will be
used to upgrade machine tools to reduce tool changeover times and improve
machining tolerances, which will improve product quality and reduce production
times. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Manufacturing." New equipment investment incorporates the latest
advances in metal cutting technology, robotics and computerized assembly and
testing equipment. These technologies reduce labor cost, reduce the cost of
quality and reduce inventories. A major reduction in the number of material
suppliers gives the Company more purchasing advantage with each supplier in
terms of advanced technology, improved quality of supplies and lower
administrative purchasing costs. The Company's experi-
29
<PAGE> 34
ence with manufacturing cells and flexible manufacturing systems, well
established in U.S. operations, is now in the process of adoption in Europe and
will aid margins. The major expansion in Slovakia, where total employment cost
per employee is approximately 15% of that in Germany and where there is more
flexibility in manning high capital cost machinery, will also improve margins in
Europe.
Finally, the Company believes that the most important contribution to cost
reduction comes from investment in a skilled workforce able to adapt to new
technology and equipment.
Make Selective Acquisitions
Sauer may make selective acquisitions that broaden the products and systems
offered by the Company and to enhance Sauer's technological leadership, although
no assurance can be given that any acquisition will broaden the products offered
by the Company or enhance its technological position. In particular, Sauer seeks
to take advantage of the consolidation occurring in the electrohydraulics
industry. See "Business -- Competition." Such acquisitions are likely to involve
smaller niche or regional companies, like Control Concepts, Inc. ("CCI"), and
could also include larger acquisitions.
HISTORY AND ORGANIZATION
Sauer and its predecessor organizations have been active in the mobile
hydraulics industry since the 1960s. Established in 1987, the Company combined
the business of Sauer Getriebe in Europe and Sundstrand Hydraulic Power Systems
in North America. A predecessor to Sauer Getriebe was founded in Germany in
1884. Sundstrand was founded in 1905 in the United States and established its
Hydro Transmission division in 1964. In 1967, Sauer Getriebe, which was owned by
Klaus H. Murmann, became a licensee of Sundstrand to manufacture and sell
hydrostatic transmissions in Europe. Recognizing the need to serve their OEM
customers on a more global basis, Sauer Getriebe and Sundstrand combined their
non-U.S. and U.S. mobile hydraulics businesses in an equal joint venture in
1987. In 1989, the Murmann family and certain executive officers bought
Sundstrand's interest in the joint venture. As a result of that transaction and
a related restructuring in 1990, Sauer Inc. became the holding company for its
operations. Sauer does not currently derive any sales from, or conduct any
material business with, Sundstrand. Sundstrand does, however, license the
Sundstrand name to the Company. The license expires in 2004. Klaus H. Murmann is
a director of Sundstrand. See "Management -- Directors and Executive Officers."
Sauer operates on a worldwide basis through its U.S. and German Operating
Companies. The Company's operations are fully integrated but managed on a
decentralized basis in order to promote a worldwide operating philosophy. The
Company maintains dual corporate headquarters and locates its senior managers at
major operating sites.
In 1991, the Company and Agri-Fab, Inc. formed a joint venture, Hydro-Gear,
to manufacture integrated hydrostatic transmissions and axles for sale to OEMs
in the turf care equipment market. Sauer has a 60% interest in the joint
venture. See "-- Products and Services -- Hydrostatic
Transmissions -- Hydro-Gear."
PRODUCTS AND SERVICES
Hydrostatic Transmissions
Sauer designs, manufactures and sells a range of closed-circuit axial
piston hydrostatic transmissions for both the propulsion and work functions of
off-highway mobile equipment in the United States, Europe and East Asia. The
function of a transmission is to transmit power from an engine, diesel or
gasoline fueled, to the location on the vehicle where it is required (i.e., the
propulsion or work function), and to do so in the most useful form in terms of
speed, torque and controllability. Hydrostatic transmissions permit equipment to
operate efficiently by providing infinitely variable speeds (up to a certain
maximum) in both forward and reverse at a given engine throttle setting and by
acting as a brake. By eliminating gear shifting, they permit the operator to
concentrate on the work at hand and reduce the likelihood of damage to the
transmission due to operator error. Hydrostatic transmissions provide advantages
over mechanical transmissions in terms of
30
<PAGE> 35
control and coordination of vehicle function and flexibility in installation and
vehicle design. However, they are typically more expensive and may require more
frequent routine maintenance than mechanical transmissions.
High power (typically over 50 horsepower) and medium power (typically 25-50
horsepower) applications for hydrostatic transmissions manufactured by the
Company include construction and agricultural mobile equipment. Light power
(typically 15-25 horsepower) and bantam power (typically under 15 horsepower)
applications for hydrostatic transmissions manufactured by the Company include
light agricultural and turf care mobile equipment. However, any one vehicle may
include applications at all four power levels depending on the specific vehicle
functions. Hydrostatic transmissions have, over the past 30 years, become the
dominant type of propulsion drive train for off-highway mobile equipment with
the exception of industrial forklift trucks in North America and agricultural
and industrial wheel tractors. The Company expects both these types of vehicles
to be sources of market growth. Success in these sectors will come from recently
developed microprocessor controls and matching control features of the new
Series 42 products and from the compactness and high power density of new
hydrostatic pumps and motor elements utilized in hydro-mechanical transmissions.
All these developments evolve from the Company's leading technology base and
extensive application experience.
MAJOR APPLICATIONS
<TABLE>
<CAPTION>
ROAD BUILDING
AGRICULTURAL CONSTRUCTION TURF CARE AND MAINTENANCE OTHER
- ---------------- ------------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Ag Tractors Bulldozers Commercial Mowers Chip Spreaders Aerial Lifts
Air Seeders Concrete Mixers General Turf Concrete Saws Industrial
Combines Concrete Pumps Maintenance Oil Distributors Lift Trucks
Cotton Pickers Ditchers/Trenchers Lawn Tractors Pavers Sweepers
Cotton Strippers Excavators Sand Trap Rakes Planers Logging
Detasselers Grinders Rollers Marine
Harvesters Landfill Compactors Transit Mixers Mining
Sprayers Skid Steer Loaders Oil Field
Windrowers Utility Tractors R T Fork Lifts
Wheel Loaders Railway
Maintenance
Snowgroomers
Truck and Bus
Generator
Drives
</TABLE>
In each of the last five years, sales of hydrostatic transmissions have
accounted for a majority of the Company's net sales. Approximately 70% of 1997
net sales of hydrostatic transmissions were made directly to OEMs of off-highway
mobile equipment, which were primarily large OEMs, and the remaining 30% were to
independent distributors. The Company sells to approximately 80 of these
independent distributors, which operate over 200 service centers. These
independent distributors generally sell transmissions manufactured by the
Company to smaller OEMs and also sell transmissions and parts manufactured by
the Company to end-users for replacement purposes.
Approximately 9-12% of net sales of hydrostatic transmissions in each of
the past five years were of aftermarket service parts. Sales of aftermarket
service parts are typically made in the United States to independent
distributors that repair and rebuild transmissions originally manufactured by
the Company. Aftermarket service part sales are primarily service parts for high
and medium power hydrostatic transmissions. High power transmissions in
off-highway mobile equipment are typically rebuilt once during the life of the
equipment. While the Company and its independent distributors repair and rebuild
transmissions, there are a number of service centers unaffiliated with the
Company, primarily in North America, that repair and rebuild transmissions
originally manufactured by the Company, sometimes using service parts not made
by the Company. In Europe, this market is predominantly serviced by the
Company's own sales companies.
The Company's principal OEM customers for hydrostatic transmissions include
AGCO Corp., Bomag GmbH, Case Corp., Caterpillar Inc., Claas KGaA, Deere &
Company, Ingersoll Rand Company and its
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<PAGE> 36
Melroe unit, JCB Ltd., Liebherr GmbH, New Holland N.V., Svedala Industri AB and
its Dynapac Division and the Toro Company, most of which are customers in both
North America and Europe. The Company sells to a number of divisions within
these OEMs, many of which make independent purchasing decisions. No individual
customer, OEM or other, accounted for 10% or more of the Company's overall net
sales during 1997.
The product life cycle of the Company's hydrostatic transmissions generally
has been from 15 to 25 years. A key aspect of the Company's development process
has been modifying an original product design using new materials, new
manufacturing techniques and engineering development in order to increase the
life of a product while maintaining the original outside housing. This "design
stretch" process happens over a period of years and allows optimal return on
initial product development and manufacturing investment. In the future, the
Company expects the life cycle of its hydrostatic transmissions to be shorter.
The high power hydrostatic transmission line of products introduced by
Sundstrand in 1964 was replaced by the Company's new range of Series 90
transmissions in the period from 1988 through 1996 and Series 42 transmissions
beginning in 1996. Both are smaller, lighter and have more control features than
the Company's earlier line of transmissions. The Company believes that OEM
customers will increasingly demand smaller, lighter, higher performance
transmissions with more advanced control features to be used in complete system
applications.
Hydro-Gear. The U.S. Operating Company is a 60% partner in the Hydro-Gear
joint venture with Agri-Fab, Inc. The U.S. Operating Company supplied Hydro-Gear
with the technology and equipment to produce bantam power hydrostatic
transmissions, while Agri-Fab, Inc. supplied the technology and equipment to
produce mechanical axles. Hydro-Gear, located in Sullivan, Illinois,
manufactures these combined components to produce bantam power hydrostatic
transmissions integrated with mechanical axles primarily for use in turf care
equipment as an infinitely variable forward and reverse transmission to replace
a five speed mechanical transmission and clutch package. Hydro-Gear's primary
product and the reason for the joint venture company is the Integrated
Hydrostatic Transaxle ("IHT"). The IHT is a completely integrated hydrostatic
transmission and transaxle package that is lightweight, delivered ready to
install and has 3-15 horsepower capabilities.
Since its formation in 1991, the Hydro-Gear joint venture has achieved
substantial growth and helped fuel an industry transformation from using
mechanical transmissions to using IHTs. Hydro-Gear's IHTs tend to have lower
prices and gross profit margins than the Company's other hydrostatic
transmissions. However, higher volume levels, lower marketing costs and a lower
cost of investment make these products attractive to the Company. The Hydro-Gear
joint venture has provided the Company the opportunity to meet certain
customers' vehicle transmission and work function needs on a broader basis.
Customers of Hydro-Gear include MTD, the manufacturer of Yardman and Cub Cadet,
Toro, the manufacturer of Wheelhorse, and Frigidaire Home Products, a
manufacturer of lawn tractors, primarily for Sears.
Electrohydraulics
Sauer designs and manufactures electrohydraulic valves and electronic
controls, including microprocessor-based controls and electronic sensors through
its electrohydraulics operations in the United States and also designs
electrohydraulic products in Germany. Electrohydraulic controls and sensors
integrate hydraulics, hydrostatic transmissions and mechanical components with
electronic controls and are used by OEMs of off-highway mobile equipment to
control both the Company's hydraulic systems as well as the hydraulic systems of
other manufacturers. The electrohydraulic products bring together the propulsion
function and the work function by providing standard or custom designed
controls. These easy-to-use, cost-effective systems are designed to allow
vehicles to work effectively and more efficiently by performing more vehicle
functions at an economical cost. The Company is able to design and sell systems
to fit particular vehicle needs.
Increasingly, the Company's hydrostatic transmission sales include controls
made by the Company's electrohydraulics unit. The Company's electrohydraulic
products include electrohydraulic servo valves, electrohydraulic directional
control valves, microprocessor controls and software, analog control boards, joy
sticks and sensors. Common applications of the Company's electrohydraulic
products have been for the work function of agricultural combine harvesters and
road building equipment. While electrohydraulics' net sales
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<PAGE> 37
are not a significant part of the Company's overall net sales, the Company
believes that OEM customers increasingly prefer purchasing hydraulic products
from manufacturers, such as the Company, that can provide a sophisticated
integrated system for both the propulsion and work functions, together with an
electronic control system. Certain of the Company's OEM customers, however, also
design and manufacture their own electronic controls for use with the Company's,
as well as other manufacturers', hydraulic systems. Certain of the Company's
electrohydraulic products are purchased by customers for use with other
manufacturers' hydraulic systems.
In February 1994, the Company acquired CCI in order to further expand into
the electrohydraulic valve market. CCI manufactures and designs electrohydraulic
valves primarily for combine harvesters. Electrohydraulic valves are used to
direct the hydraulic power to the various parts of the vehicle that require
power.
Gear Pumps and Motors
The Company designs, manufactures and sells custom designed gear pumps as
well as a broad range of high performance standard gear pumps and motors. Gear
pumps and motors are the most widely used type of mobile hydraulic pump and
motor in the industry. They are the basic "workhorse" product for numerous work
functions across a broad range of mobile equipment, because they are sturdy in
design and able to withstand dirt and contamination in poorly maintained
equipment. They are also very cost-effective components in replacing mechanical
work-function devices. The disadvantages of gear pumps and motors are their
limited controllability compared to open circuit piston pumps and the limited
oil pressure levels and horsepower at which they operate. As OEMs seek higher
performance, there is a trend to replace mechanical devices with gear pumps and
motors, as well as a steady transition from gear pumps to open circuit piston
pumps. One such area is the hydraulic drive of engine cooling fans on buses and
recreational vehicles. Using gear pumps and motors and electronic temperature
sensors and valves, the hydraulic drive allows the cooling system to operate
independently of engine speed, both saving energy and more efficiently using
engine power.
At its Swindon, England facility, special purpose, customized gear pumps
are designed primarily for agricultural and construction applications.
Increasingly, these gear pumps integrate hydraulic control devices that were
previously located elsewhere in the work function system. This reduces the
number of interconnecting hydraulic tubes and hoses in the system, thereby
reducing cost and improving system reliability.
Sauer's range of standard gear pumps and motors offers higher oil pressure
and power levels and better performance and reliability than the products of the
Company's competitors. Most of the Company's gear pump and motor sales have been
made in Europe. Until 1997, the Company produced standard gear pumps and motors
only in Bologna, Italy. In 1997, it started the production of standard gear
pumps and motors at the West Branch, Iowa facility. With the 1997 commencement
of gear pump production in West Branch, Iowa, the Company expects to increase
sales of these products in the United States.
Open Circuit Piston Pumps
Open circuit piston pumps are used to transform mechanical power from the
engine to hydraulic power for the work functions of the vehicle. The advantages
of open circuit piston pumps compared to other types of pumps, such as vane or
gear pumps, are the high degree of control within the work function hydraulic
system and the more efficient use of engine power. In addition, open circuit
piston pumps are able to operate at higher power levels. Increasingly, OEMs, in
particular agricultural tractor manufacturers, demand the advantages of open
circuit piston pumps as work functions transition to integrated electrohydraulic
controls, despite the premium price of an open circuit piston pump, typically
more than twice the price for a gear or vane pump.
Sauer designs and manufactures open circuit piston pumps in the United
States and Europe. The design and manufacture of open circuit piston pumps has a
certain commonality with the design and manufacture of closed circuit piston
pumps used in hydrostatic transmissions. Drawing on its vast experience in the
design of hydrostatic products, the Company's new Series 45 open circuit piston
pumps have been well received by the market because of their compact size, high
performance and reliability.
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<PAGE> 38
At its Swindon, England facility, the Company designs and manufactures
special purpose open circuit piston pumps, which combine general features of a
work function system, with oil filtration, main transmission actuation and
steering pump, into one assembly. Used primarily by agricultural tractor
manufacturers, an integrated package assembly allows the OEM to increase work
function performance, improve vehicle reliability, reduce total hydraulic system
cost by eliminating other hydraulic components and reduce the labor costs to
install the system. The sale of a typical integrated package more than doubles
the dollar content of Sauer's products in an agricultural tractor.
Mechanical Gear Boxes
In Europe, the Company designs and manufactures a range of special purpose
mechanical gear boxes. The gear boxes are used in both propulsion and work
function systems to reduce the output speed of a hydraulic motor down to the
desired final speed of the wheel or track of a vehicle or the final speed of the
work function. The gear boxes are complementary to the Company's hydrostatic
transmission product line and sold almost exclusively as components within a
system.
MANUFACTURING
Sauer operates 13 manufacturing facilities in the United States, Europe and
China. The Company's decentralized manufacturing capabilities allow it to adapt
its products to local market needs and meet customer delivery requirements on a
timely basis. It is the Company's view that the optimum size for a stand-alone
manufacturing facility is in the range of 200 to 300 employees. Beyond this
level it is more difficult to develop the work structure and communication lines
that the Company believes are important to achieving its goals.
In North America, the Company manufactures hydrostatic transmissions at its
Ames, Iowa facility and at its La Salle and Freeport, Illinois facilities. A new
manufacturing facility is planned for Lawrence, Kansas, to be in operation in
late 1998 to produce medium power hydrostatic transmissions. The new facility
will free operating capacity at Ames to allow expanded production of the Series
90 high power hydrostatic transmission. Sauer has several flexible manufacturing
systems ("FMS") at the Ames facility for machining iron housings and components.
The systems, which are fully automated and computer controlled, operate an
average of 20 hours per day, seven days a week. The Company has extensive
experience with this type of equipment, and expects that future machinery
investment will be heavily oriented toward FMS to meet customers' "just in time"
needs and to minimize inventories. The La Salle facility is primarily used to
machine iron housings and components. The Freeport facility is primarily used to
machine steel and brass components from barstock. Both facilities utilize
computer controlled and special purpose equipment, including robotics. Housings
and components machined at the La Salle and Freeport facilities are transported
by common carriers to the Ames facility for assembly and testing.
In Europe, the Company produces hydrostatic transmissions at its
Neumunster, Germany facility. Iron housings and components are machined on
special purpose equipment and standard computer controlled equipment with
specially adapted features. The Neumunster facility also employs automated
material handling equipment designed specifically for the manufacture of the
Company's hydrostatic transmissions. In addition, the Company has begun
manufacturing hydrostatic transmissions and components and mechanical gear boxes
at two facilities in Slovakia. The Slovakia facilities supply components to the
Neumunster and Ames facilities, and produce mechanical gear boxes, at much lower
cost levels than the Company's other manufacturing locations. In East Asia, the
Company produces hydrostatic transmissions at the Pudong, Shanghai facility.
The Company designs and manufactures open circuit piston pumps at its Ames,
Iowa and Swindon, England facilities. The Company designs and manufactures
electrohydraulic valves and electronic controls, including microprocessor-based
controls and electronic sensors, at its Minneapolis, Minnesota and Newtown,
Pennsylvania facilities and also designs electrohydraulic products at the
Neumunster facility. Custom-designed gear pumps and motors are manufactured at
the Swindon, England facility and standard-designed gear pumps and motors are
manufactured at the Bologna, Italy and West Branch, Iowa facilities. The West
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<PAGE> 39
Branch gear pump plant was completed and put into production in 1997. In
addition to using special purpose equipment and standard computer controlled
machines similar to the Ames and Neumunster facilities, all gear pump plants
utilize high precision gear-making machinery with automated material handling.
The Company uses common computer aided design and manufacturing systems in
its Ames and Neumunster facilities. This permits engineering and development
work carried out at one facility to be used by the other facility and helps
ensure that parts made at both facilities are identical and interchangeable. In
the near future, all the Company's engineering and manufacturing locations will
be connected into the same system.
In addition to its engineering, research and development staff, the Company
employs in its manufacturing departments a number of engineers and technicians
who are responsible for the development of new manufacturing techniques and
processes and providing technical services for manufacturing.
MARKETING AND SALES
In North America, the Company sells and distributes its products directly
to large OEMs and through independent distributors to smaller OEMs. In Europe,
the Company sells and distributes its products either directly or through sales
subsidiaries located in Belgium, France, Holland, Italy, Slovakia, Spain, Sweden
and the United Kingdom. Sales and marketing efforts include advertising and
participation in trade shows, but the Company relies primarily on direct contact
between the Company's technically qualified sales and engineering staff and its
customers' engineering and manufacturing departments.
Sauer seeks to develop a close working relationship with its principal OEM
customers. The Company's engineers work directly with those OEMs from initial
product design and specifications to field testing. In some instances, the
Company has a design engineer resident within the customer's engineering
department to facilitate and accelerate customized product development. The
Company also provides service support and service parts to further develop
strong and close working relationships with its customers. Sales and marketing
to smaller OEMs in North America are conducted primarily by independent
distributors in the United States. The independent distributors receive Company
training, including factory training for their service engineers, and handle
sales support and service of the Company's products. Total North American
employment for marketing, sales and service was 136 persons at December 31,
1997. In Europe, the networks of independent distributors do not exist to the
same extent as in North America. Therefore, the Company sells directly to both
large and small OEMs and employs a relatively larger number of sales and service
engineers in Europe. Total European employment for marketing, sales and service
was approximately 175 persons at December 31, 1997.
In order to secure long-term production orders, the Company first must
convince prospective OEMs that it has the technical capabilities, production
facilities and quality products that they require. After a period of time during
which the prospective OEM customer assesses the technical capabilities and other
attributes of various manufacturers, one of the competing manufacturers usually
is selected to begin work on developing prototype offerings. After the
development and testing phase is completed, the manufacturer selected for
prototype development is typically selected by the OEM to be the supplier for
long-term production orders during the production life of the equipment.
Changing to an alternative manufacturer at this point would be very costly to
the OEM and is therefore highly unusual. It can be up to a four-year process
from initial assessment to commencement of purchases by the OEM. By producing
highly specialized, made to order products, the Company has been able to develop
long-term relationships with many of its customers.
In response to recent desires of many of its OEM customers to reduce the
number of their suppliers by purchasing more components from fewer suppliers,
the Company has expanded its production of systems that integrate hydraulics,
hydrostatics and mechanics with electronic controls. The Company carries this
integration process even further, in some cases by joining forces with an engine
manufacturer and steering system supplier. The Company at times combines its
components with those of others in completely integrated assemblies. Such
ventures are cost effective, because they help the Company to work at the system
level and provide an opportunity to meet customer vehicle propulsion and work
function needs on a broader basis.
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In accordance with standard industry practice for mobile hydraulics, the
Company warrants its products to be free from defects in material and
workmanship. The warranty period varies from one to three years from the date of
first use or date of manufacture, depending on the type of product or, in some
cases, the application. The Company's warranty expense has been less than 1.5%
of net sales in each of the past three years.
Because many of its products are designed and developed in conjunction with
its customers' design teams to fit their specific needs and to minimize
inventory levels, the Company primarily manufactures products to order in both
the United States and Europe. The Company typically machines components with
long lead times according to a sales forecast and machines certain unique
components for specific customers according to firm orders. Inventories consist
primarily of raw materials and machined iron housings and components. Only small
amounts of assembled finished units are maintained in inventory.
The Company does not normally accept orders subject to late delivery
penalties. On occasion, the Company sells its products to government agencies,
including those used for military applications, but does not design its products
specifically according to government standards and usually only enters into
contracts for the supply of commercial products. There are no government
contracts of material value to the Company.
ENGINEERING, RESEARCH AND DEVELOPMENT
The engineering and technical personnel employed in engineering, research
and development activities of the Company constitute approximately 7.4% of its
total work force, 152 in the United States and 124 in Europe. The Company's
engineering, research and development efforts have included development of new
products, testing, evaluation and improvement of existing products and the
development of proprietary software for its microprocessor-based systems.
Engineering, research and development are coordinated between Europe and the
United States so as to avoid duplication and to focus expenditures on the most
productive market developments. The Company also works on basic developments
with a number of universities and technical institutes and believes that its
access to technical developments in the United States, Europe, Japan and
elsewhere around the world through its business units and licensing arrangements
will enable it to remain competitive on a technological basis.
Recent engineering, research and development projects have included
hydro-mechanical products, a new line of microprocessor controls and new sizes
of open circuit piston pumps. The Company's research and development
expenditures during 1995, 1996 and 1997 were approximately $18.8 million, $20.5
million and $20.7 million, respectively.
The Company's research and development efforts provide many products,
including software, that are specifically designed for a customer. The Company's
products are very technical in nature, and its design team is a key component of
the sales effort. Design team members work closely with the customer's design
team to develop prototypes and specialized products that are specific to a
particular application. The design of a Company product or system is often
created in collaboration with the design of the customer's vehicle of which the
Company's product or system will be a component part.
The Company has been able to use technology in order to reduce development
times. Each product prototype is designed using Computer Assisted Design ("CAD")
to create a three-dimensional design that can be electronically transmitted to
Company suppliers. Because of the enhanced design techniques, the supplier can
often prepare a sample part in a short period of time that can be tested in the
Company's manufacturing facility. As a result, the average development time of
new products has been reduced from four years in the early 1980s to 18 months
currently.
LICENSING
To ensure worldwide availability of the Company's design of products, the
Company and its predecessors have licensed its technology to companies in
certain countries. The Company licenses all its open and closed circuit piston
pumps and motor and electrohydraulic valve technology to a subsidiary of Daikin
Industries Ltd. in Japan and licenses its original hydrostatic transmission
technology to Power Transmission Industries in
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<PAGE> 41
Brazil and Larsen & Toubro Ltd. in India. These licenses generally are exclusive
licenses to manufacture and sell hydrostatic transmissions using the Company's
technology in the territory covered by the license. In each license agreement,
the Company reserves the right to sell products based on the licensed technology
in the territory covered by the license but primarily relies on the licensee to
supply the market needs in the territory. These licenses generally provide for
annual royalty payments based on the licensee's net sales. Royalty income
generated by these licenses during 1995, 1996 and 1997 was approximately $1.7
million, $1.2 million and $1.2 million, respectively.
Sauer and its predecessors have had a long-standing working relationship
with the Company's principal licensee, Daikin. The Daikin license, first granted
by one of the Company's predecessors in 1967, has been renewed for successive
ten-year periods and currently expires in 2008. All the Company's open and
closed circuit piston pump and motor and electrohydraulic valve technology is
licensed to Daikin under an agreement which allows the Company to benefit from
any improvements to the technology made by Daikin and vice versa. The Company
and Daikin jointly design and market products to meet worldwide needs and
frequently cooperate in the manufacture of components and complete products so
as to optimize the utilization of manufacturing capacity.
Through these licensing arrangements the Company is able to serve its North
American and European OEM customers as they expand their manufacturing
operations to other parts of the world. Management believes that the worldwide
availability of the Company's products and the local manufacturing capabilities
of its licensees play an important part in the decision of an OEM as to which
supplier to use.
COMPETITION
The mobile hydraulics industry is very competitive. Sauer competes based on
technological product innovation, quality and customer service. The Company
believes that long-term successful suppliers to off-highway vehicle
manufacturers will be those companies that have the ability to capitalize on the
changing needs of the industry by providing technological innovation, shorter
product development times and reduced manufacturing lead times.
Closed Circuit Hydrostatic Transmission Industry
The closed circuit hydrostatic transmission industry is highly concentrated
and is intensely competitive. There is a small number of manufacturers of
hydrostatic transmissions with which the Company competes worldwide that are not
captive suppliers of OEMs. These include the Rexroth Hydromatic division of
Mannesmann AG, Eaton Corporation, Linde AG and Aeroquip-Vickers. In addition,
the Company competes with alternative products, such as mechanical transmissions
of other manufacturers.
The Company competes with a number of smaller companies that typically
offer a single, specialized product on a more limited geographic basis as a
component of a closed circuit hydrostatic transmission system.
In terms of global supply of closed circuit hydrostatic transmissions, the
Company, together with its licensees, is the world leader in terms of product
range, market share and geographic coverage. Only the Rexroth unit of Mannesmann
offers similar geographic coverage.
Open Circuit Work Function Industry
The open circuit work function industry is fragmented with a large number
of suppliers of all types of products, including open circuit piston pumps, gear
pumps and motors, hydraulic and electrohydraulic valves, electronic sensors and
controls, and with intensive competition on pricing at the component level.
There are approximately ten major companies which compete on a global basis,
including the Rexroth unit of Mannesmann, Aeroquip Vickers, Parker Hannifin
Corporation, Robert Bosch AG and Eaton Corporation, and in Japan, Kayaba and
Kawasaki. The supply of standard gear pumps and motors and hydraulic valves is
particularly fragmented with more than 50 companies worldwide in each respective
area. Most of these competitors have a limited product range and operate in a
limited geographic market.
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Electrohydraulics Industry
In the electrohydraulics industry, which covers both propulsion and work
function systems, there are few suppliers of propulsion system controls and only
three are worldwide competitors. The main competition in this area comes from
major OEMs who produce controls for their own use. In work function
electrohydraulic valves, electronic sensors and controls, there is a wide range
of niche suppliers in limited geographic markets. In recent years, larger
companies have increasingly acquired these niche or regional suppliers and
thereby have improved their ability to offer integrated systems. The Company
believes it is well positioned to establish itself as a technology leader in the
workfunction segment, as there is no clearly established technology in this
sector that is deemed to be an industry standard.
RAW MATERIALS AND OTHER SUPPLIES
The Company purchases iron housings and components from various U.S. and
European foundries. The principal materials used by the Company are iron, steel,
brass and aluminum. All materials used by the Company are generally available
from a number of domestic and foreign sources in sufficient quantities to meet
current requirements. Over the past five years, the Company has reduced the
number of suppliers with which it does business from 1632 in 1993 to 479 in
1997. The Company believes this move to a reduced number of suppliers results in
a closer working and technical relationship with its suppliers that contributes
to advances in technology. Further, these suppliers are expected to provide more
efficient, reliable service and more competitive prices when selected as the
single supplier.
BACKLOG
The amount of the Company's backlog is significant because, among other
factors, customer orders typically involve long lead times and specific model
types. At December 31, 1997, the Company's backlog (consisting of accepted but
unfilled customer orders primarily scheduled for delivery during the remainder
of 1998) was $277.5 million, as compared with $227.0 million at December 31,
1996. However, orders can be cancelled or rescheduled by customers. Thus, the
level of orders currently in backlog could decline because of cancellation or
rescheduling.
EMPLOYEES
As of December 31, 1997, the Company had approximately 3,750 employees. The
Company's 1,800 employees in the United States are not represented by labor
unions, except for the 190 employees at the Company's La Salle, Illinois
facility. These employees are covered by a collective bargaining agreement with
the United Auto Workers which expires in the fall of 2001. Almost all 1,900
employees of the Company in Europe, other than managerial and professional
employees, are represented by labor unions. The Company has not experienced any
significant strike or work stoppage during the last three years. Management
believes its relationship with employees is good.
Sauer is committed to the continuous development of employee skills at all
levels to achieve the required innovation, flexibility, productivity and total
quality needs of customers. Known within the Company as "Reaching for
Excellence," this process of continuing investment in skills has led to
widespread recognition by customers and suppliers that the Company can carry
through with the type of major developments, in all areas of operation, required
of a world class company.
PROPERTIES
Sauer conducts its manufacturing operations at 13 locations, seven in the
United States, one in Germany, two in Slovakia and one each in Italy, the United
Kingdom and China. As discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" to support its growth strategy the Company plans to substantially
increase its manufacturing capacity in the United States and Europe.
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<PAGE> 43
The following table sets forth certain information relating to the
Company's principal facilities:
<TABLE>
<CAPTION>
APPROX.
AREA IN
LOCATION PRINCIPAL PRODUCTS SQ. FT. OWNED/LEASED
-------- ------------------ -------- ------------
<S> <C> <C> <C>
UNITED STATES
Ames, Iowa............................... Hydrostatic transmissions 330,000 Owned
La Salle, Illinois....................... Hydrostatic transmissions 240,000 Owned
Freeport, Illinois....................... Hydrostatic transmissions 183,000 Owned
Minneapolis, Minnesota................... Electrohydraulics 75,000 Leased
West Branch, Iowa........................ Gear pumps and motors 99,000 Owned
Newtown, Pennsylvania.................... Electrohydraulics 96,000 Leased
Sullivan, Illinois....................... Hydrostatic transmissions 141,000 Owned
EUROPE
Neumunster, Germany...................... Hydrostatic transmissions 463,000 Leased (1)
and electrohydraulics
Povazska-Bystrica, Slovakia.............. Hydrostatic transmissions 315,000 Owned
and mechanical gear boxes
Dubnica, Slovakia........................ Hydrostatic transmissions 230,000 Leased
Swindon, England......................... Gear pumps 222,000 Leased
Bologna, Italy........................... Gear pumps and motors 246,000 Owned
ASIA
Shanghai/Pudong, China................... Hydrostatic transmissions 105,000 Leased
</TABLE>
- ---------------
(1) See "Relationship with Principal Stockholder -- Lease Agreement for and
Purchase of Neumunster Facilities."
ENVIRONMENTAL MATTERS
In all countries in which it operates, the Company is subject to
environmental laws and regulations concerning emissions to air, discharge to
waterways and the generation, handling, storage, transportation, treatment and
disposal of waste materials. These laws and regulations are constantly evolving,
and it is impossible to predict accurately the effect they will have on the
Company in the future. The regulations are subject to varying and conflicting
interpretations and implementation. In some cases, compliance can only be
achieved by additional capital expenditures. The Company cannot accurately
predict what capital expenditures, if any, may be required to comply with
applicable environmental laws and regulations in the future; however, the
Company does not currently estimate that any future capital expenditures for
environmental control facilities will be material. The Company is not currently
subject to any governmental remediation order nor is the Company aware of any
environmental problems that would have a material adverse effect on the Company.
PATENTS AND TRADEMARKS
The Company owns or licenses rights to approximately 240 patents and
trademarks relating to its business. While the Company considers its patents and
trademarks important in the operation of its business and in protecting its
technology from being used by competitors, its business is not dependent on any
single patent or trademark or group of related patents or trademarks. The
Company licenses the use of the Sundstrand name from Sundstrand under agreements
that extend to March 31, 2004. The Company does not expect to seek renewal of
the license.
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings in the ordinary course
of its business. Management believes that the outcome of such proceedings will
not have a material adverse effect upon the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Klaus H. Murmann...... 66 Chairman and Chief Executive Officer and Director
Tonio P. Barlage...... 46 President and Chief Operating Officer and Director
David L. Pfeifle...... 52 Executive Vice President and General Manager -- United
States
and Director
David J. 50 Vice President, Sales and Marketing -- United States
Anderson(1).........
Thomas K. Kittel(2)... 49 Vice President, Operations -- Germany and Slovakia
Wolfgang Weisser(2)... 54 Vice President, Sales and Marketing -- Europe
James R. Wilcox(1).... 51 Vice President and General Manager -- Hydrostatics U.S.
Kenneth D. McCuskey... 43 Treasurer and Secretary
Nicola Keim........... 37 Director
Johannes F. 40 Director
Kirchhoff...........
Sven Murmann.......... 30 Director
Agustin A. Ramirez.... 51 Director
Richard M. 60 Director
Schilling...........
</TABLE>
- ---------------
(1) David J. Anderson and James R. Wilcox are Vice Presidents of the U.S.
Operating Company, not Sauer Inc.
(2) Thomas K. Kittel and Wolfgang Weisser are Vice Presidents of the German
Operating Company, not Sauer Inc.
The Company's Board of Directors is divided into three classes with the
initial term of the first class expiring at the annual meeting of the
stockholders to be held in 1999 (Ms. Keim and Mr. Klaus H. Murmann), the second
class expiring at the annual meeting of stockholders to be held in 2000 (Messrs.
Barlage, Sven Murmann and Schilling), and the third class expiring at the annual
meeting of stockholders to be held in 2001 (Messrs. Kirchhoff, Pfeifle and
Ramirez). The executive officers of the Company are elected annually and serve
at the discretion of the Board of Directors.
Klaus H. Murmann has served as Chairman and Chief Executive Officer of
Sauer and its predecessor since 1987. Mr. Murmann founded Sauer Getriebe in 1967
which, as a licensee of and later joint venture partner with Sundstrand, has
been involved in hydrostatics since 1967. He is a member of the supervisory
boards of Fried. Krupp AG, Hoesch-Krupp, Essen, a German industrial company,
Gildemeister AG, Bielefeld, a German manufacturer of machine tools, and
PreussenElektra AG, Hannover, a German utility. He is Chairman of the Board of
Gothaer Insurance Group, Gottingen/Cologne, a German insurance company, Chairman
of the Board of PSVaG, a national pension fund, a member of the board of
Bankgesellschaft Berlin AG, Berlin, a German bank, a member of the advisory
board of Landesbank Schleswig-Holstein Girozentrale, a bank owned principally by
institutions belonging to various States of Germany, and a director of GKN PLC,
United Kingdom, a manufacturing company. Mr. Murmann is also a director of
Sundstrand. For a description of his transactions with the Company, see
"Relationship with Principal Stockholder."
Tonio P. Barlage has been President and Chief Operating Officer of the
Company since 1994. Prior to attaining his current position in 1994, Mr. Barlage
was the Chief Financial Officer of the Company and its predecessor from 1987 to
1994. From 1986 to 1987, Mr. Barlage was also Chief Financial Officer of Sauer
Getriebe. Prior to joining the Company in 1986, Mr. Barlage was with Arthur
Andersen & Co.
40
<PAGE> 45
David L. Pfeifle has been Executive Vice President of Sauer and President
of the U.S. Operating Company since 1994. Mr. Pfeifle joined Sundstrand in 1971
and held various management positions with increasing responsibility until 1994.
Mr. Pfeifle is a member of the board of the Construction Industry Manufacturers
Association and of the National Fluid Power Association.
David J. Anderson has been Vice President, Sales and Marketing, United
States of the U.S. Operating Company since November 1997. Mr. Anderson joined
Sundstrand in 1984 and has held various management positions within sales and
marketing with increasing responsibility until 1997. Prior to joining the
Company, Mr. Anderson was Director of Business Development and Manager of Sales
with Dyneer Corporation.
Thomas K. Kittel has been Vice President, Operations of the German
Operating Company since January 1997. He joined the German Operating Company as
Director of Information Technology in 1988 and later became Director of
Production and Logistics. In 1994, he also undertook responsibility for
Engineering and the Slovakian operations.
Wolfgang Weisser has been Vice President, Sales and Marketing, Europe of
the German Operating Company since January 1997. Between 1991 and 1997, Mr.
Weisser was Director of Marketing. Mr. Weisser joined Sauer Getriebe in 1967 and
held various management positions with increasing responsibility until 1991.
James R. Wilcox has been Vice President and General Manager -- Hydrostatics
United States of the U.S. Operating Company since 1995. From 1992 to 1995, Mr.
Wilcox was Vice President of Operations. Prior to joining the Company, Mr.
Wilcox was Vice President, Operations and Plant Manager with Borg Warner
Automotive, Inc.
Kenneth D. McCuskey has been the Treasurer and Secretary of Sauer since
1989. He was International Controller of the Company from 1988 to 1989. Mr.
McCuskey has also been the Director of Finance of the U.S. Operating Company
since 1991.
Nicola Keim has been a Director of the Company since April 1990. Ms. Keim
served as a Member of the Supervisory Board of Sauer Getriebe, a predecessor of
the German Operating Company, from November 1990 through June 1997. Ms. Keim is
the daughter of Klaus H. Murmann.
Johannes F. Kirchhoff has been a Director of the Company since April 1997.
Mr. Kirchhoff has been owner and Managing Director of the FAUN Umwelttechnik
GmbH & Co., a manufacturer of vehicles for waste disposal, since December 1994.
From November 1989 through November 1994, Mr. Kirchhoff served as a Managing
Director of Edelhoff Polytechnik GmbH & Co., a manufacturer of vehicles for
waste disposal. Mr. Kirchhoff also served on the Board of Directors of Edelhoff
AG & Co., the holding company of Edelhoff Polytechnik GmbH & Co., from June 1993
through November 1994; from June 1993 through December 1993, he served as deputy
member of the Board of Directors and thereafter as a Member of the Board of
Directors.
Sven Murmann has been a Director of the Company since April 1994. Mr.
Murmann has served as an Assistant Professor at the University of Zurich since
October 1997. He was a research assistant at Ludwig-Maximilians University in
Munich from April 1994 through August 1995. Mr. Murmann is the son of Klaus H.
Murmann.
Agustin A. Ramirez has been a Director of the Company since December 1997.
Since 1987, Mr. Ramirez has served as President, Chief Executive Officer and
Chairman of HUSCO International, Inc., a manufacturer of hydraulic controls for
mobile equipment applications with operations in North America and Europe. He
served as past Chairman of the Board of the National Fluid Power Association and
as a member of the Advisory Board of Bank One Wisconsin.
Richard M. Schilling has been a Director of the Company since 1985. He
began his career at Sundstrand Corporation in March 1968 as a corporate attorney
and assistant secretary. In 1978, he was named General Counsel and Vice
President and, in 1988, he was elected Secretary of Sundstrand Corporation. Mr.
Schilling retired from Sundstrand Corporation on December 31, 1997 and is
currently a partner at Hinshaw & Culbertson, a law firm in Rockford, Illinois.
41
<PAGE> 46
Directors who are not employees of the Company receive annual retainers of
$12,000 plus expenses relating to their duties as directors.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee is composed of three directors, none
of whom is an employee of the Company. The Audit Committee makes recommendations
to the Board of Directors regarding the independent auditors to be nominated for
election by the stockholders, reviews the scope of the annual audit activities
of the independent auditors and the Company's internal auditors and reviews
audit results. R. Schilling, J. Kirchhoff and A. Ramirez are the current members
of the Audit Committee.
Compensation Committee. The Compensation Committee is composed of three
directors none of whom is an employee of the Company. The Compensation Committee
reviews and determines the salaries of the executive officers of the Company. J.
Kirchhoff, A. Ramirez and R. Schilling, are the current members of the
Compensation Committee. The Compensation Committee administers the Company's
Bonus Plan and the Sauer Inc. 1998 Long-Term Incentive Plan.
Executive Committee. The Executive Committee is composed of three
directors. Subject to certain exceptions, the Executive Committee is empowered
to exercise all powers of the Board of Directors. The Executive Committee
administers the Company's Phantom Share Plan and the Company's Management
Incentive Plan. K. Murmann, T. Barlage and D. Pfeifle are the current members of
the Executive Committee.
NON-EMPLOYEE DIRECTOR STOCK PLAN
General. The Sauer Inc. Non-employee Director Stock Option and Restricted
Stock Plan (the "Non-employee Director Stock Plan") was adopted by the Board of
Directors on March 12, 1998 and approved by the stockholders on April 22, 1998.
In general, the Non-employee Director Stock Plan permits the grant of awards of
non-qualified stock options and restricted Common Stock to directors of the
Company who are not also employees of the Company. The Non-employee Director
Stock Plan is designed to attract and retain outstanding individuals as
non-employee directors and to furnish incentives linked to the performance of
the Company and its Common Stock. The total number of shares of Common Stock to
be issued under the Non-employee Director Stock Plan shall not exceed 250,000
shares.
Plan Administration. The Non-employee Director Stock Plan will be
administered by the Board of Directors, excluding those directors who are
eligible to participate under the Non-employee Director Stock Plan. The Board of
Directors will have the discretion, in accordance with the provisions of the
Non-employee Director Stock Plan, to determine the number, the value, and other
terms and conditions of options and restricted Common Stock to be granted under
and to construe and interpret the Non-employee Director Stock Plan.
Stock Options. Beginning with the annual meeting of stockholders in April
of 1999, following which the Board of Directors has agreed that automatic annual
stock options under the Non-employee Director Stock Plan should begin, each
non-employee director shall be granted a non-qualified stock option to purchase
such number of shares of Common Stock as the Board of Directors shall determine
in its absolute discretion, effective on the day following such annual meeting.
However, the Board of Directors has the discretion to make additional
non-qualified stock option grants to non-employee directors at any time, and to
determine the number of shares of Common Stock to which each such option
pertains. The grants of and number of shares of Common Stock pertaining to
non-qualified stock options need not be uniform among the participants. Unless
otherwise determined by the Board of Directors at the time of grant, the
exercise price for each option under the Non-employee Director Stock Plan shall
be at least equal to 100% of the fair market value of a share of Common Stock on
the date the option is granted. Unless otherwise designated by the Board of
Directors, all options granted under the Non-employee Director Stock Plan shall
vest 100% and be immediately exercisable in whole or in part on the date of
grant, and shall remain exercisable until the tenth anniversary of the grant
date. Unless otherwise designated by the Board of Directors, in the event of
death or disability of a participant, all vested options held by such
participant shall remain exercisable at any time prior to such options'
expiration date, or for one year after the date of death or the date of
disability (as determined
42
<PAGE> 47
by the Board of Directors), whichever period is shorter, by the Participant or
his or her heirs or designees. If a director ceases to serve on the Board of
Directors for reasons other than death or disability, all vested options shall
remain exercisable for six months following the date the director's service on
the Board of Directors terminates or until the expiration date of the options,
whichever period is shorter. The exercise price of any option under the
Non-employee Director Stock Plan shall be payable to the Company in cash or in
Common Stock, or by a combination of both. Options under the Non-employee
Director Stock Plan can be transferred other than by will or the laws of dissent
and distribution, but only if and to the extent provided by the Board of
Directors.
Restricted Stock. Beginning with the annual meeting of stockholders to be
held in April 1999, following which the Board of Directors has agreed that
automatic restricted Common Stock grants should begin, upon first being elected
or appointed to the Board of Directors, newly elected or appointed non-employee
directors will each receive a one-time grant of such number of shares of
restricted Common Stock as the Board of Directors shall determine in its
absolute discretion on the day following such election or appointment. The
persons who are currently non-employee directors and who continue as
non-employee directors will each also receive a one-time grant of such number of
shares of Common Stock as the Board of Directors may determine in its absolute
discretion, on the day following the meeting of the Board of Directors to be
held in September of 1998. However, the Board of Directors has the absolute
discretion to provide additional grants of restricted Common Stock at any time
and to determine the number of shares of Common Stock pertaining to each such
grant. The number of shares of Common Stock pertaining to grants of restricted
stock need not be uniform among the participants. Unless otherwise designated by
the Board of Directors, all shares of restricted Common Stock granted under the
Non-employee Director Stock Plan shall vest ratably over a three-year period
such that one-third of the award vests on each anniversary of the date of grant.
The Board of Directors may impose other conditions or restrictions on any shares
of restricted Common Stock as it may deem advisable, including, without
limitation, restrictions: that require the participant's payment of a stipulated
purchase price; restrictions based upon the achievement of specific performance
goals; time-based restrictions on vesting following the attainment of the
performance goals; and restrictions under applicable federal or state securities
laws or other statutes. During the restriction period, the participant is not
entitled to delivery of the restricted Common Stock, restrictions are placed on
the Common Stock's transferability and, unless otherwise determined by the Board
of Directors, the Common Stock will be forfeited upon termination of service
from the Board of Directors for any reason. A holder of restricted Common Stock
will generally have the rights and privileges of a stockholder, including the
right to vote the Common Stock.
Change of Control. In the event of a change of control of the Company (as
defined in the Non-employee Director Stock Plan): (i) any options outstanding
under the Non-employee Director Stock Plan that have not already vested shall
become immediately exercisable and shall remain exercisable throughout their
entire term; and (ii) all restriction periods and restrictions imposed on
outstanding restricted Common Stock shall immediately lapse, other than any
restrictions under applicable federal or state securities laws or other
statutes.
Plan Amendments or Termination. The Board may terminate or suspend the
Non-employee Director Stock Plan in whole or in part, at any time, with respect
to all future grants and awards.
43
<PAGE> 48
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
--------------------------------------------- ---------------
OTHER ANNUAL LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) PAYOUTS ($)
- --------------------------- ---- ---------- --------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Klaus H. Murmann............ 1997 $475,000 $450,000(2) -- --
Chairman and CEO
Tonio P. Barlage............ 1997 375,000 350,000(2) -- --
President and COO 200,000(3)
David L. Pfeifle............ 1997 246,981 220,002(2) 5,760(4) 46,400(5)
Executive Vice President
and General
Manager -- U.S.
James R. Wilcox............. 1997 157,546 81,766(6) 6,000(4) --
Vice President of U.S.
Operating Company
Thomas K. Kittel............ 1997 158,785(8) 25,325(6)(7) 3,560(4) 17,400(5)
Vice President of German
Operating Company
</TABLE>
- ---------------
(1) During 1997, no awards were granted.
(2) These bonuses are paid under the 1990 Sauer Inc. Bonus Plan pursuant to
which the Chairman and CEO, the President and COO and the Executive Vice
President are entitled to receive payments if the Company achieves targeted
financial results as specified in the plan.
(3) A one-time bonus paid to Mr. Barlage for 1997 and awarded by the Company's
Compensation Committee for his efforts related to establishing the Company's
Slovakian operations.
(4) Aggregate quarterly payments under the Company's Phantom Share Plan (as
defined herein). Messrs. Murmann and Barlage do not participate in the
Phantom Share Plan.
(5) Payments made upon the lapsing of restrictions as to certain phantom share
rights granted under the Phantom Share Plan.
(6) These amounts were paid pursuant to the Company's Management Incentive Plan.
Under the Management Incentive Plan officers and management personnel
selected by the Executive Committee (other than officers who receive bonuses
under the Company's Bonus Plan) are entitled to receive payments if the
Company, the employee's business unit and the employee each achieve
specified targets, respectively.
(7) Payment was made in Deutsche marks and converted to U.S. dollars using the
exchange rate as of April 15, 1998.
(8) Payment to Mr. Kittel was made in Deutsche marks, which amount has been
converted to U.S. dollars for this table using a weighted average annual
exchange rate for 1997.
Phantom Share Plan. Under the Company's Restated Phantom Share Plan, dated
April 17, 1995, and 1996 Phantom Share Plan (collectively the "Phantom Share
Plan"), certain officers and other key employees have been granted phantom share
rights ("Phantom Share Rights"). Each Phantom Share Right entitles the grantee
to the market value of a share of Common Stock as of the December 31 immediately
prior to the date the restrictions on such Phantom Share Right lapse and, until
the restrictions lapse, a quarterly payment in an amount determined by the Board
of Directors. It is anticipated that such quarterly payment will equal the
quarterly dividend, if any, declared by the Board of Directors on a share of
Common Stock. The Phantom Share Plan is administered by the Executive Committee
of Sauer.
The restrictions on Phantom Share Rights lapse as to 20% of the aggregate
number of such rights granted on any particular date on the expiration of the
fifth, sixth, seventh, eighth and ninth years after their grant, provided the
grantee remains continuously in the employ of the Company. If a grantee's
employment is terminated by reason of retirement at or after age 65, death, or,
with the consent of the Executive Committee, early retirement, the restrictions
on such grantee's Phantom Share Rights will lapse as of the date of such
termination. Upon termination of a grantee's employment for any other reason,
unless the Executive
44
<PAGE> 49
Committee determines otherwise, all Phantom Share Rights granted to such grantee
shall automatically be canceled.
A total of 400,000 Phantom Share Rights may be granted under the Phantom
Share Plan, but the Executive Committee is currently authorized to grant up to
an aggregate of 200,000 Phantom Share Rights. At December 31, 1997, there were
13 employees of the Company participating in the Phantom Share Plan. There were
then 110,400 Phantom Share Rights outstanding, of which Messrs. Pfeifle, Kittel
and Wilcox held 13,600, 8,600, and 15,000, respectively. The quarterly payments
made under the Phantom Share Plan to those executive officers are set forth in
the Summary Compensation Table under "Other Annual Compensation" and the
payments made upon lapse of restrictions on Phantom Share Rights are set forth
under "LTIP Payouts" in the Summary Compensation Table. No grants of Phantom
Share Rights were made in 1997 to officers named in the Summary Compensation
Table. Messrs. Murmann and Barlage do not participate in the Phantom Share Plan.
The Board of Directors has terminated the Phantom Share Plan to be
effective as of December 31, 1998. Phantom Share Rights outstanding and subject
to restrictions as of the close of business on December 31, 1998 will be
replaced by Restricted Common Stock and Restricted Common Stock Units under the
Sauer Inc. 1998 Long-Term Incentive Plan. See "-- 1998 Long-Term Incentive
Plan."
Management Incentive Plan. Under the Company's Management Incentive Plan
(the "Management Incentive Plan"), executive officers and management personnel
of the Company selected by the Executive Committee are entitled to receive
payments if the Company, the employee's division and/or business unit and the
employee each achieve targeted financial and operating results and personal
objectives. Payments under the Management Incentive Plan are determined in
relation to a return on net assets ("RONA") at the Company and the employee's
division and business unit levels, as applicable. Attaining certain levels of
RONA equal to established benchmarks under the Management Incentive Plan and as
compared to the budget will result in a payment equal to a percentage, as
calculated under the Management Incentive Plan, of annual base compensation,
provided that no payment will be made unless a minimum threshold is achieved. At
December 31, 1997, there were 60 employees participating in the Management
Incentive Plan. Total payments made under this plan in respect of the 1997
fiscal year to all executive officers as a group (excluding the Chairman, the
President and the Executive Vice President who do not participate in the
Management Incentive Plan) were $225,293.
Bonus Plan. Under the Company's Bonus Plan (the "Bonus Plan"), the
Chairman and Chief Executive Officer, the President and Chief Operating Officer
and the Executive Vice President are entitled to receive cash payments if the
Company achieves targeted financial results. The bonuses are measured in
relation to RONA as defined under the Bonus Plan. If RONA is negative or zero,
no bonus will be paid; attaining specified levels of RONA will result in a bonus
equal to a specified percentage of annual base compensation, and achievement of
a RONA of 25% or more will result in a maximum bonus of 100% of annual base
compensation. Occasionally, a special lump sum bonus may be awarded by the
Compensation Committee to reflect extraordinary achievements of the recipient.
1998 LONG-TERM INCENTIVE PLAN
General. The Sauer Inc. 1998 Long-Term Incentive Plan (the "Long-Term
Incentive Plan") was adopted by the Board of Directors on March 12, 1998, and
approved by the stockholders on April 22, 1998, and shall remain in effect,
subject to certain termination rights of the Board of Directors, until all
shares subject to it are purchased, or until April 21, 2008. In general, the
Long-Term Incentive Plan provides for the grant of awards of stock options,
stock appreciation rights, restricted stock, performance units, performance
shares and other incentive awards (the "Awards") to officers and key employees
of the Company. The Long-Term Incentive Plan is designed to attract and retain
outstanding individuals in key positions and to furnish incentives linked to the
performance of the Company and its stock. The Long-Term Incentive Plan is
designed to meet the requirements for tax deductibility under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), with respect to
certain compensation.
Plan Administration. The Long-Term Incentive Plan will be administered by
the Compensation Committee of the Board of Directors (the "Committee"), which is
comprised of non-employee directors who
45
<PAGE> 50
meet the applicable requirements of "non-employee director" under Rule 16b-3 of
the General Rules and Regulations of the Exchange Act and of an "outside
director" under Section 162(m) of the Code.
The Committee will have the discretion, in accordance with the provisions
of the Long-Term Incentive Plan, to determine to whom among the eligible persons
an Award is granted and the terms and conditions of the Award. In making such
determinations, the Committee may consider the position and responsibilities of
the participant, the nature and value to the Company of his or her services and
accomplishments, his or her present and potential contribution to the Company
and such other factors as may be deemed relevant.
Shares Reserved for Issuance. The total number of shares of Common Stock
which may be subject to Awards or be issued under the Long-Term Incentive Plan
will not exceed 2,400,000 shares, of which no more than 1,200,000 shares may be
issued as restricted stock. The Long-Term Incentive Plan provides for
adjustments to the number of available shares for certain corporate events,
including: a corporate capitalization such as a stock split; a corporate
transaction such as a merger, consolidation, spin-off or other distribution of
stock or property; any reorganization; or a liquidation of the Company. The
Long-Term Incentive Plan also permits Common Stock not acquired due to
cancellation, expiration or termination of an Award to become available for
reissuance. No Awards may be granted under the Long-Term Incentive Plan after
April 21, 2008. Awards granted prior thereto may extend beyond such date, and
the provisions of the Long-Term Incentive Plan will continue to apply thereto.
Stock Options. The Long-Term Incentive Plan permits the Committee to grant
Awards of stock options to participants and to determine the timing and amount
of such Awards, provided that no individual can receive options for more than
200,000 shares of Common Stock in any fiscal year, subject to equitable
adjustment as set forth above. The Committee may grant either non-qualified
stock options or incentive stock options (as that term is defined in Section
422A of the Code). Incentive stock options may be granted only to employees of
the Company. The Committee will set the exercise price for an option, provided,
however, that an incentive stock option exercise price cannot be less than the
fair market value of a share of Common Stock on the date such option is granted.
Options shall be exercisable at such times as the Committee may determine,
provided, however, that incentive stock options shall not be exercisable later
than the tenth anniversary date of their grant. Additional restrictions shall
apply to any incentive stock options that are granted to an employee who
possesses more than 10% of the total combined voting power of all classes of
shares of the Company within the meaning of Section 422(b)(6) of the Code.
Nonqualified stock options can be transferred other than by will or the laws of
dissent and distribution, but only if and to the extent provided by the
Committee. Payment of the exercise price shall be in cash, in Common Stock or a
combination of both.
Stock Appreciation Rights. The Long-Term Incentive Plan permits the
Committee to award stock appreciation rights ("SARs") to participants and to
determine the timing and amount of such Awards, provided that no individual can
receive more than 200,000 SARs in any fiscal year, subject to equitable
adjustment as set forth above. The Committee may grant freestanding SARs or SARs
in tandem with a related stock option ("Tandem SAR") or a combination of both.
Unless otherwise designated by the Committee at the time of grant, the grant
price of a freestanding SAR is the fair market value of a share of Common Stock
on the date of grant. The grant price of Tandem SARs shall equal the exercise
price of the related stock option. Unless otherwise designated by the Committee,
no SAR will be exercisable after ten years from the date of grant. Upon exercise
of each SAR, the holder is entitled to receive the excess of the fair market
value of the Common Stock on the date of exercise over the grant price. At the
discretion of the Committee, the payment upon exercise of an SAR by the Company
may be in cash, in Common Stock, or a combination of both. The Long-Term
Incentive Plan also permits the Committee to determine the holder's right to
exercise SARs following termination of employment or service. Except as
otherwise provided by the Committee. SARs cannot be transferred other than by
will or the laws of dissent and distribution.
Restricted Stock. The Long-Term Incentive Plan permits the Committee to
grant Awards of restricted Common Stock ("Restricted Common Stock") to
participants and to determine the timing, amount and conditions of such Awards,
provided that no individual can receive more than 50,000 shares of Restricted
Common Stock in any fiscal year, subject to equitable adjustment as set forth
above. Shares awarded as Restricted Common Stock would be issued subject to such
restrictions as the Committee may impose, including, without limitation,
restrictions: that require the participant's payment of a stipulated purchase
price;
46
<PAGE> 51
that are based upon the achievement of specific performance goals; and that are
based on time-based vesting and/or restrictions under applicable federal or
state securities laws. During the restriction period, the participant is not
entitled to delivery of the Common Stock, restrictions are placed on the Common
Stock's transferability, and the Common Stock may be forfeited in the event of
termination of employment or service. A holder of Restricted Common Stock will
generally have the rights and privileges of a stockholder, including the right
to vote the Common Stock. The Committee has discretion to remove restrictions if
it deems that to be appropriate in a particular case.
Performance Units/Shares. The Long-Term Incentive Plan permits the
Committee to grant Awards of performance units and/or performance shares
("Performance Units and/or Performance Shares") to participants based upon
Company performance over a period of time (a "Performance Period") determined by
the Committee. At the time the Committee establishes a Performance Period for a
particular Award, it will also establish Company performance measures
("Performance Measures") applicable to the Award and targets that must be
attained relative to those measures. Performance Measures may be based on any of
the following, alone or in combination, as the Committee deems appropriate for
the Company, its subsidiaries, its affiliates and/or any subdivisions thereof:
(i) return on assets; (ii) cash flow return on investment; (iii) earnings before
interest and taxes; (iv) net earnings; (v) total shareholder return; (vi) return
on sales; (vii) return on equity; (viii) economic value added; (ix) division
operating income; or (x) return on net assets. Following determination of the
level of performance, the Company may adjust the determinations of the degree of
attainment of the pre-established Performance Measures, except that no upward
adjustment will be made if to do so would disqualify the payment as
performance-based compensation under Section 162(m) of the Code.
Awards may be paid by the Company in cash, Common Stock, or a combination
of both following the end of the Performance Period. The aggregate maximum
amount that can be paid with respect to Performance Unit Awards to any
participant in respect of any Performance Period under the Long-Term Incentive
Plan may not have a value in excess of the value of 50,000 shares of Common
Stock, subject to equitable adjustment as set forth above. In the event of
termination of employment prior to attaining the performance target, the
Performance Units/Shares will be forfeited unless the Committee in its
discretion otherwise determines.
Other Incentive Awards. Subject to the terms and provisions of the
Long-Term Incentive Plan, other incentive awards ("Other Incentive Awards") may
be granted to participants in such amount, upon such terms, and at any time and
from time to time as shall be determined by the Committee. Except as otherwise
provided by the Committee, Other Incentive Awards cannot be transferred other
than by will or the laws of dissent and distribution. Payment of Other Incentive
Awards shall be made at such times and in such form, either in cash or in Common
Stock (or a combination thereof), as established by the Committee subject to the
terms of the Long-Term Incentive Plan. Such Common Stock may be granted subject
to any restrictions deemed appropriate by the Committee. Without limiting the
generality of the foregoing, annual incentive awards may be paid in the form of
Other Incentive Awards (which may or may not be subject to restrictions, at the
discretion of the Committee).
Change of Control. In the event of a change of control of the Company (as
defined in the Long-Term Incentive Plan): (i) all options and SARs then
outstanding under the Long-Term Incentive Plan will become immediately
exercisable and remain so throughout their terms; (ii) all restriction periods
and restrictions imposed on Restricted Common Stock then outstanding will lapse;
and (iii) the target payout opportunities attainable under all outstanding
Awards of Performance Units/Performance Shares shall be deemed to have been
fully earned for the entire Performance Period(s) as of the effective date of
the change of control. The vesting of all Awards denominated in Common Stock
shall be accelerated as of the effective date of the change of control, and
there shall be paid out to participants within 30 days following the effective
date of the change of control a pro rata number of shares of Common Stock based
upon an assumed achievement of all relevant targeted performance goals and upon
the length of time within the Performance Period which has elapsed prior to the
change of control. Awards denominated in cash shall be paid pro rata to
participants in cash within 30 days following the effective date of the change
of control, with the proration determined as a
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<PAGE> 52
function of the length of time within the Performance Period which has elapsed
prior to the change of control, and based on an assumed achievement of all
relevant targeted performance goals.
Plan Amendment or Termination. The Board of Directors may terminate or
suspend the Long-Term Incentive Plan in whole or in part, at any time, with
respect to all future grants and Awards.
Other Information. On April 22, 1998, the Board of Directors made a grant
of 67,050 shares of Restricted Common Stock and 44,700 Restricted Common Stock
Units under the Long-Term Incentive Plan to 13 participants under the Phantom
Share Plan (to be terminated as of December 31, 1998), replacing Phantom Share
Rights that would have been outstanding and subject to restrictions upon the
termination of the Phantom Share Plan. The Restricted Common Stock and
Restricted Common Stock Units will be subject to the same vesting schedule as
the Phantom Share Rights they replace. Grants were made to executive officers
named in the Summary Compensation Table as follows: Mr. Pfeifle - 7,200 shares
of Restricted Common Stock and 4,800 Restricted Common Stock Units; Mr. Wilcox -
9,000 shares of Restricted Common Stock and 6,000 Restricted Common Stock Units;
and Mr. Kittel - 4,800 shares of Restricted Common Stock and 3,200 Restricted
Common Stock Units. Grants to all executive officers as a group consisted of
30,600 shares of Restricted Common Stock and 20,000 Restricted Common Stock
Units. Each Restricted Common Stock Unit will be redeemed for cash on the date
all restrictions lapse in an amount equal to the fair market value of a share of
Common Stock. Also, on April 22, 1998, a grant of 106,500 shares of Restricted
Common Stock and 71,000 Restricted Common Stock Units were made under the 1998
Long-Term Incentive Plan to 33 participants, such grants to be effective as of
June 1, 1998. No grants were made to executive officers named in the Summary
Compensation Table. Total grants made to all executive officers as a group
consisted of 7,500 shares of Restricted Common Stock and 5,000 Restricted Common
Stock Units.
BENEFIT AND RETIREMENT PLANS
U.S. Retirement Plan. The following table sets forth the estimated annual
benefits payable under the Sauer-Sundstrand Employees' Retirement Plan (the
"U.S. Retirement Plan") to participants retiring at a normal retirement date of
January 1, 1998, for the specified average annual earnings and years of
participation. The benefits have been calculated on the basis of a straight-life
annuity.
U.S. RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PARTICIPATION
----------------------------------------
REMUNERATION 15 20 25 30
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
$150,000.................................... $38,112 $50,816 $63,520 $76,224
175,000.................................... 42,437 56,583 70,728 84,874
200,000.................................... 42,798 57,065 71,331 85,597
225,000.................................... 42,798 57,065 71,331 85,597
250,000.................................... 42,798 57,065 71,331 85,597
275,000.................................... 42,798 57,065 71,331 85,597
</TABLE>
The U.S. Retirement Plan is a defined benefit pension plan intended to be
qualified under Section 401(a) of the Code. Benefits are based only on salary
and any sales commissions (the Company currently pays no sales commissions). The
current compensation covered by the U.S. Retirement Plan for Messrs. Pfeifle and
Wilcox are the amounts set forth under "Salary" in the Summary Compensation
Table. No other executive officer named in the Summary Compensation Table
participated in the U.S. Retirement Plan.
Under the U.S. Retirement Plan, the monthly amount of a participant's
retirement benefit at the participant's normal retirement age (generally the
participant's 65th birthday) is calculated pursuant to a formula based on (i)
the average of the participant's highest five-year annual earnings less an
offset for Social Security benefits and (ii) the participant's years of
participation in the Retirement Plan. Messrs. Pfeifle and Wilcox have completed
26 and 6 years of participation, respectively, and their estimated annual U.S.
Retirement Plan benefits at their normal retirement dates, assuming their
present salaries and present Social Security benefits remain unchanged, would be
$85,597 and $55,076, respectively.
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<PAGE> 53
U.S. Supplemental Plans. The Code generally limits to $130,000, as indexed
for inflation, the amount of any annual benefit that may be paid from the U.S.
Retirement Plan. Moreover, the Retirement Plan may consider no more than
$160,000, as indexed for inflation, of a participant's annual compensation in
determining that participant's retirement benefit. In recognition of these two
limitations, the Company has adopted two Supplemental Retirement Benefit Plans
(the "U.S. Supplemental Plans"). Both of these U.S. Supplemental Plans are
designed to provide supplemental retirement benefits to the extent that a
participant's benefits under the Retirement Plan are limited by either the
$130,000 annual benefit limitation or the $160,000 annual compensation
limitation.
One of these two U.S. Supplemental Plans has an additional purpose. It
provides supplemental retirement benefits equal to the difference between the
benefit the participant would have received under the applicable Sundstrand
pension plan for former employees of Sundstrand (if the participant's earnings
and service with the Company had been taken into account under that Sundstrand
plan) and the benefit payable under the U.S. Retirement Plan. Under both U.S.
Supplemental Plans, however, the actual payment of supplemental benefits is
entirely at the discretion of the Company.
At January 1, 1998, Messrs. Pfeifle and Wilcox participated in the U.S.
Supplemental Plans, but only Mr. Pfeifle was eligible for the supplement for
benefits that would have been payable under the Sundstrand plan. The estimated
annual supplemental retirement benefits for Messrs. Pfeifle and Wilcox, at their
normal retirement dates at age 65, assuming their present salaries until
retirement, would be $85,823 and $2,814, respectively. No other executive
officer of the Company named in the Summary Compensation Table under
"-- Executive Compensation" is entitled to benefits under the U.S. Supplemental
Plans.
European Pension Plans. Messrs. Murmann and Barlage are entitled to
retirement benefits from the Company equal to 60% of their annual base salary
immediately prior to retirement. These benefits are payable as a straight-life
annuity, commencing at the normal retirement age of 60. In the event either
executive leaves a surviving spouse, that spouse would be entitled to a
straight-life annuity benefit equal to 60% of the benefit payable to the
deceased executive. Based on his 1997 base salary and an assumed 6% compounded
annual salary growth rate during the 14 years remaining until he attains age 60,
Mr. Barlage would be entitled to an estimated annual retirement benefit of
$508,703 at his normal retirement age. Mr. Murmann has already attained his
normal retirement age, and could therefore receive an annual retirement benefit
of $285,000 if he were to retire immediately.
Mr. Kittel participates in the pension plan covering most of the Company's
German employees. The plan is similar in nature to a defined contribution plan
in the United States, with the exception that the plan is unfunded. Under the
plan, a monthly pension is paid to employees who retire after attaining the age
of 65, calculated pursuant to a formula based on (i) a percentage of each
employee's base monthly salary as of the end of October of each year and (ii)
the participant's years of service. Mr. Kittel completed ten years of service as
of December 31, 1997, and assuming that his present salary remains unchanged and
that he will retire at age 65, his pension will be DM 34,240 per year ($19,043
using the exchange rate as of December 31, 1997). Mr. Kittel does not
participate in the arrangement covering Messrs. Murmann and Barlage.
No other executive officer of the Company named in the Summary Compensation
Table is entitled to benefits under a European pension plan.
U.S. Savings Plan. The Company also maintains the Sauer-Sundstrand
Employees' Savings and Retirement Plan (the "U.S. Savings Plan"). The U.S.
Savings Plan is a defined contribution plan which is intended to be qualified
under Section 401(a) of the Code and includes a Section 401(k) feature.
Substantially all U.S. employees of the Company who are not represented for
collective bargaining purposes are eligible to participate in the U.S. Savings
Plan.
Subject to a number of limitations and nondiscrimination rules,
participants in the U.S. Savings Plan may elect to contribute from 1% to 10%
(or, in the case of nonhighly compensated employees, 1% to 20%) of their
compensation to the U.S. Savings Plan. These contributions are limited to
$10,000 per year (as indexed for inflation), are made on a tax-deferred basis
and are 100% vested at all times. The Company makes certain matching and other
contributions to the U.S. Savings Plan on behalf of participants working at its
West Branch, Iowa facility, who are not covered by the U.S. Retirement Plan. At
January 1, 1998, approximately
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<PAGE> 54
1,098 employees were eligible to participate in the U.S. Savings Plan, of whom
871 employees (including Messrs. Pfeifle and Wilcox) were contributing to the
Plan. Messrs. Pfeifle and Wilcox were not entitled to a Company contribution
during 1997. No other executive officer named in the Summary Compensation Table
was eligible to participate in the U.S. Savings Plan.
EMPLOYMENT ARRANGEMENTS
The Company has employment contracts with Messrs. Murmann and Barlage
providing for annual salaries of not less than $450,000 and $350,000,
respectively. The employment contracts with Messrs. Murmann and Barlage provide
that each shall participate in the Company's benefits plans for which he is
presently eligible and in any plans substituted therefor, and each shall be
entitled to certain retirement benefits. See "-- Executive Compensation" and
"-- Benefit and Retirement Plans -- European Pension Plans." In the event the
Company terminates the employment of Messrs. Murmann or Barlage in violation of
the contract, he would be entitled to receive all compensation and benefits
provided for under the contract until such time as his employment would
otherwise terminate pursuant to the contract. The employment contracts with
Messrs. Murmann and Barlage expire on December 31, 2001, and contain agreements
not to compete during the period of the employment contract. The German
Operating Company has an employment contract with Mr. Kittel that provides for
an annual salary of DM 300,000 ($166,852 using the exchange rate as of December
31, 1997), which contract expires on December 31, 2002 and does not contain an
agreement not to compete. No other executive officer named in the Summary
Compensation Table is a party to an employment contract with the Company.
RELATIONSHIP WITH PRINCIPAL STOCKHOLDER
Ownership of Sauer Common Stock. Immediately prior to the Combined
Offering, the Murmann family beneficially owned 86.7% of the outstanding Common
Stock of the Company. Upon completion of the Combined Offering, the Murmann
family will beneficially own 56.7% of the outstanding Common Stock (or 51.7% if
the over-allotment option is exercised in full). In addition, the Murmann family
owns limited partnership interests in the German Operating Company as described
below. See "-- Murmann Family Limited Partnership Interests in the German
Operating Company." For as long as the Murmann family continues to beneficially
own shares of Common Stock representing more than 50% of the combined voting
power of the Company's Common Stock and votes those shares as a group, the
Murmann family will be able to direct the election of all members of the
Company's Board of Directors and exercise a controlling influence over the
business and affairs of the Company, including any determinations with respect
to mergers or other business combinations involving the Company. Similarly, the
Murmann family will have the power to determine matters submitted to a vote of
the Company's stockholders without the consent of the Company's other
stockholders, will have the power to prevent a change of control of the Company
and could take other actions that might be favorable to the Murmann family.
The Murmann family has advised the Company of its current intention to
continue to own beneficially no less than 50.1% of the outstanding Common Stock
of the Company following the Combined Offering; however, it is under no
obligation to retain its controlling interest. The Company has agreed to
register the Murmann family's shares of Common Stock from time to time upon
request.
Murmann Family Limited Partnership Interests in the German Operating
Company. Sauer conducts its German operations through the German Operating
Company, a German partnership; Sauer Inc. and Sauer Sundstrand GmbH, a company
wholly owned by Sauer Inc., are the general partners of the German Operating
Company. Sauer GmbH and Klaus H. Murmann & Co. K.G. -- as holding company for
Sauer GmbH & Co. Hydraulik KG -- have limited partnership interests ("Stille
Gesellschafter") (the "Limited Partners") in the German Operating Company. The
Limited Partners are owned entirely by the Murmann Family. The creation of the
limited partnership interests as opposed to the acquisition of the entire share
capital of the Company was a result of tax considerations in connection with the
formation of the Company in 1989. The limited partnership interests remained
essentially unchanged since that date. The German Operating Company is required
to pay annually to the Limited Partners an amount in cash (the "Annual Cash
Payment") equal to a percentage of the Company's consolidated income before
taxes and the Limited Partners' interests ("Percentage"). The Percentage is
subject to adjustment based on changes in the number of outstanding shares of
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<PAGE> 55
Common Stock during the applicable year. The Percentage is equal to the ratio of
2,250,000 shares divided by the sum of 2,250,000 shares and the number of
outstanding shares of Common Stock. See "Use of Proceeds." As of the date of
this Prospectus, the Percentage is equal to 2,250,000/(2,250,000 + 24,225,000),
or 8.5%. After the Combined Offering, the Percentage will decrease to
approximately 7.6%.
The Annual Cash Payment is based on the overall income of Sauer in order to
avoid any potential conflicts between Sauer and the Limited Partners regarding
whether, for example, sales should be made by the U.S. Operating Company or the
German Operating Company and the pricing of intercompany sales between the U.S.
Operating Company and the German Operating Company.
Sauer has the right to elect by the action of its independent directors or
the holders of its Common Stock other than the Murmann family to terminate the
limited partnership interests in exchange for 2,250,000 shares of Common Stock
of Sauer Inc. (subject to antidilution adjustment) and the balance of the
current account of the Limited Partners at any time after notice to the Limited
Partners as specified in the limited partnership agreement. The dissolution of
the German Operating Company will be deemed an election to terminate the limited
partnership interests. Unless Sauer's election to terminate the limited
partnership is related to (i) a decline in the Murmann family's beneficial
ownership (economic or voting) of Sauer Common Stock to less than 50.1%; (ii) a
sale of a majority in book value of the consolidated assets of Sauer and its
subsidiaries or assets that generated a majority of the consolidated revenues of
Sauer and its subsidiaries in the prior fiscal year; (iii) a transfer of the
beneficial ownership of the limited partnership interest (or any voting rights
in respect thereof) outside the Murmann family; (iv) a merger or other business
combination in which Sauer is not the survivor or the acquisition of at least
50.1% of the outstanding Common Stock of Sauer pursuant to a tender or exchange
offer; or (v) the withholding of the consent of the Limited Partners in certain
circumstances in a manner adverse to holders of Sauer Common Stock, or is
effected after December 31, 2016, in addition to the issuance of Common Stock in
exchange for and in complete satisfaction of all Limited Partners' claims with
respect to the German Operating Company, Sauer will pay the Limited Partners an
amount in cash equal to the income tax payable as a result of the exchange of
the Sauer shares of Common Stock for the limited partnership interests. In no
event will the payment with respect to the tax exceed 24 million Deutsche marks.
The right to receive the payment in respect of the taxes is not transferable to
persons or companies outside the Murmann family and companies which are 90%
owned by the Murmann family.
The Limited Partners may elect to terminate the limited partnership
interests at any time upon three months' notice to Sauer and to the German
Operating Company. In such case, the Limited Partners will receive the balance
of their current account and Sauer will issue 2,250,000 shares of Sauer Common
Stock (subject to antidilution adjustment) in exchange for, and in complete
satisfaction of, all claims of the Limited Partners. No tax reimbursement will
be payable by Sauer in such event.
The consent of the Limited Partners is required, among other things, to (i)
change the business purpose of the German Operating Company, (ii) admit
additional limited partners who are not members of the Murmann family, (iii)
authorize the German Operating Company to take actions out of the ordinary
course of business of the German Operating Company, (iv) amend the partnership
agreement of the German Operating Company in a manner that adversely affects the
limited partners or amend the limited partnership agreement and (v) partially or
wholly dissolve the German Operating Company. Klaus H. Murmann on behalf of the
Limited Partners has agreed that they will not unreasonably withhold such
consent.
Klaus H. Murmann, on behalf of the Murmann family, has agreed with the
Underwriters not to cause the Company and the Limited Partners to amend the
German limited partnership agreement to increase the Percentage, to change the
basis on which the Annual Cash Payment is computed in a way that is less
favorable to the Company or in any other way adversely affecting the rights of
Sauer or the Sauer stockholders. The Limited Partners may not transfer the
limited partnership interests in the German Operating Company to a person who is
not in the Murmann family without the consent of the Company.
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<PAGE> 56
Lease Agreement for and Purchase of Neumunster Facilities. Since 1987, the
German Operating Company has leased the real estate and building of the
Company's facility in Neumunster, Germany from the Murmann family. The lease was
renewed in December 1996 and expires on December 31, 2006. The lease can be
extended through December 31, 2016 by the German Operating Company by giving
notice thereof prior to December 31, 2005. The lease agreement is between the
German Operating Company and Sauer Hydraulik, which is wholly owned by the
Murmann family. If neither of the parties to the lease gives notice of
termination at least one year prior to any expiration date of the lease, the
lease will automatically extend for an additional term of five years. The lease
payments are DM 3,960,000 per annum plus value added tax at prevailing rates.
Under the lease agreement, the German Operating Company assumes full
responsibility for the premises and agrees to bear all costs associated with the
premises and the conduct of its business, including, but not limited to, the
costs of repairs, insurance and all overhead. The German Operating Company is
obligated to fully indemnify Sauer Hydraulik against all liabilities incurred in
connection with the premises and the conduct of the business, including
environmental liabilities, whether or not incurred by a previous owner of the
premises. In addition, Sauer Hydraulik can hold the German Operating Company
liable for all environmental damages to the premises, and the German Operating
Company is fully responsible for the clean-up of such damages at its own
expense, whether or not those damages result from the usage of a previous owner.
The German Operating Company has an option to purchase and Sauer Hydraulik
has the right to require the German Operating Company to purchase the property
at any time during the term of the lease agreement. Any such purchase will be
"as is" without warranties and at the fair market value of the property. In
connection with the Combined Offering, Sauer-Sundstrand GmbH, a wholly owned
subsidiary of the Company, will purchase the facility from Sauer Hydraulik
effective May 1, 1998 under this clause of the lease agreement. The purchase
price for the facility will be approximately $23.4 million, which
Sauer-Sundstrand GmbH will pay by assuming approximately $8.0 million in
indebtedness of Sauer Hydraulik and by issuing a note of approximately $15.4
million to Sauer Hydraulik. See "Use of Proceeds."
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<PAGE> 57
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of December 31, 1997, and as adjusted to
reflect the sale of Common Stock in the Combined Offering, by (i) each director
of the Company, (ii) each person known or believed by the Company to own
beneficially 5% or more of the Common Stock, (iii) each Selling Stockholder and
(iv) all directors and executive officers as a group. Unless otherwise
indicated, each person has sole voting and dispositive power with respect to
such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED(2) OWNED(2)
PRIOR TO COMBINED AFTER THE COMBINED
OFFERING NUMBER OF OFFERING
NAME AND ADDRESS --------------------- SHARES BEING ---------------------
OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------- ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Klaus H. Murmann(3)................. 21,012,500 86.7% 5,584,375 15,428,125 56.7%
Tonio P. Barlage(4)................. 750,000 3.1% 187,500 562,500 2.1%
David L. Pfeifle.................... 312,500 1.3% 62,500 250,000 *
Thomas K. Kittel.................... 312,500 1.3% 37,500 275,000 1.0%
Nicola Keim(5)...................... 15,262,500 63.0% 0 15,262,500 56.1%
Johannes F. Kirchhoff............... 0 -- 0 0 --
Sven Murmann(5)..................... 15,262,500 63.0% 0 15,262,500 56.1%
Agustin A. Ramirez.................. 0 -- 0 0 --
Richard M. Schilling................ 0 -- 0 0 --
Wolfgang Weisser.................... 162,500 * 43,750 118,750 *
Tilman Fischer...................... 750,000 3.1% 37,500 712,500 2.6%
Leipoldstieg 5
22605 Hamburg
Scott Jeffrey....................... 12,500 * 9,375 3,125 *
Eckhard Skirde...................... 125,000 * 25,000 100,000 *
Martin Ziebell...................... 25,000 * 12,500 12,500 *
All directors and executive officers
as a group (4).................... 22,937,500 94.7% 5,915,625 17,021,875 62.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Except as noted, the address for beneficial owners is in care of the Company
at Sauer Inc., 2800 East 13th Street, Ames IA 50010.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission.
(3) Shares held either directly or through controlled entities. Klaus H. Murmann
shares voting rights as to 15,262,500 of these shares with his family. If
the over-allotment option is exercised in full, Klaus H. Murmann will
beneficially own 14,078,125 shares of Common Stock (51.7% of the outstanding
shares) after the Combined Offering.
(4) Includes shares held by Tonio P. Barlage's spouse.
(5) These shares are held through entities controlled by the Murmann family.
Nicola Keim and Sven Murmann share voting rights as to these 15,262,500
shares (14,078,125 shares (51.7% of the outstanding shares) if the
over-allotment option is exercised in full) with Klaus H. Murmann and other
family members.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
GENERAL
The total authorized capital stock of the Company is 49,500,000 shares,
consisting of 45,000,000 shares of Common Stock, par value $.01 per share, and
4,500,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"). As of April 22, 1998, there were 24,225,000 shares of Common Stock
outstanding. Upon completion of the Combined Offering, 27,225,000 shares of
Common Stock and no shares of Preferred Stock will be issued and outstanding.
Prior to the Combined Offering, there has been no public market for the
Common Stock. See "Risk Factors -- No Prior Trading Market for Common Stock."
The following summary of the rights, privileges, restrictions and
conditions of the Company's capital stock does not purport to be complete and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Restated Certificate of Incorporation of the Company and its
By-laws and the Delaware General Corporation Law (the "DGCL").
COMMON STOCK
All outstanding shares of Common Stock are validly issued, fully paid and
nonassessable. The 3,000,000 shares of Common Stock being issued and sold by the
Company in the Combined Offering, when issued and sold by the Company and paid
for, will be validly issued, fully paid and nonassessable.
Holders of the shares of Common Stock are entitled to one vote for each
share of the capital stock having voting power held of record on each matter
properly submitted for a vote by such holders, including election of directors.
There is no cumulative voting. See "Risk Factors -- Concentration of Ownership
of the Company; Murmann Family's Limited Partnership Interests." Subject to the
rights of any then outstanding shares of Preferred Stock, holders of shares of
Common Stock are entitled to receive their pro rata share of (i) any dividends
that may be declared by the Board of Directors of the Company (the "Board") out
of assets legally available therefor and (ii) any assets available upon the
liquidation, dissolution or winding-up of the Company. See "Dividend Policy" and
"-- Limitations on Dividends and Other Financial Restrictions on the Company and
its Subsidiaries."
The shares of Common Stock are not convertible and the holders thereof have
no preemptive or subscription rights to purchase any securities of the Company.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "SHS", subject to official notice of issuance, and
application has been made for the Common Stock to be listed on the Frankfurt
Stock Exchange under the symbol "SAR".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock in the United States
is First Chicago Trust Company of New York (the "U.S. Transfer Agent").
BOOK-ENTRY-ONLY ISSUANCE OF COMMON STOCK TRADING ON THE FRANKFURT STOCK EXCHANGE
In general, the Common Stock will trade on the Frankfurt Stock Exchange
only through transfers of beneficial interests therein held through Deutsche
Borse Clearing AG ("DBC"). However, any investor who received an actual
certificate representing shares of Common Stock, rather than such a beneficial
interest, and who desires to sell such shares of Common Stock on the Frankfurt
Stock Exchange will be required to deposit, through a DBC participant, such
shares with DBC, or with The Depository Trust Company ("DTC") for credit to
DBC's account as described below, and receive a beneficial interest therein that
is reflected on DBC's books and records. Certificates representing shares of
Common Stock held through DBC will not be issued unless such shares are
withdrawn from DBC, in which case the shares will not be eligible to trade on
the Frankfurt Stock Exchange unless redeposited as described above. DBC will not
hold actual Common Stock,
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<PAGE> 59
but will hold beneficial interests therein through its account with DTC in New
York. DTC, or its nominee, will be the registered owner of all shares of Common
Stock that are held by investors through DBC.
Investors who are beneficial owners of Common Stock held through DBC will
receive confirmations and statements of their holdings only from DBC (through
their brokers or other financial institutions). DBC will register all transfers
of such Common Stock on its books and records through its book-entry system.
Common Stock held by DTC will be registered in the name of DTC's nominee, Cede &
Co. DTC will not know the beneficial owners of the Common Stock that is held
through DBC because DTC's records will reflect only that such shares are
credited to DBC's account. DBC will be responsible for keeping account of its
Common Stock holdings on behalf of its customers.
Any communications by DTC to DBC and by DBC to beneficial owners will be
governed by arrangements between DTC and DBC and by the general rules and
practices of DTC and DBC, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to any Common
Stock held through DBC. Under its usual procedures, DTC will mail an Omnibus
Proxy to the Company as soon as possible after the applicable record date. The
Omnibus Proxy will assign Cede & Co.'s consenting or voting rights to DBC for
all Common Stock credited to DBC's account on the record date. DBC will consent
or vote with respect to such shares on behalf of beneficial owners thereof in
accordance with its standard rules and procedures.
Any dividend or other payments on Common Stock held through DBC will be
made by the Company to Cede & Co., as nominee of DTC. DTC, upon receipt of such
payments, will credit DBC's account at DTC for the amount of such payments.
Payments by DBC to the beneficial owners of Common Stock will be governed by
standing instructions and DBC's customary practices, and will be the sole
responsibility of DBC, subject to any statutory or regulatory requirements as
may be in effect from time to time. The dividends will be converted into
Deutsche marks and distributed by DBC.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation provides that shares of
Preferred Stock may be issued in one or more series from time to time by the
Board. Subject to the provisions of the Company's Restated Certificate of
Incorporation and limitations prescribed by law, the Board is expressly
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any series and to provide for
the voting powers, designations, preferences and relative participating,
optional or other special rights, qualifications, limitations or restrictions,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any series of the Preferred Stock, in each case without any further action or
vote by the stockholders. The Company has no current plans to issue any shares
of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board to render more difficult or to discourage an attempt to obtain control of
the Company by means of a tender offer, proxy contest, merger or otherwise and
to protect the continuity of the Company's management. The issuance of shares of
the Preferred Stock pursuant to the Board's authority described above may
adversely affect the rights of the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
or may otherwise adversely affect the market price of the Common Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS THAT
MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of the Company's Restated Certificate of Incorporation
and By-Laws summarized below may be deemed to have an anti-takeover effect and
may delay, deter or prevent a tender offer or
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takeover attempt that a stockholder might consider to be in its best interest,
including attempts that might result in a premium being paid over the market
price for the shares held by stockholders. In addition, the Company's and its
subsidiaries' credit agreements contain default provisions related to changes of
control of Sauer. See "-- Limitations on Dividends and Other Financial
Restrictions on the Company and its Subsidiaries."
Classified Board of Directors. Following the Combined Offering, the Board
will consist of eight members. The Restated Certificate of Incorporation
provides that the directors of the Company will be divided into three classes,
as nearly equal in number as reasonably possible, as determined by the Board.
The initial term of office of Class I directors will expire on the date of the
1999 annual meeting of stockholders, the initial term of office of Class II
directors will expire on the date of the 2000 annual meeting of stockholders,
and the initial term of office of Class III directors will expire on the date of
the 2001 annual meeting of stockholders, with each class of directors to hold
office until their successors have been duly elected and qualified. At each
annual meeting of stockholders, beginning in 1999 directors elected to succeed
the directors whose terms expire at such annual meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders in the third
year following the year of their election and until their successors have been
duly elected and qualified. Two annual meetings of stockholders, instead of one,
generally would be required to change a majority of the directors. The
classification of the Board will have the effect of making the removal of
incumbent directors more time consuming and difficult, and may have the effect
of discouraging an unsolicited takeover attempt or an attempt to gain control of
the Board through a proxy solicitation.
Number of Directors; Removal; Filling Vacancies. The Restated Certificate
of Incorporation provides that the number of directors constituting the Board
will be determined from time to time by the Board. The Restated Certificate of
Incorporation provides that in the event of any increase or decrease in the
authorized number of directors, (a) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his earlier death, retirement,
resignation, or removal, and (b) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board among
the three classes of directors so as to maintain such classes as nearly equal in
number as reasonably possible. The Restated Certificate of Incorporation
provides that directors may be removed other than for cause upon the vote of the
holders of 80% of the outstanding shares of the capital stock of the Company
entitled to vote generally in the election of directors. Preventing removal of
directors other than for cause may impede the sudden removal of directors,
making it more difficult to change the composition or take control of the Board.
The Restated Certificate also provides that vacancies, whether arising through
death, retirement, resignation or removal of a director or through an increase
in the authorized number of directors of any class, may only be filled by a
majority vote of the remaining directors, or by the sole remaining director. A
director elected to fill a vacancy shall serve for the remainder of the then
present term of office of the class to which he is elected. These provisions
would prevent any stockholder from enlarging the Board and then filling the new
directorships with such stockholder's own nominees.
No Stockholder Action by Written Consent; Special Meetings. Pursuant to
the Restated Certificate of Incorporation, any action required or permitted to
be taken by the stockholders of the Company must be duly effected at a duly
called annual or special meeting of stockholders and may not be taken or
effected by any written consent of stockholders in lieu thereof. The By-Laws
provide that special meetings of stockholders of the Company may be called only
by the Chairman of the Board, the President or a majority of the Board pursuant
to a resolution stating the purpose or purposes thereof, and any power of
stockholders to call a special meeting is specifically denied. No business other
than that stated in the notice shall be transacted at any special meeting. These
provisions will have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called by the
Chairman, President or the Board for consideration of such proposal.
Advance Notice for Stockholder Nominations and Proposals of New
Business. The By-Laws require notice of any proposal to be presented by any
stockholder at an annual meeting of stockholders or the name of any person to be
nominated by any stockholder for election as a director of the Company at a
meeting of stockholders to be delivered to the Secretary of the Company not less
than 120 calendar days in advance of the
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date that the Company's proxy statement was released to the stockholders in
connection with the previous year's annual meeting of stockholders. Accordingly,
failure by a stockholder to act in compliance with the notice provisions will
mean that the stockholder will not be able to nominate directors or propose new
business. These provisions may discourage or deter a third party from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company.
Amendments. The Restated Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% of the stock entitled to vote
generally in the election of directors, voting together as a single class, is
required to amend, alter or repeal the By-Laws or the provisions of the Restated
Certificate of Incorporation relating to stockholder action without a meeting,
the number, election and term of the Company's directors, directors' liability,
directors, and officers, indemnification in the event of certain legal
proceedings, the filling of vacancies, and the removal of directors.
CERTAIN PROVISIONS RELATING TO ACQUISITIONS
Delaware Takeover Statute. The Company is subject to Section 203 of the
DGCL ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any "business combination with any interested
stockholder," unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines "business combination" to include: (i) any merger or
consolidation of the corporation or any direct or indirect majority-owned
subsidiary with the interested stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with the interested
stockholder of 10% or more of the aggregate market value of all the assets of
the corporation or the aggregate market value of all the outstanding stock of
the corporation; (iii) subject to certain exceptions, any transaction which
results in the issuance or transfer by the corporation of any direct or indirect
majority owned subsidiary to the interested stockholder; (iv) any transaction
involving the corporation that has the effect, directly or indirectly, of
increasing the proportionate share of the stock of any class or series of the
corporation or of any such subsidiary which is owned by the interested
stockholder; or (v) any receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges, or other financial benefits provided
by or through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Restated Certificate of Incorporation requires the Company to
indemnify its officers and directors to the fullest extent permitted by Delaware
law, including some instances in which indemnification is otherwise
discretionary under Delaware law, and to advance expenses of defending against
claims arising out of an officer's or director's service as such, against an
undertaking by the officer or director to repay such advances if it is
ultimately determined that the person is not entitled to indemnification. The
Company believes these provisions are essential to attracting and retaining
qualified persons as directors and officers.
In addition, the Company has entered into indemnification agreements with
its directors and certain officers pursuant to which the Company generally is
obligated to indemnify its directors and such officers to the maximum extent
permitted by law. The Company also maintains directors and officers liability
insurance.
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The Company's Restated Certificate of Incorporation provides that, pursuant
to Delaware law, the Company's directors shall not be liable for monetary
damages for breach of the director's fiduciary duty of care to the Company and
its stockholders. This provision does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
At present there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any director or officer.
LIMITATIONS ON DIVIDENDS AND OTHER FINANCIAL RESTRICTIONS ON THE COMPANY AND ITS
SUBSIDIARIES
Certain of the Company's financing agreements place limitations on its
ability to pay cash dividends and impose other financial restrictions.
Limitations on Dividends. Sauer's Revolving Credit Agreement (the
"Revolving Credit Agreement") provides that it shall not declare or pay
dividends in any year in excess of 65% of its consolidated net income for the
prior year. Pursuant to such Agreement, $17.6 million of dividends could be paid
by Sauer in 1998. In addition, Sauer's ability to pay dividends is effectively
limited by certain restrictive covenants contained in the U.S. Operating
Company's Credit Agreement (the "Credit Agreement") which limit the amount of
dividends the U.S. Operating Company can distribute to Sauer. The German
Operating Company also is a party to credit agreements that effectively limit
its ability to distribute dividends to Sauer. Under these provisions, at
December 31, 1997, $2.9 million were unrestricted as to the payment of dividends
by the U.S. Operating Company. The German Operating Company did not make
distributions to the Company during 1997. At December 31, 1997, $2.7 million was
not restricted as to the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Financial Restrictions and Covenants. Sauer's Revolving Credit Agreement
and the U.S. Operating Company's Credit Agreement and Senior Notes (the "Senior
Notes") contain customary restrictive covenants. One or more of these financing
agreements impose restrictions on Sauer or the U.S. Operating Company and their
subsidiaries with respect to, among other things, (i) sales of substantial
assets, (ii) merger or consolidation with another entity, (iii) substantial
acquisitions or investments, (iv) incurrence of additional indebtedness or
guarantees or other contingent obligations, (v) creation of liens or entering
into transactions with affiliates and (vi) changing the conduct of their
business. In addition, Sauer's Revolving Credit Agreement prohibits it from
redeeming or repurchasing its capital stock except from executive officers of
Sauer.
Under the Revolving Credit Agreement and the U.S. Operating Company's
Credit Agreement or the Senior Notes, Sauer and/or the U.S. Operating Company
are required to meet certain financial and operating tests, including (i) a
maximum leverage ratio, (ii) a minimum consolidated net worth and tangible net
worth, (iii) a minimum interest coverage ratio and (iv) a minimum cash flow. At
December 31, 1997, Sauer and the U.S. Operating Company were in compliance with
these tests.
Sauer's Revolving Credit Agreement and the U.S. Operating Company's Credit
Agreement and Senior Notes contain customary default provisions. In addition,
Sauer would be in default under the Revolving Credit Agreement if the Murmann
family owns less than 50.1% of the capital stock of Sauer or of Sauer Getriebe.
Also, the U.S. Operating Company would be in default under its Credit Agreement
if (a) any person or persons acting in concert other than (i) the Murmann family
or any trust or other entity owned by them, (ii) Tonio P. Barlage, President of
Sauer and/or (iii) David L. Pfeifle, Executive Vice President of Sauer, acquire
ownership of 50% or more of the outstanding shares of voting stock of Sauer or
(b) Sauer shall cease
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to own, free and clear of all liens or any other encumbrances, 75% of the
outstanding shares of voting stock of the U.S. Operating Company on a fully
diluted basis. Upon a default under any of Sauer's or the U.S. Operating
Company's financing agreements, the financing institution may accelerate the
maturity of any indebtedness outstanding under such financing agreement.
The German Operating Company's credit agreements contain similar covenants.
These covenants restrict the German Operating Company in two ways: first, the
"Equity" of the German Operating Company must always exceed 15% of its total
assets. "Equity" is defined as partner capital accounts, capital reserves,
retained earnings and profit for the respective period, together with those
shareholder loans where the shareholder has given an assurance not to demand
repayment, less any loans to shareholders, accumulated losses or losses for the
respective period. Second, the operating cash flow of the German Operating
Company, before capital investments, must be positive.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-U.S. HOLDERS
The following is a summary of the principal U.S. federal income and estate
tax considerations with respect to the ownership and disposition of Common Stock
by "Non-U.S. Holders" (as defined below). This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations thereunder and administrative and judicial interpretations thereof
(all as of the date hereof and all of which are subject to change, possibly with
retroactive effect). This summary does not address all U.S. federal income and
estate tax consequences that may be relevant to a Non-U.S. Holder in light of
its particular circumstances or to certain Non-U.S. Holders that may be subject
to special treatment under U.S. federal income tax laws, such as banks,
insurance companies, tax-exempt entities and certain U.S. expatriates.
Furthermore, the following summary does not discuss any aspects of foreign,
state or local taxation. As used herein, the term "Non-U.S. Holder" means a
holder of Common Stock that for U.S. federal income tax purposes is not (i) a
citizen or individual resident of the United States; (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof; (iii) an estate the income of which is
subject to United States federal income tax regardless of its source; or (iv) a
trust if both: (A) a court within the United States is able to exercise primary
supervision over the administration of the trust and (B) one or more United
States persons have the authority to control all substantial decisions of the
trust. EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISER
WITH RESPECT TO THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF
OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends that are paid to a Non-U.S. Holder and that are not effectively
connected with a trade or business carried on by such Non-U.S. Holder in the
United States (or, if one or more of certain tax treaties apply, are
attributable to a permanent establishment in the United States maintained by the
Non-U.S. Holder) generally are subject to a 30% U.S. withholding tax, unless
reduced to the extent provided by a tax treaty between the United States and the
country of which the Non-U.S. Holder is a resident for tax purposes.
In order to claim the benefit of an applicable tax treaty, a Non-U.S.
Holder may have to file with the Company or its dividend paying agent an
exemption or reduced treaty rate certificate or letter in accordance with the
terms of such treaty. Under Treasury regulations currently in effect, for
purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, the Company ordinarily will
presume that dividends paid to an address in a foreign country are paid to a
resident of such country absent knowledge that such presumption is not
warranted. However, under recently issued Treasury regulations (the "Final
Regulations") that will generally be effective for distributions after December
31, 1999, a Non-U.S. Holder seeking a reduced rate of withholding under an
income tax treaty
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generally would be required to provide to the Company a valid Internal Revenue
Service Form W-8 certifying that such Non-U.S. Holder is entitled to benefits
under an income tax treaty. The Final Regulations also provide special rules for
determining whether, for purposes of assessing the applicability of an income
tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be
treated as being paid to the entity itself or to the persons holding an interest
in that entity. A Non-U.S. Holder that is eligible for a reduced withholding
rate may obtain a refund of any excess amounts withheld by filing an appropriate
claim for a refund with the Internal Revenue Service.
In the case of dividends that are effectively connected with the Non-U.S.
Holder's conduct of a trade or business within the United States or, if an
income tax treaty applies, attributable to a U.S. permanent establishment of the
Non-U.S. Holder, the Non-U.S. Holder will generally be subject to regular U.S.
federal income tax in the same manner as if the Non-U.S. Holder were a U.S.
resident, and will be exempt from U.S. withholding tax provided that the
Non-U.S. Holder complies with the requirements for the exemption from
withholding described above. A non-U.S. corporation receiving effectively
connected dividends also may be subject to an additional "branch profits tax"
which is imposed, under certain circumstances, at a rate of 30% (or such lower
rate as may be specified by an applicable treaty) on the non-U.S. corporation's
"effectively connected earnings and profits," subject to certain adjustments.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business conducted
by the Non-U.S. Holder in the United States, (ii) in the case of a Non-U.S.
Holder who is an individual and holds Common Stock as a capital asset, such
individual is present in the United States for 183 or more days in the taxable
year of the disposition and either (a) such individual has a "tax home" (as
defined for U.S. federal income tax purposes) in the United States or (b) the
gain is attributable to an office or other fixed place of business maintained by
such individual in the United States, (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the U.S. tax law applicable to certain U.S.
expatriates whose loss of U.S. citizenship has as one of its principal purposes
the avoidance of U.S. taxes or (iv) under certain circumstances if the Company
is or has been during certain time periods a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code and,
assuming that the Common Stock is regularly traded on an established securities
market for U.S. federal income tax purposes and the Non-U.S. Holder held,
directly or indirectly at any time within the five-year period preceding such
disposition, more than 5% of the outstanding Common Stock. The Company is not,
and does not anticipate becoming, a United States real property holding
corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under the Treasury regulations, the Company must report annually to the
Internal Revenue Service and to each Non-U.S. Holder the amount of dividends
paid to such holder and any tax withheld with respect to such dividends. These
information reporting requirements apply regardless of whether withholding is
required because the dividends were effectively connected with a trade or
business in the United States of the Non-U.S. Holder or withholding was reduced
or eliminated by an applicable income tax treaty. Copies of the information
returns reporting such dividends and withholding may also be made available to
the tax authorities in the country in which the Non-U.S. Holder is a resident
under the provisions of an applicable income tax treaty or agreement.
U.S. backup withholding (which is imposed at the rate of 31% on certain
payments to persons that fail to furnish information under the U.S. information
reporting requirements) generally will not apply to dividends paid to Non-U.S.
Holders that are subject to the 30% withholding discussed above (or that are not
so subject because a tax treaty applies that reduces such 30% withholding) or,
under current law, dividends paid to a Non-U.S. Holder at an address outside of
the United States. However, under the Final Regulations, a Non-U.S. Holder
generally will be subject to backup withholding tax on dividends paid after
December 31, 1999 unless certain certification procedures (or, in the case of
payments made outside the United States with respect to an offshore account,
certain documentary procedures) are satisfied, directly or through a foreign
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intermediary. Backup withholding and information reporting generally will apply
to dividends paid to addresses inside the United States to beneficial owners
that are not "exempt recipients" and that fail to provide, in the manner
required, certain identifying information.
Non-U.S. Holders should consult their tax advisers regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom and the procedure for
obtaining such an exemption, if available. Backup withholding does not
constitute an additional tax. Any amounts withheld from a payment to a Non-U.S.
Holder under the backup withholding rules will be allowed as a credit against
such Holder's U.S. federal income tax liability and may entitle such Holder to a
refund, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of or has made
certain lifetime transfers of an interest in the Common Stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS TAX ADVISER WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX AND FEDERAL ESTATE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAX
JURISDICTION.
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UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, dated , 1998 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom Credit Suisse First
Boston Corporation, Smith Barney Inc. and Deutsche Morgan Grenfell Inc. are
acting as representatives (the "Representatives"), have severally but not
jointly agreed to purchase the following number of U.S. Shares:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
----------- -----------
<S> <C>
Credit Suisse First Boston Corporation......................
Smith Barney Inc. ..........................................
Deutsche Morgan Grenfell Inc. ..............................
---------
Total.............................................
=========
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
Klaus H. Murmann and K. Murmann & Co. KG, two of the Selling Stockholders,
have granted to the U.S. Underwriters and the Managers an option, exercisable by
Credit Suisse First Boston Corporation, expiring at the close of business on the
30th day after the date of this Prospectus, to purchase up to 1,350,000
additional shares at the initial public offering price, less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments, if any,
in the sale of the shares of Common Stock offered hereby. To the extent that
this option to purchase is exercised, each U.S. Underwriter and each Manager
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of additional shares being sold to the U.S. Underwriters and
to the Managers as the number of U.S. Shares set forth next to such U.S.
Underwriter's name in the preceding table and as the number set forth next to
such Manager's name in the corresponding table in the Prospectus relating to the
International Offering bears to the sum of the total number of shares of Common
Stock in such tables.
The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares to the public in the United States
and on a private placement basis in Canada initially at the offering price set
forth on the cover page of this Prospectus and, through the Representatives, to
certain dealers at such price less a concession of $ per share, and the
U.S. Underwriters and such dealers may allow a discount of $ per share
on sales to certain other dealers. After the initial public offering, the
offering price and concession and discount to dealers may be changed by the
Representatives.
The Company has entered into a Subscription Agreement with the Managers of
the International Offering (the "Managers") providing for the concurrent offer
and sale of the International Shares outside of the United States and Canada.
The closing of the International Offering is a condition to the closing of the
U.S. Offering and vice versa. The public offering price, the underwriting
discounts and commissions and concession and discount to dealers for the
International Offering will be the same as the U.S. Offering, except that
purchasers will have the option to purchase International Shares at the Deutsche
mark equivalent thereof.
Pursuant to an agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Common Stock Offering, changes in
the public offering price, concession and discount to dealers will be made only
upon the mutual agreement of Credit Suisse First Boston Corporation, as
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representative of the U.S. Underwriters, and Credit Suisse First Boston (Europe)
Limited ("CSFBL"), on behalf of the Managers.
Pursuant to the Intersyndicate Agreement, each U.S. Underwriter has agreed
that, as part of the distribution of the U.S. Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock to any person outside the United States or Canada or to any
other dealer who does not so agree. Each of the Managers has agreed or will
agree that, as part of the distribution of the International Shares and subject
to certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock in the United States or Canada or to any other
dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement. As used herein, "United
States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension,
profit-sharing or other trust or entity (including such entity acting as an
investment adviser with discretionary authority) whose office most directly
involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by Credit Suisse
First Boston Corporation, as representative of the U.S. Underwriters, and CSFBL,
on behalf of the Managers, but not exceeding the selling concession applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
Managers may be more or less than the amount appearing on the cover page of this
Prospectus. Neither the U.S. Underwriters nor the Managers are obligated to
purchase from the other any unsold shares of Common Stock.
The Company, certain Selling Stockholders and certain other stockholders
have agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act of 1933 (the "Securities Act") relating to, any additional
shares of Common Stock or securities convertible into or exchangeable or
exercisable for any shares of Common Stock without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this Prospectus, except issuances pursuant to the exercise of employee stock
options outstanding on the date hereof.
At the request of the Company, the Underwriters are reserving shares of
Common Stock from the Offering for sale to certain persons identified by the
Company. Any sales to such persons will be at the public offering price. Any
shares not purchased in this reserve program will be sold to the general public
in the Combined Offering.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the number of shares of
Common Stock being offered hereby.
The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the U.S. Underwriters and the Managers
may be required to make in respect thereof.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "SHS," subject to official notice of issuance, and
application has been made for the Common Stock to be listed on the Frankfurt
Stock Exchange under the symbol "SAR." Credit Suisse First Boston Aktiengesell-
63
<PAGE> 68
schaft is acting as the sponsor for the application for listing on the Frankfurt
Stock Exchange. In connection with the listing of the Common Stock on the New
York Stock Exchange, the Underwriters will undertake to sell round lots of 100
shares or more to a minimum of 2,000 beneficial owners.
Prior to the Combined Offering, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the shares has
been determined by negotiation between the Company, representatives of the
Selling Stockholders and the Representatives. In determining such price,
consideration was given to various factors, including market conditions for
initial public offerings, the history of and prospects for the Company's
business, the Company's past and present operations, its past and present
earnings and current financial position, an assessment of the Company's
management, the market for securities of companies in businesses similar to
those of the Company, the general condition of the securities markets and other
relevant factors. There can be no assurance, however, that the initial public
offering price will correspond to the price at which the Common Stock will trade
in the public market subsequent to the Combined Offering or that an active
trading market for the Common Stock will develop and continue after the Combined
Offering.
The Representatives, on behalf of the U.S. Underwriters and Managers, may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids. Over-allotment involves syndicate sales in excess
of the offering size, which creates a syndicate short position. Stabilizing
transactions are bids to purchase the securities being distributed at prices
that may not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the New
York Stock Exchange, the Frankfurt Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
This Prospectus may be used by underwriters or dealers in connection with
sales of International Shares to persons located in the United States to the
extent such sales are permitted by the contractual limitations on sales
described above.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the "Common Stock" in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws, which will vary depending on the
relevant jurisdiction and may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, such purchaser is
purchasing as principal and not as agent and (iii) such purchaser has reviewed
the text above under "-- Resale Restrictions."
64
<PAGE> 69
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action, if
any, under the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All the issuer's directors and officers as well as the experts named herein
and the Selling Stockholders may be located outside Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon the issuer or such persons. All or a substantial portion of the
assets of the issuer and such persons may be located outside Canada and, as a
result, it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL OPINIONS
The validity of the Common Stock being sold by the Company will be passed
upon for the Company by Shearman & Sterling, New York, New York and Spencer Fane
Britt & Browne, Kansas City, Missouri, and for the Underwriters by Sullivan &
Cromwell, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Sauer Inc. and
subsidiaries as of December 31, 1996 and 1997 and for each of the fiscal years
in the three-year period ended December 31, 1997, included in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part, have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their reports with respect thereto, and are included herein and
therein in reliance upon the authority of said firm as experts in accounting and
auditing in giving such reports.
65
<PAGE> 70
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement, including exhibits and schedules thereto, copies of
which may be examined without charge at the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549 and the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and 500
West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Section of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates, or on the Internet at http://www.sec.gov. Statements contained
in this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each statement being qualified in all respects by such reference. Copies of
materials filed with the Commission may also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1801 K Street, N.W., 8th
Floor, Washington, D.C. 20006.
Upon completion of the Combined Offering, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith, will file reports,
proxy and information statements and other information with the Commission. Such
reports, proxy and information statements and other information can be inspected
and copied at the addresses set forth above.
66
<PAGE> 71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SAUER INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997.......................... F-3
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Sauer Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SAUER INC.
(a Delaware corporation) AND SUBSIDIARIES as of December 31, 1996 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SAUER INC. AND SUBSIDIARIES as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
February 27, 1998 (except
with
respect to the matters
discussed in Note 3 and
Note 17, as to which the
date is April 22, 1998)
F-2
<PAGE> 73
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES............................................... $ 446,774 $ 467,566 $ 535,173
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales......................................... 336,700 354,034 404,065
Selling, general and administrative................... 48,128 51,856 52,575
Research and development.............................. 18,796 20,505 20,655
----------- ----------- -----------
Total costs and expenses........................... 403,624 426,395 477,295
----------- ----------- -----------
Operating income................................... 43,150 41,171 57,878
----------- ----------- -----------
NONOPERATING INCOME (EXPENSES):
Interest expense...................................... (6,932) (6,523) (8,305)
Interest income....................................... 275 564 698
Royalty income........................................ 1,695 1,156 1,150
Other, net............................................ 21 (584) 144
----------- ----------- -----------
Nonoperating expenses, net......................... (4,941) (5,387) (6,313)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST........ 38,209 35,784 51,565
PROVISION FOR INCOME TAXES.............................. (5,182) (10,243) (15,944)
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST......................... 33,027 25,541 35,621
MINORITY INTEREST IN INCOME OF CONSOLIDATED COMPANIES... (6,447) (6,643) (8,492)
----------- ----------- -----------
Net income......................................... $ 26,580 $ 18,898 $ 27,129
=========== =========== ===========
Basic and diluted net income per common share......... $ 1.10 $ .78 $ 1.12
=========== =========== ===========
Basic and diluted weighted average common shares
outstanding........................................ 24,187,500 24,225,000 24,225,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 74
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,029 $ 7,363
Accounts receivable (net of allowance for doubtful
accounts of $2,690 and $3,195 in 1996 and 1997,
respectively).......................................... 65,655 77,170
Inventories............................................... 78,273 89,031
Other current assets...................................... 9,794 9,557
-------- --------
Total current assets.............................. 165,751 183,121
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 152,321 191,690
-------- --------
OTHER ASSETS
Intangible assets, net.................................... 3,323 2,964
Deferred income taxes..................................... 8,761 8,631
Other..................................................... 7,371 4,497
-------- --------
Total other assets................................ 19,455 16,092
-------- --------
$337,527 $390,903
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and bank overdrafts......................... $ 50,366 $ 60,278
Long-term debt due within one year........................ 1,932 952
Accounts payable.......................................... 36,329 46,392
Accrued salaries and wages................................ 6,279 6,385
Accrued warranty.......................................... 7,289 9,398
Other accrued liabilities................................. 24,749 15,897
-------- --------
Total current liabilities......................... 126,944 139,302
-------- --------
LONG-TERM DEBT.............................................. 56,334 75,198
-------- --------
OTHER LIABILITIES:
Long-term pension liability............................... 28,633 28,959
Postretirement benefits other than pensions............... 11,920 11,989
Deferred income taxes..................................... 3,381 4,018
Other..................................................... 14,286 13,337
-------- --------
Total other liabilities........................... 58,220 58,303
-------- --------
MINORITY INTEREST IN NET ASSETS OF CONSOLIDATED COMPANIES... 25,155 32,799
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, authorized
45,000,000 shares in 1996 and 1997; issued 24,900,000
and outstanding 24,225,000 shares in 1996 and 1997..... 249 249
Additional paid-in capital................................ 74,900 74,723
Cumulative translation adjustment......................... 5,029 256
Retained earnings (deficit)............................... (6,604) 12,773
Common stock in treasury (at cost), 675,000 shares in 1996
and 1997............................................... (2,700) (2,700)
-------- --------
Total stockholders' equity............................. 70,874 85,301
-------- --------
$337,527 $390,903
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 75
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL CUMULATIVE RETAINED COMMON
SHARES COMMON PAID-IN TRANSLATION EARNINGS STOCK IN
OUTSTANDING STOCK CAPITAL ADJUSTMENT (DEFICIT) TREASURY TOTAL
----------- ------ ---------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Beginning balance........... 24,050,000 $ 240 $70,540 $ 3,774 $ (36,592) -- $ 37,962
Net income.................. -- -- -- -- 26,580 -- 26,580
Cash dividends, ($.32 per
share)................... -- -- -- -- (7,738) -- (7,738)
Sale of common stock........ 850,000 9 3,391 -- -- -- 3,400
Purchase of common stock.... (675,000) -- -- -- -- (2,700) (2,700)
Pension adjustment.......... -- -- 1,061 -- -- -- 1,061
Translation adjustment...... -- -- -- 926 -- -- 926
---------- ------ ------- ------- --------- ------- --------
Ending Balance...... 24,225,000 249 74,992 4,700 (17,750) (2,700) 59,491
YEAR ENDED DECEMBER 31, 1996:
Net income.................. -- -- -- -- 18,898 -- 18,898
Cash dividends, ($.32 per
share)................... -- -- -- -- (7,752) -- (7,752)
Pension adjustment.......... -- -- (92) -- -- -- (92)
Translation adjustment...... -- -- -- 329 -- -- 329
---------- ------ ------- ------- --------- ------- --------
Ending balance...... 24,225,000 249 74,900 5,029 (6,604) (2,700) 70,874
YEAR ENDED DECEMBER 31, 1997:
Net income.................. -- -- -- -- 27,129 -- 27,129
Cash dividends, ($.32 per
share)................... -- -- -- -- (7,752) -- (7,752)
Pension adjustment.......... -- -- (177) -- -- -- (177)
Translation adjustment...... -- -- -- (4,773) -- -- (4,773)
---------- ------ ------- ------- --------- ------- --------
Ending balance...... 24,225,000 $ 249 $74,723 $ 256 $ 12,773 $(2,700) $ 85,301
========== ====== ======= ======= ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 76
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 26,580 $ 18,898 $ 27,129
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization......................... 19,898 24,830 25,835
Minority interest in income of consolidated
companies........................................... 6,447 6,643 8,492
(Increase) decrease in working capital --
Accounts receivable, net............................ (9,313) (428) (16,620)
Inventories......................................... (18,378) 4,719 (17,260)
Accounts payable.................................... 11,149 (7,126) 13,174
Accrued liabilities................................. 5,419 2,930 (6,394)
Other............................................... (5,108) (2,796) 8,388
-------- -------- --------
Net cash provided by operating activities........ 36,694 47,670 42,744
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............... (45,689) (56,284) (66,750)
Purchase of minority interest............................ -- -- (3,959)
Proceeds from sales of property, plant and equipment..... 145 86 398
-------- -------- --------
Net cash used in investing activities............ (45,544) (56,198) (70,311)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable and bank
overdrafts............................................ 21,657 (18,067) 10,555
Net borrowings of long-term debt......................... 116 36,647 25,171
Sale of common stock..................................... 3,400 -- --
Purchase of common stock................................. (2,700) -- --
Cash dividends........................................... (7,738) (7,752) (7,752)
Distribution to minority interest partners............... (1,500) (1,560) (4,623)
-------- -------- --------
Net cash provided by financing activities........ 13,235 9,268 23,351
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES............................ (145) (524) (450)
-------- -------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year.................. 4,240 216 (4,666)
Beginning balance........................................ 7,573 11,813 12,029
-------- -------- --------
Ending balance................................... $ 11,813 $ 12,029 $ 7,363
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 77
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) THE COMPANY AND ITS OPERATIONS:
Sauer Inc., a U.S. corporation, and subsidiaries (the "Company") is a
leading international manufacturer of components and systems that generate,
transmit and control fluid power in mobile equipment. The Company's products are
used by original equipment manufacturers of mobile equipment, including
construction, agricultural and turf care equipment. The Company's products are
sold throughout North America, Europe and East Asia.
The Company, which is a holding company, conducts its business in North
America as Sauer-Sundstrand Company (the "U.S. Operating Company"), and in
Germany as Sauer-Sundstrand GmbH & Co. (the "German Operating Company"). The
Company also has manufacturing plants in the United Kingdom, Italy, Slovakia,
and China, as well as trading companies in other locations. Sauer-Sundstrand
GmbH (the "German Holding Company"), which is wholly owned by the Company,
functions as a management and holding company on behalf of the Company.
The Company is majority owned by Mr. Klaus H. Murmann and certain of his
family members, directly and through Sauer GmbH and other wholly owned
companies. Sauer GmbH and Sauer GmbH and Co. Hydraulik K.G. ("Sauer Hydraulik")
("Murmann Limited Partners") hold limited partnership interests (the "Murmann
Limited Partnership Interests") in the German Operating Company as described
below. Sauer GmbH and Sauer Hydraulik, a German corporation and a German
partnership, respectively, are wholly owned by the Murmann family.
(2) JOINT VENTURES:
During 1991, the U.S. Operating Company and Agri-Fab, Inc. formed a joint
venture organized as a U.S. limited partnership under the name Hydro-Gear
Limited Partnership ("Hydro-Gear"). The U.S. Operating Company contributed
inventories and machinery and equipment with a carrying amount of $4,066 for a
60% interest in Hydro-Gear. The principal business of Hydro-Gear is the
manufacture, sale and distribution of hydrostatic and axle products to the turf
care market.
On November 29, 1994, the German Holding Company and Povazske Strojarne,
a.s. formed a joint venture organized as a Slovakian corporation under the name
Sauer Mechanika, a.s. The German Holding Company contributed approximately
$6,000 of cash, technology, and machinery and equipment for a 65% interest in
Sauer Mechanika. During 1997, the German Holding Company purchased the 35%
interest held by its partner, Povazske Strojarne, a.s., for $3,959. The
principal business of Sauer Mechanika is the manufacture of gear boxes for
transit mixers.
On February 16, 1995, the Company and Shanghai Hydraulics and Pneumatics
formed a joint venture organized as a Chinese Limited Liability Foreign
Investment Enterprise under the name Sauer Shanghai Hydraulic Transmission
Company, Ltd. ("SHC"). The Company contributed $5,400 of cash, machinery and
equipment and technology for a 50% interest in SHC. Operations commenced during
1996. During 1997, the Company contributed an additional $2,700 of cash to
increase its interest in SHC to 60%. The principal business of SHC is the
manufacture, sale and distribution of high power hydrostatic transmissions to
the Chinese market.
On December 30, 1996, the German Holding Company and ZTS, a.s. formed a
joint venture organized as a Slovakian corporation under the name Sauer ZTS,
a.s. The German Holding Company contributed approximately $5,800 of cash and
technology for a 65% interest in Sauer ZTS, a.s. The principal business of Sauer
ZTS, a.s. is the manufacture of high power hydrostatic transmissions.
F-7
<PAGE> 78
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Principles of Consolidation --
The accounts of the Company are stated in accordance with generally
accepted accounting principles in the United States of America. The consolidated
financial statements include the accounts of Sauer Inc. and subsidiaries on a
consolidated basis for all periods presented. All significant intercompany
balances and transactions have been eliminated in consolidation.
Sauer Inc. is the general partner and 80% owner of the German Operating
Company. The Murmann Limited Partners have certain rights which include an
annual cash payment equal to 8.5% of the income of Sauer Inc. and subsidiaries
before taxes and the Murmann Limited Partnership Interests and the right to
consent to certain actions of the German Operating Company. The Murmann Limited
Partners have no other property rights in the assets of the Company, the U.S.
Operating Company, the German Operating Company and any other related entity.
However, effective April 21, 1998 the Company has the right to elect by the
action of its independent directors or the holders of its common stock other
than the Murmann family, to terminate the Murmann Limited Partnership Interests
in exchange for 2,250,000 shares of common stock of Sauer Inc. As such, the
Company controls and consolidates the German Operating Company.
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Principles --
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". These changes did not
have any impact on the Company's financial position or results of operations.
Reclassification --
Certain previously reported amounts have been reclassified to conform with
the current period presentation.
Minority Interest --
Minority interest in net assets and income reflected in the accompanying
consolidated financial statements consists of:
(a) The Murmann Limited Partners, as holders of limited partnership
interests, in the results of the German Operating Company equal to 8.5% of
the income of Sauer Inc. and subsidiaries before taxes and the Murmann
Limited Partnership Interests for 1995, 1996 and 1997.
(b) A minority interest held by Agri-Fab, Inc. in a U.S. limited
partnership for 1995, 1996 and 1997.
(c) A minority interest held by Povazske Strojarne, a.s. in a
Slovakian corporation for 1995, 1996 and 1997.
(d) A minority interest held by Shanghai Hydraulics and Pneumatics in
a Chinese equity joint venture for 1996 and 1997.
(e) A minority interest held by ZTS, a.s. in a Slovakian corporation
for 1997.
F-8
<PAGE> 79
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of minority interest in the
consolidated balance sheets and consolidated statements of income and loss:
MINORITY INTEREST REFLECTED IN
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
German Operating Company................................. $ 9,230 $11,203
Hydro-Gear............................................... 12,797 15,216
Sauer Mechanika, a.s..................................... 3,128 --
SHC...................................................... -- 3,438
Sauer ZTS, a.s........................................... -- 2,942
------- -------
Total.......................................... $25,155 $32,799
======= =======
</TABLE>
MINORITY INTEREST (INCOME) LOSS REFLECTED IN
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
German Operating Company...................... $(2,954) $(2,707) $(4,001)
Hydro-Gear.................................... (3,681) (4,345) (6,339)
Sauer Mechanika, a.s.......................... 188 168 291
SHC........................................... -- 241 1,480
Sauer ZTS, a.s................................ -- -- 77
------- ------- -------
Total............................... $(6,447) $(6,643) $(8,492)
======= ======= =======
</TABLE>
Translation of Foreign Currencies --
Assets and liabilities of consolidated foreign subsidiaries are translated
into U.S. dollars at exchange rates in effect at year-end, while revenues and
expenses are translated at average exchange rates prevailing during the year.
The resulting translation adjustments are included in stockholders' equity.
Gains or losses on transactions denominated in foreign currencies and the
related tax effects, which are not material, are reflected in net income.
Cash and Cash Equivalents --
Cash equivalents are considered by the Company to be all highly liquid
instruments purchased with original maturities of three months or less.
F-9
<PAGE> 80
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories --
Inventories are valued at the lower of cost or market, using various cost
methods, and include the cost of material, labor and factory overhead. The
percentage of year end inventory using each of the methods was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Average Cost................................................ 62% 61%
Last-in, first-out ("LIFO")................................. 30% 32%
First-in, first-out ("FIFO")................................ 8% 7%
</TABLE>
Property, Plant and Equipment and Depreciation --
Property, plant and equipment are stated at historical cost, net of
accumulated depreciation. Assets under capital lease are stated at the lower of
fair market value or the present value of future minimum lease payments, net of
accumulated depreciation. Depreciation is based on the straight-line method.
Additions and improvements that substantially extend the useful life of a
particular asset are capitalized. Repair and maintenance costs ($11,305, $13,110
and $15,184 in 1995, 1996 and 1997, respectively) are charged to expense. Upon
the sale of property, plant and equipment, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
Intangible Assets and Amortization --
Intangible assets include goodwill, patents and other intangibles. These
assets are stated at cost, net of accumulated amortization, and are being
amortized over the lesser of 20 years or the specific remaining identifiable
life on a straight-line basis. Goodwill was $1,629 and $1,201 as of December 31,
1996 and 1997, net of accumulated amortization of $7,260 and $4,950,
respectively. Amortization of goodwill and other intangibles was $1,649 for
1995, $2,449 for 1996 and $756 for 1997.
Impairment of Long-Lived Assets --
Consistent with the requirements of SFAS 121, the Company periodically
assesses whether events or circumstances have occurred that may indicate the
carrying value of its long-lived tangible and intangible assets may not be
recoverable. The carrying value of long-lived tangible and intangible assets is
evaluated based on the expected future non-discounted operating cash flows. When
such events or circumstances indicate the carrying value of an asset may be
impaired, the Company recognizes an impairment loss. Based upon its most recent
analysis, the Company believes that no impairment exists at December 31, 1997.
Revenue Recognition --
Net sales are recorded at the time of shipment to customers along with
related expenses including warranty expense.
Income Taxes --
The provision for income taxes has been determined using the asset and
liability approach of accounting for income taxes. Under this approach, deferred
taxes represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year plus
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the Company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation
F-10
<PAGE> 81
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowances are recorded to reduce deferred taxes when it is more likely than not
that a tax benefit will not be realized.
Basic and Diluted Per Share Data --
Basic and diluted income per common share data have been computed by
dividing net income by the basic and diluted weighted average number of shares
of common stock outstanding.
(4) INVENTORIES:
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................ $34,735 $41,851
Work in process.......................................... 12,053 13,101
Finished goods and parts................................. 37,327 40,461
LIFO allowance........................................... (5,842) (6,382)
------- -------
Total.......................................... $78,273 $89,031
======= =======
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT:
The estimated useful lives used in computing depreciation are as follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE
- ----------- --------
<S> <C>
Land improvements........................................... 20 years
Buildings................................................... 37 years
Building improvements....................................... 10 years
Building equipment.......................................... 20 years
Machinery and equipment..................................... 12 years
Durable tools............................................... 3 years
Automobiles and trucks...................................... 4 years
Office equipment............................................ 10 years
Information systems and data-handling devices............... 5 years
</TABLE>
The cost and related accumulated depreciation of property, plant and
equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Cost --
Land and improvements............................ $ 3,138 $ 3,771
Buildings and improvements....................... 33,378 43,527
Machinery and equipment.......................... 289,487 307,364
Construction in progress......................... 15,184 27,485
Plant and equipment under capital lease............ 1,447 638
--------- ---------
Total cost.................................... 342,634 382,785
Less -- Accumulated depreciation................... (190,313) (191,095)
--------- ---------
Net property, plant and equipment............. $ 152,321 $ 191,690
========= =========
</TABLE>
Depreciation expense for 1995, 1996 and 1997 was $18,249, $22,381 and
$25,079, respectively.
F-11
<PAGE> 82
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PENSION BENEFITS:
The Company has noncontributory defined benefit plans covering
substantially all employees. The benefits under these plans are based primarily
on years of service and compensation levels. The Company's funding policy
outside of Germany is to contribute annually an amount that falls within the
range determined to be deductible for federal income tax purposes. The net
pension liabilities reflected in the accompanying consolidated balance sheets
result principally from unfunded pension plans of the Company's operations in
Germany, where it is common practice to fund pension obligations at the time
payments are made to retirees.
Pension expense for 1995, 1996 and 1997 for these defined benefit plans
consists of the following components:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Service cost................................. $ 2,560 $ 2,846 $ 3,042
Interest on projected benefit obligation..... 6,065 6,181 7,422
Actual return on assets...................... (10,014) (7,418) (9,305)
Net amortization and deferral................ 5,495 3,250 3,511
-------- ------- -------
Net pension expense..................... $ 4,106 $ 4,859 $ 4,670
======== ======= =======
</TABLE>
The following table sets forth the plans' funded status as of the
respective balance sheet dates:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations --
Vested benefit.................. $12,484 $ 50,148 $13,085 $ 57,837
Nonvested benefit............... -- 7,787 -- 4,726
------- -------- ------- --------
Accumulated benefit obligation.... 12,484 57,935 13,085 62,563
Effect of projected salary
increases....................... 2,887 12,377 2,834 13,279
------- -------- ------- --------
Projected benefit obligation...... 15,371 70,312 15,919 75,842
Plan assets at fair value......... 20,127 45,167 22,560 50,527
------- -------- ------- --------
Projected benefit obligation (in
excess of) less than plan
assets.......................... 4,756 (25,145) 6,641 (25,315)
Unrecognized transition asset..... (1,487) -- (1,479) --
Unrecognized prior year service
cost............................ 646 1,549 567 1,285
Other unrecognized gain........... (1,396) (4,005) (2,753) (5,596)
Adjustment to recognize minimum
liability....................... -- (1,604) -- (71)
------- -------- ------- --------
Net pension asset (liability)..... 2,519 (29,205) 2,976 (29,697)
Less -- Current portion........... -- 572 -- 738
------- -------- ------- --------
Net pension asset (liability),
long-term....................... $ 2,519 $(28,633) $ 2,976 $(28,959)
======= ======== ======= ========
</TABLE>
F-12
<PAGE> 83
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant assumptions used in determining pension expense and related
pension obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rates --
United States......................................... 7.5% 7.5% 7.5%
Germany............................................... 7.5 7.5 7.5
United Kingdom........................................ 9.0 9.0 9.0
Rates of increase in compensation levels --
United States......................................... 5.0 5.0 5.0
Germany............................................... 3.5 3.5 3.5
United Kingdom........................................ 8.0 8.0 8.0
Expected long-term rate of return on assets --
United States......................................... 8.5 8.5 8.5
United Kingdom........................................ 9.0 9.0 9.0
</TABLE>
The plans' assets consist principally of short-term U.S. Government
securities, equity securities, fixed income contracts and insurance contracts.
(7) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides health benefits for retired employees and certain
dependents when the employee becomes eligible for these benefits by satisfying
plan provisions which include certain age and/or service requirements. Health
benefits for retirees of non-U.S. operations, where applicable, are provided
through government sponsored plans to which contributions by the Company are
required. The health benefit plans covering substantially all U.S. employees are
contributory, with contributions reviewed annually and adjusted as appropriate.
These plans contain other cost-sharing features such as deductibles and
coinsurance. The Company does not pre-fund these plans and has the right to
modify or terminate any of these plans in the future.
The components of the postretirement benefit provisions of the Company
sponsored plans for 1995, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Service cost......................................... $ 326 $ 323 $ 365
Interest cost........................................ 886 948 997
Net deferral and amortization........................ -- 22 20
------ ------ ------
Postretirement benefit provision..................... $1,212 $1,293 $1,382
====== ====== ======
</TABLE>
F-13
<PAGE> 84
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Company sponsored plans was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees............................................. $ (5,074) $ (4,995)
Eligible active plan participants.................... (3,237) (3,472)
Other active plan participants....................... (5,292) (5,163)
-------- --------
Accumulated postretirement benefit obligation.......... (13,603) (13,630)
Unrecognized net loss.................................. 1,683 1,641
-------- --------
Postretirement benefit liability....................... $(11,920) $(11,989)
======== ========
</TABLE>
The assumed weighted average annual rate of increase in the per capita cost
of medical benefits is 7.0% for 1998 and is assumed to decrease gradually in
1999 and 2000 and remain level at 5.5% thereafter.
U.S. employees retiring after March 1, 1993 and hired prior to January 1,
1993 will receive the standard health benefits up to age 65 and then will be
eligible for a Medicare reimbursement allowance based on years of service. U.S.
employees hired after January 1, 1993 will only be eligible after age 65 for a
Medicare reimbursement allowance based on years of service.
A one percent increase in the annual health care trend rates would have
increased the accumulated postretirement benefit obligation at December 31, 1997
by $1,625, and increased postretirement benefit expense for 1997 by $177. The
weighted average discount rate used to estimate the accumulated postretirement
benefit obligation was 7.5% for 1996 and 1997.
(8) PHANTOM SHARE PLAN:
Under the Company's Phantom Share Plan, the Board of Directors may grant up
to 400,000 Phantom Share Rights to eligible employees. Each Phantom Share Right
entitles the grantee to the market value of a common share as of the December 31
immediately prior to the date the restrictions on such Phantom Share Right lapse
and, until the restrictions lapse, a quarterly payment in an amount determined
by the Board of Directors. Restrictions on Phantom Share Rights consist of the
vesting schedule under which such rights vest 20% in each of the fifth through
ninth years after grant date. If no stock price quotation is available upon the
lapse of restrictions with respect to a Phantom Share Right, the amount of the
payment is determined pursuant to a formula set forth in the Phantom Share Plan
based on the earnings and book value of the Company as adjusted to account for
stock market trends. At December 31, 1996 and 1997, 91,400 and 110,400 Phantom
Share Rights, respectively, were outstanding. Compensation expense is recognized
ratably over the period from the date of grant to the date the restrictions on a
right lapse. Earnings are also charged or credited for the aggregate
appreciation or depreciation of the rights during the period as well as any
quarterly payment to the grantees. Phantom share compensation expense was
$1,162, $902, and $955 for 1995, 1996 and 1997, respectively. The total value of
the Phantom Shares outstanding as of December 31, 1996 and 1997 was $2,651 and
$3,257, respectively.
F-14
<PAGE> 85
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES:
The Company's income before income taxes and minority interest are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
United States................................. $22,981 $31,308 $43,370
Europe and other.............................. 15,228 4,476 8,195
------- ------- -------
Total............................... $38,209 $35,784 $51,565
======= ======= =======
</TABLE>
The Company's primary German operation is structured as a partnership. This
operation is subject to United States as well as German income tax regulations.
The above analysis of pretax income and the following analysis of the income tax
provision by taxing jurisdiction are therefore not directly related.
The (provision) benefit for income taxes by taxing jurisdiction location
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Current:
United States
Federal................................ $(4,355) $ (4,994) $(11,476)
State.................................. (851) (877) (1,261)
European and other........................ (3,078) (4,096) (3,443)
------- -------- --------
Total current............................. (8,284) (9,967) (16,180)
------- -------- --------
Deferred:
United States
Federal................................ 711 400 1,593
State.................................. 1,667 (67) (204)
European and other........................ 724 (609) (1,153)
------- -------- --------
Total deferred............................ 3,102 (276) 236
------- -------- --------
Total income tax provision.................. $(5,182) $(10,243) $(15,944)
======= ======== ========
</TABLE>
A reconciliation of the statutory and effective income tax (provision)
benefit based on the Company's income before income taxes and minority interest
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States income tax provision at the
statutory rate of 35%.................... $(13,373) $(12,524) $(18,047)
Deferred tax benefit not previously
recognized from U.S. loss carryforwards,
foreign tax credits and other............ 9,176 2,069 1,923
European and Asian locations' losses not
tax benefited............................ (305) (1,367) (1,686)
Taxes on European locations' income at
rates which differ from the U.S. rate.... 89 443 (270)
State income taxes, net of U.S. federal tax
benefit.................................. (724) (614) (871)
Taxes on minority interest................. 1,568 1,289 3,518
Other...................................... (1,613) 461 (511)
-------- -------- --------
Total income tax provision................. $ (5,182) $(10,243) $(15,944)
======== ======== ========
</TABLE>
F-15
<PAGE> 86
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's foreign deferred income tax liability results from temporary
differences relating principally to pension benefits and to property, plant and
equipment.
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
U.S. tax credit carryforwards............................ $ 1,944 $ 1,575
Internal Revenue Code Section 743 and Other Tax Basis
Step-Ups............................................... 5,224 4,473
Deferred compensation, post-retirement and accrued
pension benefits....................................... 10,854 11,407
Tax over book depreciation............................... (3,437) (5,055)
Inventory and warranty reserves not deducted for tax..... 5,111 5,283
Other items.............................................. 1,500 2,125
------- -------
Gross deferred tax asset................................. 21,196 19,808
Valuation allowance...................................... (3,734) (3,187)
------- -------
Net deferred tax asset................................... 17,462 16,621
Less -- current portion.................................. (8,701) (7,990)
------- -------
Deferred tax asset, long-term............................ $ 8,761 $ 8,631
======= =======
</TABLE>
In 1990, the Company issued common stock in exchange for a 40.404% interest
in the Sundstrand-Sauer Company partnership. The partnership filed an election
under Internal Revenue Code (IRC) Section 754 and, accordingly, a tax basis step
up was provided to the Company under IRC Section 743. In 1994, certain assets
were sold from the German Operating Company to the German Holding Company to
facilitate the establishment of Sauer Mechanika a.s., described in Note 2. For
tax purposes, this was a taxable transaction and, accordingly, resulted in a tax
basis step-up when the assets were ultimately contributed to Sauer Mechanika
a.s. The remaining, unamortized balances of these tax basis step-ups were $5,224
and $4,473 at December 31, 1996 and 1997, respectively.
During 1997 the valuation allowance relating to the Company's deferred
income tax asset decreased by $547. The decrease was due to the realization in
the current period of certain tax benefits for which a valuation allowance had
been previously provided.
As of December 31, 1997, the Company had not provided federal income taxes
on $3,018 of undistributed earnings recorded by certain subsidiaries outside the
United States, since these earnings were deemed permanently invested. Although
it is not practicable to determine the deferred tax liability on the unremitted
earnings, foreign tax credits would be available to reduce any U.S. tax
liability if these foreign earnings were remitted.
The Company had the following tax return carryforwards available to offset
future years' taxes at December 31, 1997:
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
------- ----------
<S> <C> <C>
German net operating losses........................... $48,030 Indefinite
U.S. foreign tax credits.............................. $ 4,292 1998-2002
</TABLE>
The German net operating losses do not produce a deferred tax asset on a
consolidated basis due to the treatment of the German Operating Company as a
partnership combined with the impact of foreign tax credits.
F-16
<PAGE> 87
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and its subsidiaries paid net income taxes of $8,008, $7,625
and $18,495 in 1995, 1996 and 1997, respectively.
(10) NOTES PAYABLE AND LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Company's Revolving Credit Agreement, due August, 2001... $15,000 $15,000
U.S. Operating Company's Revolving Credit Facility, due
March, 2002............................................ 28,000 24,000
U.S. Operating Company's Senior Notes due through
December, 2007......................................... -- 25,000
U.S. Operating Company's Industrial Development Revenue
Bonds, due May, 2026................................... 9,000 9,000
European and other borrowings............................ 6,266 3,150
------- -------
Total debt..................................... 58,266 76,150
Less scheduled current maturities........................ (1,932) (952)
------- -------
Total long-term debt........................... $56,334 $75,198
======= =======
</TABLE>
The Company's Revolving Credit Agreement ("Agreement") allows the Company
to borrow up to $15,000 at an interest rate based on the London interbank
offered rate ("LIBOR"). At December 31, 1996 and 1997, the interest rate on
outstanding borrowings under the Agreement was 7.0% and 7.05%, respectively. The
Agreement requires the maintenance of certain financial results including
maintaining minimum levels of net worth and cash flow and contains limitations
on the payment of cash dividends. At December 31, 1997 the Company was in
compliance with these requirements and $17,600 of dividends could be paid by the
Company.
The U.S. Operating Company's Revolving Credit Facility, dated November 6,
1997, permits the U.S. Operating Company to choose between two interest rate
options and to specify what portion of the loan is covered by a specific
interest rate option and the applicable funding period to which the interest
rate option is to apply. The interest rate options are based on the bank's prime
lending rate and LIBOR. The U.S. Operating Company's Revolving Credit Facility
permits unsecured borrowings up to $45,000. At December 31, 1996 and 1997, the
weighted average interest rate on outstanding borrowings was approximately 6.6%
and 6.73% respectively.
The U.S. Operating Company's Revolving Credit Facility contains certain
restrictions and requires the U.S. Operating Company to maintain certain
financial ratios, including limitations on the payment of cash dividends and
maintaining profit before interest and taxes at least 2.5 times interest
expense. Additionally, the U.S. Operating Company's Revolving Credit Facility
requires the maintenance of net worth (as defined). The U.S. Operating Company
was in compliance with the requirements at December 31, 1997 and required net
worth was $56,307.
On May 1, 1996, the U.S. Operating Company issued $9,000 of Industrial
Development Revenue Bonds ("Bonds"). The Bonds are at variable interest rates.
At December 31, 1996 and 1997, the interest rate on the bonds was 5.1% and 4.7%,
respectively. The Bonds are secured by a bank letter of credit. The bonds
contain certain covenants and restrictions similar to those included in the U.S.
Operating Company's Revolving Credit Facility. At December 31, 1997, the U.S.
Operating Company was in compliance with these requirements.
F-17
<PAGE> 88
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 15, 1997, the U.S. Operating Company issued $25,000 of 6.68%
Senior Notes ("Senior Notes"). The Senior Notes have scheduled annual repayments
starting with December 15, 2001 through December 15, 2007. The Senior Notes
contain certain restrictions and require the maintenance of certain financial
ratios which are similar to the U.S. Operating Company's Revolving Credit
Facility. At December 31, 1997, the U.S. Operating Company was in compliance
with these requirements.
Payments required on long-term debt outstanding as of December 31, 1997,
during the years 1998 through 2002 and for years thereafter, are $952, $930,
$858, $18,140, $27,000 and $28,270, respectively.
The Company from time to time employs off-balance sheet financial
instruments to reduce its exposure to fluctuations in interest rates. These
instruments include interest rate caps and swaps. The Company designates
interest rate swaps as hedges of LIBOR-based bank debt, and accrues as interest
expense the differential to be paid or received under the agreements as rates
change over the lives of the contracts.
The Company continually monitors its positions with, and the credit quality
of, the financial institutions which are counterparties to its off-balance sheet
financial instruments and does not expect non-performance by the counterparties.
At December 31, 1996, the Company had $20,000 (notional amount) of interest
rate contracts outstanding. At December 31, 1996, the carrying value was $0, and
the estimated fair value was approximately $108. There were no interest rate
contracts outstanding as of December 31, 1997. The fair market value is
calculated by an independent party and is the amount that would be received if
the contract was terminated.
The Company also maintains revolving credit facilities, notes payable and
bankers' acceptances for its European and other operations. The German Operating
Company's credit agreement contains restrictions similar to those in the U.S.
Operating Company's agreements. The German Operating Company was in compliance
with the requirements at December 31, 1997 and required net worth was $10,920.
At December 31, 1997, accounts receivable, inventories, property, plant and
machinery and equipment in the amount of $27,688 were pledged as collateral
under these European and other operations credit facilities.
The weighted average interest rates on short-term borrowings at year-end
were 7.5% in 1995, 6.6% in 1996 and 6.8% in 1997.
The status of lines of credit as of December 31, 1996, and 1997, is
summarized below:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Lines of credit
Used................................... $70,283 $74,696
Unused................................. 51,501 51,975
</TABLE>
Interest paid was $6,707, $6,826 and $8,107 for 1995, 1996 and 1997,
respectively.
The fair market value of long-term debt at December 31, 1996 and 1997
approximates the amounts recorded in the balance sheet based on information
available to the Company with respect to interest rates and terms for similar
financial instruments.
(11) STOCKHOLDERS' EQUITY:
On May 17, 1995 the Company sold 850,000 newly issued shares to a group of
management. The net proceeds of $3,400 were used to reduce borrowings. On May
30, 1995 the Company purchased 675,000 of its shares from an existing
shareholder for $2,700.
(12) RELATED-PARTY TRANSACTIONS:
Sauer Hydraulik leases certain property, plant and equipment to the German
Operating Company. The German Operating Company has the option to purchase the
property leased from Sauer Hydraulik at fair
F-18
<PAGE> 89
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market value. On April 16, 1998, the Company exercised its purchase option. See
Footnote 17. Rent expense associated with the leased property was $2,795, $2,633
and $2,278 for 1995, 1996 and 1997, respectively.
Minimum rental commitments of the German Operating Company required under
all non-cancelable leases with Sauer Hydraulik as of December 31, 1997, are
$2,202 during each of the years 1998 through 2002, and $8,810 thereafter.
(13) COMMITMENTS AND CONTINGENCIES:
The Company leases certain facilities and equipment under operating leases,
many of which contain renewal options. Total rental expense on all operating
leases during 1995, 1996 and 1997 was $4,855, $5,484 and $5,835, respectively.
Minimum future rental commitments under all non-cancelable leases as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1998............................................... $ 5,365
1999............................................... 4,608
2000............................................... 4,322
2001............................................... 4,164
2002............................................... 3,900
2003 and after..................................... 10,745
-------
$33,104
=======
</TABLE>
The Company is involved in certain legal proceedings in the ordinary course
of its business. Management does not believe that the outcome of such
proceedings will have a material adverse effect upon the Company's financial
position or results of operations.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1996 --
Net sales................. $133,981 $125,064 $ 99,093 $109,428 $467,566
Gross profit.............. 34,535 30,376 22,534 26,087 113,532
Net income................ 5,890 6,071 3,070 3,867 18,898
Basic and diluted net
income per common
share --............... .24 .25 .13 .16 .78
1997 --
Net sales................. 135,860 146,273 118,906 134,134 535,173
Gross profit.............. 34,520 39,143 30,023 27,422 131,108
Net income................ 7,894 10,258 5,512 3,465 27,129
Basic and diluted net
income per common
share --............... .33 .42 .23 .14 1.12
</TABLE>
F-19
<PAGE> 90
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) SEGMENT AND GEOGRAPHIC INFORMATION:
The Company has two reportable segments defined by geographic region due to
the difference in economic characteristics in which these segments operate. The
activities of each reportable segment consists of the design, manufacture and
sale of hydraulic systems and other related components.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates individual
segment performance based on net income. Intersegment sales are made at
established transfer prices. The following table presents the significant items
by segment:
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ALL OTHER ELIMINATIONS TOTAL
------------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
1995
Trade sales............. $247,380 $199,394 $ -- $ -- $446,774
Intersegment sales...... 30,588 21,640 -- (52,228)(1) --
Interest income......... 747 341 112 (925)(2) 275
Interest expense........ 1,864 4,562 1,431 (925)(2) 6,932
Depreciation and
amortization......... 10,846 8,596 456 -- 19,898
Net income (loss)....... 17,238 14,395 (1,698) (3,355)(3) 26,580
Total assets............ 144,718 167,208 129,632 (137,321)(4) 304,237
Capital expenditures.... 26,504 19,185 -- -- 45,689
1996
Trade sales............. $272,780 $194,627 $ 159 $ -- $467,566
Intersegment sales...... 25,343 28,344 -- (53,687)(1) --
Interest income......... 1,377 212 411 (1,436)(2) 564
Interest expense........ 2,760 3,864 1,335 (1,436)(2) 6,523
Depreciation and
amortization......... 13,358 10,993 479 -- 24,830
Net income (loss)....... 18,471 6,543 (3,094) (3,022)(3) 18,898
Total assets............ 173,325 173,655 133,287 (142,740)(4) 337,527
Capital expenditures.... 24,556 31,550 178 -- 56,284
1997
Trade sales............. $332,974 $201,130 $ 1,069 $ -- $535,173
Intersegment sales...... 36,557 32,424 582 (69,563)(1) --
Interest income......... 1,441 518 228 (1,489)(2) 698
Interest expense........ 3,692 5,028 1,074 (1,489)(2) 8,305
Depreciation and
amortization......... 13,834 11,230 771 -- 25,835
Net income (loss)....... 26,873 6,142 (1,500) (4,386)(3) 27,129
Total assets............ 202,335 184,533 159,223 (155,188)(4) 390,903
Capital expenditures.... 41,781 24,851 118 -- 66,750
</TABLE>
Reconciliations:
(1) Elimination of intersegment sales.
(2) Elimination of intersegment interest income and expense from borrowings
made between segments.
F-20
<PAGE> 91
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) Net income eliminations:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Minority interest in German Operating
Company............................... $ (2,954) $ (2,707) $ (4,001)
Intersegment profit on intersegment
sales................................. (401) (315) (385)
--------- --------- ---------
Total net income eliminations........... $ (3,355) $ (3,022) $ (4,386)
========= ========= =========
</TABLE>
(4) Total assets eliminations:
<TABLE>
<S> <C> <C> <C>
Investment in subsidiaries.............. $(121,873) $(127,415) $(137,095)
Intersegment receivables................ (16,058) (13,783) (16,230)
Intersegment profit in inventory........ 610 (1,542) (1,863)
--------- --------- ---------
Total assets eliminations............... $(137,321) $(142,740) $(155,188)
========= ========= =========
</TABLE>
A summary of the Company's net sales by product line is presented below:
<TABLE>
<CAPTION>
NET SALES
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Hydrostatic transmissions.................. $339,945 $350,847 $408,802
Gear pumps and motors...................... 63,094 64,218 64,414
Electrohydraulics and others............... 43,735 52,501 61,957
-------- -------- --------
Total............................ $446,774 $467,566 $535,173
======== ======== ========
</TABLE>
A summary of the Company's net sales and long-lived assets by geographic
area is presented below :
<TABLE>
<CAPTION>
LONG-LIVED
NET SALES(1) ASSETS(2)
-------------------------------- --------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
United States........ $227,264 $247,339 $272,783 $ 75,974 $106,120
Germany.............. 48,294 45,909 49,931 28,625 26,517
United Kingdom....... 41,043 39,428 39,050 18,577 19,400
Other countries...... 130,173 134,890 173,409 32,940 44,067
-------- -------- -------- -------- --------
Total...... $446,774 $467,566 $535,173 $156,116 $196,104
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Net sales are attributed to countries based on location of customer.
(2) Long-lived assets include property, plant and equipment net of accumulated
depreciation, intangible assets net of accumulated amortization and certain
other long-term assets.
No single customer accounted for 10% or more of total consolidated sales in
any year presented.
F-21
<PAGE> 92
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) SAUER INC. (PARENT ONLY) FINANCIAL STATEMENTS:
The condensed financial statements of Sauer Inc. (the parent company) are
presented below:
SAUER INC. (PARENT ONLY)
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets --
Cash................................................. $ 546 $ 19
Other current assets................................. -- 2,116
-------- --------
Total current assets......................... 546 2,135
Receivables from subsidiaries.......................... 3,896 4,669
Intangible assets, net................................. 812 391
Equity investment in subsidiaries*..................... 89,358 101,924
Other.................................................. 619 4,479
-------- --------
$ 95,231 $113,598
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................................... $ 6,212 $ 1,913
Long-term debt......................................... 15,000 15,000
Payables to subsidiaries............................... 3,145 3,023
Other long term liabilities............................ -- 8,361
-------- --------
Total liabilities............................ 24,357 28,297
-------- --------
Stockholders' equity --
Common stock, par value $.01 per share, authorized
45,000,000 in 1996 and 1997; issued 24,900,000 and
outstanding 24,225,000 shares in 1996 and 1997.... 249 249
Additional paid-in capital........................... 74,900 74,723
Cumulative translation adjustment.................... 5,029 256
Retained earnings (deficit).......................... (6,604) 12,773
Common stock in treasury (at cost), 675,000 shares in
1996 and 1997..................................... (2,700) (2,700)
-------- --------
Total stockholders' equity................... 70,874 85,301
-------- --------
$ 95,231 $113,598
======== ========
</TABLE>
- ---------------
* Equity investment in subsidiaries, net, reported in the above condensed
balance sheet as of December 31, 1997, includes $59,254 and $21,905 of net
worth related to the U.S. and German Operating Companies, respectively. The
U.S. Operating Company is subject to financial covenants related to its
Revolving Credit Facility that, among other things, require that the U.S.
Operating Company maintain net worth (as defined) of not less than the sum of
$46,800, plus 35% of the U.S. Operating Company's quarterly net income, if
positive, for each fiscal quarter ending on or after March 31, 1997. At
December 31, 1997, required net worth was $56,307. The German Operating
Company is subject to similar financial covenants that require the German
Operating Company to maintain net worth of not less than 15% of total assets.
At December 31, 1997, required net worth was $10,920.
F-22
<PAGE> 93
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SAUER INC. (PARENT ONLY)
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Equity earnings of subsidiaries............. $ 26,762 $ 16,990 $ 28,567
Expenses, net --
Selling, general and administrative....... 4,988 3,298 5,921
Interest expense.......................... 1,319 927 735
Other expense, net........................ (108) 389 (31)
----------- ----------- -----------
Expenses, net.......................... 6,199 4,614 6,625
----------- ----------- -----------
Income from operations before income
taxes................................ 20,563 12,376 21,942
Benefit for income taxes.................... 6,017 6,522 5,187
----------- ----------- -----------
Net income............................. $ 26,580 $ 18,898 $ 27,129
=========== =========== ===========
Basic and diluted net income per common
share..................................... $ 1.10 $ .78 $ 1.12
=========== =========== ===========
Basic and diluted weighted average common
shares outstanding........................ 24,187,500 24,225,000 24,225,000
=========== =========== ===========
</TABLE>
F-23
<PAGE> 94
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SAUER INC. (PARENT ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities --
Net income....................................... $ 26,580 $ 18,898 $ 27,129
Adjustments to reconcile net income to net cash
provided by operating activities --
Equity earnings of subsidiaries............... (26,762) (16,990) (28,567)
Dividends received from subsidiaries.......... 14,805 16,200 21,879
Depreciation and amortization................. 456 422 421
Change in working capital..................... 3,990 (3,522) (6,415)
Other......................................... (3,707) (272) 3,353
-------- -------- --------
Net cash provided by operating activities... 15,362 14,736 17,800
-------- -------- --------
Cash flows used in investing activities --
Contributions to subsidiaries.................... (2,091) (4,442) (9,680)
-------- -------- --------
Cash flows from financing activities --
Repayments of long-term debt..................... -- (5,000) --
Net financing from (to) subsidiaries............. (6,212) 2,982 (895)
Sale of common stock............................. 3,400 -- --
Purchase of common stock......................... (2,700) -- --
Cash dividends................................... (7,738) (7,752) (7,752)
-------- -------- --------
Net cash used in financing activities....... (13,250) (9,770) (8,647)
-------- -------- --------
Cash --
Net increase (decrease) during the year.......... 21 524 (527)
Beginning balance................................ 1 22 546
-------- -------- --------
Ending balance................................... $ 22 $ 546 $ 19
======== ======== ========
</TABLE>
(17) SUBSEQUENT EVENTS:
On March 12, 1998, the Board of Directors authorized a class of preferred
stock with 300 shares authorized at $.01 par value. No preferred shares have
been issued.
On April 6, 1998, the Board of Directors adopted, and on April 22, 1998,
the Stockholders approved, an amendment to the Certificate of Incorporation
increasing the number of authorized shares of common stock from 3,000 to
45,000,000 and an increase in the number of shares of authorized preferred stock
from 300 to 4,500,000.
On April 7, 1998, the Board of Directors adopted, and on April 22, 1998,
the Stockholders approved, a 12,500-for-1 common stock split, in the form of a
reclassification and exchange, increasing the number of shares of common stock
issued and outstanding from 1,992 and 1,938, respectively, to 24,900,000 and
24,225,000, respectively, and the par value of a share of common stock was
reduced from $5,000 to $.01. As a result of the reduction in the par value of
the common stock, the amount of the Company's common stock was reduced by
transferring $9,711,000 from the common stock account to the additional
paid-in-capital account. The financial statements (including share and per share
amounts) have been restated to reflect these actions.
On April 16, 1998, Sauer Hydraulik signed an agreement to sell property,
plant and equipment, which was previously leased, at fair market value, as
determined by an independent appraisal, to the German Holding Company, in
exchange for a note payable and assumption of a mortgage. The transaction is
expected to be consummated on May 1, 1998.
F-24
<PAGE> 95
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 1
Risk Factors............................ 8
The Combined Offering................... 12
Use of Proceeds......................... 13
Dilution................................ 13
Dividend Policy......................... 14
Capitalization.......................... 15
Shares Eligible for Future Sale......... 16
Selected Consolidated Financial Data.... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
Business................................ 25
Management.............................. 40
Relationship with Principal
Stockholder........................... 50
Principal and Selling Stockholders...... 53
Description of Capital Stock............ 54
Certain United States Federal Tax
Consequences for Non-U.S. Holders..... 59
Underwriting............................ 62
Notice to Canadian Residents............ 64
Legal Opinions.......................... 65
Experts................................. 65
Available Information................... 66
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
[SAUER INC. LOGO]
9,000,000 Shares
Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
DEUTSCHE MORGAN GRENFELL
- ------------------------------------------------------
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable in connection
with the offering of the shares being registered hereby, other than underwriting
discounts and commissions. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee and the NASD filing fee. All
of such expenses are being borne by the Company.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 54,959
NASD filing fee............................................. 19,130
NYSE listing fee............................................ 50,000
FSE listing fee............................................. 25,000
Accounting fees and expenses................................ 550,000
Legal fees and expenses..................................... 1,100,000
Blue Sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 600,000
Registrar and transfer agent's fees......................... 25,000
Miscellaneous fees and expenses............................. 100,911
----------
Total............................................. $2,535,000
==========
</TABLE>
The Selling Stockholders are not paying any portion of such expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder, eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the Company eliminates the personal liability of
directors to the fullest extent permitted by Delaware law.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any suit or proceeding other than by or on behalf of the
corporation, if they acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to a criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided such
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Article Ninth of the Restated Certificate of Incorporation of the Company
provides for the indemnification of officers and directors and certain other
parties of the Company to the fullest extent permitted by law. In addition, the
Company has entered into Indemnification Agreements with its directors and
certain officers pursuant to which the Company generally is obligated to
indemnify its directors and officers to the maximum extent permitted by law. The
Company also maintains directors and officers liability insurance.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Company, the Selling Stockholders, the Company's directors and officers,
and persons who control the Company within the meaning of Section 15 of the
Securities Act for certain liabilities.
II-1
<PAGE> 97
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past year, the U.S. Operating Company issued securities which
were not registered under the Securities Act of 1933, as amended (the
"Securities Act"), as follows:
On December 15, 1997, Sauer-Sundstrand Company issued and sold $25,000,000
aggregate principal amount of its 6.68% Senior Notes due December 15, 2007. The
Notes were sold at 100% of the principal amount to Massachusetts Mutual Life
Insurance Company and CM Life Insurance Company, institutions which are
qualified institutional buyers as defined in Rule 144A under the Securities Act.
Exemption from registration for the issuance of the Notes was claimed under Rule
144A of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1(a)* Form of Underwriting Agreement among the Company, the
Selling Stockholders and the U.S. Underwriters............
1.1(b)* Form of Subscription Agreement among the Company, the
Selling Stockholders and the Managers.....................
1.1(c)* Form of Agreement between the U.S. Underwriters and the
Managers..................................................
3.1(a)+ Restated Certificate of Incorporation of the Company........
3.1(b)* Certificate of Amendment to Amended and Restated Certificate
of Incorporation of Sauer Inc.............................
3.1(c)* Restated Certificate of Incorporation of the Company........
3.2+ Restated By-laws of the Company.............................
4.1* Form of Certificate of the Company's Common Stock, $.01 par
value.....................................................
5.1* Opinion of Shearman & Sterling re legality..................
10.1(a)* Amended and Restated Agreement Regarding the Establishment
of a Silent Partnership Agreement.........................
10.1(b)* Registration Rights Agreement...............................
10.1(c)* Indemnification Agreement...................................
10.1(d)* Purchase Agreement For Neumunster, Germany Facility.........
10.1(e)* Lease Agreement For Neumunster, Germany Facility............
10.1(f)* Lease Agreement For Dubnica, Slovakia Facility..............
10.1(g)* Lease Agreement For Swindon, England Facility...............
10.1(h)* Lease Agreement For Minneapolis, Minnesota Facility.........
10.1(i)* Lease Agreement For Newtown, Pennsylvania Facility..........
10.1(j)* Lease Agreement For Shanghai/Pudong China Facility..........
10.1(k)* Employment Contract With Klaus Murmann......................
10.1(l)* Employment Contract With Tonio Barlage......................
10.1(m)* Employment Contract With Thomas Kittel......................
10.1(n)* Sauer Inc. Phantom Share Plan...............................
10.1(o)* Sauer Inc. Bonus Plan.......................................
10.1(p)* Sauer Inc. 1998 Long-Term Incentive Plan....................
10.1(q)* Sauer Inc. Non-employee Director Stock Option and Restricted
Stock Plan................................................
10.1(r)* Sauer Inc. Management Incentive Plan........................
10.1(s)* Sauer-Sundstrand Employees' Retirement Plan.................
10.1(t)* Sauer-Sundstrand Company Supplemental Retirement Benefit
Plan For Certain Key Executives...........................
10.1(u)* Sauer-Sundstrand Company Supplemental Retirement Benefit
Plan For Certain Key Executives Previously Employed By The
Sundstrand Corporation....................................
10.1(v)* Sauer-Sundstrand Employees' Savings & Retirement Plan.......
10.1(w)* Retirement Benefits Agreement for Klaus Murmann.............
</TABLE>
II-2
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.1(x)* Retirement Benefits Agreement for Tonio Barlage.............
10.1(y)* European Employees' Pension Plan............................
21.1* Subsidiaries of the Company.................................
23.1* Consent of Arthur Andersen LLP..............................
23.2* Consent of Shearman & Sterling (included in Exhibit 5.1)....
24.1(a)+ Power of Attorney (included on page II-4)...................
24.1(b)* Power of Attorney...........................................
27.1* Financial Data Schedule.....................................
</TABLE>
- ---------------
* Filed herewith
+ Previously filed
(b) Financial Statement Schedule
The following financial statement schedule is filed as part of this
Registration Statement:
Report of Independent Public Accountants with respect to Financial
Statement Schedule
Schedule II: Valuation and Qualifying Accounts
All other schedules except those listed are omitted because they are either
not required, not applicable or the required information is included in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Ames, State
of Iowa, on the 23rd day of April, 1998.
SAUER INC.
By: /s/ KENNETH D. MCCUSKEY
------------------------------------
Name: Kenneth D. McCuskey
Title: Treasurer-Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated below, on this 23rd day of April, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* Chairman and Chief Executive Officer
- -----------------------------------------------------
Klaus H. Murmann
* President and Chief Operating Officer
- -----------------------------------------------------
Tonio P. Barlage
* Executive Vice President
- -----------------------------------------------------
David L. Pfeifle
/s/ KENNETH D. MCCUSKEY Treasurer-Secretary
- -----------------------------------------------------
Kenneth D. McCuskey
* Director
- -----------------------------------------------------
Nicola Keim
* Director
- -----------------------------------------------------
Johannes F. Kirchhoff
* Director
- -----------------------------------------------------
Sven Murmann
* Director
- -----------------------------------------------------
Agustin A. Ramirez
* Director
- -----------------------------------------------------
Richard M. Schilling
*By: /s/ KENNETH D. MCCUSKEY
------------------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 100
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FINANCIAL STATEMENT SCHEDULE
To the Shareholders of SAUER INC. AND SUBSIDIARIES:
We have audited in accordance with generally accepted auditing standards,
the financial statements of SAUER INC. AND SUBSIDIARIES included in this
registration statement and have issued our report thereon dated February 27,
1998 (except with respect to the matters discussed in Note 3 and Note 17, as to
which the date is April 22, 1998). Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index in Item 16(b) is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
February 27, 1998
<PAGE> 101
SCHEDULE II
SAUER INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO BALANCE AT
BEGINNING COSTS AND RECEIVABLES END OF
OF YEAR EXPENSES WRITTEN OFF YEAR
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1995:
Allowance for Doubtful Accounts.............. $2,685 $ 924 $(203) $3,406
For the year ended December 31, 1996:
Allowance for Doubtful Accounts.............. $3,406 $ (429) $(287) $2,690
For the year ended December 31, 1997:
Allowance for Doubtful Accounts.............. $2,690 $1,110 $(605) $3,195
</TABLE>
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S> <C>
1.1(a)* Form of Underwriting Agreement among the Company, the
Selling Stockholders and the U.S. Underwriters............
1.1(b)* Form of Subscription Agreement among the Company, the
Selling Stockholders and the Managers.....................
1.1(c)* Form of Agreement between the U.S. Underwriters and the
Managers..................................................
3.1(a)+ Restated Certificate of Incorporation of the Company........
3.1(b)* Certificate of Amendment to Amended and Restated Certificate
of Incorporation of Sauer Inc.............................
3.1(c)* Restated Certificate of Incorporation of the Company........
3.2+ Restated By-laws of the Company.............................
4.1* Form of Certificate of the Company's Common Stock, $.01 par
value.....................................................
5.1* Opinion of Shearman & Sterling re legality..................
10.1(a)* Amended and Restated Agreement Regarding the Establishment
of a Silent Partnership Agreement.........................
10.1(b)* Registration Rights Agreement...............................
10.1(c)* Indemnification Agreement...................................
10.1(d)* Purchase Agreement For Neumunster, Germany Facility.........
10.1(e)* Lease Agreement For Neumunster, Germany Facility............
10.1(f)* Lease Agreement For Dubnica, Slovakia Facility..............
10.1(g)* Lease Agreement For Swindon, England Facility...............
10.1(h)* Lease Agreement For Minneapolis, Minnesota Facility.........
10.1(i)* Lease Agreement For Newtown, Pennsylvania Facility..........
10.1(j)* Lease Agreement For Shanghai/Pudong China Facility..........
10.1(k)* Employment Contract With Klaus Murmann......................
10.1(l)* Employment Contract With Tonio Barlage......................
10.1(m)* Employment Contract With Thomas Kittel......................
10.1(n)* Sauer Inc. Phantom Share Plan...............................
10.1(o)* Sauer Inc. Bonus Plan.......................................
10.1(p)* Sauer Inc. 1998 Long-Term Incentive Plan....................
10.1(q)* Sauer Inc. Non-employee Director Stock Option and Restricted
Stock Plan................................................
10.1(r)* Sauer Inc. Management Incentive Plan........................
10.1(s)* Sauer-Sundstrand Employees' Retirement Plan.................
10.1(t)* Sauer-Sundstrand Company Supplemental Retirement Benefit
Plan For Certain Key Executives...........................
10.1(u)* Sauer-Sundstrand Company Supplemental Retirement Benefit
Plan For Certain Key Executives Previously Employed By The
Sundstrand Corporation....................................
10.1(v)* Sauer-Sundstrand Employees' Savings & Retirement Plan.......
10.1(w)* Retirement Benefits Agreement for Klaus Murmann.............
10.1(x)* Retirement Benefits Agreement for Tonio Barlage.............
10.1(y)* European Employees' Pension Plan............................
21.1* Subsidiaries of the Company.................................
23.1* Consent of Arthur Andersen LLP..............................
23.2* Consent of Shearman & Sterling (included in Exhibit 5.1)....
24.1(a)+ Power of Attorney (included on page II-4)...................
24.1(b)* Power of Attorney...........................................
27.1* Financial Data Schedule.....................................
</TABLE>
- ---------------
* Filed herewith
+ Previously filed
<PAGE> 1
S&C Draft of April 22, 1998
Exhibit 1.1(a)
____________ SHARES
SAUER INC.
COMMON STOCK
[DRAFT] UNDERWRITING AGREEMENT
May __, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE MORGAN GRENFELL INC.
SMITH BARNEY INC.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629.
Dear Sirs:
1. Introductory. Sauer Inc., a Delaware corporation ("Company"),
proposes to issue and sell shares of its Common Stock, par value $.01 per share
("Securities"), and the stockholders listed in Schedule A hereto ("Selling
Stockholders") propose severally to sell an aggregate of outstanding
shares of Securities (together, "U.S. Firm Securities") to the several
underwriters ("Underwriters") named in Schedule B hereto ("U.S. Offering").
It is understood that the Company is concurrently entering into a
Subscription Agreement, dated the date hereof ("Subscription Agreement"), with
Credit Suisse First Boston (Europe) Limited ("CSFBL"), Morgan Grenfell & Co.
Limited, Smith Barney Inc. and the other managers named therein ("Managers")
relating to the concurrent offering and sale of shares of Securities
("International Firm Securities") outside the United States and Canada
("International Offering").
In addition, as set forth below Klaus H. Murmann and K. Murmann & Co.
K.G., Selling Stockholders, propose to sell (i) to the Underwriters, at the
option of the Underwriters, an aggregate of not more than additional shares
of Securities ("U.S. Optional Securities") and (ii) to the Managers, at the
option of the Managers, an aggregate of not more than additional shares of
Securities ("International Optional Securities"). The U.S. Firm Securities and
the U.S. Optional Securities are hereinafter called the "U.S. Securities"; the
International Firm Securities and the International Optional Securities are
hereinafter called the "International Securities"; the U.S. Firm Securities and
the International Firm Securities are hereinafter called the "Firm Securities";
the U.S. Optional Securities and the International Optional Securities are
hereinafter called the "Optional Securities"; and the U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and Managers which permits them, among other things, to sell the
Offered Securities to each other for purposes of resale.
2. Representations and Warranties of the Company and the Selling
Stockholders. A. The Company represents and warrants to, and agrees with, the
several Underwriters that:
<PAGE> 2
(a) A registration statement (No. 333- ) relating to the
Offered Securities, including a form of prospectus relating to the U.S.
Securities, has been filed with the Securities and Exchange Commission
("Commission") and either (i) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or
(ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement (the "initial registration
statement") has been declared effective, either (A) an additional
registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the
Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and,
if so filed, has become effective upon filing pursuant to such Rule and
the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (B) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such rule and upon such filing the Offered Securities will all have
been duly registered under the Act pursuant to the initial registration
statement and such additional registration statement. If the Company
does not propose to amend the initial registration statement or if an
additional registration statement has been filed and the Company does
not propose to amend it, and if any post-effective amendment to either
such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes of
this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery
of this Agreement, the additional registration statement means (i) if
the Company has advised the Representatives that it does not propose to
amend such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (ii) if the Company
has advised the Representatives that it proposes to file an amendment
or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that it
proposes to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration statement,
as amended at its Effective Time, including all information contained
in the additional registration statement (if any) and deemed to be a
part of the initial registration statement as of the Effective Time of
the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, if any,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the U.S. Securities, as
first filed with the Commission pursuant to and in accordance with Rule
424(b) ("Rule 424(b)") under the Act or (if no such filing is required)
as included in the Registration Statement, is hereinafter referred to
as the "U.S. Prospectus", and the form of prospectus relating to the
International Securities, which is identical to the U.S. Prospectus
except for the outside front cover page, the inside front cover page,
the outside back cover page and the text under the captions
"Underwriting" and "Subscription and Sale" in the U.S.
-2-
<PAGE> 3
Prospectus and the form of prospectus relating to the International
Securities, respectively (copies of such pages and text having been
heretofore delivered to CSFBL on behalf of the Managers), is
hereinafter referred to as the "International Prospectus"; and the U.S.
Prospectus and the International Prospectus are hereinafter
collectively referred to as the "Prospectuses". No document has been or
will be prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) on the Effective Date of the Additional Registration Statement (if
any), each Registration Statement conformed, or will conform, in all
respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the U.S. Prospectus pursuant to
Rule 424(b) or (if no such filing is required) at the Effective Date of
the Additional Registration Statement in which the U.S. Prospectus is
included, each Registration Statement and the U.S. Prospectus will
conform in all respects to the requirements of the Act and the Rules
and Regulations, and none of such documents, nor the International
Prospectus, includes or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the U.S. Prospectus
will conform in all respects to the requirements of the Act and the
Rules and Regulations, none of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no Additional Registration Statement has
been or will be filed. The two preceding sentences do not apply to
statements in or omissions from a Registration Statement or either of
the Prospectuses based upon written information furnished to the
Company by any Underwriter through the Representatives or by any
Manager through CSFBL specifically for use therein, it being understood
and agreed that the only such information is that described as such in
Section 7(b) hereof and Section 7(b) of the Subscription Agreement.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectuses; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated
(or organized) and is an existing corporation (or other organization)
in good standing under the laws of the jurisdiction of its
incorporation (or organization), with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectuses; and each subsidiary of the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would
not have a material adverse
-3-
<PAGE> 4
effect on the Company and its subsidiaries, taken as a whole; all of
the issued and outstanding capital stock (or other ownership interests)
of each subsidiary of the Company has been duly authorized and validly
issued and is fully paid and nonassessable; and the capital stock (or
other ownership interests) of each subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement and the Subscription Agreement on each Closing Date (as
defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description
thereof contained in the Prospectuses; and the stockholders of the
Company have no preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter or Manager for a brokerage commission, finder's fee or
other like payment in connection with this offering.
(g) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
(h) The Offered Securities have been approved for listing on
the New York Stock Exchange and the Frankfurt Stock Exchange subject to
notice of issuance.
(i) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the
Subscription Agreement in connection with the issuance and sale of the
Offered Securities to be sold by the Company, except such as have been
obtained and made under the Act and such as may be required under state
securities laws.
(j) The execution, delivery and performance of this Agreement
and the Subscription Agreement, and the issuance and sale of the
Offered Securities to be sold by the Company, will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject that is material to the
Company and its subsidiaries, taken as a whole, or the charter or
by-laws of the Company or any such subsidiary, and the Company has full
power and authority to authorize, issue and sell the Offered Securities
to be sold by the Company as contemplated by this Agreement and the
Subscription Agreement, respectively.
(k) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company.
(l) Except as disclosed in the Prospectuses, the Company and
its subsidiaries have good and marketable title to all material real
properties and all other material properties and assets owned by
-4-
<PAGE> 5
them, in each case free from liens, encumbrances and defects that would
materially affect the value thereof or materially interfere with the
use made or to be made thereof by them; and except as disclosed in the
Prospectuses, the Company and its subsidiaries hold any material leased
real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be
made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them and have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(o) The Company and its subsidiaries own, possess or can
acquire on reasonable terms adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by them, or presently employed by them, and have not received
any notice of infringement of or conflict with asserted rights of
others with respect to any intellectual property rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(p) Except as disclosed in the Prospectuses, neither the
Company nor any of its subsidiaries is in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), owns or operates
any real property contaminated with any substance that is subject to
any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectuses, there are no
pending actions, suits or proceedings against or affecting the Company,
any of its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement or the Subscription
Agreement, or which are otherwise material in the context of the sale
of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with the
generally accepted accounting principles in the
-5-
<PAGE> 6
United States applied on a consistent basis; and the schedules included
in each Registration Statement present fairly the information required
to be stated therein.
(s) Except as disclosed in the Prospectuses, since the date of
the latest audited financial statements included in the Prospectuses
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectuses, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectuses, will not be an
"investment company" as defined in the Investment Company Act of 1940.
B. Each Selling Stockholder severally represents and warrants
to, and agrees with, the several Underwriters that:
(a) Such Selling Stockholder has and on each Closing Date (as
defined below) will have valid and unencumbered title to the Offered
Securities (or security entitlement thereto) to be delivered by such
Selling Stockholder on such Closing Date and full right, power and
authority to enter into this Agreement and the Subscription Agreement
and to sell, assign, transfer and deliver the Offered Securities to be
delivered by such Selling Stockholder on such Closing Date hereunder;
and upon the delivery of and payment for the Offered Securities on each
Closing Date hereunder the several Underwriters and Managers will
acquire valid and unencumbered title to the Offered Securities (or
security entitlement thereto) to be delivered by such Selling
Stockholder on such Closing Date.
(b) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between such Selling
Stockholder and any person that would give rise to a valid claim
against such Selling Stockholder or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this
offering.
(c) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by any Selling Stockholder for the consummation of the
transactions contemplated by the Custody Agreement or this Agreement in
connection with the sale of the Offered Securities sold by the Selling
Stockholder, except such as have been obtained and made under the Act
and such as may be required under state securities laws.
C. Klaus H. Murmann represents and warrants to, and agrees with, the
several Underwriters that:
[(a) If the Effective time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the Rules and Regulations and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (iii)
on the date of this Agreement, the Initial Registration Statement and,
if the Effective Time of the Additional Registration Statement is prior
to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of each
of the Prospectuses pursuant to Rule 424(b) or (if no such filing is
required) at the
-6-
<PAGE> 7
Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and none of such documents includes,
or will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
and each of the Prospectuses will conform in all respects to the
requirements of the Act and the Rules and Regulations, none of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or either of the Prospectuses based upon written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b) and Section 7(b) of the Subscription Agreement].
(b) He will use the proceeds of the offering to repay [loans
made in connection with the purchase of Securities from ]
D. Klaus H. Murmann, on behalf of the Murmann family and
affiliated entities, represents and warrants to, and agrees with the several
Underwriters, for the benefit of the holders from time to time of the Securities
that they will not cause the Company and the limited partners (Stille
Gesellschafter) to amend the limited partnership (Stille Gesellschaft) agreement
with Sauer-Sundstrand GmbH & Co. to increase the percentage of the Company's
consolidated income before taxes and such limited partners' interests to which
the limited partners are entitled, to change the basis on which the annual cash
payment made by Sauer-Sundstrand GmbH & Co. to such limited partners is computed
in a way that is less favorable to the Company, to increase the percentage of
distributed assets that such limited partners are entitled to receive upon the
liquidation of Sauer-Sundstrand GmbH & Co., will not interfere with actions by
the Company or its independent directors to exercise the rights of
Sauer-Sundstrand GmbH & Co. to terminate the limited partnership agreement, or
in any other way adversely affect the rights of the Company or the holders from
time to time of the Securities of the Company.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and each Selling
Stockholder agree, severally and not jointly, to sell to the Underwriters, and
the Underwriters agree, severally and not jointly, to purchase from the Company
and each Selling Shareholder, at a purchase price of U.S.$ per share, the number
of Firm Securities set forth opposite the name of such Underwriter in Schedule A
hereto. Each Selling Stockholder will sell to each Underwriter its pro rata
share (subject to adjustment by Credit Suisse First Boston Corporation ("CSFBC")
to eliminate fractions) based on the number of Firm Securities to be purchased
by such Underwriter from Selling Stockholders set forth opposite the name of
such Underwriter in Schedule B hereto and the total number of Firm Securities
bought from Selling Stockholders by all Underwriters.
Certificates in negotiable form for the Offered Securities to be sold
by the Selling Stockholders hereunder have been placed in custody, for delivery
under this Agreement and the Subscription Agreement, under Custody Agreements
made with , as custodian ("Custodian"). Each Selling Stockholder agrees that the
shares represented by the certificates held in custody for the Selling
Stockholders under such Custody Agreements are subject to the interests of the
Underwriters hereunder and the Managers under the Subscription Agreement, that
the arrangements made by the Selling Stockholders for such custody are to that
extent irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the death of
any individual Selling Stockholder or the occurrence of any other event, or in
the case of a trust, by the death of any trustee or trustees or the termination
of such trust. If any
-7-
<PAGE> 8
individual Selling Stockholder or any such trustee or trustees should die, or if
any other such event should occur, or if any of such trusts should terminate,
before the delivery of the Offered Securities hereunder, certificates for such
Offered Securities shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement and the Subscription Agreement as if such
death or other event or termination had not occurred, regardless of whether or
not the Custodian shall have received notice of such death or other event or
termination.
The Company and the Custodian will deliver the U.S. Firm Securities to
the Representatives for the accounts of the Underwriters, against payment of the
purchase price in Federal (same day) funds by official bank check or checks or
wire transfer to an account at a bank acceptable to CSFBC drawn to the order of
the Company in the case of shares of the U.S. Firm Securities and to the order
of the Custodian in the case of shares of the U.S. Firm Securities at the office
of Sullivan & Cromwell, 125 Broad Street, New York, New York , at A.M., New York
time, on May , 1998, or at such other time not later than seven full business
days thereafter as CSFBC and the Company determine, such time being herein
referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold pursuant
to the U.S. Offering and the International Offering. The certificates for the
U.S. Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the above office of Sullivan & Cromwell
at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and
Klaus H. Murmann from time to time, but not more than twice and not more than 30
days subsequent to the date of the Prospectuses, the Underwriters may purchase
all or less than all of the U.S. Optional Securities at the purchase price per
Security to be paid for the Firm Securities. The U.S. Optional Securities to be
purchased by the Underwriters on any Optional Closing Date shall be in the same
proportion to all the Optional Securities to be purchased by the Underwriters
and the Managers on such Optional Closing Date as the U.S. Firm Securities bear
to all the Firm Securities. Klaus H. Murmann and K. Murmann & Co. K.G. agree to
sell to the Underwriters the respective numbers of U.S. Optional Securities
obtained by multiplying the number of Optional Securities specified in such
notice by a fraction the numerator of which is the number of shares set forth
opposite the names of such Selling Stockholder in Schedule A hereto under the
caption "Number of Optional Securities to be Sold" and the denominator of which
is the total number of Firm Securities (subject to adjustment by CSFBC to
eliminate fractions), and the Underwriters agree, severally and not jointly, to
purchase such U.S. Optional Securities. Such U.S. Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of U.S. Firm Securities set forth opposite such Underwriter's
name bears to the total number of shares of U.S. Firm Securities (subject to
adjustment by CSFBC to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in connection
with the sale of the U.S. Firm Securities. No Optional Securities shall be sold
or delivered unless the U.S. Firm Securities and the International Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised twice and to the extent not previously exercised may be surrendered
and terminated at any time upon notice by CSFBC on behalf of Underwriters to
Klaus H. Murmann. It is understood that CSFBC is authorized to make payment for
and accept delivery of such Optional Securities on behalf of the Underwriters
and Managers pursuant to the terms of CSFBC's instructions to the Company and
Klaus H. Murmann.
Each time for the delivery of and payment for the U.S. Optional
Securities, being herein referred to as an "Optional Closing Date", which may be
the First Closing Date (the First Closing Date and each Optional Closing Date,
if any, being sometimes referred to as a "Closing Date"), shall be determined by
CSFBC but shall be not later than five full business days after written notice
of election to purchase Optional Securities is given. The Custodian will deliver
the U.S. Optional Securities being purchased on each Optional Closing Date to
the Representatives for the accounts of the several Underwriters, against
payment of the purchase price therefor in Federal (same day) funds by official
bank check or checks or wire transfer to an account at a bank acceptable
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<PAGE> 9
to CSFBC drawn to the order of the Custodian, at the above office of Sullivan &
Cromwell. The certificates for the U.S. Optional Securities will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at the above office of Sullivan &
Cromwell at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the U.S. Securities for sale to the public as set
forth in the U.S. Prospectus.
5. Certain Agreements of the Company, the Selling Stockholders and the
Underwriters. The Company and the Selling Stockholders (solely with respect to
subsections (j) and (k) below) agree with the several Underwriters:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file the U.S. Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement. The Company will
advise CSFBC promptly of any such filing pursuant to Rule 424(b). If
the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the
Offered Securities under the Act but the Effective Time thereof has not
occurred as of such execution and delivery, the Company will file the
additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time
either Prospectus is printed and distributed to any Underwriter or
Manager, or will make such filing at such later date as shall have been
consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus, or the Initial
Registration Statement, the Additional Registration Statement (if any)
or either of the Prospectuses and will not effect such amendment or
supplementation without CSFBC's prior consent; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or either of the Prospectuses and of the
institution by the Commission of any stop order proceedings in respect
of a Registration Statement and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend either or
both of the Prospectuses to comply with the Act, the Company will
promptly notify CSFBC of such event and will promptly prepare and, in
the case of the U.S. Prospectus, file with the Commission, at its own
expense, an amendment or supplement which will correct such statement
or omission or an amendment which will effect such compliance. Neither
CSFBC's consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
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<PAGE> 10
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives four
copies of the Registration Statement (which will be signed and will
include all exhibits), each preliminary prospectus relating to the U.S.
Securities and, so long as a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, the U.S. Prospectus and all
amendments and supplements to such documents, in each case in such
quantities as CSFBC requests. The U.S. Prospectus shall be so furnished
on or prior to 3:00 P.M., New York time, on the business day following
the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other such
documents shall be so furnished as soon as available. The Company will
pay the expenses of printing and distributing to the Underwriters all
such documents.
(f) The Company in cooperation with the Underwriters will
arrange for the qualification of the Offered Securities for sale under
the laws of such jurisdictions in the United States as CSFBC designates
and will continue such qualifications in effect so long as required for
the distribution; provided, however, that the Company shall not be
obligated to file any general consent of service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
(g) During the period of 5 years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company agrees with the several Underwriters that the
Company will pay all expenses incident to the performance of the
respective obligations of the Company and the Selling Stockholders
under this Agreement, and will reimburse the Underwriters for any
filing fees and other expenses (including fees and disbursements of
counsel) in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions in the United States as CSFBC
designates and the printing of memoranda relating thereto, for the
filing fee incidental to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the
National Association of Securities Dealers, Inc. (the "NASD") of the
Offered Securities, for any travel expenses of the Company's officers
and employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the
Offered Securities, for any transfer taxes on the sale by the Selling
Stockholders of the Offered Securities to the Underwriters and for
expenses incurred in distributing preliminary prospectuses and the
Prospectuses (including any amendments and supplements thereto) to the
Underwriters. Nothing in this Section requires the Company to pay for
the non-NASD legal fees of the Underwriters.
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<PAGE> 11
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC except [the issuance or sale of shares of its
Securities in a private placement by the Company as consideration for
the acquisition of another entity or all or substantially all the
assets of another entity, provided the recipient of such shares has
agreed in writing to be bound by the terms of such restrictions for the
remainder of its term, the] grants of employee stock options pursuant
to the terms of a plan in effect on the date hereof and issuances of
Securities pursuant to the exercise of such options, and pursuant to a
winding-up or cancellation of the limited partnership interests.
(j) Each Selling Stockholder agrees to deliver to CSFBC,
attention: Transactions Advisory Group, on or prior to the First
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulation in lieu thereof).
(k) Each Selling Stockholder agrees, for a period of 180 days
after the date of the initial public offering of the offered
Securities, not to offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any additional shares of the
Securities of the Company or securities convertible into or
exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or
disposal, without the prior written consent of CSFBC except for the
transfer to family members, trusts or similar arrangements for bona
fide estate planning reasons or charities, provided the recipient of
such shares has agreed in writing to be bound by the terms of such
restrictions for the remainder of its term and the transfer of shares
bought in market transactions.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the U.S. Firm Securities on
the First Closing Date and the U.S. Optional Securities to be purchased on each
Optional Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective
Time), of Arthur Andersen LLP confirming that they are independent
public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect
that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements as of March 31,
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<PAGE> 12
1998 and for the three-month periods ended March 31, 1997 and 1998
[included in the Registration Statements];
(iii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company who
have responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in
the Registration Statements do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations or
any material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) the unaudited consolidated net sales, net income
and net income per share amounts for the three-month periods
ended March 31, 1997 and 1998 included in the Prospectuses do
not agree with the amounts set forth in the unaudited
consolidated financial statements for those same periods or
were not determined on a basis substantially consistent with
that of the corresponding amounts in the audited statements of
income;
(C) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectuses; or
(D) for the period from the closing date of the
latest income statement included in the Prospectuses to the
closing date of the latest available income statement read by
such accountants there were any decreases, as compared with
the corresponding period of the previous year and with the
period of corresponding length ended the date of the latest
income statement included in the Prospectuses, in consolidated
net sales, net operating income or in the total or per share
amounts of consolidated [income before extraordinary items or]
net income, except in all cases set forth in clauses C and D
above for changes, increases or decreases which the
Prospectuses disclose have occurred or may occur or which are
described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from such records
by analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial
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<PAGE> 13
Registration Statement is prior to the execution and delivery of this
Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time, and (iii) "Prospectuses" shall mean the prospectus
relating to the U.S. Securities included in the Registration Statements
and the corresponding form of prospectus relating to the International
Securities.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date or time as
shall have been consented to by CSFBC. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time either Prospectus is printed
and distributed to any Underwriter or Manager, or shall have occurred
at such later date as shall have been consented to by CSFBC. If the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, the U.S. Prospectus shall
have been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration
Statement shall have been issued and no proceedings for that purpose
shall have been instituted or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company or its subsidiaries which, in the judgment of a majority in
interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
U.S. Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities
generally on the New York Stock Exchange or the Frankfurt Stock
Exchange, or any setting of minimum prices for trading on either such
exchange, or any suspension of trading of any securities of the Company
on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal, New York or German authorities; or
(v) any outbreak or escalation of major hostilities in which the United
States or Germany is involved, any declaration of war by Congress or
Germany or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the
Underwriters including the Representatives, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the U.S. Securities.
(d) The Representatives shall have received an opinion or
opinions, dated such Closing Date, of Shearman & Sterling, counsel for
the Company, to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectuses;
(ii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Common Stock of the
Company have been duly authorized and validly
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<PAGE> 14
issued, are fully paid and nonassessable and conform to the description
thereof contained in the Prospectuses; and the stockholders of the
Company have no preemptive rights with respect to the Securities;
(iii) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the application of
the proceeds thereof as described in the Prospectuses, will not be an
"investment company" as defined in the Investment Company Act of 1940;
(iv) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated by this
Agreement or the Subscription Agreement in connection with the issuance
or sale of the Offered Securities by the Company, except such as have
been obtained and made under the Act and such as may be required under
state securities laws;
(v) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the U.S. Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was included
in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, (i) in such counsel's opinion, each
Registration Statement and the U.S. Prospectus (other than the
financial statements and other financial or statistical data contained
therein or omitted therefrom, as to which such counsel need express no
view), as amended or supplemented, appear on their face to be
appropriately responsive in all material respects to the requirements
of the Act and the applicable Rules and Regulations and (ii) no facts
came to such counsel's attention which gave such counsel reason to
believe that (a) each Registration Statement (other than the financial
statements and other financial or statistical data contained therein or
omitted therefrom, as to which such counsel need express no view), at
the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(b) the U.S. Prospectus (other than the financial statements and other
financial or statistical data contained therein or omitted therefrom,
as to which such counsel may express no view), as of its issue date or
as of such Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; the descriptions in the Registration
Statements and the Prospectuses of statutes, legal and governmental
proceedings and contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel do not
know of any legal or governmental proceedings required to be described
in a Registration Statement or the Prospectuses which are not described
as required or of any contracts or documents of a character required to
be described in a Registration Statement or the Prospectuses or to be
filed as exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial
data contained in the Registration Statement or the Prospectuses;
(vi) This Agreement and the Subscription Agreement
have been duly authorized, executed and delivered by the Company; and
(vii) To such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the
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<PAGE> 15
Company or any Underwriter or Manager for a brokerage commission,
finder's fee or other like payment in connection with this offering.
(e) The Representative shall have received an opinion, dated
such Closing Date, of Spencer Fane Britt & Browne LLP, counsel for the
Company, to the effect that:
(i) The Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business
requires such qualification except to the extent that the failure to be
so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(ii) Except as disclosed in the Prospectuses there
are no contracts, agreements or understandings known to such counsel
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(iii) The execution, delivery and performance of this
Agreement and the Subscription Agreement and the issuance and sale of
the Offered Securities will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any
statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any agreement
or instrument to which the Company or any such subsidiary is a party or
by which the Company or any such subsidiary is bound or to which any of
the properties of the Company or any such subsidiary is subject that is
material to the Company and its subsidiaries, taken as a whole, or the
charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement and the
Subscription Agreement, respectively;
(iv) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the U.S. Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or were
included in the Initial Registration Statement or the Additional
Registration Statement (as the case may be), and, to the best of the
knowledge of such counsel, no stop order suspending the effectiveness
of a Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
U.S. Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that either of the Prospectuses or any amendment or
supplement thereto, as of its issue date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements and the
Prospectuses of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectuses which are not described as
required or of any contracts or documents of a character required to be
described in a
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<PAGE> 16
Registration Statement or the Prospectuses or to be filed as exhibits
to a Registration Statement which are not described and filed as
required; it being understood that such counsel need express no opinion
as to the financial statements or other financial data contained in the
Registration Statement or the Prospectuses;
(v) Each material subsidiary of the Company has been
duly incorporated (or organized) and is an existing corporation in good
standing under the laws of the jurisdiction of its incorporation (or
organization), with power and authority (corporate and other) to own
its properties and conduct its business as described in the
Prospectuses; and each subsidiary of the Company is duly qualified to
do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification except to the
extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company and its subsidiaries,
taken as a whole; all of the issued and outstanding capital stock (or
other ownership interests) of each subsidiary of the Company has been
duly authorized and validly issued and is fully paid and nonassessable;
and the capital stock (or other ownership interests) of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free
from liens, encumbrances and defects;
(vi) To such counsel's knowledge, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof
by them; and except as disclosed in the Prospectuses, the Company and
its subsidiaries hold any leased real or personal property under valid
and enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof by them;
(vii) The Company and its subsidiaries possess
adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them and have not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole;
(viii) The Company and its subsidiaries own, possess
or can acquire on reasonable terms, adequate trademarks, trade names
and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by them, or presently employed by them, and have not received
any notice of infringement of or conflict with asserted rights of
others with respect to any intellectual property rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(ix) Except as disclosed in the Prospectuses, neither
the Company nor any of its subsidiaries is in violation of any statute,
any rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"),
owns or operates any real property contaminated with any substance that
is subject to any environmental laws, is liable for any off-site
disposal or contamination pursuant to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate have a material
-16-
<PAGE> 17
adverse effect on the Company and its subsidiaries taken as a whole;
and the Company is not aware of any pending investigation which might
lead to such a claim;
(x) To such counsel's knowledge, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement or the Subscription
Agreement, or which are otherwise material in the context of the sale
of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated; and
(xi) To such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter or Manager for a brokerage commission, finder's fee or
other like payment in connection with this offering.
(f) The Representatives shall have received the opinion
contemplated in the Power of Attorney executed and delivered by each
Selling Stockholder and an opinion, dated such Closing Date, of ,
counsel for the Selling Stockholders, to the effect that:
(i) Each Selling Stockholder had valid and
unencumbered title to the Offered Securities (or security entitlement
thereto) delivered by such Selling Stockholder on such Closing Date and
had full right, power and authority to sell, assign, transfer and
deliver the Offered Securities delivered by such Selling Stockholder on
such Closing Date hereunder; and the several Underwriters and Managers
have acquired valid and unencumbered title to the Offered Securities
[(or security entitlement thereto)] purchased by them from the Selling
Stockholders on such Closing Date hereunder;
(ii) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is
required to be obtained or made by any Selling Stockholder for the
consummation of the transactions contemplated by the Custody Agreement
or this Agreement in connection with the sale of the Offered Securities
sold by the Selling Stockholders, except such as have been obtained and
made under the Act and such as may be required under state securities
laws;
(iii) The execution, delivery and performance of the
Custody Agreement and this Agreement and the consummation of the
transactions therein and herein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over any Selling Stockholder or any of its properties or any agreement
or instrument to which any Selling Stockholder is a party or by which
any Selling Stockholder is bound or to which any of the properties of
any Selling Stockholder is subject, or the charter or by-laws of any
Selling Stockholder which is a corporation or GmbH;
(iv) The Power of Attorney and related Custody
Agreement with respect to each Selling Stockholder have been duly
authorized, executed and delivered by such Selling Stockholder and
constitute valid and legally binding obligations of each such Selling
Stockholder enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and
-17-
<PAGE> 18
(v) This Agreement has been duly authorized, executed
and delivered by each Selling Stockholder.
(g) The Representatives shall have received from Sullivan &
Cromwell and Bruckhaus Westrick Heller Lober, counsel for the
Underwriters, such opinion or opinions, dated such Closing Date, with
respect to the incorporation of the Company, the validity of the
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectuses and other related matters as the
Representatives may require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling
them to pass upon such matters. In rendering such opinion, Sullivan &
Cromwell may rely as to all matters governed by German law upon the
opinion of Bruckhaus Westrick Heller Lober referred to above and
Bruckhaus Westrick Heller Lober may rely as to all matters governed by
New York law, the General Corporation Law of Delaware and Federal law
upon the opinion of Sullivan & Cromwell referred to above.
(h) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
the Company in this Agreement are true and correct, in all material
respects; the Company has complied, in all material respects, with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time either Prospectus was printed and distributed to
any Underwriter or Manager; and, subsequent to the date of the most
recent financial statements in the Prospectuses, there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company
and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectuses or as described in such certificate.
(i) The Representatives shall have received a letter, dated
such Closing Date, of Arthur Andersen LLP satisfying the requirements
of subsection (a) of this Section, except that the specified date
referred to in such subsection will be a date not more than three
business days prior to such Closing Date for the purposes of this
subsection.
(j) On such Closing Date, the Managers shall have purchased
the International Firm Securities or the International Optional
Securities, as the case may be, pursuant to the Subscription Agreement.
The Company and Selling Stockholders will furnish the Representatives with such
conformed copies of such opinions, certificates, letters and documents as the
Representatives reasonably request. CSFBC may in its sole discretion waive on
behalf of the Underwriters compliance with any conditions to the obligations of
the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company and [Klaus H.
Murmann], jointly and severally, will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
either of the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein
-18-
<PAGE> 19
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only information furnished by any Underwriter consists of the
information described as such in subsection (b) below and Section 7(b) of the
Subscription Agreement ; and provided, further, that with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
any preliminary prospectus the indemnity agreement contained in this subsection
(a) shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased the Offered
Securities concerned, to the extent that a prospectus relating to such Offered
Securities was required to be delivered by such Underwriter under the Act in
connection with such purchase and any such loss, claim, damage or liability of
such Underwriter results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the U.S. Prospectus if the Company had
previously furnished copies thereof to such Underwriter.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, either of the Prospectuses, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company and each Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that the
only such information furnished by any Underwriter consists of the following
information in either of the Prospectuses furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Underwriters, the legend concerning over-allotments
and stabilizing on the inside front cover page, the concession and reallowance
figures appearing in the paragraph under the caption "Underwriting" and the
information contained in the [and ] paragraph[s] under the caption
"Underwriting" and the information described in Section 7(b) of the Subscription
Agreement.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect
-19-
<PAGE> 20
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the U.S. Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the U.S. Securities (before deducting expenses)
received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, a Selling Stockholder or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the U.S. Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company and the Selling Stockholders may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each director of the Company, to
each officer of the Company who has signed a Registration Statement and to each
person, if any, who controls the Company or any Selling Stockholder within the
meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase U.S. Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of U.S.
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of U.S. Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company and the Selling Stockholders for
the purchase of such U.S. Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the U.S. Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
U.S. Securities with respect to which such default or defaults occur exceeds 10%
of the total number of shares of U.S. Securities that the Underwriters are
obligated to
-20-
<PAGE> 21
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company and the Selling Stockholders for the purchase of such U.S. Securities by
other persons are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter,
the Company or the Selling Stockholders, except as provided in Section 9
(provided that if such default occurs with respect to U.S. Optional Securities
after the First Closing Date, this Agreement will not terminate as to the U.S.
Firm Securities or any U.S. Optional Securities purchased prior to such
termination). As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers, of the Selling Stockholders and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Company, any
Selling Stockholder, or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the U.S. Securities. If this Agreement is terminated pursuant to Section 8
or if for any reason the purchase of the U.S. Securities by the Underwriters is
not consummated, the Company and the Selling Stockholders shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company, the Selling Stockholders and
the Underwriters pursuant to Section 7 shall remain in effect and if any U.S.
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the U.S. Securities by the Underwriters is not consummated for
any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (iii),
(iv), or (v) of Section 6(c), the Company will reimburse the Underwriters for
all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the U.S.
Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department - Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at ___________, Attention:
______________, or if sent to the Selling Stockholders or any of them, will be
mailed, delivered or telegraphed and confirmed to _____________ at
________________; provided, however, that any notice to an Underwriter pursuant
to Section 8 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 8, and no other person will have any right or obligation
hereunder, except as provided in Section 2.D. hereof.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters. ___________________ will act for the Selling
Stockholders in connection with such transactions, and any action under or in
respect of this Agreement taken by ________________ will be binding upon all the
Selling Stockholders.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
-21-
<PAGE> 22
The Company and the Selling Stockholders hereby submit to the
non-exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Company, the Selling Stockholders and the several Underwriters in accordance
with its terms.
Very truly yours,
SAUER INC.
By.................................
[Insert title]
SELLING STOCKHOLDERS
By.................................
As Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Acting on behalf of themselves and as the Representatives of the
several Underwriters.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE MORGAN GRENFELL INC.
SMITH BARNEY INC.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By................................................
[Insert title]
-22-
<PAGE> 23
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM NUMBER OF
SECURITIES TO BE OPTIONAL
SOLD SECURITIES TO BE
SELLING STOCKHOLDER SOLD
------------------- ----
<S> <C> <C>
--------- ----------
Total........................................ ========= ==========
</TABLE>
-23-
<PAGE> 24
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF U.S. FIRM
SECURITIES TOTAL NUMBER OF
TO BE SOLD BY U.S.
FIRM SECURITIES
PURCHASED
SELLING
UNDERWRITER COMPANY STOCKHOLDERS
- ----------- ------- ------------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation.................
Deutsche Morgan Grenfell Inc.
Smith Barney Inc.
-------- ---------- ----------
Total........................................... ======== ========== ==========
</TABLE>
-24-
<PAGE> 1
S&C Draft of April 22, 1998
Exhibit 1.1(b)
________ SHARES
SAUER INC.
COMMON STOCK
[DRAFT] SUBSCRIPTION AGREEMENT
London, England
May , 1998
To: CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
SMITH BARNEY INC.
MORGAN GRENFELL & CO., LIMITED
[OTHER MANAGERS]
c/o: CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED ("CSFBL")
One Cabot Square
London, England E14 4QJ
Dear Sirs:
1. Introductory. Sauer Inc., a Delaware corporation ("Company"),
proposes to issue and sell ("International Offering") shares of its Common
Stock, par value $.01 per share ("Securities"), and the stockholders listed in
Schedule A hereto ("Selling Stockholders") propose severally to sell an
aggregate of outstanding shares of securities (together, "International Firm
Securities") to the several managers named in Schedule B hereto ("Managers").
It is understood that the Company is concurrently entering into an
Underwriting Agreement, dated the date hereof ("Underwriting Agreement"), with
certain United States underwriters listed in Schedule B thereto (the "U.S.
Underwriters"), for whom Credit Suisse First Boston Corporation ("CSFBC"), Smith
Barney Inc. and Deutsche Morgan Grenfell Inc. acting as representatives (the
"U.S. Representatives"), relating to the concurrent offering and sale of shares
of Securities ("U.S. Firm Securities") in the United States and Canada ("U.S.
Offering").
In addition, Klaus H. Murmann and K. Murmann & Co. K.G., Selling
Stockholders propose to sell (i) to the U.S. Underwriters, at the option of the
U.S. Underwriters, an aggregate of not more than additional shares of Securities
("U.S. Optional Securities") and (ii) to the Managers, at the option of the
Managers, an aggregate of not more than additional shares of Securities
("International Optional Securities"). The U.S. Firm Securities and the U.S.
Optional Securities are hereinafter called the "U.S. Securities"; the
International Firm Securities and the International Optional Securities are
hereinafter called the "International Securities"; the U.S. Firm Securities and
the International Firm Securities are hereinafter called the "Firm Securities";
the U.S. Optional Securities and the International Optional Securities are
hereinafter called the "Optional Securities". The U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the U.S.
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and
<PAGE> 2
Managers which permits them, among other things, to sell the Offered Securities
to each other for purposes of resale.
2. Representations and Warranties of the Company and the Selling
Stockholders. A. The Company represents and warrants to, and agrees with, the
several Managers that:
(a) A registration statement (No. 333- ) relating to the
Offered Securities, including a form of prospectus relating to the U.S.
Securities, has been filed with the Securities and Exchange Commission
("Commission") and either (i) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or
(ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement (the "initial registration
statement") has been declared effective, either (A) an additional
registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the
Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and,
if so filed, has become effective upon filing pursuant to such Rule and
the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (B) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such Rule and upon such filing the Offered Securities will all have
been duly registered under the Act pursuant to the initial registration
statement and such additional registration statement. If the Company
does not propose to amend the initial registration statement or, if an
additional registration statement has been filed and the Company does
not propose to amend it, and if any post-effective amendment to either
such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes of
this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery
of this Agreement, the additional registration statement means (i) if
the Company has advised CSFBL that it does not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon
filing pursuant to Rule 462(c), or (ii) if the Company has advised
CSFBL that it proposes to file an amendment or post-effective amendment
to such registration statement, the date and time as of which such
registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission.
If an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised
CSFBL that it proposes to file one, "Effective Time" with respect to
such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective
pursuant to Rule 462(b). "Effective Date" with respect to the initial
registration statement or the additional registration statement (if
any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any)
and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, if any,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to
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<PAGE> 3
collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the U.S.
Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no
such filing is required) as included in the Registration Statement, are
hereinafter referred to as the "U.S. Prospectus", and the form of
prospectus relating to the International Securities, which is identical
to the U.S. Prospectus and the form of prospectus relating to the
International Securities, which is identical to the U.S. Prospectus
except for the outside front cover page, the inside front cover page,
the outside back cover page and the text under the captions
"Underwriting" and "Subscription and Sale" in the U.S. Prospectus and
the form of prospectus relating to the International Securities,
respectively (copies of such pages and text having been heretofore
delivered to CSFBL on behalf of the Managers) and the German
translation thereof, are hereinafter referred to as and the
"International Prospectus", and the U.S. Prospectus and the
International Prospectus are hereinafter collectively referred to as
the "Prospectuses". No document has been or will be prepared or
distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) on the Effective Date of the Additional Registration Statement (if
any), each Registration Statement conformed, or will conform, in all
respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the U.S. Prospectus pursuant to
Rule 424(b) or (if no such filing is required) at the Effective Date of
the Additional Registration Statement in which the U.S. Prospectus is
included, each Registration Statement and the U.S. Prospectus will
conform, in all respects to the requirements of the Act and the Rules
and Regulations, and none of such documents, nor the International
Prospectus, includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and each of the
Prospectuses will conform in all respects to the requirements of the
Act and the Rules and Regulations, none of such documents will include
any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or
either of the Prospectuses based upon written information furnished to
the Company by any Manager through CSFBL or by any U.S. Underwriter
through the U.S. Representatives specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(b) hereof and Section 7(b) of the Underwriting
Agreement.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectuses; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except
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<PAGE> 4
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated
or organized and is an existing corporation or other form of
organization, as applicable, in good standing under the laws of the
jurisdiction of its incorporation or organization, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectuses; and each subsidiary of the
Company is duly qualified to do business as a foreign corporation or
entity in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; all of
the issued and outstanding capital stock of each subsidiary of the
Company has been duly authorized and validly issued and is fully paid
and nonassessable; and the capital stock of each subsidiary owned by
the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement and the Underwriting Agreement on each Closing Date (as
defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description
thereof contained in the Prospectuses; and the stockholders of the
Company have no preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Manager or U.S. Underwriter for a brokerage commission, finder's fee or
other like payment in connection with this offering.
(g) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
(h) The Offered Securities have been approved for listing on
the New York Stock Exchange and the Frankfurt Stock Exchange subject to
notice of issuance.
(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this Agreement
or the Underwriting Agreement in connection with the issuance and sale
of the Offered Securities to be sold by the Company, except such as
have been obtained and made under the Act and such as may be required
under state securities laws.
(j) The execution, delivery and performance of this Agreement
and the Underwriting Agreement, and the issuance and sale of the
Offered Securities to be sold by the Company will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party
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<PAGE> 5
or by which the Company or any such subsidiary is bound or to which any
of the properties of the Company or any such subsidiary is subject that
is material to the Company and its subsidiaries, taken as a whole or
the charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities to be sold by the Company as contemplated by this
Agreement and the Underwriting Agreement, respectively.
(k) This Agreement and the Underwriting Agreement have been
duly authorized, executed and delivered by the Company.
(l) Except as disclosed in the Prospectuses, the Company and
its subsidiaries have good and marketable title to all material real
properties and all other material properties and assets owned by them,
in each case free from liens, encumbrances and defects that would
materially affect the value thereof or materially interfere with the
use made or to be made thereof by them; and except as disclosed in the
Prospectuses, the Company and its subsidiaries hold any material leased
real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be
made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them and have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(o) The Company and its subsidiaries own, possess or can
acquire on reasonable terms, adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by them, or presently employed by them, and have not received
any notice of infringement of or conflict with asserted rights of
others with respect to any intellectual property rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(p) Except as disclosed in the Prospectuses, neither the
Company nor any of its subsidiaries is in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), owns or operates
any real property contaminated with any substance that is subject to
any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectuses, there are no
pending actions, suits or proceedings against or affecting the Company,
any of its subsidiaries or any of their respective
5
<PAGE> 6
properties that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as a whole, or would materially and adversely affect the ability
of the Company to perform its obligations under this Agreement or the
Underwriting Agreement, or which are otherwise material in the context
of the sale of the Offered Securities; and no such actions, suits or
proceedings are threatened or, to the Company's knowledge,
contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States applied
on a consistent basis; and the schedules included in each Registration
Statement present fairly the information required to be stated therein.
(s) Except as disclosed in the Prospectuses, since the date of
the latest audited financial statements included in the Prospectuses
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectuses, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectuses, will not be an
"investment company" as defined in the Investment Company Act of 1940.
B. Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Managers that:
(a) Such Selling Stockholder has and on each Closing Date (as
defined below) will have valid and unencumbered title to the Offered
Securities (or security entitlement thereto) to be delivered by such
Selling Stockholder on such Closing Date and full right, power and
authority to enter into this Agreement and the Underwriting Agreement
and to sell, assign, transfer and deliver the Offered Securities to be
delivered by such Selling Stockholder on such Closing Date hereunder;
and upon the delivery of and payment for the Offered Securities on each
Closing Date hereunder the several Managers and Underwriters will
acquire valid and unencumbered title to the Offered Securities (or
security entitlement thereto) to be delivered by such Selling
Stockholder on such Closing Date.
(b) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between such Selling
Stockholder and any person that would give rise to a valid claim
against such Selling Stockholder or any Manager for a brokerage
commission, finder's fee or other like payment in connection with this
offering.
(c) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by any Selling Stockholder for the consummation of the
transactions contemplated by the Custody Agreement or this Agreement in
connection with the sale of the Offered Securities sold by the Selling
Stockholders, except such as have been obtained and made under the Act
and such as may be required under state securities laws.
C. Klaus H. Murmann represents and warrants to, and agrees
with, the Several Managers that:
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<PAGE> 7
If the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and
the Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) on the Effective Date of the Additional Registration Statement (if
any), each Registration Statement conformed, or will conform, in all
respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of each of the Prospectuses
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and none of such documents includes,
or will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
and each of the Prospectuses will conform in all respects to the
requirements of the Act and the Rules and Regulations, none of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or either of the Prospectuses based upon written
information furnished to the Company by any Manager through CSFBL or by
any U.S. Underwriter through the U.S. Representatives specifically for
use therein, it being understood and agreed that the only such
information is that described as such in Section 7 and Section 7(b) of
the Underwriting Agreement.
D. Klaus H. Murmann, on behalf of the Murmann family and
affiliated entities, represents and warrants to, and agrees with the several
Underwriters, for the benefit of the holders from time to time of the Securities
that they will not cause the Company and the limited partners (Stille
Gesellschafter) to amend the limited partnership (Stille Gesellschaft) agreement
with Sauer- Sundstrand GmbH & Co. to increase the percentage of the Company's
consolidated income before taxes and such limited partners' interests to which
the limited partners are entitled, to change the basis on which the annual cash
payment made by Sauer-Sundstrand GmbH & Co. to such limited partners is computed
in a way that is less favorable to the Company, to increase the percentage of
distributed assets that such limited partners are entitled to receive upon the
liquidation of Sauer-Sundstrand GmbH & Co., will not interfere with actions by
the Company or its independent directors or other holders of Securities of the
Company to exercise the rights of Sauer-Sunstrand GmbH & Co. to terminate the
limited partnership agreement, or in any other way adversely affect the rights
of the Company or the holders from time to time of the Securities of the
Company.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and each Selling
Stockholder agree, severally and not jointly, to sell to the Managers, and the
Managers agree, severally and not jointly, to purchase from the Company and the
Selling Stockholder, at a purchase price of U.S. $ per share, the number of
Firm Securities (rounded up or down, as determined by CSFBL in its discretion,
in order to avoid fractions) set forth opposite the name of such manager in
Schedule A hereto.. Each Selling Stockholder will sell to each Manager its pro
rata share (subject to adjustment by Credit Suisse First Boston (Europe) Limited
to eliminate fractions) based on the number of Firm Securities to be purchased
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<PAGE> 8
by such Manager from Selling Stockholders set forth opposite the name of such
Manager in Schedule B hereto and the total number of Firm Securities bought from
Selling Stockholder by all Managers.
Certificates in negotiable form for the Offered Securities to be sold
by the Selling Stockholders hereunder have been placed in custody, for delivery
under this Agreement and the Underwriting Agreement, under Custody Agreements
made with , as custodian ("Custodian"). Each Selling Stockholder agrees that the
shares represented by the certificates held in custody for the Selling
Stockholders under such Custody Agreements are subject to the interests of the
Managers hereunder and the Underwriters under the Underwriting Agreement, that
the arrangements made by the Selling Stockholders for such custody are to that
extent irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the death of
any individual Selling Stockholder or the occurrence of any other event, or in
the case of a trust, by the death of any trustee or trustees or the termination
of such trust. If any individual Selling Stockholder or any such trustee or
trustees should die, or if any other such event should occur, or if any of such
trusts should terminate, before the delivery of the Offered Securities
hereunder, certificates for such Offered Securities shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement and the
Underwriting Agreement as if such death or other event or termination had not
occurred, regardless of whether or not the Custodian shall have received notice
of such death or other event or termination.
The Company and the Custodian will deliver the International Firm
Securities to CSFBL for the accounts of the Managers, against payment of the
purchase price in U.S. dollars in Federal (same day) funds by wire transfer or
in Deutsche marks, at a predetermined rate, to accounts at banks acceptable to
CSFBL drawn to the order of the Company in the case of shares of U.S. Firm
Securities and to the order of the Custodian in the case of U.S. Firm Securities
at the office of Sullivan & Cromwell, 125 Broad Street, New York, New York , at
A.M., New York time, on May , 1998 or at such other time not later than seven
full business days thereafter as CSFBL and the Company determine, such time
being herein referred to as the "First Closing Date". For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the U.S. Offering and the International Offering.
The certificates for the International Firm Securities so to be delivered will
be in definitive form, in such denominations and registered in such names as
CSFBL requests and will be made available for checking and packaging at the
above office of Sullivan & Cromwell, at least 24 hours prior to the First
Closing Date.
In addition, upon written notice from CSFBC given to the Company and
Klaus H. Murmann from time to time but not more than twice and not more than 30
days subsequent to the date of the Prospectuses, the Managers may purchase all
or less than all of the International Optional Securities at the purchase price
per Security to be paid for the International Firm Securities. The International
Optional Securities to be purchased by the Managers on any Optional Closing Date
shall be in the same proportion to all the Optional Securities to be purchased
by the Managers and U.S. Underwriters on such Optional Closing Date as the
International Firm Securities bear to all the Firm Securities. Klaus H. Murmann
and K. Murmann & Co. K.G. agree to sell to the Managers the respective numbers
of International Optional Securities obtained by multiplying the number of
International Optional Securities specified in such notice by a fraction the
numerator of which is the number of shares set forth opposite the name of such
Selling Stockholder in Schedule A hereto under the caption "Number of
International Optional Securities to be Sold" and the denominator of which is
the total number of International Optional Shares (subject to adjustment by
CSFBC to eliminate fractions), and the Managers agree, severally and not
jointly, to purchase such International Optional Securities. Such International
Optional Securities shall be purchased for the account of each Manager in the
same proportion as the number of shares of International Firm Securities set
forth opposite such Manager's name bears to the total number of shares of
International Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Managers only for the purpose of covering
over-allotments made in connection with the sale of the International Firm
Securities. No Optional Securities shall be sold or delivered unless the
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<PAGE> 9
International Firm Securities and the U.S. Firm Securities previously have been,
or simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised twice and to the extent not
previously exercised may be surrendered and terminated at any time upon notice
by CSFBC on behalf of the Managers and the U.S. Underwriters to the Selling
Stockholders. It is understood that CSFBC is authorized to make payment for and
accept delivery of such Optional Securities on behalf of the U.S. Underwriters
and Managers pursuant to the terms of CSFBC's instructions to the Company.
Each time for the delivery of and payment for the International
Optional Securities, being herein referred to as an "Optional Closing Date",
which may be the First Closing Date (the First Closing Date and each Optional
Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be
determined by CSFBC but shall be not later than five full business days after
written notice of election to purchase Optional Securities is given. The
Custodian will deliver the International Optional Securities being purchased on
each Optional Closing Date to CSFBL for the accounts of the several Managers,
against payment of the purchase price therefor in Federal (same day) funds by
wire transfer to an account at a bank or banks acceptable to CSFBL drawn to the
order of the Custodian, at the above office of Sullivan & Cromwell. The
certificates for the International Optional Securities will be in definitive
form, in such denominations and registered in such names as CSFBL requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of Sullivan & Cromwell, at a
reasonable time in advance of such Optional Closing Date. The Company will
deliver against payment of the purchase price the International Optional
Securities being purchased on each Optional Closing Date. Payment for such
International Optional Securities shall be made by the Managers in Federal (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to CSFBL drawn to the order of _______________ at the office of
Sullivan & Cromwell, against delivery of the International Optional Securities.
The Company will pay to the Managers as aggregate compensation for their
commitments hereunder and for their services in connection with the purchase of
the International Securities and the management of the offering thereof, if the
sale and delivery of the International Securities to the Managers provided
herein is consummated, an amount equal to U.S. $________ per International
Security purchased for each International Security in ordinary form purchased,
which may be divided among the Managers in such proportions as they may
determine. Such payment will be made on the First Closing Date in the case of
the International Firm Securities and on each Optional Closing Date in the case
of the International Optional Securities sold to the Manager on such Closing
Date, in each case by way of deduction by the Managers of said amount from the
purchase price for the International Securities referred to above.
4. Offering by Managers. It is understood that the several Managers
propose to offer the International Securities for sale to the public as set
forth in the International Prospectus.
In connection with the distribution of the International Securities,
the Managers, through a stabilizing manager, may over-allot or effect
transactions on any exchange, in any over-the-counter market or otherwise which
stabilize or maintain the market prices of the International Securities at
levels other than those which might otherwise prevail, but in such event and in
relation thereto, the Managers will act for themselves and not as agents of the
Company or Selling Stockholders, and any loss resulting from over-allotment and
stabilization will be borne, and any profit arising therefrom will be
beneficially retained, by the Managers. Such stabilizing, if commenced, may be
discontinued at any time.
5. Certain Agreements of the Company, the Selling Stockholders and the
Underwriters. The Company and the Selling Stockholders (solely with respect to
subsections (j) and (k) below) agree with the several Managers that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file the U.S. Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBL,
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<PAGE> 10
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement. The Company will advise CSFBL
promptly of any such filing pursuant to Rule 424(b). If the Effective
Time of the Initial Registration Statement is prior to the execution
and delivery of this Agreement and an additional registration statement
is necessary to register a portion of the Offered Securities under the
Act but the Effective Time thereof has not occurred as of such
execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective
amendment thereto with the Commission pursuant to and in accordance
with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, on or prior to the time either
Prospectus is printed and distributed to any Manager or U.S.
Underwriter, or will make such filing at such later date as shall have
been consented to by CSFBL.
(b) The Company will advise CSFBL promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or either of the Prospectuses and will not effect such amendment or
supplementation without CSFBL's prior consent; and the Company will
also advise CSFBL promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or either of the Prospectuses and of the
institution by the Commission of any stop order proceedings in respect
of a Registration Statement and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any U.S. Underwriter, Manager or dealer, any event occurs as a
result of which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend either or
both of the Prospectuses to comply with the Act, the Company will
promptly notify CSFBL of such event and, in the case of the U.S.
Prospectus, will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Neither CSFBL's consent to, nor the Managers' delivery of,
any such amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Managers four copies of
the Registration Statement (which will be signed and will include all
exhibits), each preliminary prospectus relating to the International
Securities, and, until completion of the distribution of the
International Securities as determined by CSFBL, the International
Prospectus and all amendments and supplements to such documents, in
each case in such quantities as CSFBL requests. The International
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the
10
<PAGE> 11
execution and delivery of this Agreement or the Effective Time of the
Initial Registration Statement. All other such documents shall be so
furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Managers all such documents.
(f) No action has been or, prior to the completion of the
distribution of the Offered Securities, will be taken by the Company in
any jurisdiction outside the United States, Canada and Germany that
would permit a public offering of the Offered Securities, or possession
or distribution of the International Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus issued in
connection with the offering of the Offered Securities, or any other
offering material, in any country or jurisdiction where action for that
purpose is required.
(g) During the period of 10 years hereafter, the Company will
furnish to CSFBL and, upon request, to each of the other Managers, as
soon as practicable after the end of each fiscal year, a copy of its
annual report to stockholders for such year; and the Company will
furnish to CSFBL (i) as soon as available, a copy of each report and
any definitive proxy statement of the Company filed with the Commission
under the Securities Exchange Act of 1934 or mailed to stockholders,
and (ii) from time to time, such other information concerning the
Company as CSFBL may reasonably request.
(h) The Company agrees with the several Underwriters that the
Company will pay all expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this
Agreement, and will reimburse the Underwriters for the filing fee
incident to, and the reasonable fees and disbursements of counsel to
the Managers in connection with, the review by the National Association
of Securities Dealers, Inc. (the "NASD") of the Offered Securities, for
any travel expenses of the Company's officers and employees and any
other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for
expenses incurred in distributing preliminary prospectuses and the
Prospectuses (including any amendments and supplements thereto) to the
Managers. Nothing in this Section requires the Company to pay for the
non-NASD legal fees of the Underwriters.
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except [the issuance or sale of shares of its
Securities in a private placement by the Company as consideration for
the acquisition of another entity or all or substantially all the
assets of another entity, provided the recipient of such shares has
agreed in writing to be bound by the terms of such restrictions for the
remainder of its term, the] grants of employee stock options pursuant
to the terms of a plan in effect on the date hereof, issuances of
Securities pursuant to the exercise of such options, and pursuant to a
winding-up or cancellation of the limited partnership interests.
(j) Each Selling Stockholder agrees to deliver to CSFBC,
attention: Transactions Advisory Group, on or prior to the First
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulation in lieu thereof).
(k) Each Selling Stockholder agrees, for a period of 180 days
after the date of the initial public offering of the offered
Securities, not to offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any additional shares of the
Securities of the Company or securities convertible into or
exchangeable or exercisable for any shares of Securities, or publicly
disclose the
11
<PAGE> 12
intention to make any such offer, sale, pledge or disposal, without the
prior written consent of CSFBC except for the transfer to family
members, trusts or similar arrangements for bona fide estate planning
reasons or charities, provided the recipient of such shares has agreed
in writing to be bound by the terms of such restrictions for the
remainder of its term and the transfer of shares bought in market
transactions.
6. Conditions of the Obligations of the Managers. The obligations of
the several Managers to purchase and pay for the International Firm Securities
on the First Closing Date and the International Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders herein, to the accuracy of the statements of Company officers and
the Selling Stockholders made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their obligations
hereunder and to the following additional conditions precedent:
(a) The Managers shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of Arthur
Andersen LLP in the agreed form.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date or time as
shall have been consented to by CSFBL. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time either Prospectus is printed
and distributed to any Manager or U.S. Underwriter, or shall have
occurred at such later date as shall have been consented to by CSFBL.
If the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement, the U.S. Prospectus shall
have been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration
Statement shall have been issued and no proceedings for that purpose
shall have been instituted or, to the knowledge of the Company or the
Managers, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (A) a change in U.S. or
international financial, political or economic conditions or currency
exchange rates or exchange controls as would, in the judgment of CSFBL,
be likely to prejudice materially the success of the proposed issue,
sale or distribution of the International Securities, whether in the
primary market or in respect of dealings in the secondary market, or
(B)(i) any change, or any development or event involving a prospective
change, in the condition (financial or other), business, properties or
results of operations of the Company or its subsidiaries which, in the
judgment of CSFBL, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the
sale of and payment for the International Securities; (ii) any
downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that
any such organization has under surveillance or review its rating of
any debt securities of the Company (other than an announcement with
positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (iii) any suspension or
limitation of trading in securities generally on the New York Stock
Exchange, the Frankfurt Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of trading of
any securities
12
<PAGE> 13
of the Company on any exchange or in the over-the-counter market; (iv)
any banking moratorium declared by U.S. Federal, New York or German
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States or Germany is involved, any declaration of war
by the United States Congress or Germany, or any other substantial
national or international calamity or emergency if, in the judgment of
CSFBL, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed
with completion of the public offering or the sale of and payment for
the International Securities.
(d) The Managers shall have received an opinion or opinions,
dated such Closing Date, of Shearman & Sterling, counsel for the
Company, in the agreed form.
(e) The Managers shall have received an opinion, dated such
Closing Date, of Spencer Fane Britt & Browne LLP, counsel for the
Company, in the agreed form.
(f) The Managers shall have received from Sullivan & Cromwell
and Bruckhaus Westrick Heller Lober, counsel for the Managers, such
opinion or opinions, dated such Closing Date, with respect to the
incorporation of the Company, the validity of the Offered Securities
delivered on such Closing Date, the Registration Statements, the
Prospectuses and other related matters as the Managers may require, and
the Company shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such matters. In
rendering such opinion, Sullivan & Cromwell may rely as to all matters
governed by German law upon the opinion of Bruckhaus Westrick Heller
Lober referred to above and Bruckhaus Westrick Heller Lober may rely as
to all matters governed by New York law, the General Corporation Law of
Delaware and Federal law upon the opinion of Sullivan & Cromwell
referred to above.
(g) The Manager shall have received the opinion contemplated
in the Power of Attorney executed and delivered by each Selling
Stockholder and an opinion, dated such Closing Date, of , counsel for
the Selling Stockholders, in the agreed form.
(h) The Managers shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers,
to the best of their knowledge after reasonable investigation, shall
state that: the representations and warranties of the Company in this
Agreement are true and correct in all material respects; the Company
has complied, in all material respects, with all agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date; no stop order suspending
the effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated
by the Commission; the Additional Registration Statement (if any)
satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b)
was filed pursuant to Rule 462(b), including payment of the applicable
filing fee in accordance with Rule 111(a) or (b) under the Act, prior
to the time either Prospectus was printed and distributed to any
Manager or U.S. Underwriter; and, subsequent to the date of the most
recent financial statements in the Prospectuses, there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company
and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectuses or as described in such certificate.
(i) The Managers shall have received a letter, dated such
Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred
to in such subsection will be a date not more than three business days
prior to such Closing Date for the purposes of this subsection.
13
<PAGE> 14
(j) On such Closing Date, the U.S. Underwriters shall have
purchased the U.S. Firm Securities or the U.S. Optional Securities, as
the case may be, pursuant to the Underwriting Agreement.
Documents described as being "in the agreed form" are documents which are in the
forms which have been initialed for the purpose of identification by Sullivan &
Cromwell, copies of which are held by the Company and CSFBL with such changes as
CSFBL may approve. The Company and the Selling Stockholders will furnish the
Managers with such conformed copies of such opinions, certificates, letters and
documents as the Managers reasonably request. CSFBL may in its sole discretion
waive on behalf of the Managers compliance with any conditions to the
obligations of the Managers hereunder, whether in respect of an Optional Closing
Date or otherwise.
7. Indemnification and Contribution. (a) The Company and [Klaus H.
Murmann], jointly and severally, will indemnify and hold harmless each Manager
against any losses, claims, damages or liabilities, joint or several, to which
such Manager may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Manager for
any legal or other expenses reasonably incurred by such Manager in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to the
Company by any Manager through CSFBL specifically for use therein, it being
understood and agreed that the only information furnished by any Manager
consists of the information described as such in subsection (b) below and
Section 7(b) of the Underwriting Agreement; and provided, further, that with
respect to any untrue statement or alleged untrue statement in or omission or
alleged omission from any preliminary prospectus the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of any Manager
from whom the person asserting any such losses, claims, damages or liabilities
purchased the Offered Securities concerned, to the extent that a prospectus
relating to such Offered Securities was required to be delivered by such Manager
in connection with such purchase and any such loss, claim, damage or liability
of such Manager results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the International Prospectus if the Company
had previously furnished copies thereof to such Manager.
(b) Each Manager will severally and not jointly indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company and each Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, either of the Prospectuses, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company and each Selling Stockholder by such Manager through
CSFBL specifically for use therein, and will reimburse any legal or other
expenses reasonably incurred by the Company and each Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Manager consists of the
following information in the International Prospectus furnished on behalf of
each Manager: the last paragraph at the bottom of the cover page concerning
14
<PAGE> 15
the terms of the offering by the Managers, the legend concerning
over-allotments--and--,--stabilizing on the inside front cover page--and--,--the
concession and reallowance figures appearing in the paragraph under the caption
"Subscription and Sale" and the information contained in the [and ] paragraph[s]
under the caption "Subscription and Sale".
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Managers on the other from the
offering of the International Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Managers on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Stockholders on the one hand and the Managers on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the International Securities (before deducting expenses)
received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Managers. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, a Selling Stockholder or the Managers and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Manager has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Managers' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
15
<PAGE> 16
(e) The obligations of the Company and the Selling Stockholders under
this Section shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Manager within the
meaning of the Act; and the obligations of the Managers under this Section shall
be in addition to any liability which the respective Managers may otherwise have
and shall extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed a Registration Statement
and to each person, if any, who controls the Company within the meaning of the
Act.
8. Default of Managers. If any Manager or Managers default in their
obligations to purchase International Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of International
Securities that such defaulting Manager or Managers agreed but failed to
purchase does not exceed 10% of the total number of shares of International
Securities that the Managers are obligated to purchase on such Closing Date,
CSFBL may make arrangements satisfactory to the Company and the Selling
Stockholders for the purchase of such International Securities by other persons,
including any of the Managers, but if no such arrangements are made by such
Closing Date the non-defaulting Managers shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
International Securities that such defaulting Managers agreed but failed to
purchase on such Closing Date. If any Manager or Managers so default and the
aggregate number of shares of International Securities with respect to which
such default or defaults occur exceeds 10% of the total number of shares of
International Securities that the Managers are obligated to purchase on such
Closing Date and arrangements satisfactory to CSFBL and the Company for the
purchase of such International Securities by other persons are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Manager, the Company or the Selling Stockholder,
except as provided in Section 9 (provided that if such default occurs with
respect to International Optional Securities after the First Closing Date, this
Agreement will not terminate as to the International Firm Securities or any
International Optional Securities purchased prior to such termination). As used
in this Agreement, the term "Manager" includes any person substituted for a
Manager under this Section. Nothing herein will relieve a defaulting Manager
from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers, of the Selling Stockholders, and of the several
Managers set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Manager, the Company, the Selling
Stockholder or any of their respective representatives, officers or directors or
any controlling person, and will survive delivery of and payment for the
International Securities. If this Agreement is terminated pursuant to Section 8
or if for any reason the purchase of the International Securities by the
Managers is not consummated, the Company and the Selling Stockholders shall
remain responsible for the expenses to be paid or reimbursed by it pursuant to
Section 5 and the respective obligations of the Company, the Selling
Stockholders and the Managers pursuant to Section 7 shall remain in effect and
if any International Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the International Securities by
the Managers is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in Section 6(c)(A) or clause (iii), (iv), or (v) of Section
6(c)(B), the Company will reimburse the Managers for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the International Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Managers, will be mailed, delivered or telexed and confirmed to
CSFBL at One Cabot Square, London E14 4QJ England, Attention: Company Secretary,
if sent to the Company, will be mailed, delivered or telegraphed and confirmed
to it at ______________, Attention: __________________, or, if sent to the
Selling Stockholders, will be mailed, delivered or telegraphed and conformed to
_______________ at ____________, Attention: ;
16
<PAGE> 17
provided, however, that any notice to a Manager pursuant to Section 7 will be
mailed, delivered or telexed and confirmed to such Manager.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder, except as provided in
Section 2.D. hereof.
12. Representation of Managers. CSFBL will act for the several Managers
in connection with this financing, and any action under this Agreement taken by
CSFBL will be binding upon all the Managers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
17
<PAGE> 18
If the foregoing is in accordance with the Managers' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company, the
Selling Stockholders and the several Managers in accordance with its terms.
Very truly yours,
...................................
[names of Selling Stockholders]
SAUER INC.
By............................
[Insert title]
The foregoing Subscription Agreement is hereby confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By:...................................................................
[Insert title]
SMITH BARNEY INC.
MORGAN GRENFELL & CO. LIMITED
[OTHER MANAGERS]
Each by its duly authorized attorney-in-fact:
.......................................................................
SMITH BARNEY INC.
.......................................................................
MORGAN GRENFELL & CO. LIMITED
18
<PAGE> 19
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF OPTIONAL
INTERNATIONAL FIRM INTERNATIONAL
SECURITIES SECURITIES
SELLING STOCKHOLDER TO BE SOLD TO BE SOLD
------------------- ---------- ----------
<S> <C> <C>
----------- -----------
Total........................................... =========== ===========
</TABLE>
19
<PAGE> 20
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL TOTAL NUMBER
FIRM OF
SECURITIES INTERNATIONAL
TO BE SOLD BY SECURITIES
PURCHASED
SELLING
MANAGER COMPANY STOCKHOLDER
------- ------- -----------
<S> <C> <C> <C>
Credit Suisse First Boston (Europe) Limited
Smith Barney Inc.
Morgan Grenfell & Co. Limited
-------- ----------- --------------
Total ======== =========== ==============
</TABLE>
20
<PAGE> 1
Draft of April 18, 1998
Exhibit 1.1(c)
_______________ SHARES
SAUER INC.
COMMON STOCK
[DRAFT]AGREEMENT BETWEEN U.S. UNDERWRITERS AND MANAGERS
May ___, 1998
AGREEMENT by and between (a) Credit Suisse First Boston Corporation
("CSFBC"), Smith Barney Inc. and Morgan Grenfell & Co. Limited, as
representatives (the "Representatives") of the several United States
underwriters (the "U.S. Underwriters") named in Schedule A to the Underwriting
Agreement, dated the date hereof (the "Underwriting Agreement"), among the U.S.
Underwriters, Sauer Inc., a Delaware corporation (the "Company") and the selling
securityholders party thereto, and (b) the international managers listed on the
signature page hereof (the "Managers"). The several U.S. Underwriters are herein
called a "Syndicate" and the several Managers are herein called a "Syndicate".
The U.S. Underwriters and the Managers are herein collectively called the
"Underwriters".
WHEREAS, the U.S. Underwriters, severally and not jointly, pursuant to
the Underwriting Agreement, have agreed to purchase from the Company and any
selling securityholders shares (the "U.S. Firm Securities") of the
Company's Common Stock ("Securities"); the Managers, severally and not jointly,
pursuant to the Subscription Agreement, dated the date hereof (the "Subscription
Agreement"), among the Managers, the Company and any selling securityholders,
have agreed to purchase from the Company and any such selling securityholders
shares (the "International Firm Securities") of the Securities; certain selling
securityholders have granted to the U.S. Underwriters and the Managers,
exercisable up to two times by CSFBC on behalf of the U.S. Underwriters and the
Managers, an over-allotment option (the "Over-allotment Option") to purchase up
to an aggregate of additional shares (the "Optional Securities") of Securities;
the U.S. Firm Securities and the International Firm Securities are herein
collectively called the "Firm Securities"; the Firm Securities and the Optional
Securities are herein collectively called the "Securities"; the U.S. Firm
Securities and the Optional Securities that may be sold to the U.S. Underwriters
are herein collectively called the "U.S. Securities"; the International Firm
Securities and the Optional Securities that may be sold to the Managers are
herein collectively called the "International Securities"; and the U.S.
Securities and the International Securities are herein collectively called the
"Offered Securities"; and
WHEREAS, the U.S. Underwriters and the Managers deem it necessary and
advisable that certain of the activities of the U.S. Underwriters and the
Managers be coordinated pursuant to this Agreement;
NOW, THEREFORE, the U.S. Underwriters, acting through the
Representatives, and the Managers hereby agree as follows:
1. Intersyndicate Purchases and Sales. The U.S. Underwriters, acting
through the Representatives, and the Managers, acting through Credit Suisse
First Boston (Europe) Limited ("CSFBL"), agree that they will consult with each
other as to the availability for sale to the public from time to time of Offered
Securities
<PAGE> 2
purchased from the Company and any selling securityholders pursuant to the
Underwriting Agreement and the Subscription Agreement until the earlier of (a)
completion of the distribution of the U.S. Securities being offered by the U.S.
Underwriters and (b) CSFBL's notifying the Managers of the termination of the
selling restrictions under the Agreement Among Managers, dated the date hereof
(the "Agreement Among Managers"). From time to time, at the direction of CSFBC,
the U.S. Underwriters (acting through the Representatives) and the Managers may
purchase and sell between Syndicates such number of Offered Securities as may be
directed by CSFBC.
Unless otherwise determined by agreement of the Representatives and
CSFBL, on behalf of the Managers, the price and currency settlement of any
Offered Securities so purchased or sold shall be the then effective public
offering price, in the currency or currencies contemplated for the purchase of
the Offered Securities from the Company in the Underwriting Agreement and the
Subscription Agreement (Deutsche marks and U.S. dollars), less (a) the selling
concession that would otherwise apply to such Offered Securities if such Offered
Securities were not purchased and sold under this Section 1 or (b) such lesser
amount as the Representatives and CSFBL, on behalf of the Managers, may mutually
agree. Settlement with respect to any Offered Securities transferred hereunder
prior to the First Closing Date (as defined in the Underwriting Agreement) shall
be made on the First Closing Date if feasible but in no event later than three
business days after the transfer date, and, in the case of purchases and sales
made after the First Closing Date, as promptly as practicable but in no event
later than three business days after the transfer date. Certificates
representing the Offered Securities so purchased shall be delivered on the
respective settlement dates. For purposes of Rule 15c6-1 under the United States
Securities Exchange Act of 1934, the settlement dates set forth herein or
established pursuant to the provisions hereof shall prevail if later than the
applicable settlement dates prescribed by or pursuant to such Rule. The
liability for payment to the Company and any selling securityholders of the
purchase price of the Offered Securities being purchased under the Underwriting
Agreement and the liability for payment to the Company of the purchase price of
the Offered Securities being purchased under the Subscription Agreement shall
not be affected by the provisions of this Agreement.
The proportionate share of any U.S. Underwriter or Manager in respect
of the obligation of U.S. Underwriters or Managers to purchase or sell Offered
Securities under this Section 1 shall, unless such U.S. Underwriter or Manager
otherwise agrees with CSFBC or CSFBL, as the case may be, be no greater than the
proportion of (a) the total number of shares of U.S. Firm Securities or
International Firm Securities (plus such additional Offered Securities as may be
required by the Underwriting Agreement or the Subscription Agreement to be
purchased by such U.S. Underwriter or Manager in the event of a default by one
or more of the U.S. Underwriters or Managers) that such U.S. Underwriter or
Manager is obligated to purchase under the Underwriting Agreement or the
Subscription Agreement, respectively (hereinafter referred to as such U.S.
Underwriter's or Manager's "underwriting commitment"), to (b) the total number
of shares of U.S. Firm Securities or International Firm Securities, as the case
may be.
2. Selling Restrictions. Each U.S. Underwriter agrees that, except for
(a) purchases and sales among Underwriters pursuant to this Agreement and (b)
stabilization transactions contemplated under Section 3 hereof, it has not
offered or sold, and will not offer or sell, directly or indirectly, Offered
Securities or distribute any prospectus relating to the Offered Securities to
any person outside the United States or Canada or to any other dealer who does
not so agree.
Each Manager agrees that, except for (a) purchases and sales among
Underwriters pursuant to this Agreement and (b) stabilization transactions
contemplated under Section 3 hereof, it has not offered or sold, and will not
offer or sell, directly or indirectly, Offered Securities or distribute any
prospectus relating to the Offered Securities in the United States or Canada or
to any other dealer who does not so agree.
2
<PAGE> 3
For purposes hereof, an offer or sale shall be in the United States or
Canada under the same circumstances described as such in the Agreement Among
Managers, and "United States" and "Canada" shall have the meanings set forth in
the Agreement Among Managers.
Each Manager agrees for the benefit of the several U.S. Underwriters to
comply with the provisions of Section 3 of the Agreement Among Managers. Each
Manager has caused each dealer who has agreed to participate or is participating
in the distribution to give an undertaking similar to Section 3 of the Agreement
Among Managers.
Each U.S. Underwriter agrees for the benefit of the several Managers to
comply with the CSFBC Master Agreement Among Underwriters as in effect
(including any modification to the terms thereof by telex or other amendment)
with respect to the Offered Securities (the "Agreement Among U.S.
Underwriters").
3. Stabilizing. The overall direction and planning of over-allotments
and the stabilization transactions contemplated herein shall be the
responsibility of CSFBC. All stabilization transactions, whether in the United
States or otherwise, shall be conducted at the direction of and subject to the
control of CSFBC, so that stabilization activities worldwide shall be conducted
in compliance with any applicable laws and regulations.
The International Primary Market Association ("IPMA") limits will not
be complied with in connection with stabilization losses and expenses. All
over-allotments, stabilization purchases, purchases to cover syndicate short
positions, exercises of the Over-allotment Option and related expenses shall be
for the accounts of the several Underwriters in proportion to their respective
underwriting commitments. In no event shall the net commitment of any
Underwriter, for either long or short account, resulting from the transactions
described in the previous sentence exceed 20% of its underwriting commitment.
For the purposes of the foregoing, an Underwriter's net commitment for short
account will be computed assuming that all Optional Securities which may be
purchased for such Underwriter's account pursuant to exercise of the
Over-allotment Option are so acquired, whether or not the Over-allotment Option
is exercised, and are allocated on a pro rata basis between the Syndicates as
contemplated in Section 4 hereof.
If an Underwriter is, or is affiliated with, any U.S. or non-U.S. bank,
such Underwriter hereby represents that its participation in the offering of the
Offered Securities on the terms contemplated herein and in the Subscription
Agreement, Agreement Among Managers, Underwriting Agreement and the Agreement
Among U.S. Underwriters, as applicable, does not contravene any U.S. or state
banking law restricting the exercise of securities powers in the United States.
4. Over-Allotment Option. As set forth in the Underwriting Agreement
and the Subscription Agreement, the Over-allotment Option shall be exercised at
the direction of CSFBC on behalf of the respective Syndicates. The obligation of
each Syndicate to purchase Optional Securities upon each of the up to two
exercises of the Over-allotment Option shall be in proportion to the aggregate
underwriting commitment of the Underwriters comprising such Syndicate. The
obligations of the Underwriters comprising a Syndicate to purchase Optional
Securities upon exercise of the Over- allotment Option shall be in such
proportions as are specified in or determined pursuant to the Underwriting
Agreement or the Subscription Agreement, as the case may be, and shall be
several and not joint obligations of such Underwriters.
5. Expenses. To the extent not reimbursed by the Company, the payment
of (a) legal fees and disbursements of United States and foreign counsel to the
U.S. Underwriters and Managers incurred in connection with the underwriting, (b)
advertising fees and (c) other expenses as agreed between the Representatives
and the Managers, will be made on a pro rata basis by the Syndicates in
accordance with their respective underwriting commitments, or on such other
basis as may be agreed between the Representatives and the Managers. Expenses in
connection with stabilization and over-allotment shall be allocated as
contemplated in Section 3 hereof. Subject to the previous two sentences, the
U.S. Underwriters will pay the
3
<PAGE> 4
aggregate expenses incurred in connection with the purchase, carrying or sale of
the Offered Securities purchased by the U.S. Underwriters from the Company and
any selling securityholders, and the Managers will pay the aggregate expenses
incurred in connection with the purchase, carrying or sale of the Offered
Securities purchased by the Managers from the Company and any selling
securityholders.
6. Public Offering. Changes in the respective public offering price per
Offered Security or in the respective concessions and reallowances to dealers
per Offered Security will be made only upon the mutual agreement of the
Representatives and CSFBL, on behalf of the Managers, during the period referred
to in the first sentence of Section 1 hereof. Any such change shall be made
concurrently in the offering by the U.S. Underwriters and the offering by the
Managers.
[Each Underwriter agrees to pay [CSFBC] [and] [CSFBL] an amount equal
to U.S.$ per Security comprising the underwriting commitment of such Underwriter
as compensation for the services of [CSFBC] [and] [CSFBL] as global
coordinator[s] of the offering of the Offered Securities, and authorizes the
Representatives and CSFBL, as the case may be, to charge its account therefor.]
7. Mutual Information. The Underwriters will provide such information
as CSFBC and CSFBL may request in order to allow CSFBC and CSFBL to satisfy
their obligations hereunder and in order to allow CSFBC and CSFBL to keep the
Underwriters informed of the progress of the offering of the Offered Securities.
Unless otherwise approved by CSFBC, each Underwriter agrees not to make, in the
United States or Canada or elsewhere, any press or public announcement or public
comment which it believes or ought reasonably to believe is likely to be
published in the press or elsewhere concerning (a) the Company or any of its
subsidiaries or (b) the offering of the Offered Securities, in either case on or
after the date hereof and prior to the later of (i) termination pursuant to
Section 10 of the Underwriters' obligations set forth in Section 2 or (ii) the
Closing Date (as defined in Section 8), provided that the foregoing shall not
restrict any Underwriter from making such public announcement or comment as
shall be required for the purpose of the conduct of the offering of the Offered
Securities, subject to such public announcement or comment being permitted by
applicable law to be made in the manner in which it is made and to its being in
the terms approved in writing by CSFBC.
8. Closing Date; Termination of Underwriting or Subscription Agreement.
If any closing date is not on the day provided in the Underwriting Agreement and
in the Subscription Agreement (the "Closing Date") the Representatives and
CSFBL, on behalf of the Managers, will mutually agree on a postponed date within
the time permitted by such agreements and the settlement dates herein provided
shall be adjusted accordingly.
The Representatives shall not terminate the Underwriting Agreement
pursuant to the conditions set forth in Section 6 thereof except after
consultation with CSFBL, on behalf of the Managers, and CSFBL shall not
terminate the Subscription Agreement pursuant to the conditions set forth in
Section 6 thereof except after consultation with the Representatives.
9. Counterparts. This Agreement may be signed in various counterparts,
which together shall constitute one and the same instrument.
10. Termination of Syndicate Restrictions. The obligations of the
Underwriters set forth in Section 2 shall terminate upon the earlier of (a) the
mutual agreement of the Representatives and CSFBL, on behalf of the Managers, or
(b) 45 days after the date hereof, unless the Representatives or CSFBL, on
behalf of the Managers, shall have given notice to the other parties hereto that
the sale of Offered Securities by the U.S. Underwriters or the Managers, as the
case may be, has not yet been completed. The Representatives and CSFBL, on
behalf of the Managers, may agree pursuant to clause (a) to terminate the
obligations of the Underwriters set forth in Section 2 other than the last
paragraph of Section 4(a) of the Agreement Among U.S. Underwriters and Section
7(c) of the Agreement Among Managers, which shall survive until separately
4
<PAGE> 5
terminated pursuant to clause (a) or (b). If the notice referred to in clause
(b) is given, the obligations set forth in Section 2 shall survive until the
expiration of an additional 15 days from the date of such notice.
11. Position of Representatives and CSFBL. Neither the Representatives
nor CSFBL will be under any liability to any Underwriter for any act or omission
except for obligations expressly assumed by the Representatives or CSFBL,
respectively herein, and no obligations on part of the Representatives and CSFBL
will be implied hereby or inferred herefrom. The rights and liabilities of the
Underwriters are several and not joint and nothing herein contained shall
constitute or be deemed to constitute the Underwriters as partners with each
other or render any Underwriters liable for the obligations of any other
Underwriter. No Underwriter shall be bound in any way by the acts of any other
Underwriter in respect of the issue of the Securities except as expressly
provided. The duties of the Representatives and CSFBL shall be administrative
and not fiduciary in nature.
12. APPLICABLE LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
The parties hereby submit to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written by the undersigned for themselves and for the
Underwriters as set forth herein.
The U.S. Underwriters
CREDIT SUISSE FIRST BOSTON (EUROPE) CORPORATION
By:_______________________________________________
[Insert title]
For itself and as Representative of the several
U.S. Underwriters
The Managers:
CREDIT SUISSE FIRST BOSTON LIMITED
SMITH BARNEY INC.
MORGAN GRENFELL & CO. LIMITED
[INSERT NAMES OF OTHER MANAGERS]
By: CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By:_______________________________________________
[Insert Name]
For itself and on behalf of the Managers
6
<PAGE> 1
Exhibit 3.1(b)
CERTIFICATE OF AMENDMENT
TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SAUER INC.
Pursuant to the provisions of Section 242 of the Delaware
General Corporation Law, the undersigned corporation certifies the following:
1. The name of the Corporation is Sauer Inc. (the
"Corporation");
2. The first paragraph of Article Fourth of the Amended and
Restated Certificate of Incorporation of the Corporation is deleted in its
entirety and replaced with a new first paragraph, which shall read in its
entirety as follows:
"The total number of shares of all classes of stock
which the Corporation shall have authority to issue shall be
49,500,000, of which 45,000,000 shares are to be Common Stock,
having a par value of $0.01 per share, and 4,500,000 shares
are to be Preferred Stock, having a par value of $0.01 per
share."
3. Upon the effective date of the foregoing Amendment, each
share of Common Stock, par value $5,000 per share, issued at the close of
business on the effective date of said Amendment, is hereby reclassified and
converted into 14,000 shares of Common Stock, par value $0.01 per share, and
each holder of shares of Common Stock, par value $5,000 per share, shall be
entitled, upon surrendering the certificate or certificates representing such
shares, to receive a certificate or certificates representing 14,000 shares of
the Common Stock of the Corporation, par value $0.01 per share, with respect to
each share of Common Stock of the Corporation, par value $5,000 per share, owned
just prior to the close of business on the effective date of such Amendment.
4. The capital of the Corporation shall be reduced in
connection with the reclassification and conversion of stock and the reduction
in par value as set forth in paragraph 2 above, by transferring to capital
surplus $4,860 for each share of Common Stock, par value $5,000 per share,
issued just prior to the close of business on the effective date of the
foregoing Amendment, which is all of the capital represented by shares to be
issued upon the aforesaid reclassification and conversion which is in excess of
the aggregate par value of such shares.
5. The foregoing Amendment to the Corporation's Amended and
Restated Certificate of Incorporation has been duly adopted in accordance with
the provisions of Section 242 of The General Corporation Law of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, David L. Pfeifle,
Executive Vice President, has executed this instrument and Kenneth D. McCuskey,
its Secretary, has affixed its corporate seal hereto and attested said seal on
April 22, 1998.
SAUER INC.
Affix Seal
By:___________________________________________
David L. Pfeifle, Executive Vice President
ATTEST:
______________________________
Kenneth D. McCuskey, Secretary
STATE OF IOWA )
)ss.
COUNTY OF STORY )
On this 22nd day of April, 1998, personally came before me David L.
Pfeifle, to me personally known to be the same person who executed the foregoing
Certificate, and acknowledged that he signed as his free act and deed the
foregoing document and declared that the statements therein contained are true
to his best knowledge and belief
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year above written.
______________________________
Notary Public
My Commission Expires:
______________________
<PAGE> 1
Exhibit 3.1(c)
RESTATED
CERTIFICATE OF INCORPORATION
OF
SAUER INC.
SAUER INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the corporation is Sauer Inc. Sauer
Inc. was originally incorporated under the name Sundstrand Venture Company, and
the original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on September 25, 1986.
2. This Restated Certificate of Incorporation only restates
and integrates and does not further amend the provisions of the Certificate of
Incorporation of this Corporation as theretofore amended or supplemented, and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate. This Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation is hereby
restated to read in its entirety as follows:
FIRST: The name of the corporation is Sauer Inc. (hereinafter,
the "Corporation").
SECOND: Its registered office in the State of Delaware is to
be located at 1209 Orange Street, in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted
or promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue shall be 49,500,000, of
which 45,000,000 shares are to be Common Stock, having a par value of $0.01 per
share, and 4,500,000 shares are to be Preferred Stock, having a par value of
$.01 per share.
<PAGE> 2
2
Authority is hereby expressly granted to the Board of
Directors from time to time to issue Preferred Stock, for such consideration and
on such terms as it may determine, as Preferred Stock of one or more series and
in connection with the creation of any such series to fix by the resolution or
resolutions providing for the issue of shares thereof the designation, powers
and relative participating, optional, or other special rights of such series,
and the qualifications, limitations, or restrictions thereof. Such authority of
the Board of Directors with respect to each such series shall include, but not
be limited to, the determination of the following:
(a) the distinctive designation of, and the number of shares
comprising, such series, which number may be (except where otherwise provided by
the Board of Directors in creating such series) increased or decreased (but not
below the number of shares thereof then outstanding) from time to time by like
action of the Board of Directors;
(b) the dividend rate or amount for such series, the
conditions and dates upon which such dividends shall be payable, the relation
which such dividends bear to the dividends payable on any other class or classes
or any other series of any class or classes of stock, and whether such dividends
shall be cumulative, and if so, from which date or dates for such series;
(c) whether or not the shares of such series shall be subject
to redemption by the Corporation and the times, prices, and other terms and
conditions of such redemption;
(d) whether or not the shares of such series shall be subject
to the operation of a sinking fund or purchase fund to be applied to the
redemption or purchase of such shares and if such a fund be established, the
amount thereof and the terms and provisions relative to the application thereof,
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes, or of
any other series of any class or classes, of stock of the Corporation and, if
provision be made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(f) whether or not the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and if they are to
have such additional voting rights, the extent thereof,
(g) the rights of the shares of such series in the event of
any liquidation, dissolution, or winding up of the Corporation or upon any
distribution of its assets; and
(h) any other powers, preferences, and relative,
participating, optional, or other special rights of the shares of such series,
and the qualifications, limitations, or restrictions thereof, to the full extent
now or hereafter permitted by law and not inconsistent with the provisions
hereof
<PAGE> 3
3
FIFTH: The number of directors shall initially be eight (8)
and, thereafter, shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the directors then in office; provided,
however, that the number of directors shall not be reduced so as to shorten the
term of any director at the time in office. The Board of Directors shall be
divided into three classes, as nearly equal in number as the then total number
of directors constituting the entire Board permits. The term of the Class I
directors shall terminate on the date of the 1999 annual meeting of
stockholders; the term of the Class 11 directors shall terminate on the date of
the 2000 annual meeting of stockholders; and the term of the Class III directors
shall terminate on the date of the 2001 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1999, successors to the class of
directors whose term expires at that annual meeting shall be elected to hold
office for a term expiring at the third succeeding annual meeting of the
stockholders. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, but in no event will a decrease in
the number of directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his or her term
expires and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Any vacancy on the Board of Directors resulting from an
increase in the number of directors may be filled by the Board of Directors,
acting by a majority of the directors then in office, provided that a quorum is
present, and any other vacancy on the Board of Directors may be filled by the
Board of Directors, acting by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his or her predecessor.
Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation, any director or the entire Board
of Directors of the Corporation may be removed at any time, but only for cause,
by the affirmative vote of the holders of not less than 80% of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose.
SIXTH: The Board of Directors shall have power to make, and
from time to time alter, amend, or repeal the Bylaws of the Corporation;
provided, however, that (a) the stockholders shall have the paramount power to
alter, amend and repeal the Bylaws or adopt new Bylaws, exercisable by the
affirmative vote of the holders of not less than 80% of the outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class), and (b) if and
to the extent the stockholders exercise such power, the Board of Directors shall
not thereafter suspend, alter, amend or repeal the
<PAGE> 4
4
Bylaws, or portions thereof, adopted by the stockholders, unless, in adopting
such Bylaws, or portions thereof, the stockholders otherwise provide.
SEVENTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under the provisions of Section 174 of the
Delaware General Corporation Law and amendments thereto, or (d) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
No amendment, repeal or adoption of any provision of this Certificate of
Incorporation inconsistent with this Article Seventh shall apply or have any
effect on the liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment,
repeal, or adoption of any inconsistent provision.
EIGHTH: The stockholders of the Corporation may not take
action by written consent in lieu of a meeting, but must take any such action at
a duly called annual or special meeting.
NINTH:
(a) Each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative ("proceeding"), by reason of
the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation, or is, or
was serving, at the request of the Corporation as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director or
officer, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said laws permitted the Corporation to provide prior
to such amendment), against any and all expense, liability loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement and amounts expended in seeking indemnification
granted to such person under applicable law, this Article Ninth or any agreement
with the Corporation) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of his or
her heirs, executors and administrators;
<PAGE> 5
5
provided, however, that, except as provided in paragraph (b) of this Article
Ninth, the Corporation shall indemnify any such person seeking indemnity in
connection with an action, suit or proceeding (or part thereof) initiated by
such person only if (a) such indemnification is expressly required to be made by
law, (b) the action, suit or proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation, (c) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Delaware General Corporation Law, or (d) the action, suit
or proceeding (or part thereof) is brought to establish or enforce a right to
indemnification under an indemnity agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation Law.
Such right shall be a contract right and shall include the right to be paid by
the Corporation expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, unless the Delaware General
Corporation Law then so prohibits, the payment of such expenses incurred by a
director or officer of the Corporation in his or her capacity as a director or
officer (and in any other capacity in which service was or is tendered by such
person while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of such proceeding
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director of officer, to repay any amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Article Ninth or otherwise.
(b) If a claim under paragraph (a) of this Article Ninth is
not paid in full by the Corporation within thirty (30) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. The burden of proving such claim shall be on the claimant. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(c) The rights conferred on any person in paragraphs (a) and
(b) of this Article Ninth shall not be exclusive of any other right which such
persons may have or hereafter acquire
<PAGE> 6
6
under any statute, provision of this Certificate of Incorporation, the Bylaws of
the Corporation, agreement, vote of stockholders or disinterested directors or
otherwise.
(d) The Board of Directors is authorized to enter into a
contract with any director, officer, employee or agent of the Corporation, or
any person serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including employee benefit plans, providing for
indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article Ninth.
(e) The Corporation may maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
(f) Any amendment, repeal or modification of any provision of
this Article Ninth by the stockholders or the directors of the Corporation shall
not adversely affect any right or protection of a director or officer of the
Corporation existing at the time of such amendment, repeal or modification.
TENTH: Notwithstanding any other provision of this Certificate
of Incorporation or the Bylaws of the Corporation (and in addition to any other
vote that may be required by law, this Certificate of Incorporation, or the
Bylaws of the Corporation), the affirmative vote of the holders of not less than
80% of the outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors (considered for this purpose as
one class) shall be required to amend, alter, or repeal any provision of this
Article Tenth or Articles Fifth, Sixth, Seventh, Eighth, and Ninth of this
Certificate of Incorporation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
has been executed on behalf of the Corporation this 23rd day of April, 1998.
SAUER, INC.
By:___________________________________________
David L. Pfeifle, Executive Vice President
ATTEST:_________________________________
Kenneth D. McCuskey, Secretary
<PAGE> 7
STATE OF IOWA )
)ss.
COUNTY OF STORY )
BE IT REMEMBERED that on this 23rd day of April, 1998,
personally came before me, David L. Pfeifle, to me personally known to be the
same person who executed the foregoing Certificate, and acknowledged that he
signed as his free act and deed the foregoing document and declared that the
statements therein contained are true to his best knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the
day and year above written.
_________________________
Notary Public
My commission expires:
___________________________
<PAGE> 1
NUMBER
SE
Exhibit 4.1
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE
PAR VALUE $.01
CUSIP 804137 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, N.Y. AND CHICAGO, IL.
[LOGO] SAUER INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Sauer Inc. transferable on the books of the Corporation by the holder hereof in
person or by duty authorized Attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
the duly authorized officers of the Corporation.
Dated:
COUNTERSIGNED AND REGISTERED: PRESIDENT
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY /s/
AUTHORIZED SIGNATURE SECRETARY AND TREASURER
SHARES
<PAGE> 2
SAUER INC.
The Corporation will furnish any stockholder upon request without charge a
statement of the powers, designations, preferences and rights, and the
qualifications, limitations and restrictions of such preferences and rights, of
all classes and series of the capital stock of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ___________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated _______________
Signature:
X _______________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the certificate, in every particular, without
alteration or enlargement, or any change whatever.
Signature(s) Guaranteed:
_________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
_________________________________
AMERICAN BANK NOTE COMPANY
680 BLAIR MILL ROAD
HORSHAM, PA 19044
(215) 657-3480
_________________________________
SALES: P. SHEERIN: 1-708-599-0404
_________________________________
/NET/BANKNOTE/HOME 46/SAUER 56154
_________________________________
_____________________________________________________
PRODUCTION COORDINATOR: TRICIA O'CONNOR: 215-830-2154
PROOF OF APRIL 13, 1998
SAUER INC.
H 56154bk
_____________________________________________________
OPERATOR: JW/eg
_____________________________________________________
NEW
_____________________________________________________
<PAGE> 1
Exhibit 5.1
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NY 10022
April 23, 1998
Sauer Inc.
2800 East Thirteenth Street
Ames, IA 50010
Ladies and Gentlemen:
We are acting as counsel for Sauer Inc., a Delaware corporation (the
"Company"), in connection with the filing by the Company with the Securities and
Exchange Commission of a Registration Statement on Form S-1 (No. 333-48299), as
amended (the "Registration Statement"), and the prospectus contained in the
Registration Statement (the "Prospectus"), covering the registration under the
Securities Act of 1933, as amended (the "Act"), of 3,000,000 shares of the
Company's Common Stock, par value $.01 per share, to be issued and sold by the
Company, and 6,000,000 shares of Common Stock to be sold by the Selling
Stockholders referred to in the Registration Statement, plus up to an additional
1,350,000 shares of Common Stock to cover over-allotments (collectively, the
Shares).
In connection with the foregoing, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents and
corporate and public records as we have deemed necessary as a basis for the
opinions hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals and the conformity to the originals of all documents presented to
us as copies. In rendering our opinions, we have relied as to factual matters
upon certificates and representations of officers of the Company and
certificates of public officials.
Based upon the foregoing and having regard for such legal considerations as
we deem relevant, we are of the opinion that
(i) the shares have been duly authorized by the Company;
(ii) the Shares to be issued and sold by the Company, when issued and paid
for in the manner and at the price set forth in the Prospectus, will be validly
issued, fully paid and non-assessable;
<PAGE> 2
2
(iii) the Shares to be sold by the Selling Shareholders are validly
issued, fully paid and non-assessable.
We are members of the Bar of the State of New York and we do not express
any opinion herein concerning any law other than the Delaware General
Corporation Law.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" contained in the Prospectus. In giving this consent, we do not thereby
concede that we come within the category of persons whose consent is required by
the Act or the General Rules and Regulations promulgated thereunder.
Very truly yours,
/s/ SHEARMAN & STERLING
<PAGE> 1
Exhibit 10.1(a)
AMENDED AND RESTATED AGREEMENT REGARDING
THE ESTABLISHMENT OF A SILENT PARTNERSHIP BETWEEN:
1. Sauer-Sundstrand GmbH & Co., an offene Handelsgesellschaft organized
under the laws of the Federal Republic of Germany with headquarters in
Neumuenster, represented by one of its principals, Sauer-Sundstrand GmbH, in
turn represented by Wolfgang P. Weisser and John N. Langrick (the "Operating
Company"),
2. Sauer GmbH & Co. Hydraulik KG, legal successor of Sundstrand-Sauer
Company, represented by Dr. Klaus Murmann ("Hydraulik"),
3. Sauer GmbH, represented by Jurgen Hoffrichter and Dirk Renders
("SG"), the parties listed in 1-3 being the partners of the Silent Partnership,
4. Sauer Inc., a Delaware corporation and a principal of the Operating
Company, represented by Dr. Tonio Barlage ("Sauer"), as an additional party,
and
5. Sauer-Sundstrand GmhH, a principal of the Operating Company,
represented by Wolfgang P. Weisser and John N. Langrick ("Sauer-Sundstrand"), as
an additional party.
WHEREAS
In view of the initial public offering by Sauer and several selling
stockholders of shares of Sauer Common Stock, the parties have agreed to amend
and restate in its entirety the Contract regarding the Creation of a Minority
Interest Relationship dated December 15, 1989 among the Operating Company,
Sundstrand-Sauer Company and SG regarding the establishment of an atypical
silent partnership between the Operating Company and the two silent partners
(the "Silent Partnership Agreement").
WHEREAS
At the founding of the silent partnership, the Operating Company and
the U.S. operating company of Sauer Sundstrand Group (as defined herein) were
assessed to have equal market value. The parties had agreed to avoid conflicts
of interest within the Sauer-Sundstrand Group. Such conflicts might result when
the General Partners of the Operating Company make investment decisions that
favor either the Operating Company or other enterprises of the Sauer-Sundstrand
Group. The parties therefore agreed that the silent partners' share in the
profit or loss of the Operating Company was not to be determined solely by the
Operating Company's financial results, but by taking into account the financial
results of Sauer, on a consolidated basis.
<PAGE> 2
2
At the founding of the Silent Partnership on December 15, 1989, the
value of the silent partnership was assessed to be equal to that of 180 shares
of Sauer Common Stock. Its participation in the results therefore were expressed
by the ratio of 180 shares over the total number of outstanding shares plus the
180 shares of the silent partners, a ratio that will become smaller in
proportion to Sauer's increase in capital in the initial public offering.
In addition to the other amendments contained herein, to prevent any
reduction, resulting from the above mentioned investment decisions, in the value
of the silent partners' interests in the silent partnership upon a termination
or liquidation thereof, Section 12 of the original Silent Partnership Agreement
shall be amended and restated as provided herein.
Therefore, the parties agree to amend and restate in its entirety the
Silent Partnership Agreement as follows:
Section 1.
1. The Operating Company is in the business of designing,
manufacturing, selling and licensing hydraulic systems and components, including
without limitation, hydrostatic, hydromechanical and mechanical transmissions,
hydraulic parts, open circuit piston pumps, gear pumps and motors, valves,
mechanical gear boxes and controls and other related products for transmissions
and mechanical engineering.
2. Since January 1, 1990, Hydraulik or its predecessor and SG have
participated in the business of the Operating Company as silent partners. This
silent partnership shall be continued between the Operating Company as the owner
of the business on one side and Hydraulik and SG as silent partners on the other
side. As of the date hereof, the silent partnership shall, however, be governed
by this amended Agreement.
3. The fiscal year of the silent partnership shall be the same as the
fiscal year of the Operating Company.
4. Subject to earlier termination as provided herein, the silent
partnership shall have a term expiring December 31, 2016, which shall
automatically be renewed for successive one year terms until terminated pursuant
to Section 2.2(a)(vii) or 2.2(d)
Section 2.
1. The silent partnership or a silent partnership interest can be
terminated by the Operating Company or the silent partners only as provided in
this Section 2.
2. (a) The Operating Company may terminate the silent
partnership and the silent partnership interests in
exchange for the consideration specified in
<PAGE> 3
3
Section 11.1 for cause as provided in Section 723 of
the German Federal Civil Law ("BGB") and in any of
the following instances:
(i) the transfer of a silent partnership
interest, in whole or in part (or any voting
rights in respect thereof) to a person other
than a member of the Murmann family;
(ii) termination of the silent partnership
interests and termination of the silent
partnership, directly or indirectly, at the
instance of the silent partners;
(iii) the sale of a majority in book value of the
assets of Sauer and its subsidiaries on a
consolidated basis, sale of assets of Sauer
and its subsidiaries that generated in the
preceding fiscal year a majority of the
revenues of Sauer on a consolidated basis or
a merger or similar transaction involving
Sauer in which Sauer is not the survivor; in
such case the termination shall occur
concurrently with the consummation of the
sale, merger or similar transaction and the
Operating Company shall give the silent
partners as much notice of its election to
terminate the silent partnership and the
silent partners' interests as is reasonably
practical;
(iv) the proposed acquisition by exchange offer
or tender offer of at least a majority of
the outstanding shares of Sauer Common
Stock, provided that the termination of the
silent partnership and the silent
partnership interests may not be effected
pursuant to this provision unless the
acquisition of at least a majority of the
outstanding Sauer Common Stock is completed,
in which case such termination shall occur
concurrently therewith; in the case of such
offer the Operating Company shall give the
silent partners as much notice of its
election to terminate the silent partners'
interests as is reasonably practical;
(v) the withholding of consent by a silent
partner under Section 4.1(a), (b) and (d)
below where the effect is adverse to the
interests of the shareholders of Sauer;
(vi) the decline in the Murmann family's
beneficial ownership (either economic or
voting) of Sauer Common Stock to less than
50.1% of the outstanding shares of Common
Stock; provided that the election to
terminate the silent partnership and silent
partnership interests is made within six
months after the later of (1) the
<PAGE> 4
4
disposition of ownership resulting in
beneficial ownership of less than 50.1% of
the outstanding Common Stock and (2) written
notice of the disposition being provided to
the independent directors of Sauer; and that
in determining the Murmann family's
beneficial ownership, all shares owned by
the Murmann family under contract of sale or
option to sell and an amount equal to any
short position of any member of the Murmann
family in Sauer Common Stock shall be
deducted; or
(vii) at any time after December 31, 2016, upon
three months' notice to the silent partners.
(b) The Operating Company may elect to terminate the
silent partnership and the silent partnership
interests in exchange for the consideration specified
in Section 11.2 at any time upon three months' notice
to the silent partners.
(c) Any election by the Operating Company pursuant to
subsection 2(a) or 2(b) above shall be with respect
to all silent partnership interests in the Operating
Company; the Operating Company may not elect to
terminate less than all the silent partnership
interests existing at the time of the election.
(d) The holders of a majority of the outstanding silent
partnership interests may elect to terminate the
silent partnership and the silent partnership
interests in exchange for the consideration specified
in Section 11.1 below for cause as provided in
Section 723 BGB and at any time upon three months'
notice to the Operating Company, or such shorter time
as may be acceptable to the Operating Company.
3. For purposes of this Agreement, as provided in the Operating
Partnership Agreement, the Operating Company's election to terminate the silent
partnership and silent partnership interests means an election proposed by an
independent director of Sauer that has been approved by the vote of a majority
of the independent directors of Sauer or by the holders of at least a majority
of the outstanding Sauer Common Stock that is not owned, directly or indirectly,
by the Murmann family.
4. The provisions of this Section 2 providing for termination of this
Agreement at the election of the Operating Company and of Section 11 providing
for payments upon such termination are intended to be for the benefit of holders
of Sauer Common Stock (other than the Murmann family), and are to be enforceable
on their behalf as provided in Section 2.3. The silent partners acknowledge
that, damages being an inadequate remedy in the
<PAGE> 5
5
circumstances, the independent directors of Sauer may enforce the obligations of
the silent partners under Sections 2 and 11 in an action for an injunction or
specific performance in a court in Kiel, Germany. The silent partners agree to
provide prompt written notice of any event or proposed action known to them of
the type referred to in Section 2.2(a) to the independent directors of Sauer in
order to enable them to determine whether to exercise the Operating Company's
rights to terminate the silent partnership, provided that no notice will be
required if the silent partners know that the independent directors are aware of
any such event or proposed action.
Section 3.
1. Hydraulik has made a capital contribution in the amount of DM
12,350,000 that constitutes Hydraulik's fixed capital account for purposes of
Section 6.2 hereof.
2. SG has made a capital contribution in the amount of DM 650,000 that
constitutes SG's fixed capital account for purposes of Section 6.2 hereof.
Section 4.
1. The Operating Company will conduct its own affairs. The following
events require the consent of each silent partner:
(a) changing the business purpose of the Operating Company from
that specified in Section 1 hereof or its legal form;
(b) admitting additional silent partners; the transfer of all or
any portion of a silent partnership interest to any entity
that is included within the Murmann family, will not require
the consent of other silent partners under this Section;
(c) amendment of the Operating Partnership Agreement in a manner
that adversely affects the silent partnership interests;
(d) actions outside the ordinary course of business of the
Operating Company; or
(e) dissolution or partial dissolution of the Operating Company.
2. In the event the Operating Company intends to undertake any of the
above actions, the silent partners must be notified and must be sent a request
for their approval.
<PAGE> 6
6
3. The silent partners must respond without delay. Each of the silent
partners is entitled to inspect all documents related to transactions requiring
such approval. In the event a silent partner fails to respond within four weeks
after notice for approval has been mailed, such approval is considered to have
been granted; this provision has to be explicitly referred to in the notice and
the request for approval.
Section 5.
1. In addition to the information and inspection rights granted by
Section 233 of the Handelsgesetzbuch ("HGB") the German Federal Commercial Law
the rights granted by Section 716 BGB and Section 118 HGB are also owed by the
Operating Company to the silent partners. These rights also include access
rights to all books and documents used in ascertaining income tax, to all tax
balance sheets and the reports on the audits of the annual financial statements.
The rights also extend to the period after the Operating Company's dissolution
to the extent necessary for the examination of the dissolution proceeds.
2. The silent partners may delegate their inspection and information
rights under Section 5.1 to legal or tax counsel, or an auditor.
Section 6.
1. Each silent partner will have a fixed capital account, a private
(current) account and an accumulated loss account as capital accounts in the
Operating Company.
2. The fixed capital account includes the contributed capital of each
silent partner. This account is fixed and bears no interest.
3. The private (current) account includes all profits payable to the
silent partner pursuant to Section 8.3(a) hereof (less withdrawals) and interest
thereon. The balance of the private account, if positive, will bear interest at
the then current "sparbuch" rate of Deutsche Bank. The balance of a private
account, if negative, will be charged interest at a quarterly rate equal to the
average rate of interest paid by the Operating Company during the preceding
quarter for its outstanding senior unsecured debt or, if no such debt is
outstanding, at the then current "sparbuch" rate of Deutsche Bank.
4. The accumulated loss account will include the silent partner's share
in any loss(es) pursuant to Section 8.3(b). In the event the accumulated loss
account is in debit, all profit that would otherwise be included in the private
account will be credited to the accumulated loss account until such loss account
balance is zero.
5. Profits (losses) will be posted annually upon approval of the
financial statements of the Operating Company by the Operating Company's general
partners. Interest on any
<PAGE> 7
7
profit allocated to the private account will begin to accrue as of the January
1st following the year to which the profit is attributable. Interest on any
negative balance of a private account will be charged from the time the account
balance becomes negative.
Section 7.
1. According to the commercial and tax laws of the Federal Republic of
Germany, the Operating Company must keep books and prepare an annual statement
of accounts. The Operating Company is also obliged to fulfill this duty for the
benefit of the silent partners.
2. Within six months after the end of the fiscal year, the Operating
Company must prepare financial statements; such statements must be mailed to the
silent partners. The silent partners may each make objections within four weeks
after receipt of the report. Thereafter, the report is considered accepted.
3. The annual financial statements of the Operating Company must be in
accordance with bookkeeping principles of German commercial law and accounting
("GoB"). In addition, the report has to be prepared in accordance with
regulations regarding income tax-related determination of profit. The GoB
financial statements of the Operating Company shall be used to determine the
profit or loss of the Operating Company for purposes of the silent partnership.
German tax law will be observed in the preparation of such financial statements.
Section 8.
1. The parties agree that conflicts of interest among Sauer and its
subsidiaries and affiliates (the "Sauer-Sundstrand Group") should be avoided.
Such conflicts might result when the general partners of the Operating Company
make investment decisions that favor either the Operating Company or other
enterprises of the Sauer-Sundstrand Group. In view of the strong
interconnections within the Sauer-Sundstrand Group, the parties agree that the
silent partners' share in the profit or loss of the Operating Company is not to
be determined solely by the Operating Company's financial results, but, by
taking into account the financial results of Sauer, on a consolidated basis, as
determined under U.S. generally accepted accounting principles, as from time to
time in effect, and audited by an internationally recognized independent
accounting firm.
2. The silent partners' total share of the Operating Company's annual
profit or loss will be an amount equal to Sauer's consolidated income (loss)
before the silent partners' share in the profit (loss) of the Operating Company
and before taxes as determined under U.S. generally accepted accounting
principles in effect from time to time ("GAAP") (except as set forth in the
proviso hereto) as derived from Sauer's audited financial statements ("Sauer's
EBMIT") multiplied by the ratio of 180 shares/180 shares + the weighted daily
average
<PAGE> 8
8
number of outstanding shares of Sauer Common Stock during Sauer's fiscal year
(the "Annual Allocation"); provided that, in calculating Sauer's EBMIT for
purposes of determining the Annual Allocation, (i) depreciation, if any, on the
Neumunster Facility and (ii) any profits from a sale of the Neumunster Facility
shall, in each case, be determined in accordance with GoB rather than GAAP.
Distribution of the Annual Allocation between the silent partners will be
pursuant to subsection 3 below. The 180 shares and the average number of
outstanding shares of Sauer Common Stock are subject to adjustment to reflect
stock splits, reverse stock splits and dividends payable in Sauer Common Stock.
Sauer's EBMIT will be translated into Deutsche marks using the exchange rate as
of the last day of the Operating Company's fiscal year.
3. The following is agreed to be a fair and appropriate method of
calculating the silent partners' share in the Operating Company's profit (loss),
as used in Section 231 HGB:
(a) In the event Sauer's EBMIT is positive, an amount
equal to 19/20 of the Annual Allocation will be
allocated to Hydraulik's private (current) account,
and an amount equal to 1/20 of the Annual Allocation
will be allocated to SG's private (current) account,
as provided below:
(i) in the event the Operating Company has a
profit that is equal to or larger than the
Annual Allocation, the amounts specified
above shall be credited to the silent
partners' private accounts and the balance
shall be allocated to the General Partners
as provided in the Operating Partnership
Agreement;
(ii) in the event the Operating Company has a
profit that is smaller than the Annual
Allocation, 1/20 of the Operating Company's
profit shall be credited to SG and 19/20 of
the Operating Company's profit shall be
credited to Hydraulik. The difference
between the Operating Company's profits and
the Annual Allocation will be allocated to
the General Partners as an Operating Company
loss in accordance with the Operating
Partnership Agreement and credited to the
private accounts of the silent partners,
19/20 to Hydraulik, 1/20 to SG; and
(iii) in the event the Operating Company has a
loss, the General Partners must bear the
loss and the Annual Allocation shall be
credited to the silent partners as provided
above by an amount equal to the Annual
Allocation being allocated to the General
Partners as an Operating Company loss in
accordance with the Operating Partnership
Agreement and credited to the private
accounts of the silent partners, 19/20 to
Hydraulik, 1/20 to SG.
<PAGE> 9
9
(b) In the event Sauer's EBMIT is negative, Hydraulik
will have allocated to its accumulated loss account
an amount equal to 19/20 of the Annual Allocation,
and SG will have allocated to its accumulated loss
account an amount equal to 1/20 of the Annual
Allocation as provided below:
(i) in the event the Operating Company has a
loss the absolute value of which is equal to
or larger than the absolute value of the
Annual Allocation, the silent partners shall
bear the loss as provided above in an amount
equal to the Annual Allocation, and the
General Partners shall bear the remaining
loss in accordance with the Operating
Partnership Agreement;
(ii) in the event the Operating Company has a
loss the absolute value of which is smaller
than the absolute value of the Annual
Allocation, SG shall bear 1/20 of such loss
and Hydraulik 19/20 of such loss as provided
above. The difference between the Annual
Allocation and the Operating Company's loss
shall also be charged to the accumulated
loss accounts of the silent partners (1/20
to SG and 19/20 to Hydraulik) and will be
allocated to the General Partners as an
Operating Company profit in accordance with
the Operating Partnership Agreement; and
(iii) in the event the Operating Company has a
profit, the Operating Company's profit will
be fully credited to the General Partners as
provided in the Operating Partnership
Agreement. 1/20 of the Annual Allocation
will be allocated to SG's accumulated loss
account and 19/20 of the Annual Allocation
will be allocated to Hydraulik's accumulated
loss account as provided above. An amount
equal to the Annual Allocation will be
allocated to the General Partners as an
Operating Company profit in accordance with
the Operating Partnership Agreement.
4. Losses in excess of the amount of the capital contribution of the
silent partners will be debited to their accumulated loss accounts.
Section 9.
The silent partners can freely withdraw funds from their private
(current) accounts.
<PAGE> 10
10
Section 10.
A silent partnership interest and any voting rights with respect
thereto can only be transferred with the permission of both the Operating
Company and all other silent partners, except that a transfer of such interest
or voting right to any entity that is included within the Murmann family as
defined in Section 14.4 shall not require the permission of either the Operating
Company or other silent partners. Any person who acquires ownership of a silent
partnership interest shall be subject to and bound by all the provisions of this
Agreement as if originally a party to this Agreement.
Section 11.
In the event the silent partnership and the silent partnership
interests are terminated pursuant to Section 2 above or in connection with the
dissolution in whole or in part of the Operating Company, the silent partners
will receive only the consideration specified in subsections 1 or 2 below, in
exchange for, and in full satisfaction of, all their rights in, and claims
against, the Operating Company and the General Partners.
1. In the event of a termination of the silent partnership interests
for cause or pursuant to Section 2.2(a) or 2.2(d) above, each silent partner
shall receive the net balance in its private account and its respective portion
of 180 shares of Sauer Common Stock (adjusted to reflect stock splits, reverse
stock splits and dividends payable in Sauer Common Stock) allocated between the
silent partners as set forth in subsection 4 below.
2. In the event of a termination of the silent partnership interests
pursuant to Section 2.2(b) above, each silent partner shall receive the net
balance in its private account and its respective portion of 180 shares of Sauer
Common Stock (adjusted to reflect stock splits, reverse stock splits and
dividends payable in Common Stock) allocated between the silent partners as set
forth in subsection 4 below. In addition, each silent partner that is, at the
time of the termination, a member of the Murmann family shall receive an amount
in cash equal to the German income tax payable by such silent partner directly
as a result of such exchange, without gross-up to pay any additional tax on the
amount so received, provided that in no event will the amount payable by the
Operating Company in respect of the tax exceed in the aggregate for all silent
partners $__________.
3. Dissolution of the Operating Company will be deemed an election to
terminate the silent partnership interests under Section 2.2(b) unless the
circumstances of the dissolution fall within the provisions of Section 2.2(a),
in which case dissolution shall be deemed a termination under Section 2.2(a).
Accordingly, in the case of a dissolution of the Operating Company, the silent
partners shall receive only the consideration set forth in 1 or 2 above, as the
case may be, and shall not share in the proceeds from the liquidation of the
business.
<PAGE> 11
11
4. The shares of Sauer Common Stock to be given to the silent partners
pursuant to subsection 1 or 2 above shall be distributed 1/20 to SG and 19/20 to
Hydraulik.
Section 12.
1. This Agreement may only be changed with the written consent of all
parties, including Sauer.
2. This Agreement states the entire agreement among the parties and
supersedes any and all prior agreements, understandings and representations made
by any party hereto, including, without limitation, the Silent Partnership
Agreement. Changes or amendments to this Agreement, including without
limitation, this Section 12, must be made in writing.
3. This Agreement shall be deemed to have been entered into and shall
be construed and enforced in accordance with the laws of the Federal Republic of
Germany.
Section 13.
Every provision of this Agreement is intended to be severable, and, if
any term or provision of this Agreement is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement. Such an inoperative provision will
be replaced by one coming closest to one the parties would have agreed on, if
their business purpose is kept in mind; the same consideration applies in case
this Agreement does not address a specific point.
Section 14.
As used in this Agreement, the following terms shall have the following
meanings:
1. Agreement shall mean this amended and restated agreement as may be
amended from time to time.
2. General Partners shall mean Sauer Inc. and Sauer-Sundstrand, the
general partners of Sauer-Sundstrand GmbH & Co. and their respective successors,
if any, under the Operating Partnership Agreement.
3. Independent director shall mean a person who is neither a member of
Murmann family nor is otherwise related by blood or marriage to the Murmann
family, nor has ever been an employee of Sauer, any of its subsidiaries or
affiliates, or any company owned or controlled by any member of the Murmann
family.
<PAGE> 12
12
4. Murmann family shall mean Klaus Murmann, his spouse, Christa
Zoellner, Brigitta Zoellner and each of the direct descendants and spouses of
any of the foregoing, persons inheriting from any of the foregoing under estate
laws, any company at least 90% of the beneficial interests and voting rights are
owned or held by the foregoing and any fiduciary acting under any instrument as
to which the foregoing represents 90% or more of the beneficial interests.
5. Neumunster Facility shall mean the Operating Company's principal
operating facility on the date of this agreement, which is located in
Neumunster, Germany.
6. Operating Company shall mean Sauer-Sundstrand GmbH & Co.
7. The Operating Partnership Agreement shall mean the general
partnership agreement between SG and Sauer, dated as of __________ and amended
by Amendment No. 1, dated as of January 29, 1990, and as amended and restated as
of April __, 1998, as may be further amended from time to time.
8. Sauer Common Stock shall mean the Common Stock, par value .01 per
share, of Sauer Inc.
9. Silent partners shall mean Sauer GmbH & Co. Hydraulik KG and Sauer
GmbH and their successors, if any.
10. Transfer, when used with respect to partnership interests or
shares, shall include any sale, contract or option to sell or purchase,
mortgage, hypothecation, pledge, encumbrance or direct or indirect transfer of
any economic interest in such interests or shares.
<PAGE> 13
13
Neumuenster, April __, 1998
SAUER SUNDSTRAND GMBH & CO.
By ___________________________
SAUER GMBH & CO. HYDRAULIK KG
By ___________________________
SAUER GMBH
By ___________________________
SAUER INC.
By ___________________________
SAUER-SUNDSTRAND GMBH
By ___________________________
<PAGE> 1
Exhibit 10.1(b)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of May __, 1998, among
SAUER INC., a Delaware corporation (the "Company"), and DR. KLAUS H. MURMANN,
Nicola Keim and Sven Murmann (collectively, the "Holders").
RECITALS
WHEREAS, the Holders own in the aggregate _________ shares of
Registrable Stock (as defined below); and
WHEREAS, the Company and the Holders have agreed to enter into
this Agreement in order to set out certain rights of the Holders with respect to
the registration of Registrable Stock under the 1933 Act (as defined below);
WHEREAS, the Board of Directors of the Company has authorized
the officers of the Company to execute and deliver this Agreement in the name of
and on behalf of the Company;
NOW, THEREFORE, in consideration of the mutual covenants,
promises, representations, warranties and conditions set forth in this
Agreement, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions and References. For purposes of this Agreement,
in addition to the definitions set forth above and elsewhere herein, the
following terms shall have the following respective meanings:
"1933 Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Affiliate" of a Holder means a person who controls, is
controlled by or is under common control with such Holder or the spouse
or children (or a trust exclusively for the benefit of a spouse and/or
children) of such Holder or, in the case of a Holder which is a
partnership, its partners.
"Agreement" means this Registration Rights Agreement, dated as
of May __, 1998, among the Company and the Holders, and all amendments
hereto made in accordance with the provisions of Section 19.
<PAGE> 2
2
"Commission" means the United States Securities and Exchange
Commission and any successor agency.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Holder" has the meaning specified in the preamble to this
Agreement and includes any permitted transferees under Section 12.
"Murmann Family" means Klaus Murmann, his spouse, Christa and
Brigitta Zoellner and each of their direct descendants and spouses,
persons inheriting from any of them under estate laws, any company at
least 90% of the beneficial interests and voting rights are owned or
held by the foregoing and any fiduciary acting under any instruments as
to which the foregoing represent 90% or more of the beneficial
interests.
"Register," "registered" and "registration" refers to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the 1933 Act and the declaration
or ordering of effectiveness of such registration statement or
document.
"Registrable Stock" means the aggregate of _________ shares of
Common Stock owned by the Holders as of the date hereof and any shares
of Common Stock issued or issuable with respect to any such shares of
Registrable Stock by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any
particular shares of Registrable Stock that have been issued, such
securities shall cease to be Registrable Stock when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the 1933 Act and such securities shall have been
disposed of under such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144, (c) the Holder of such
shares is able to dispose of all of the shares then held by such Holder
pursuant to Rule 144, (d) they shall have been otherwise transferred or
disposed of, except to permitted transferees pursuant to Section 12 or
(e) they shall have ceased to be outstanding.
"Rule 144" means Rule 144 (or any successor provision) under
the 1933 Act.
<PAGE> 3
3
2. Restrictive Legend. Each certificate representing
Registrable Stock shall, except as otherwise provided in this Section 2 or in
Section 3, be stamped or otherwise imprinted with a legend substantially in the
following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN
CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Shearman & Sterling shall be
satisfactory counsel) the securities being sold thereby may be publicly sold
without registration under the 1933 Act.
3. Notice of Proposed Transfer. Prior to any proposed transfer
of any Registrable Stock (other than under the circumstances described in
Sections 4 or 5), the Holder thereof shall give written notice to the Company of
its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the Company, shall be
accompanied by an opinion of counsel satisfactory to the Company (it being
agreed that Shearman & Sterling shall be satisfactory counsel) to the effect
that the proposed transfer may be effected without registration under the 1933
Act, whereupon the holder of such Registrable Stock shall be entitled to
transfer such Registrable Stock in accordance with the terms of its notice. Each
certificate for Registrable Stock transferred as above provided shall bear the
legend set forth in Section 2, except that such certificate shall not bear such
legend if (i) such transfer is in accordance with the provisions of Rule 144 (or
any other rule permitting public sale without registration under the 1933 Act)
or (ii) the opinion of counsel referred to above is to the further effect that
the transferee and any subsequent transferee (other than an Affiliate of the
Company) would be entitled to transfer such securities in a public sale without
registration under the 1933 Act. The restrictions provided for in this Section 3
shall not apply to securities which are not required to bear the legend
prescribed by Section 2 in accordance with the provisions of that Section.
4. Demand Registration. (a) At any time 180 days after the
date of this Agreement, the Holders of at least 25% of the then outstanding
Registrable Stock (the "Requesting Holders") may request in a written notice
that the Company file a registration statement under the 1933 Act (or a similar
document pursuant to any other statute then in effect corresponding to the 1933
Act) covering the registration of at least 25% of the Registrable Stock then
outstanding in the manner specified in such notice (a "Demand Registration").
Following receipt of any notice under this Section 4, the Company shall (i)
within twenty (20) days notify
<PAGE> 4
4
all other Holders of such request in writing and (ii) use its efforts to cause
to be filed and declared effective as soon as reasonably practicable a
registration statement providing for the offer and sale of all Registrable Stock
that the Requesting Holders and such other Holders have, within ten (10) days
after the Company has given such notice, requested be registered in accordance
with the manner of disposition specified in such notice by the Requesting
Holders.
(b) If the Requesting Holders intend to have the Registrable
Stock distributed by means of an underwritten offering, the Company shall
include such information in the written notice referred to in clause (i) of
Section 4(a) above. In such event, the right of any Holder to include its
Registrable Stock in such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion of such Holder's
Registrable Stock in the underwritten offering (unless otherwise mutually agreed
by a majority in interest of the Requesting Holders and such Holder) to the
extent provided below. All Holders proposing to distribute Registrable Stock
through such underwritten offering shall enter into an underwriting agreement in
customary form with the underwriter or underwriters. Such underwriter or
underwriters shall be selected by a majority in interest of the Requesting
Holders and shall be approved by the Company, which approval shall not be
unreasonably withheld, provided (i) that all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders of Registrable Stock, (ii) that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement shall be conditions precedent to the obligations of such Holders of
Registrable Stock, and (iii) that no Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Holder, the Registrable Stock of such Holder and such Holder's intended method
of distribution and any other representations required by law or reasonably
required by the underwriter.
(c) Anything in this Agreement to the contrary
notwithstanding, the Company shall be entitled to postpone and delay the filing
of any Demand Registration until the earliest practicable time at which such
Demand Registration can be reasonably effected if (i) the Company is conducting
or about to conduct an underwritten public offering of securities in which the
Holders are entitled to join pursuant to Section 5(a) hereof, (ii) the Company
is subject to an existing contractual obligation not to engage in a public
offering, (iii) the financial statements of the Company for the fiscal period
most recently ended prior to such written request are not yet available, or (iv)
the Company shall determine that any such filing or the offering of Registrable
Stock would (x) in the good faith judgment of the Board of Directors of the
Company, impede, delay or otherwise interfere with any pending or contemplated
financing, acquisition, corporate reorganization or other similar transaction
involving the Company, (y) based upon advice from the Company's investment
banker or financial adviser, adversely affect any pending or contemplated
offering or sale of any class of securities by the Company, or (z) require
disclosure of material nonpublic information which, if disclosed at such time,
would be materially harmful to the interests of the Company and its
shareholders. After the expiration of
<PAGE> 5
5
any such postponement or delay and without any further request from a Holder,
the Company shall effect the filing of the relevant Demand Registration and
shall use its best efforts to cause any such Demand Registration to be declared
effective as promptly as practicable unless such Holder shall have, prior to the
effective date of such Demand Registration, withdrawn in writing its initial
request.
(d) Notwithstanding any provision of this Agreement to the
contrary,
(i) the Company shall not be required to effect more than one
Demand Registration in any six-month period;
(ii) a Holder shall not be entitled to request a Demand
Registration until after 180 days after the closing of the initial
public offering of Common Stock, and
(iii) no request for a Demand Registration may be made by a
Holder during the pendency of any lock-up period imposed in connection
with a public offering of securities of the Company, except with the
consent of the underwriters controlling the applicable lock-up
agreement.
(e) The Company shall not be obligated to effect and pay for
more than a total of three (3) registrations pursuant to Section 4; provided
that a registration requested pursuant to Section 4 shall not be deemed to have
been effected for purposes of this Section 4(e) unless (i) it has been declared
effective by the Commission, (ii) it has remained effective for the period set
forth in Section 6(a), (iii) Holders of Registrable Stock included in such
registration have not withdrawn sufficient shares from such registration such
that the remaining Holders requesting registration would not have been able to
request registration under the provisions of Section 4 and (iv) the offering of
Registrable Stock pursuant to such registration is not subject to any stop
order, injunction or other order or requirement of the Commission (other than
any such stop order, injunction, or other requirement of the Commission prompted
by any act or omission of Holders of Registrable Stock).
(f) The Company agrees not to effect any public or private
sale, distribution or purchase of any of its equity securities which are the
same as or similar to, or convertible into or exchangeable or exercisable for,
Common Stock of the Company during the 30-day period prior to, and the 90-day
period beginning on, the effective date of any registration statement filed
pursuant to a Demand Registration. The foregoing sentence shall not apply to:
(x) any shares of Common Stock issued by the Company upon the exercise of an
option or the conversion of a security outstanding on the filing date of any
registration statement, (y) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to employee benefit plans of the Company
and (z) the issue and sale of shares of Common Stock as consideration for the
acquisition of another entity or all or substantially all of the assets of
another entity, provided the
<PAGE> 6
6
recipient of such shares has agreed in writing to be bound by the terms of such
restrictions for the remainder of its term.
5. Incidental Registration. (a) Subject to Section 9, if at
any time the Company proposes to file a registration statement under the 1933
Act (other than a registration statement on a Form S-4 or S-8 or filed in
connection with an exchange offer or an offering of securities solely to the
Company's existing stockholders) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on the Company's
behalf and/or on behalf of selling holders of its securities for the general
registration of its Common Stock to be sold for cash, the Company shall each
such time promptly give each Holder written notice of such proposal setting
forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than twenty (20) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than ten (10) days after the date of the Company's
notice, the Company shall use its reasonable efforts to cause to be registered
under the 1933 Act all of the Registrable Stock that each such Holder has so
requested to be registered. If, in the written opinion of the managing
underwriter (or, in the case of a non-underwritten offering, in the written
opinion of the Company), the total amount of such Common Stock to be so
registered, including such Registrable Stock, will exceed the maximum amount of
the Company's Common Stock which can be marketed (a) at a price reasonably
related to the then current market value of such Common Stock, or (b) without
otherwise materially and adversely affecting the entire offering, then the
Company shall be entitled to reduce the number of shares of Registrable Stock in
such offering. Such reduction shall be allocated among all such Holders in
proportion (as nearly as practicable) to the amount of Registrable Stock owned
by each Holder at the time of filing the registration statement. If any Holder
of Registrable Stock disapproves of such reduction, such Holder may elect to
withdraw all of its Registrable Stock from such offering by written notice to
the Company.
(b) If, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to each Holder that
has requested to register Registrable Stock and thereupon the Company shall be
relieved of its obligation to register any Registrable Stock in connection with
such registration (but not from its obligation to pay expenses in connection
therewith to the extent provided in Section 8), without prejudice, however, to
the rights of any one or more Holders to request such registration be effected
as a registration under Section 4.
(c) In connection with any registration of the Company's
securities and upon the written request of the Company or the underwriters
managing any underwritten offering of the Common Stock, each Holder agrees not
to effect any sale, disposition or distribution of the Common Stock (other than
that included in any such registration) or securities exercisable for or
<PAGE> 7
7
convertible or exchangeable into Common Stock without the prior written consent
of the Company or such underwriters, as the case may be, during the 30-day
period prior to, and the 90-day period beginning on, the effective date of any
registration statement to which Section 5(a) applies. The foregoing sentence
shall not apply to (x) transfers to family members, trusts or similar
arrangements for bona fide estate planning reasons or charities, provided the
recipient of such shares has agreed in writing to be bound by the terms of such
restrictions for the remainder of its term and (y) transfers of shares bought in
market transactions.
(d) No Holder may participate in any underwritten registration
pursuant to this Section 5 unless such Holder (i) agrees to sell such Holder's
Registrable Stock on the basis provided in any underwritten arrangements
approved by the Company and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
6. Obligations of the Company. Whenever required under Section
4 or Section 5 to use its reasonable efforts to effect the registration of any
Registrable Stock, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Stock and use its reasonable
efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby
determined as provided hereafter;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the 1933 Act with respect to the disposition of all Registrable
Stock covered by such registration statement;
(c) furnish to the Holders or underwriters such numbers of
copies of the registration statement and the prospectus included
therein (including each preliminary prospectus and any amendments or
supplements thereto in conformity with the requirements of the 1933
Act) and such other documents and information as they may reasonably
request;
(d) use its reasonable efforts to register or qualify the
Registrable Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdiction within the
United States and Puerto Rico as shall be reasonably appropriate for
the distribution of the Registrable Stock covered by the registration
statement; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business in or to file a general consent to service of process in any
jurisdiction wherein it would not but for the requirements of this
paragraph (d) be obligated to do so; [and provided, further, that the
Company shall
<PAGE> 8
8
not be required to qualify such Registrable Stock in any jurisdiction
in which the securities regulatory authority requires that any Holder
submit any shares of its Registrable Stock to the terms, provisions and
restrictions of any escrow, lockup or similar agreement(s) for consent
to sell Registrable Stock in such jurisdiction unless such Holder
agrees to do so];
(e) promptly notify each Holder for whom such Registrable
Stock is covered by such registration statement and any underwriter,
(i) when a prospectus or any prospectus supplement or amendment has
been filed, and, with respect to a registration statement or any
post-effective amendment to a registration statement, when the same has
become effective, (ii) of any request by the Commission for amendments
or supplements to a registration statement or related prospectus or for
additional information or any receipt of Commission comments, (iii) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for any such purpose, (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
any of the Registrable Stock for sale in any jurisdiction or the
initiation or threat of any proceedings for such purpose, and (v) at
any time when a prospectus relating thereto is required to be delivered
under the 1933 Act, of the happening of any event as a result of which
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances under which they were made, and at the request of any
such Holder promptly prepare and furnish to such Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made and
shall otherwise comply in all material respects with applicable law;
(f) use its reasonable best efforts to furnish, at the request
of any Holder requesting registration of Registrable Stock pursuant to
Section 4 or Section 5, if the method of distribution is by means of an
underwriting, on the date that the shares of Registrable Stock are
delivered to the underwriters for sale pursuant to such registration,
or if such Registrable Stock is not being sold through underwriters, on
the date that the registration statement with respect to such shares of
Registrable Stock becomes effective, (i) a signed opinion, dated such
date, of the independent legal counsel representing the Company for the
purpose of such registration, addressed to the underwriters, if any,
and if such Registrable Stock is not being sold through underwriters,
then to the Holders making such request, as to such matters as such
underwriters or the Holders holding a majority of the Registrable Stock
included in such registration, as the case may be, may reasonably
request and as would be customary in such a transaction; and (ii)
letters dated such date
<PAGE> 9
9
and the date the offering is completed from the independent certified
public accountants of the Company, addressed to the underwriters, if
any, and if such Registrable Stock is not being sold through
underwriters, then to the Holders making such request and, if such
accountants refuse to deliver such letters to such Holders, then to the
Company (A) stating that they are independent certified public
accountants within the meaning of the 1933 Act and that, in the opinion
of such accountants, the financial statements and other financial data
of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as to form
in all material respects with the applicable accounting requirements of
the 1933 Act and (B) covering such other financial matters (including
information as to the period ending not more than five (5) business
days prior to the date of such letters) with respect to the
registration in respect of which such letter is being given as such
underwriters or the Holders holding a majority of the Registrable Stock
included in such registration, as the case may be, may reasonably
request and as would be customary in such a transaction;
(g) enter into customary agreements (including if the method
of distribution is by means of an underwriting, an underwriting
agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition
of the Registrable Stock to be so included in the registration
statement;
(h) If requested in connection with a disposition of
Registrable Stock pursuant to a Registration Statement, make available
for inspection by a representative of the Holders of Registrable Stock
being sold, the underwriter participating in any disposition of
Registrable Stock, if any, and any attorney or accountant retained by
such Holders or underwriter, financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries,
and cause the executive officers, directors and employees of the
Company and its subsidiaries, to supply all information reasonably
requested by any such representative, underwriter, attorney or
accountant in connection with such disposition; subject to reasonable
assurances by each such person that such information will only be used
in connection with matters relating to such Registration Statement;
provided, however, that such persons shall first agree in writing with
the Company that any information that is reasonably and in good faith
designated by the Company in writing as confidential at the time of
delivery of such information shall be kept confidential by such persons
and shall be used solely for the purposes of exercising rights under
this Agreement, unless (i) disclosure of such information is required
by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements
pursuant to federal securities laws in connection with the filing of
any Registration Statement or the use of any prospectus referred to in
this Agreement), (iii) such information becomes generally available to
the public other than as a result of a disclosure or failure to
safeguard by any such person or (iv) such
<PAGE> 10
10
information becomes available to any such person from a source other
than the Company and such source is not bound by a confidentiality
agreement.
(i) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than eighteen (18) months after the effective date of the
registration statement, an earning statement covering the period of at
least twelve (12) months beginning with the first full month after the
effective date of such registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the 1933
Act; and
(j) use its reasonable efforts to list the Registrable Stock
covered by such registration statement with any securities exchange on
which the Common Stock of the Company is then listed, or if applicable,
on the Nasdaq National Market.
For purposes of Sections 6(a) and 6(b), the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Registrable Stock covered thereby and 6 months after the effective
date thereof.
7. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the Holders shall furnish to the Company such information regarding
themselves, the Registrable Stock held by them, and the intended method of
disposition of such securities as the Company shall reasonably request and as
shall be required in connection with the action to be taken by the Company.
8. Expenses of Registration. All expenses incurred in
connection with each registration pursuant to Section 4 and Section 5 of this
Agreement, excluding underwriters' discounts and commissions, but including
without limitation all registration, filing and qualification fees, word
processing, duplicating, printers' and accounting fees (including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance), fees of the National Association of Securities
Dealers, Inc. or listing fees, messenger and delivery expenses, all fees and
expenses of complying with state securities or blue sky laws and fees and
disbursements of counsel for the Company, shall be paid by the Company;
provided, however, that if a registration request pursuant to Section 4 of this
Agreement is subsequently withdrawn at the request of the Holders of a number of
shares of Registrable Stock such that the remaining Holders requesting
registration would not have been able to request registration under the
provisions of Section of this Agreement, such withdrawing Holders shall bear
such expenses unless such withdrawing Holders shall forfeit their right to one
requested registration pursuant to Section 4 of this Agreement. The Holders
shall bear and pay the underwriting commissions and discounts and any stamp or
transfer tax or duty and the fees
<PAGE> 11
11
and disbursements of counsel for such Holder applicable to securities offered
for their account in connection with any registrations, filings and
qualifications made pursuant to this Agreement.
9. Underwriting Requirements. In connection with any
underwritten offering, the Company shall not be required under Section 5 to
include shares of Registrable Stock in such underwritten offering unless the
Holders of such shares of Registrable Stock accept the terms of the underwriting
of such offering that have been reasonably agreed upon between the Company and
the underwriters selected by the Company.
10. Rule 144 Information. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Stock to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the 1933 Act and the Exchange Act; and
(c) furnish to each Holder of Registrable Stock forthwith upon
request a written statement by the Company as to its compliance with
the reporting requirements of Rule 144 and of the 1933 Act and the
Exchange Act, a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed by the
Company as such Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such Holder to sell any
Registrable Stock without registration.
11. Indemnification. In the event any Registrable Stock is
included in a registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless each Holder,
such Holder's directors and officers, each person who participates in
the offering of such Registrable Stock, including underwriters (as
defined in the 1933 Act), and each person, if any, who controls such
Holder or participating person within the meaning of the 1933 Act,
against any losses, claims, damages or liabilities, joint or several,
to which they may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or proceedings
in respect thereof) arise out of or are based on any untrue or alleged
untrue statement of any material fact contained in such registration
statement on the effective date thereof (including any prospectus filed
under Rule 424 under the 1933 Act or any amendments or supplements
thereto) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
<PAGE> 12
12
or necessary to make the statements therein not misleading, and shall
reimburse each such Holder, such Holder's directors and officers, such
participating person or controlling person for any legal or other
expenses reasonably incurred by them (but not in excess of expenses
incurred in respect of one counsel for all of them unless there is an
actual conflict of interest between any indemnified parties, which
indemnified parties may be represented by separate counsel) in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 11(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld); provided, further,
that the Company shall not be liable to any Holder, such Holder's
directors and officers, participating person or controlling person in
any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus,
final prospectus or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished expressly for use
in connection with such registration by any such Holder, such Holder's
directors and officers, participating person or controlling person.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any such Holder, such Holder's
directors and officers, participating person or controlling person, and
shall survive the transfer of such securities by such Holder.
(b) Each Holder requesting or joining in a registration
severally and not jointly shall indemnify and hold harmless the
Company, each of its directors and officers, each person, if any, who
controls the Company within the meaning of the 1933 Act, and each agent
and any underwriter for the Company (within the meaning of the 1933
Act) against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer,
controlling person, agent or underwriter may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement on the effective
date thereof (including any prospectus filed under Rule 424 under the
1933 Act or any amendments or supplements thereto) or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished by or on behalf of such Holder expressly for use
in connection with such registration; and each such Holder shall
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, agent or
underwriter (but not in excess of expenses incurred in respect of one
counsel for
<PAGE> 13
13
all of them unless there is an actual conflict of interest between any
indemnified parties, which indemnified parties may be represented by
separate counsel) in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this Section 11(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of such Holder (which consent shall not be unreasonably withheld), and
provided, further, that the liability of each Holder hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the net proceeds from the
sale of the shares sold by such Holder under such registration
statement bears to the total net proceeds from the sale of all
securities sold thereunder, but not in any event to exceed the net
proceeds received by such Holder from the sale of Registrable Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall
have the right to participate in and assume the defense thereof with
counsel selected by the indemnifying party and reasonably satisfactory
to the indemnified party; provided, however, that an indemnified party
shall have the right to retain its own counsel, with all fees and
expenses thereof to be paid by such indemnified party, and to be
apprised of all progress in any proceeding the defense of which has
been assumed by the indemnifying party. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
and to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section, but the omission so to notify the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section.
(d) To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
party in connection with the actions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any legal or
other fees
<PAGE> 14
14
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 11(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
12. Transfer of Registration Rights. The registration rights
of any Holder under this Agreement with respect to any Registrable Stock may be
transferred, provided that: (i) such transferee is a member of the Murmann
Family; (ii) the transferring Holder shall give the Company written notice at or
prior to the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which the rights under
this Agreement are being transferred and (iii) such transferee shall agree in
writing, in form and substance reasonably satisfactory to the Company, to be
bound as a Holder by the provisions of this Agreement. Except as provided in
this Section 12, the registration rights of any Holder under this Agreement may
not be transferred.
13. Lockup. Each Holder shall, in connection with any
registration of the Company's securities, upon the request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
agree in writing not to effect any sale, disposition or distribution of any
Registrable Stock (other than that included in the registration) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time not to exceed one hundred and eighty (180) days from the
effective date of such registration as the Company or the underwriters may
specify. The foregoing sentence shall not apply to (x) transfers to family
members, trusts or similar arrangements for bona fide estate planning reasons or
charities, provided the recipient of such shares has agreed in writing to be
bound by the terms of such restrictions for the remainder of its term and (y)
transfers of shares bought in market transactions.
14. Successors and Assigns. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties hereto. Except as expressly provided in this Agreement, nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
<PAGE> 15
16. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Titles. The titles of the Sections of this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
18. Notices. Any notice required or permitted under this
Agreement shall be in writing and shall be delivered in person or mailed by
certified or registered mail, return receipt requested, directed to (a) the
Company at the address set forth below its signature hereof or (b) to a Holder
at the address therefor as set forth in the Company's records or, in any such
case, at such other address or addresses as shall have been furnished in writing
by such party to the others. The giving of any notice required hereunder may be
waived in writing by the parties hereto. Every notice or other communication
hereunder shall be deemed to have been duly given or served on the date on which
personally delivered, or on the date actually received, if sent by mail or
telex, with receipt acknowledged.
19. Amendments and Waivers. Any provision of this Agreement
may be amended and the observance of any provision of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
at least a majority of the Registrable Stock then outstanding. Any amendment or
waiver effected in accordance with this Section 20 shall be binding upon each
Holder of any securities subject to this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
Holder and all such securities, and the Company.
20. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provisions were so excluded and shall be enforceable in
accordance with its terms.
21. Entire Agreement. All prior agreements of the parties
concerning the subject matter of this Agreement are expressly superseded by this
Agreement. This Agreement contains the entire Agreement of the parties
concerning the subject matter hereof. Any oral representations or modifications
of this Agreement shall be of no effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SAUER INC.
By _________________________________
<PAGE> 16
16
Name:
Title:
2800 East Thirteenth Street
Ames, Iowa 50010
____________________________________
KLAUS H. MURMANN
____________________________________
NICOLA KEIM
____________________________________
SVEN MURMANN
<PAGE> 1
Exhibit 10.1(c)
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made as of 1998, between SAUER INC.,
(the Indemnitee") a Delaware corporation and ____________________ (the
"Company")
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, basis protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable cost, the Indemnitee has relied on
the availability of such coverage; but as a result of substantial changes in the
marketplace for such insurance it has become increasingly more difficult to
obtain such insurance on terms providing reasonable protection at reasonable
cost;
WHEREAS, the Restated Certificate of Incorporation of the Company
requires the Company to indemnify and advance expenses to its directors and
officers to the full extent permitted by law and the Indemnitee has been serving
and continues to serve as director or officer of the Company in part in reliance
on such provisions;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indenmitee's continued service to
the Company in an effective manner, the increasing difficulty in obtaining
satisfactory director and officer liability insurance coverage, and Indemnitee's
reliance on the aforesaid Certificate of Incorporation, and in part to provide
Indemnitee with specified contractual assurance that the protection promised by
such Certificate of Incorporation will be available to lndemnitee (regardless
of, among other things, any amendment to or revocation of such Certificate of
Incorporation or any change in the composition of the Company's Board of
Directors or acquisition transaction relating to the Company), the Company
wishes to provide in this Agreement for the indemnification of and the advancing
of expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by law and as set forth in this Agreement, and, to the extent
insurance is maintained, for the continued coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto agree as follows:
<PAGE> 2
I. CERTAIN DEFINITIONS:
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company, is
or becomes the "beneficial owner" (as defined in rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing [20%] or more
of the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
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
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which 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 [80%] of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of transactions)
all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether instituted by the Company
or any other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in any Claim relating to any Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.
(e) INDEPENDENT LEGAL COUNSEL: an attorney or firm of attorneys,
selected in accordance with the provisions of Section 3, who shall not have
otherwise performed services for the Company or Indemnitee within the last five
years (other than with respect to matters
<PAGE> 3
concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnity agreements).
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) Subject only to the exclusions set forth in Section 2(b), in the
event Indemnitee was, is or becomes a party to or witness or other participant
in, or is threatened to be made a party to or witness or other participant in, a
Claim by reason of (or arising in part out of) an Indemnifiable Event, (i) the
Company shall indemnify Indemnitee to the fullest extent permitted by law as
soon as practicable but in any event no later than thirty days after written
demand is presented to the Company, against any and all Expenses, judgments,
fines, penalties and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or amount paid
in settlement) of such Claim, and (ii) if so requested by Indenmitee, the
Company shall advance (within two business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance"); provided, however, that
Indemnitee shall not be entitled to indemnification pursuant to this Agreement
in connection with any Claim initiated by Indemnitee unless the Board of
Directors has authorized or consented to the initiation of such Claim.
(b) The obligations of the Company under Section 2(a) shall be subject
to the condition that the Reviewing Party shall not have determined (in a
written opinion, in any case in which the Independent Legal Counsel referred to
in Section 3 hereof is involved) that Indemnitee would not be permitted to be
indemnified under applicable law, and the obligation of the Company to make an
Expense Advance pursuant to Section 2(a) shall be subject to the condition that,
if, when and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). If there has not been a Change in Control, the Reviewing
Party shall be selected by the Board of Directors, and if there has been such a
Change in Control (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section ' ). If there has been no determination by
the Reviewing Party or if the Reviewing Party determines
<PAGE> 4
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the States of Iowa or Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or the Certificate of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events, the Company shall seek legal advance only from
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to fully indemnify such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are incurred by Indenmitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of a claim but not, however, for all of the total amount hereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
6. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
<PAGE> 5
7. NO PRESUMPTIONS. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contenders, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief
8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's,
Certificate of Incorporation, Bylaws or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Certificate of
Incorporation, Bylaws and this Agreement, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits so afforded
by such change.
9. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms. to the maximum extent of the coverage available for any
Company director or officer.
10. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
11. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
12. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
<PAGE> 6
13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, the Certificate of Incorporation, the Bylaws or
otherwise) of the amounts otherwise indemnifiable hereunder.
14. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or of any
other enterprise at the Company's request.
15. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
16. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this day of 1998.
SAUER INC.
By:_____________________________
Name:
Title:
[Indemnitee]
<PAGE> 1
Exhibit 10.1 (d)
PURCHASE AGREEMENT
between
Sauer Getriebe Aktiengesellschaft, Krokamp 35, D-24539 Neumunster,
- hereinafter referred to as "seller" -
and
Sauer-Sundstrand GmbH & Co., Krokamp 35, D-24539 Neumunster,
-hereinafter referred to as "purchaser" -
----------------------------------
ss. 1
Contents of the Land Record
Seller is the owner of the following real property:
1. Land record of Neumunster page 7757
No. 5 Germarkung Neumunster, Flur 6491 C, Flurstuck 185, farmstead,
Krokamp, size 7,794 sq.meters.
The above real property is encumbered as follows:
Abt. II: No encumbrances
Abt. III:
No. 2 Charge on real property (Grundschuld) in the amount of 250,000 DM
for Westdeutsche Landesbank Girozentrale Dusseldorf-Munster,
Munster,
No. 3 Charge on real property (Grundschuld) in the amount of 4,750,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
<PAGE> 2
2
No. 4 Charge on real property (Grundschuld) in the amount of 5,000,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No. 5 Charge on real property (Grundschuld) in the amount of 2,100,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No. 6 Charge on real property (Grundschuld) in the amount of 2,000,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No. 7 Charge on real property (Grundschuld) in the amount of 7,500,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No. 8 Charge on real property (Grundschuld) in the amount of 4,000,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No. 9 Charge on real property (Grundschuld) in the amount of 2,000,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No. 10 Charge on real property (Grundschuld) in the amount of 1,500,000
DM for Sauer GmbH & Co. Kommanditgesellschaft, Neumunster,
No.'s 2 - 10 each jointly liable with Neumunster page 7758.
2. Land Record of Neumunster page 7758
No. 5 Gemarkung Neumunster, Flur 6491 C, Flurstuck 106, operational site,
Krokamp, size 55,593 sq.meters.
The above real property is encumbered as follows:
Abt. II: No encumbrances.
Abt. III: Encumberances as Neumunster page 7757.
3. Land Record of Neumunster page 20899
No. 1 Gemarkung Neumunster, Flur 6491 A, Flurstuck 88, road, Gadelander
Strasse, size 69 sq.meters, Flurstuck 312, woods (Holzung),
Gadelanderstrasse 4, size 37,695 sq.meters,
Gemarkung Neumunster, Flur 6491 B
<PAGE> 3
3
Flurstuck 105, operational site, Weserstrasse 10, size 45,894
sq.meters.
The above real property is encumbered as follows:
Abt. II: No encumbrances.
Abt. III:
No. 1 Charge on real property (Grundschuld) in the amount of 4,000,000
DM for Sauer Getriebe Aktiengesellschaft, Neumunster,
No. 2 Charge on real property (Grundschuld) in the amount of 1,000,000
DM for Sauer Getriebe Aktiengesellschaft, Neumunster.
ss. 2
Purchase
Seller sells the real property designated in ss. 1 including all buildings
thereon and all rights and components thereto to purchaser. Purchaser hereby
accepts the sale.
ss. 3
Price of Purchase
The price of purchase corresponds to the fair market value of the real property
at the date of the acceptance of the offer of sale. If the parties of this
contract cannot agree on the fair market value it will be determined
conclusively by a sworn expert as an arbitrator, who will be named by the
Chamber of Industry and Commerce of Kiel. Each party may demand that a second
sworn expert named by the Chamber of Industry and Commerce is given the mandate
to prepare an opinion on the value. This demand must be made in writing and must
reach the other party within four weeks of the submission of the first expert
opinion. If two opinions have been prepared the purchase price corresponds to
the average value of both opinions.
The costs of the first opinion are to be borne equally by both parties. The
costs of a second opinion are to be borne by the party that demanded its
preparation.
<PAGE> 4
4
ss. 4
Time of Payment
The price of purchase determined according to ss. 3 is due upon its
determination, however not earlier than the date six months after the acceptance
of the offer of sale.
ss. 5
Terms of Payment
The price of purchase is to be paid with regard to the following conditions:
1. Purchaser will assume all charges on the property registered in the land
record to secure debts of seller to be counted towards the purchase price.
At present this consists of all charges listed above in ss. 1.
The above named charges on the property and the underlying liabilities
will be transferred including maturity, interest and collateral
performance as existing on the day the purchase price becomes due.
Purchaser agrees to consent to immediate execution by way of a notarial
deed upon demand of the creditors of such charges.
2. The purchase price remaining after deduction of the charges counted toward
such purchase price shall be paid in cash.
3. Purchaser has the right to pay off any charges to be assumed according to
No. 1 with the purchase price instead of assuming them.
ss. 6
Warranty
Property and premises are sold in the present condition without guaranty of
size, quality and condition free from encumbrances that can be registered,
unless these encumbrances are transferred or remain on the property.
All liability and warranty for material defects are excluded. This exclusion
also applies to residual pollution (Altlasten). Purchaser declares to be aware
of all aspects of the condition of the property.
The encumbrances registered in Abt. II of the land record will remain registered
and will be assumed by purchaser without being counted towards the purchase
price.
<PAGE> 5
5
Charges registered to secure debts of seller will remain registered and it is
the responsibility of purchaser to have them removed from the land record.
Local improvement assessments (Erschlie ungskosten und Anliegerbeitrage) for
assets erected at the time of the acceptance of the purchase offer will be borne
by seller, local improvement assessments for assets erected later will be borne
by purchaser.
ss. 7
Delivery
Delivery shall take place as the purchase price becomes due. Upon delivery all
benefits, expenses and the risk will pass to purchaser.
ss. 8
Permissions
The notary public recording this acceptance is instructed to obtain all
permissions and all negative certificates (Negativbescheinigungen) necessary for
this contract. All statements shall be effective for all parties upon their
receipt by the notary public.
ss. 9
Protection of Claim for Transfer(1)
After being advised thereon the parties choose not to register a priority notice
protecting the claim for transfer of title to land.
ss. 10
Contents of the Land Record
The notary public has drawn the information on the contents of the Land Record
from extracts dated November 5, 1996.
- ----------
(1) Auflassungsvormerkung according to ss.883 of the German Civil Code (BGB).
<PAGE> 6
6
ss. 11
Expenses
All expenses accrued by this contract and its execution are borne by purchaser.
ss. 12
General Power of Agency
The notary public recording this acceptance is authorized to execute this
contract. He is authorized to file and withdraw all applications separately.
<PAGE> 7
Translation of Contract for Sale of the Krokamp Real Property
Document register No. 57 for the year 1998 (Dr. EG)
For the following transaction, taking place in Duisburg, April 16 1998, in the
presence of Dr. Erich Gruter, whose place of business is located in Duisburg,
the following person, known to the Notary, appeared:
Attorney-at-law Dr. Ina-Maria Boning, having a place of business at Angerstr.
24-16 47051 Duisburg, acting as a representative without power of representation
for
1. Sauer GmbH & Co Hydraulik Kommanditgesellschaft, Krokamp 35, D-24539
Neumunster,
2. Sauer-Sundstrand GmbH, Krokamp 35, 24539 Neumunster.
The attorney acting in the above described capacity made the following
statement:
Sauer Getriebe Aktiengesellschaft, Neumunster, offered, in a notarized
document, dated December 19, 1996 Doc. No 131/1996 of the notarizing attorney, a
contract for the sale of the real property registered in the real property
register of Neumunster on pages 775, 7758 and 20899.
The legal successor of Sauer Getriebe Aktiengesellschaft, now
registered owner of above referenced real property became, through a change in
form the representative of the entity referenced in 1., Sauer GmbH & Co.
Hydraulik Kommanditgesellschaft, Neumunster.
Based on the agreement in Section 2, last paragraph of the notarized
document dated Dec. 12, 1996, Sauer-Sundstrand GmbH & Co. is authorized to
delegate by written authorization the power to accept an offer to sell.
Sauer-Sundstrand GmbH & Co. has used this power by giving a written
authorization to the entity referenced under 2. above to accept the offer.
Therefore, the attorney, acting in the above referenced capacity
accepted the offer with the following amendment:
1 The entity represented under 1. above, Sauer-Sundstrand GmbH, herewith
accepts the notarized offer of sale of a real property as shown in
Exhibit 2 to the official document dated Dec. 19, 1998, filed as Doc.
NO. 131-1996 of the notarizing attorney.
2 The contract of real property sale resulting therefrom will be amended
by adding that, in addition to the real property registered in the
official real property register of Neumunster, on pages 7757, 7758, and
20882, the following pieces of real property, listed in the official
registry, will also become subject of the sale contract:
<PAGE> 8
Real Property Registry of Neumunster Page 4012
Gemarkung Neumunster Flur 6491 C Flurstuck 181 at 1.932 qm.
Real Property Registry of Neumunster Page 17102
Gemarkung Neumunster Flur 6491 C Flurstuck 183 at 6,636 qm.
3 The entity represented above under 1., Sauer GmbH & Co. Hydraulik
Kommanditgesellschaft, and the entity represented under 2.,
Sauer-Sundstrand GmbH have agreed to transfer the real property
registered in the official real property register of Neumunster on
pages 775, 7758, 20899, 4012 and 17102 to Sauer-Sundstrand GmbH as the
new owner and authorize and request that the change of ownership be
registered in the registry.
4 In addition, the real property sale contract, which is an exhibit to
the official document dated Dec. 19, 1996 - Doc. No. 131/1996 of the
notarizing attorney- will be amended as follows:
a) According to the expertized evaluation by Mr. Stoben, dated
April 3, 1998, the real estate value of the property sold is
DM40,800,000. With reference to Section 3 of the offer of sale
the parties state that they agree that the purchase price be
DM 40,800,000. To the extent that the selling party has to pay
value added taxes due to the sale, it is entitled to be
reimbursed for that amount by the buyer.
b) Section 4 of the offer to sell is changed to state that the
remainder of the purchase price has to be paid on or before 6
months after today's acceptance of the offer to sell.
Sauer-Sundstrand will pay 5% interest, as of May 1, 1998,
until the price has been paid to Sauer GmbH & Co. Hydraulik
Kommanditgesellschaft.
c) Section 5, paragraph 1 of the offer to sell will be made more
precise in that it states that the liens and encumbrances,
valued at DM 14,445,000 will be adopted as per May 1, 1998.
d) Section 7 of the offer of sale will be changed to state that
the transfer will take place on May 1, 1998.
e) Section 11 of the contract of sale will be changed to the
effect that the parties to the contract, and the cost accruing
due to its execution, with the exception of the
Grunderwerbsteuer (a tax), shall be shared equally by each
party.
f) The parties waive their right to request the change in the
registry themselves. They give the exclusive authority to do
that to the notarizing attorney, who is authorized to request
the change only, after the represented entity in 2. above,
Sauer GmbH & Co. Hydraulik Kommanditgesellschaft, has
acknowledged, in writing, the receipt of the balance of the
purchase price.
g) All other determinations of the offer to sell remain
unchanged.
The transaction above was read to the appearing attorney while the notarizing
attorney was present, was authorized by her, and was signed by her, and the
notarizing attorney.
<PAGE> 9
Document Register No. /19
STATEMENT OF APPROVAL
All declared statements of Dr. Ina-Maria Boning, with business offices at
Angerstrasse 14-16, 47051 Duisburg,
in the document of the civil-law notary Dr. Erich Gruter
with offices in Duisburg
dated April 16, 1998 (Document Register No. 57/1998)
are herewith unconditionally approved. Dr. Ina-Maria Boning is exempt from the
limitations of Section 181 of the German Civil Code.
The content of the document is known.
The value of this statement amounts to DM 40,800,000.00
Neumunster, 1998
Sauer-Sundstrand GmbH
/s/ Kittel /s/ ppa John Langrick
(Dr. Kittel) (Langrick)
<PAGE> 10
Document Register No. /19
STATEMENT OF APPROVAL
All declared statements of Dr. Ina-Maria Boning, with business offices at
Angerstrasse 14-16, 47051 Duisburg,
in the document of the civil-law notary Dr. Erich Gruter
with offices in Duisburg
dated April 16, 1998 (Document Register No. 57/1998)
are herewith unconditionally approved. Dr. Ina-Maria Boning is exempt from the
limitations of Section 181 of the German Civil Code.
The content of the document is known.
The value of this statement amounts to DM 40,800,000.00
Neumunster, 1998
Sauer GmbH & CO. Hydraulik Kommanditgesellschaft
Sauer Gesellschaft mit beschrankter Haftung
<PAGE> 11
Sauer-Sundstrand GmbH & Co. Neumunster, April 14, 1998
Krokamp 35
24359 Neumunster
Firma
Sauer GmbH & Co. Hydraulik
Kommanditgesellschaft
- - Management -
Krokamp 35
24359 Neumunster
Re.: Offer to conclude a purchase agreement according to Document dated
December 19, 1996 - Document Register No. 131/1996 of the civil-law
notary Dr. Erich Gruter -
Ladies and Gentlemen:
Your predecessor, Sauer Getriebe AG, Neumunster, after a transformation that
changed its legal form, today Sauer GmbH & Co. Hydraulik Kommanditgesellschaft,
Neumunster, per contract dated December 19, 1996 - Document Register No.
131/1996 (DrG) - has granted to our company, Sauer-Sundstrand GmbH & Co.,
Neumunster, et. al., an option to purchase the land registered in the Neumunster
Land Registry on Pages 7757, 7758 and 20899. According to Section 2, last
paragraph of the foregoing contract, we are entitled, as the beneficiary of such
purchase option, to appoint, through written notice to you as the offeror, a
third party who is duly entitled to accept the sales offer.
Exercising the foregoing right, we herewith appoint the
Sauer Sundstrand GmbH, Neumunster,
to accept the sales offer on its own behalf with the consequence, that through
its acceptance in the required form, a valid sales contract will be concluded
directly and immediately between your company, Sauer GmbH & Co. Hydraulik
Kommanditgesellschaft (as vendor) and Sauer-Sundstrand GmbH (as acquiror).
Sincerely,
Sauer - Sundstrand
GmbH & Co.
[illegible]
<PAGE> 1
Exhibit 10.1 (e)
No. 131 of the Document Register for 1996 (DR.EG)
Transacted in Duisburg
on 12/19/1996
Before the undersigned civil-law notary,
DR. ERICH GRUTER
with offices in Duisburg
there appeared on this day the following persons of known identity:
1) Dr. Achim Bischoff, Esq., with business offices at Angerstrasse 14-16,
47051 Duisburg,
acting for Sauer Getriebe Aktiengesellschaft, Krokamp 35,
D-24539 Neumuenster,
- Hereinafter "Lessor" -,
as representative without power of representation,
2) Mr. Juergen Schlichting, Esq., with business offices at Angerstrasse 14-16,
47501 Duisburg,
acting for Sauer-Sundstrand GmbH & Co., Krokamp 25,
D-24539 Neumuenster,
<PAGE> 2
- Hereinafter "Lessee" -,
as representative without power of representation, The appearing parties,
acting as indicated above, declared the following for notarial recording:
Section 1
Lease
The companies represented by the appearing parties conclude the lease attached
as Annex 1 to this document as an element thereof.
Section 2
Right of Purchase
The Lessor offers the Lessee the opportunity to conclude a contract of sale
pertaining to the object of the lease. The content of this contract offer is set
out in the contract for the sale of land attached to this document as Annex 2.
The Lessee can accept the contract offer (sale) indicated above at any time
during the term of the lease. Acceptance shall be considered timely if it has
been placed on notarial record before a German civil-law notary. Acceptance can
be limited to the land registered in the Neumunster Land Registry on Pages 7757
and 7758 on the one hand or to the land registered in the Neumunster Land
Registry on Page 20899 on the other hand.
The Lessor agrees for the term of the lease to transfer the sales offer
established herein to any acquirer of the property holding in such a way that
the sales offer recorded herein is replaced by an analogous offer by the
acquirer.
<PAGE> 3
The Lessee is entitled to appoint, through written notice to the Lessor, a third
party who is duly entitled to accept the sales offer.
Section 3
RIGHT OF TENDER
In reverse and mirror fashion, the Lessee offers the Lessor the opportunity to
conclude a contract of sale pertaining to the object of the lease. The content
of this sales offer also corresponds to the contract of sale noted in Section 2,
which is attached to this document as Annex 2.
The Lessor can accept the contract offer (purchase) indicated above at any time
during the term of the lease. Acceptance shall be considered timely if it has
been placed on notarial record before a German civil-law notary. Acceptance can
be limited to the land registered in the Neumunster Land Registry on Pages 7757
and 7758 on the one hand or to the land registered in the Neumunster Land
Registry on Page 20899 on the other hand.
The Lessee is entitled to transfer the purchase offer established herein to a
third party in such a way that the purchase offer recorded herein is replaced by
an analogous offer by the third party. If the Lessor has accepted the purchase
offer recorded herein, then the resulting contract of sale becomes invalid
effective ex tunc if the Lessor has received an analogous offer from a third
party appointed by the Lessee within a period of four weeks following the
declaration of acceptance.
The official record, including Annexes 1 and 2, was read aloud to the appearing
parties in the presence of the civil-law notary, was approved by the appearing
parties, and was signed by them and the civil-law notary in their own hands as
follows:
<PAGE> 4
[signature]
[signature]
[notarial seal] [signature]
Civil-Law Notary
<PAGE> 5
Annex 1 to document of 12/19/1996
- Doc. Reg. No. 131/1996 of Civil-Law Notary
Dr. Erich Gruter in Duisburg -
[signature]
Civil-Law Notary
LEASE
BETWEEN
Sauer Getriebe Aktiengesellschaft, Krokamp 35, D-24539 Neumunster,
- HEREINAFTER THE "LESSOR" -
AND
Sauer-Sundstrand GmbH & Co., Krokamp 35, D-24539 Neumunster,
- HEREINAFTER THE "LESSEE" -.
The parties enter into the following agreement:
Section 1
LEASED PROPERTY
The Lessor is the owner of the developed real properties listed in the Land
Registries indicated below:
Neumunster District Court Land Registry, Pages 7757 and 7758, 142,759
sq.km,
Neumunster District Court Land Registry, Page 20899, 83,658 sq.km.
<PAGE> 6
- 2 -
The Lessor leases to the Lessee these real properties, including the buildings
erected thereupon and all other appurtenant fixed objects (hereinafter the
"leased property").
Section 2
PURPOSE OF THE LEASE
The Lessor leases out the leased property for the purpose of its use for the
Lessee's industrial activities. The Lessee may use the leased property for other
purposes only with the prior written consent of the Lessor.
Section 3
TERM OF THE LEASE
1. The tenancy is entered into for a fixed term ending on 12/31/2006.
2. The lease is extended until 12/31/2016 if the Lessee so declares through a
statement sent in writing to the Lessor by registered mail/return receipt
by no later than 12/31/2005; the timeliness of this statement shall be
judged on the basis of its receipt.
3. The lease is renewed by periods of 5 years unless it is terminated by one
of the parties by no later than one year prior to the respective expiration
date. Notice of termination must be provided in writing by registered
mail/return receipt. The timeliness of termination shall be judged on the
basis of receipt of the notice.
<PAGE> 7
- 3 -
Section 4
RENT
1. The monthly rent amounts to DM 330,000.00 plus statutory value-added tax.
2. Rent is due on a monthly basis in advance and must be received in the
Lessor's bank account at WestLB Munster, Account No. 02610 (Bank Code
400 500 00) by no later than the 3rd working day of the month.
3. In the event of counterclaims, the Lessee is entitled to no right of
set-off or retention with regard to the rent, unless the counterclaims have
been acknowledged in writing by the Lessor or have been finally and
conclusively affirmed by a court of law.
Section 5
OPERATING COSTS, INCIDENTAL EXPENSES, TAXES AND PUBLIC CHARGES, LIABILITY
1. The Lessee bears all operating costs, incidental expenses, taxes, and
public charges that are incurred or imposed in connection with the leased
property.
2. Wherever possible, all costs, especially those pertaining to electricity,
water, sewerage, heating, waste disposal, and chimney-sweeping, shall be
directly charged to and paid by the Lessee. Insofar as invoices are
received by the Lessor, he shall forward them to the Lessee for immediate
settlement.
3. Insofar as costs, taxes, and public charges (property tax, fees, etc.) are
imposed on the Lessor, the Lessee agrees to indemnify the Lessor against
such taxes and
<PAGE> 8
- 4 -
charges or to reimburse the Lessor for any expenses incurred in this regard
without delay.
4. The Lessee indemnifies the Lessor against any and all liability that could
affect the latter as the owner of the real property and buildings. This is
true in particular of liability in connection with environmental damage,
including that which can be attributed to use of the leased property by a
previous user.
Section 6
INSURANCE
1. The Lessee shall take out adequate insurance on the leased property to
cover the risks of fire, storm, or water-line damage, as well as liability
insurance that includes coverage for damage to the leased property and
plate-glass insurance.
2. The Lessee shall take out adequate insurance to cover environmental damage
and liability therefor, especially pertaining to the use and storage of
potential water pollutants.
3. Upon demand by the Lessor, the Lessee shall provide proof of the conclusion
of the insurance policies and of the timely payment of premiums. If
necessary, the Lessor is entitled to take out the necessary insurance for
the Lessee's account and/or to pay the premiums; the Lessor shall be
indemnified by the Lessee against all expenditures thereby incurred, and
rendered payments shall be reimbursed without delay.
<PAGE> 9
- 5 -
Section 7
STRUCTURAL CHANGES BY THE LESSEE
1. The Lessee is entitled to undertake structure changes at his own expense
insofar as the Lessor has granted his prior written consent thereto. The
Lessor shall refuse consent only with just cause.
Any costs incurred in connection with such changes are borne by the Lessor
[sic]. The Lessee is also entitled to no claim for reimbursement in this
regard, such as a substitution of equal value, even upon termination of the
lease.
Section 8
STRUCTURAL CHANGES BY THE LESSOR
The Lessor may at any time, in agreement with the Lessee, execute any
improvements or structural changes in the leased property insofar as the
contractual use thereof is not unreasonably restricted thereby.
Section 9
MAINTENANCE AND REPAIRS
1. The Lessee shall handle the leased property with reasonable care, clean it
regularly, keep it free of vermin, and avoid environmental pollution of the
leased property. The Lessee shall perform all maintenance and repair
measures necessary for the leased property, including interior
redecoration, at regular intervals. Insofar as the Lessee does not perform
the required maintenance and repair work prior to an
<PAGE> 10
- 6 -
established deadline despite warning by the Lessor, the Lessor is entitled
to order performance of the work at the Lessee's expense. The same applies
in the event of imminent danger, whereby no warning and establishment of a
deadline is required.
2. The Lessee is liable to the Lessor for all damages and detriment incurred
by the Lessor through environmental pollution of the leased property. The
Lessee shall eliminate such environmental damage to the leased property
(e.g., the excavation of contaminated soil and its replacement with
unpolluted soil) without delay and at his own expense, whereby he is not
accorded the right to object that such environmental pollution was caused
by a previous user of the leased property.
Section 10
ACCESS TO THE LEASED PROPERTY
The Lessor and persons mandated by him are entitled with prior notice to enter
the leased property during the normal business hours of the Lessee.
Section 11
SIGNS AND ADVERTISEMENTS
The Lessee is entitled to affix signs or to use the exterior of the property for
advertising purposes at his own discretion.
<PAGE> 11
- 7 -
Section 12
SUBLETTING
1. The Lessee may sublet the leased property or parts thereof only with the
written consent of the Lessor. The Lessor shall grant this consent if there
is no just cause for denying the subletting.
2. In the event of subletting, the Lessee is liable for all actions or
omissions by the sublessee, regardless of whether the Lessee is responsible
for any errors in this regard.
Section 13
OTHER AGREEMENTS
1. Any changes in this contract must be in writing, insofar as notarial
recording is not prescribed by law. This also applies to a waiver of this
formal requirement. No verbal collateral agreements have been entered into.
2. Should a provision of this contract be invalid, this does not affect the
validity of the remainder of the contract. In that case, another provision
that most closely corresponds to the meaning and economic significance of
the invalid provision shall be agreed to between the contracting parties.
3. The forum for all disputes arising from this contract is Neumunster.
---------------------------------------------------------------
<PAGE> 12
- 8 -
30041mietve
12/19/1996
<PAGE> 1
Exhibit 10.1 (f)
CONTRACT
on the Lease of Commercial Premises
concluded pursuant to the provisions of Law 116/1990 Zb., as later modified and
amended, between the following contracting parties:
Heavy Engineering Works, joint-stock company, 018 41 Dubnica-on-Vah, Slovak
Republic, represented by Messrs. Eng. Jozef Barancok, CSc., chairman of the
Management Board, and Eng. Bohumil Zlocha, member of the Management Board
(hereinafter "Lessor"); Bank reference: VUB joint-stock company, Povazska
Bystrica Branch; Account no.: 131-28603-372/0200; ID number: 36 001 708; Tax
number: 36 001 708/668
and
the founders of SAUER-ZTS joint-stock company, with registered office in 018 41
Dubnica-on-Vah, Slovak Republic,; SAUER-SUNDSTRAND GmbH, Krokamp 35, 24531
Neumunster, Federal Republic of Germany, represented by Dr. Tonio Barlage,
general manager (hereinafter SAUER-SUNDSTRAND or SAS); SAUER-SUNDSTRAND (CS)
limited liability company, K vystavisku 13, 912 50 Trencin, Slovak Republic,
represented by Eng. Jan Rusnak, CSc., general manager (hereinafter SAS/CS);
Heavy Engineering Works, joint-stock company, 018 41 Dubnica-on-Vah, Slovak
Republic, jointly represented by Messrs. Eng. Jozef Barancok, CSc., chairman of
the the Management Board, and Eng. Bohumil Zlocha, member of the Management
Board (hereinafter "ZTS"); DCA-INVEST, limited liability company,
Dubnica-on-Vah, 018 41 Slovak Republic, represented by Eng. Milan Strapka,
general manager (hereinafter INVEST)
<PAGE> 2
2
Article I.
Object and Purpose of the Tenancy
1. The Lessor leases to the Lessee the following specified premises:
- 10,852 m2 production space,
- 7,144 m2 covered auxiliary space,
- 1,253 m2 office space,
- 2,711 m2 space designated for sanitary facilities,
- 18,599 m2 land under the structures,
- 3,612 m2 land adjacent to the structures.
The premises to which the lease pertains are located in the Lessor's
property, which is designated Buildings DM3, DM3a, Spanesammlung and
leased land, Lot Nos. 3747/2, 3747/7, and 3747/33. The passport to the
buildings and the sketch of the land adjacent to the structures
constitute integral parts of this contract.
2. The Lessee leases the commercial premises noted in Point 1 of this
article for the purpose of engaging in production and in associated
activities for the newly founded company SAUER-ZTS joint-stock company in
keeping with the object of business.
3. The Lessor is the exclusive owner of the commercial premises that
constitute the object of this contract and is entitled to dispose of said
commercial premises.
4. The contracting parties have agreed that the rights and obligations from
this contract devolve to the legal successors of the Lessee only with the
express written consent of the Lessor.
<PAGE> 3
3
Article II.
Term of the Tenancy
1. The lease is concluded for a limited term, beginning on 4/1/1997, namely
for 5 years beginning with the effective date of the lease in question.
The agreed term of 5 years can be renewed by the Lessee twice by 5-year
periods based on his option; thus, the total term of the limited-term
lease is 15 years in the event that the Lessee twice asserts his renewal
option.
2. The assertion of the option by the Lessee must take place toward the
Lessor in the twelfth month of the 5th year of the lease.
3. The Lessor turns the object of the lease over to the Lessee in a
condition that is suitable for the contractual use. The document
regarding the commencement of use shall serve as the official record
pertaining to acceptance of the object of the lease, signed by both
contracting parties.
4. The Lessee has a preferential right to the conclusion of a new lease with
the Lessor after the time agreed to in Point 1 of this article has
expired.
Article III.
Rent, Services, Due Dates, Payment Method
1. The contracting parties agree under the meaning of Section 7 Law No.
116/1990 Zb. and in accordance with Law No. 18/96 Z.z. on prices to
the following rental fees:
<TABLE>
<CAPTION>
<S> <C> <C>
- rent minus heating expenses - production space
10852 m2 x 400.00 Sk 4,340,800.00 Sk/year
- rent minus heating expenses - covered auxiliary space
7144 m2 x 300.00 Sk 2,143,200.00 Sk/year
- rent minus heating expenses - office space
1253 m2 x 500.00 Sk 626,500.00 Sk/year
</TABLE>
<PAGE> 4
4
<TABLE>
<S> <C> <C>
- rent minus heating expenses - sanitary facilities
2711 m2 x 250.00 Sk 677,750.00 Sk/year
land under the structures
18599 m2 x 20.00 Sk 371,980.00 Sk/year
--------------------
Total rent 8,160,230.00 Sk/year
</TABLE>
a) The Lessor provides to the Lessee firefighting and security services in
the amount of 1,000 Sk/year per employee of the Lessee. The Lessee shall
pay this amount to the account of the Lessor on a monthly basis.
b) The Lessee is obligated to pay a prorated fee for operating costs
associated with the use and cleaning of the paths, walkways, and parking
lots and with the formation of a reserve fund for repairs in the amount
of 277,574.00 Sk/year, which the Lessee shall pay to an account of the
Lessor on a monthly basis, whereby said fee is payable until a separate
entrance is created for the Lessee.
2. The Lessor reserves the right to raise the amount of rent and service
fees once a year. If the quarterly inflation rate according to official
statistics exceeds 10%, then the provision of the first clause does not
apply and the Lessor is entitled to raise the amount of rent and service
fees following publication of the indicated figures.
3. The Lessor also offers to the Lessee further performances, comprising the
supply of heat, electricity, drinking water, and industrial water, and he
provides for sewer services, waste water treatment, the supply of
compressed air, and the liquidation of the emulsions from the machine
tools. For these services, which he provides to the Lessee in 1997, he
shall charge the following amounts based on the agreement between the two
contracting parties:
<TABLE>
<S> <C>
Heating (0.4 Gj/m3) 225.00 Sk/Gj
Electricity 2.23 Sk/kWh plus lump sum
</TABLE>
<PAGE> 5
5
<TABLE>
<S> <C> <C>
6,900.00 Sk/p.a.
Drinking and industrial water 8.00 Sk/m3
Sewer services / 9.50 Sk/m3
Waste water disposal
Compressed air (approx. 6 Atm.) 0.35 Sk/m3
Liquidation of the emulsions from 1,100.00 Sk/m3
the machine tools
</TABLE>
Beginning in 1998, the Lessor shall substantiate any price increase in
the noted services with the overall rise in prices, and the Lessee shall
accept this price increase on the basis of the substantiated overall rise
in prices.
4. In the event of restrictions on the supplied energy as a result of
unfavorable conditions on the energy market, this shall be accepted by
the Lessee without any sanctions toward the Lessor.
5. The payments for rent and services are effected as follows:
a) the Lessor shall bill the Lessee for the rent on all leased premises once
quarterly in the form of an invoice, the payment of which is due within
14 days of its date of issue and which the Lessee shall transfer to the
Lessor to the account indicated to him,
b) the services provided to the Lessee by the Lessor, as described in Point
3, shall also be billed to the Lessee by the Lessor, the payment of which
is due within 14 days of its date of issue and which the Lessee shall
transfer to the Lessor to the account indicated to him,
6. The contracting parties have agreed that the Lessee shall pay all costs
associated with the execution of repairs to or reconstruction of the
leased premises, insofar as these are occasioned by the Lessee.
<PAGE> 6
6
Article IV.
Further Agreements Between Lessor and Lessee
1. The Lessor agrees that on the date of the official transfer of the office
space pursuant to this contract, he shall transfer to the Lessee 6 state
telephone connections over which the Lessor currently disposes. The
Lessee shall bear the costs for the use of the telephone connections. The
Lessee agrees to transfer the telephone connections back to the Lessor
upon termination of the tenancy.
At the same time the Lessor agrees that he will do everything to ensure
that the Lessee has adequate state telephone connections and
long-distance connections in the future.
2. The Lessor agrees that he will provide to the Lessee separate access to
the leased premises. To this end, a separate road connection - access
street is being constructed, which is intended for the transport of
persons and goods (under the meaning of the foundation agreement).
Article V.
Rights and Obligations of the Contracting Parties
1. The Lessor agrees to ensure to the Lessee proper use of and benefit from
the leased commercial premises and to provide to him the services
associated with the tenancy as described in Art. III of this contract.
2. The Lessee agrees to perform minor repairs and ordinary maintenance at
his own expense, not to exceed the amount of 1,000.00 Sk per repair. The
Lessee is also required to notify the Lessor of the scope of necessary
repairs that go beyond the scope of minor repairs within the specified
time limit and without delay, and to allow him to perform such repairs.
The Lessee shall notify the
<PAGE> 7
7
Lessor without delay of any damage that occurs as a result of defects in
the leased premises. Upon nonperformance of this obligation, the Lessee
is liable for the damages incurred by the Lessee as a result of that
fact.
3. In the event that the Lessee notifies the Lessor of needed repairs
or of damages that have arisen as a result of defects in the leased
premises, and the Lessor does not eliminate the reported defects or
damages within a reasonable period, the Lessee is entitled to
secure the elimination of the defects and damage at his own expense
and to bill the incurred costs, in an ascertainable amount, to the
Lessor, either directly or through offsetting with the due rent.
This provision does not affect the terms set out in Art. III, Point
5.
4. The Lessee has the right to a discount on the rent if because of defects
that he has not caused and which he has reported in a timely fashion he
has been unable to use the object of the lease in the agreed manner prior
to their elimination, except in the case of accident, force majeure, or
intervention by state or public authorities. The claim for discounting of
or release from the rent must be asserted against the Lessor without
delay.
5. The Lessee can perform alterations only with the prior written consent of
the Lessor. At the same time, he is obligated to comply with the
provisions of Law No. 50/76 Zb., pursuant to the provisions of later
regulations, applicable implementing regulations, and the Slovak State
Standards (STN).
6. The Lessee is furthermore obligated to ensure, at his own expense, the
discharge in the leased premises of all obligations resulting from
regulations pertaining to industrial safety and health protection, to the
protection of property and hygiene, and to environmental protection. The
parties to this contract have similarly agreed, in accordance with the
Law on Fire Protection as
<PAGE> 8
8
last amended, that the Lessee shall discharge in the leased commercial
premises all obligations resulting from that law.
7. If the Lessee uses his own funds to alter the object of the lease during
the term of the tenancy, the Lessor shall grant his consent to the
Lessee's claiming of the relevant accounting depreciations in his
accounting records during the term of the tenancy.
8. The Lessee insures all objects that are brought onto the premises leased
from the Lessor, especially inventories of goods, materials, and material
fixed assets.
9. The Lessor guarantees the security of the structures leased to the Lessee
so that there can be no losses of or damages to the property of the
Lessee.
10. The Lessee is entitled to install in the leased structures an information
display bearing the Lessee's company name to the standard extent and of
the standard size.
11. The Lessee is prohibited from subletting the commercial premises. The
Lessee agrees, upon termination of the tenancy, to return the leased
premises in a condition suitable for the agreed use, with due
consideration for the length of use, and if necessary to restore them to
their original condition.
12. The Lessor reserves the right to enter the leased premises for the
purpose of their inspection by mandated employees following advance
notification of the Lessee, but as a rule no more frequently than once
per quarter.
13. The Lessee is obligated to maintain the land adjacent to the leased
structures (mowing, protecting against ecological damage, not storing
surplus material there, etc.). The Lessee shall not pay rent for land
that is maintained in this way.
<PAGE> 9
9
14. The Lessee is obligated to safeguard from third parties all secret and
confidential information regarding technical, economic, financial,
business, and other facts acquired from ZTS Dubnica n/V joint-stock
company and not to use such information for its own purposes or other
activities without the written consent of the Lessor. The facts noted
under Point 3.1., OSPR No. 12/93, which constitute the annex to this
contract, are subject to such safeguarding.
Article VI.
Termination of the Tenancy and Notice Period
1. The tenancy is terminated upon the end of the agreed term of the tenancy.
2. The tenancy can also be terminated prior to the end of the agreed term of
the tenancy through a written agreement between the contracting parties,
or for the reasons for termination of the tenancy that apply to both
contracting parties on the basis of the provisions of Section 9 Law No.
116/90 Zb.
3. During the agreed term of lease, the Lessee is entitled to terminate the
lease with 6 months' notice.
Article VII.
Concluding Provisions
1. The contract becomes valid on the date of its signing by the contracting
parties and takes effect on 4/1/1997.
2. Any change or addition to this contract must be in the form of written
addenda to the contract, which must be signed by statutory
representatives of the contracting parties.
<PAGE> 10
10
3. The contracting parties have familiarized themselves with the contents of
this document and have signed it as an indication of their consent
thereto.
4. This contract has been prepared in 4 copies, of which each participant
receives 2 copies, one each in the Slovak language and in the German
language. In the event of conflict between the two language versions, the
Slovak version shall be definitive for interpretation of the contract.
The contracting parties have agreed that the relations not governed by
this contract pursuant to Law No. 116/90 Zb., the Civil Code, and other
binding, applicable provisions of law are dissolved.
5. Presented as attachments were the following annexes to the contract,
which are an integral part of this contract:
- official record of acceptance and delivery of possession
- excerpt from the Land Registry
- ground plan of adjacent land,
- excerpt from the company's rules and regulations
In Bratislava, 12/4/1996
[signature] [signature]
- ---------------------------------- ----------------------------
Eng. Jozef Barancok, CSc. Eng. Bohumil Zlocha
[signature] [signature]
- ---------------------------------- ----------------------------
Dr. Tonio Barlage Eng. Jan Rusnak, CSc.
[signature]
------------------------------------------
Eng. Milan Strapko
<PAGE> 11
Agreement for change of lease
As a result of the transfer of [illegible] property, there has been a
change in the property rights from the firm Heavy Engineering Works
Dubnica-on-Vah, joint-stock company, to the firm ZTS - Dubnica-on-Vah plus,
joint-stock company.
The property transfer concerns the lease contracts concluded with the
company SAUER-ZTS, joint-stock company.
The following leases are affected:
[see original] dated [see original]
" "
" "
" "
" "
The company ZTS - Dubnica-on-Vah enters into the [illegible] or the above
listed lease contracts as the lessor and assumes to itself all rights and
obligations stemming from these contracts for the original lessor Heavy
Engineering Works Dubnica-on-Vah, joint-stock company.
With this agreement [illegible] the lessor toward the lessee [illegible]
from 11/1/1997:
ZTS - Dubnica-on-Vah plus, joint-stock company
plot ZTS No. 924
018 41 Dubnica-on-Vah
represented by: Ing. Emil Potocek
Member of the Board
Ing. Lubomir Holoman
Signing Clerk
Bank: VUB, joint-stock company, Povazska
Bystrica Branch
Account no: [see original]
Commercial ID: [see original]
Reference ID: [see original]
Dubnica-on-Vah: 11/28/1997
On behalf of
ZTS - Dubnica-on-Vah plus, Heavy Engineering Works SAUER-ZTS
Joint-stock company Dubnica-on-Vah Ltd.
Joint-stock company
[names & rubber stamps of signatories]
[Signatures at the bottom of the Change of Lease Agreement]
[1st column]
On behalf of ZTS - Dubnica-on-Vah plus, joint-stock company
Ing. Emil Potocek
Member of the Board
Ing. Lubomir Holoman
Signing Clerk
[2nd column]
On behalf of Heavy Engineering Works
Dubnica-on-Vah, joint-stock company
Ing. Jozef Barancak, CSc.
Chairman of the Board
Ing. Bohumil Zlocha
Member of the Board
<PAGE> 12
[3rd column]
On behalf of SAUER - ZTS. joint-stock company
Ing. Milos Kraus
Chairman of the Board
Ing. Jan Rusnak, CSc.
Member of the Board
[Each column also contains the rubber stamp of the firm concerned]
<PAGE> 1
Exhibit 10.1(g)
THIS LEASE made the Eighth day of April One thousand nine hundred and ninety
one BETWEEN THE COUNCIL OF THE BOROUGH OF THAMESDOWN in the County of Wilts
(hereinafter called "the council" which expression where the context so admits
shall include the estate owner or estate owners for the time being of the
reversion of the premises hereby demised expectant on the expiry of the term
hereby granted) of the one part and SAEUR-SUNDSTRAND LIMITED whose registered
office is situate at Cheney Manor Swindon Wilts SN2 2PZ (hereinafter called "the
Lessee" which expression shall where the context so admits include any persons
deriving title under the Lessee) of the other part
W I T N E S S E T H as follows:-
1. (1) In consideration of the rent hereinafter reserved and of the Lessee's
covenants hereinafter contained the Council hereby demises unto the Lessee ALL
THAT the property described in the First Schedule hereto (which property
buildings and premises (including heating sanitary and water equipment and any
other fixtures fittings and equipment thereon from time to time other than
tenant's fixtures and fittings which expression shall in this Lease include not
only tenant's fixtures and fittings installed during the term of this Lease but
also tenant's fixtures and fittings and plant and machinery installed by any
previous tenant or by the Tenant under a previous Lease and remaining in or on
the Demised Premises at the date hereof) with any alterations or additions
thereto and any other building erection or works from time to time constructed
or carried out on the said plot of land are hereinafter referred to as "the
demised premises") TOGETHER WITH the easements and rights specified in the
Second Schedule hereto BUT EXCEPT AND RESERVING unto the Council its lessees and
tenants and all others entitled thereto the easements and rights specified in
the Third Schedule hereto TO HOLD
<PAGE> 2
the same unto the Lessee for the term of FIFTEEN YEARS from the twenty sixth day
of June One thousand nine hundred and ninety YIELDING AND PAYING therefor
(A) For the first five years of the said term the yearly rent of TWO HUNDRED AND
SEVENTY THREE THOUSAND ONE HUNDRED AND FORTY POUNDS ((pound)273,140)
(hereinafter called "the Commencing Rent")
(B) For the next five years of the said term and for each successive period of
five years thereafter the greater of:-
(i) The Commencing Rent or
(ii) The Indexed Rent as defined in the Fourth Schedule hereto as at the
commencement of the relevant period of five years (hereinafter called "the
relevant review date")
(2) The rent in respect of each year of the said term shall be paid by equal
quarterly payments in advance by Banker's Standing Order on the First days of
January April July and October in every year the first of such instalments or a
proper proportion thereof to be made on or before the execution hereof Provided
that if the quarterly payment of rent is not made within fourteen days of the
date on which it is due then interest shall be payable thereon calculated from
the date the rent is due to the actual date of payment at the rate of 2% per
annum above Lloyds Bank PLC Base Lending Rate for the time being
2. IT IS HEREBY agreed and declared that the Lessee shall not be or become
entitled to any right of access of light or air to the demised premises or to
any other right privilege or easement which would restrict or interfere with the
user of any adjoining or neighbouring land for building or any other purpose
(Provided that such user shall not materially affect the beneficial user of the
demised premises by the Lessee for all purposes permitted by this Lease) and
that no estate or interest in the soil of any road or footpath (whether or not a
highway maintainable at the public expense) adjacent to the demised premises is
or shall be deemed to be included in the demise hereinbefore contained
<PAGE> 3
3. The Lessee hereby covenants with the Council as follows:-
(1) To pay the rent hereby reserved including interest thereon (if any) as
hereinbefore provided clear of all deductions at the times and in the manner
aforesaid
(2) To pay all rates taxes duties charges and assessments whatsoever whether
parliamentary local or otherwise which are now or may hereafter become payable
in respect of the demised premises whether by the owner or occupier thereof
other than tax charged on the Council as a result of the ownership of or any
dealing with the Council's reversionary interest or the receipt of rent and
other payments hereunder
(3) (a) Forthwith to insure and keep insured at all times during the said term
(subject to such excesses exclusions and conditions as the insurers may require)
the demised premises in the full reinstatement value thereof against loss or
damage by fire explosion storm or tempest (including lightning) or aircraft or
any article dropped from aircraft (in both cases other than hostile aircraft)
and other risks normally included within a policy of comprehensive insurance
which the Lessee or the Council consider to be reasonably desirable (insofar as
the same are insurable on reasonable terms) such insurance to be with an
insurance company first approved by the Council (such approval not to be
unreasonably withhe1d) in the joint names of the Council and the Lessee in such
sum (to be approved in writing from time to time by the Council such approval
nor to be unreasonably withheld) as for the time being shall be sufficient to
cover the cost of completely reinstating the demised premises in the event of
total destruction of the buildings and erections comprised therein together with
Architects and Surveyors fees and other expenses incidental thereto
(b) Promptly to pay all premiums and other moneys necessary for the said
insurance
(c) Whenever reasonably required but not more than twice a year to produce
to the Council and its officers or agents the policy or policies
<PAGE> 4
of insurance or sufficient evidence of the same and the receipt for the then
current years premium
(d) In the event of the demised premises or any part thereof at any time
during the subsistence of the term hereby created being destroyed or damaged by
any of the defined risks or other risks insured against then and as often as the
same may happen and so long as such insurance has not been vitiated or payment
of any policy monies refused in whole or part by reason solely or in part of any
act or default of the Council its lessees or their respective agents servants
invitees licensees or visitors to secure that all monies payable by virtue of
the insurance before referred to shall with all convenient speed and in
conformity with the provisions of this Lease be laid out and applied in
rebuilding repairing or otherwise reinstating the demised premises in a good and
substantial manner PROVIDED THAT the covenant by the Lessee as to reinstatement
shall be satisfied if the Lessee provides in the premises so reinstated
accommodation as convenient and commodious as is practicable but not necessarily
identical to the demised premises as the same existed prior to such damage or
destruction PROVIDED ALWAYS that if the rebuilding and reinstatement of the
demised premises or any part thereof shall prove impossible all the monies
payable pursuant to any policy of insurance effected hereunder shall be divided
between the Council and the Lessee in the proportions which the value of their
respective interests in the demised premises or that part thereof bear to one
another at the time of the event giving rise to payment. And such proportions
shall be determined by arbitration as hereinafter provided and the Lessee may
within three months of it becoming apparent that rebuilding or reinstatement of
the demised premises will not be possible terminate this Lease by service of
written notice on the Council Provided Always that if the Lessee shall at any
time fail to insure or keep insured the demised premises as aforesaid the
Council may do all
<PAGE> 5
things necessary to effect and maintain such insurance and any moneys expended
by the Council for that purpose shall be repayable by the Lessee to the Council
on demand and be recoverable forthwith by the Council by action or by distress
as if such moneys formed part of the rent payable hereunder
(e) Not to do or cause permit or suffer to be done anything which may
render the Policy or Policies of Insurance hereinbefore mentioned void or
voidable nor anything which may render uninsurable the defined risks before
mentioned
(4) At all times during the term hereby created to maintain and keep the demised
premises in good and tenantable repair and condition including in all cases the
repair of damage howsoever caused to any part of the demised premises and to
keep such part of the demised premises which is unbuilt on or unpaved and is
situate between the factory and the estate roadway in front thereof laid out and
planted and in a tidy condition PROVIDED THAT not withstanding the foregoing (a)
the Lessee shall not be obliged to remedy defects or wants of repair mentioned
in the Schedules of Delapidation and condition annexed hereto nor to leave such
parts of the demised premises as are mentioned in such Schedules in any better
state or repair and condition than that in which they now are as evidenced by
such Schedules and (b) the Lessees' obligations under this clause in relation to
the roof of the factory building (hereinafter called "the factory roof" which
expression shall not include downpipes but shall include the gutters) shall be
to keep the same in a wind and weatherproof condition so far as practicable
without major repairs and in the event of any major material deterioration of
the factory roof due to the age of the factory roof or failure of the insulating
treatment carried out thereto on behalf of the Council prior to the grant of
this Lease the Council will replace and make good the factory roof unless such
deterioration is solely or mainly attributable to (i) the Lessee's
<PAGE> 6
working processes or (ii) the Lessee's lack of annual inspections or (iii) the
Lessee's failure to comply with its above obligations PROVIDED FURTHER that the
Lessee shall have no responsibility for repairs and replacement which are the
responsibility of the Council under clause 4(b) hereof
(5) To paint with two coats of good quality paint in a proper and workmanlike
manner all parts of the factory usually painted as to the external parts in
every third year and as to the internal parts in every seventh year time in each
case being computed from the commencement date hereof and after every internal
painting to grain varnish paint distemper wash whiten and colour all such parts
as are usually or are required to be so dealt with
(6) To permit the Council its officers servants and agents workmen and
authorised agents at reasonable times after due notice (save in case of
emergency) to enter upon the demised premises for the purpose of ascertaining
that the covenants and conditions herein contained have been duly observed and
performed for the purpose of taking inventories of landlord's fixtures and
fittings therein and to view the state of repair and condition of the demised
premises and to give or leave on the demised premises notice in writing to the
Lessee of all defects and wants of repair cleansing maintenance amendment
painting and decorating and of any failure to keep any part of the demised
premises laid out and planted and in a tidy condition in accordance with the
Lessees covenants herein AND within the period of two calendar months after any
such notice the Lessee shall begin to repair and make good cleanse maintain
amend and paint the premises and lay out and plant so much of the demised
premises as is reasonably required to be so treated and to put the same into a
tidy condition as required by such notice and in accordance with the covenants
in that behalf herein contained and shall diligently proceed with the same AND
if the Lessee shall fail to comply
<PAGE> 7
with the requirements of such notice as aforesaid to permit the Council or its
contractors agents and workmen to enter upon the demised premises to execute
such works as may be necessary to comply with the same AND in the event of the
Council so entering the demised premises and carrying out such works to pay to
the Council the proper and reasonable cost of executing such works within
twenty-one days of a written demand in that behalf
(7) At the end or sooner determination of the term hereby granted to yield up
the demised premises and all additions thereto and all landlords fixtures and
fittings therein well and substantially repaired cleansed maintained painted and
laid out in accordance with the Lessee's covenants herein contained and if
required to do so by the Council (and subject to the Lessee being able to obtain
all necessary consents for the same) to remove make good or reinstate as the
case may be all additions alterations and re-arrangements made by the Lessee
under the provisions hereinafter contained (other than any such carried out by
the Lessee in order to comply with legislation affecting the demised premises
and any such made by the Lessee at the commencement of this Lease in order to
reinstate Bays 7 and 8 to the condition in which they were prior to the making
of alterations by previous tenants) Provided that on the determination of the
term hereby granted any dilapidations claim made by the Council against the
Lessee shall be settled having regard to the condition of the demised premises
as evidenced by the Schedules of Dilapidations and Condition annexed hereto
(8) Not at any time during the term hereby created to build or place or permit
or suffer to be built or placed on the demised premises any new or additional
buildings or erections or to make any material alterations in the existing
external design or appearance of the demised premises (all of which buildings
erections alterations are referred to in this sub-clause as 'new works') except
with the prior written approval of the
<PAGE> 8
Council in accordance with plans elevations sections site plans and
specifications which have first been approved in writing by the Council (in both
cases such approval not to be unreasonably withheld) In the event of the Lessee
carrying out any new works without the prior written consent of the Council it
shall be lawful for the Council to enter upon the demised premises and restore
them to the condition in which they were before the Lessee commenced such new
works and the proper and reasonable expense of the Council in so doing together
with interest at two per centum above Lloyds Bank PLC Base Lending Rate for the
time being in force shall be paid by the Lessee to the Council within twenty-one
days from the date of a written demand in that behalf. In the event of the
Lessee carrying out any new works to which the Council may have given it prior
consent which do not comply with the plans elevations sections site plans and
specifications approved by the Council the Lessee shall forthwith upon notice in
writing from the Council requiring it so to do make good and correct all such
works which do not comply with the said plans elevations sections site plans and
specifications as directed by the Council and if the Lessee shall neglect to
begin so to do within seven days after such notice then it shall be lawful for
the Council or its servants contractors agents and workmen to remove or make
good and correct all such non-complying works and all expenses of so doing with
interest thereon at the rate aforesaid shall be paid by the Lessee to the
Council within twenty-one days of a written demand in that behalf. The Lessee
shall permit the duly authorised officers and servants of the Council at all
reasonable times upon reasonable prior notice in writing to enter upon the
demised premises to view the state of progress of any new works which the
Council has approved and to inspect or test the material and workmanship thereof
and for the purpose of ascertaining generally that any such new works have been
and are being carried out in accordance with the plans
<PAGE> 9
elevations sections site plans and specifications approved by the Council and
the Lessee shall permit the Council its servants agents or contractors of the
Council to enter upon the demised premises to carry out any works or do any
matter or thing which under this Lease the Council is empowered to do or carry
out.
(9) To permit the Council and the lessees or occupiers of adjoining property
belonging to the Council if authorised in writing by the Council and their
officers servants agents and workmen at convenient times by appointment after
not less than fourteen days' notice to the Lessee or without notice in case of
emergency to enter upon the demised premises to execute repairs alterations
painting redecoration, or any other works whatsoever to any adjoining property
now or hereafter belonging to the Council provided that such works cannot
reasonably by carried out without such access the person or persons exercising
such right making good all damage thereby occasioned to the demised premises and
to the Lessee's property and also to permit the Council and the lessees or
occupiers of adjoining property authorised as aforesaid and their respective
officers servants contractors agents and workmen at convenient times by
appointment after such notice as aforesaid (if required) to enter upon the
demised premises for the purpose of constructing laying down connecting altering
repairing cleansing or maintaining any sewers drains gutters pipes or cables in
or under the demised premises for the accommodation of any adjoining or
neighbouring property now or hereafter belonging to the Council the person or
persons exercising such right making good all damage thereby occasioned to the
demised premises and the Lessee's property
(10) During the said term to use the demised premises(apart from the office
block) only for general industrial purposes and/or for warehousing and to use
the office block as offices
(11) (a) Not at any time to instal any fuel burning apparatus on the
<PAGE> 10
demised premises other than apparatus of a type approved by the Council (such
approval not to be unreasonably withheld) and to erect any chimney in connection
with any such apparatus to the reasonable satisfaction in all respects of the
Council. To keep all fuel burning apparatus repaired and maintained to the
reasonable satisfaction of the Council and to stoke and operate the same only in
a proper and skilled manner in all respects in accordance with the
manufacturer's instructions and recommendations and in particular not to exceed
the proper working pressure and temperature
(b) Not to cause or permit smoke effluvia vapour or grit to be emitted
from any apparatus on the demised premises to such an extent as would result in
a loss of amenity to other occupiers of the surrounding neighborhood and to
erect any chimney in connection with any such apparatus to the reasonable
satisfaction in all respects of the Council
(c) To permit officers of the Council to enter upon the demised premises
at reasonable times by appointment to inspect the method of stoking any fuel
burning apparatus installed on the demised premises and to comply with such
reasonable directions as may be given by the Council to ensure the provisions of
Clause 3(11)(a) and (b) are complied with by the Lessee.
(d) The Council hereby confirm that the apparatus and chimneys on or in
the demised premises at the date hereof comply with this clause 3(11)
(12) Not to use the demised premises or any part thereof or permit or suffer the
same to be used for any illegal or immoral purpose nor to permit or suffer to be
done in or upon the demised premises nor to permit or suffer to be brought on
the demised premises anything which may be or become a danger or nuisance or
which may cause damage or inconvenience to the Council its lessees or tenants or
occupiers of any adjoining or neighboring property (the Lessee's business as
now and
<PAGE> 11
previously carried on at the demised premises not being in breach of this
covenant) and not to use or permit or suffer to be used any part of the demised
premises or anything connected therewith as an advertising station or for the
display of boards posters notices or signs except such as may be permitted in
writing by the Council such permission not to be unreasonably withheld
(13)(a) Not at any time during the said term to assign underlet or part with the
possession of the whole of the demised premises without the previous written
consent of the Council which shall not unreasonably be withheld
(b) Not at any time during the said term to underlet part or parts of the
demised premises save that a part of the demised premises with a gross internal
floor area exceeding 7,500 square feet may be so underlet
(i) Pursuant to an Order of the Court under Section 38(4)(a) of the
Landlord and Tenant Act 1954 authorising an agreement between the Lessee and the
tenant under such underlease excluding the provisions of Section 24 to 28
(inclusive) of that Act in relation to such underlease and
(ii) With provisions in such underlease recording the making of such
agreement the Order of the Court and the fact that such underlease is made
pursuant to such agreement and Order and
(iii) With the previous written consent of the Council which shall not
unreasonably be withheld
(c) Not at any time during the said term to assign part or parts of the
demised premises
(d) That the Lessee shall within one month from the date of any assignment
underlease or other disposition of the Lessee's interest by virtue of this Lease
or any part thereof give notice in writing to the Council and to produce to the
Council a certified copy of the relevant deed document or grant and to pay to
the Council a registration fee of
<PAGE> 12
Five pounds in respect of every such production
(14) If any encroachment or easement shall be made or threatened to be made on
or over the demised premises or if any window or opening shall be made or
threatened to be opened or made in any neighbouring building (whether already or
hereafter to be erected) which if not obstructed might by lapse of time confer
the right to access of light in favour of any neighbouring property (unless in
either case the dominant tenement is also owned by the Council) to give notice
to the Council as soon as the same shall come to the notice of the Lessee and at
the cost of the Council to do all such things as may be reasonable and proper
for the purpose of preventing the making of such encroachment of the acquisition
of such easement or right AND if the Lessee shall omit or neglect to do all such
things as aforesaid at the earliest reasonably practicable time it shall be
lawful for the Council its officers servants and workmen to enter upon the
demised premises and to do the same (unless as aforesaid)
(15) Not to form or permit to be formed a rubbish or waste materials (especially
inflammable materials) dump on the demised premises but to keep all rubbish and
refuse in properly covered receptacles to the reasonable satisfaction of the
Council TO arrange at the Lessee's own expense for the removal of all refuse
(other than refuse which the appropriate Local Authority is under obligation to
remove under the Public Health Act 1936 or otherwise) from the demised premises
whenever necessary
(16) At the Lessee's own expense to provide and maintained on the demised
premises throughout the said term adequate fire fighting equipment in accordance
with the appropriate regulations for the time being in force and to maintain a
clear access way to such equipment at all times
(17) Not to do anything or suffer anything to be done on the demised premises
which would remove support from any adjoining land buildings or
<PAGE> 13
structure in any way whatsoever
(18) To endeavour to ensure that no vehicle belonging to the Lessee its servants
and invitees shall park or load or unload on any road on the Council's Trading
Estate (as such estate may exist from time to time adjoining Cheney Manor Road
Swindon) except roads within the demised premises
(19) Not to supply gas electricity water or heating to any other tenant or
occupier of land comprised with the Council's Trading Estate situate adjoining
Cheney Manor Road Swindon (other than an underlessee of the Lessee)
(20) To permit the Council during the six months immediately preceding the
expiration or sooner determination of the term hereby created to affix on any
part of the demised premises a notice for reletting or selling the same and
during the said period to permit all persons with written authority from the
Council and accompanied by a servant or agent of the Council at reasonable times
of the day to view the demised premises on prior appointment being made
(21) (a) Not to discharge any trade effluent (as defined in the Public Health
(Drainage of Trade Premises) Act 1937 or any statutory modification thereof for
the time being in force) from the factory or any apparatus therein into the
sewers serving the demised premises or into any pipe or drain communicating
therewith except in such manner into such sewers at such temperature in such
quantities at such rates at such times of such composition after such treatment
(whether for the removal of constituent parts or for the rendering of the
effluent neither acid nor alkaline or otherwise) and subject to such other
conditions whatsoever as the Council may from time to time reasonably direct
(b) The Council hereby confirms the method of disposal of effluent now
used by the Lessee is not in breach of this covenant
<PAGE> 14
(22) Not to allow anything but water to enter surface water drains and surface
water sewers and in this connection properly to maintain any traps provided on
the demised premises in clean condition and proper repair and to permit
inspection of such traps by or on behalf of the Council at any reasonable time
by appointment upon at least seven days prior notice in writing (save in case of
emergency)
(23) Not at any time to store any materials or things upon any part of the
demised premises which may not for the time being be covered by buildings to an
extent which the Council may reasonably consider unacceptable
(24) To pay all reasonable and proper costs charges and expenses (including
Solicitors' costs and Surveyors fees) incurred by the Council for the purpose of
or incidental to the preparation and service of a notice under Section 146 of
the Law of Property Act 1925 as amended requiring the Lessee to remedy a breach
of any of the covenants herein contained notwithstanding forfeiture for such
breach shall be avoided otherwise than by relief granted by the Court
(25) The Lessee hereby agrees with the Council to pay
(a) the Stamp Duty on this Lease and a Counterpart thereof and
(b) the Council's legal costs on the preparation of this Lease and a
Counterpart thereof together with proper disbursements
4. The Council hereby covenants with the Lessee as follows:-
(a) That the Lessee paying the said rent and observing and performing the
covenants and conditions herein contained and on the Lessee's part to be
observed and performed shall and may peaceably and quietly possess and enjoy the
demised premises during the said term without any interruption by the Council or
any person rightfully claiming under or in trust for the Council
(b) To comply with the obligations on its part set out in Clause 3(4) hereof
<PAGE> 15
(c) Without prejudice to Clause 4(d) hereof to remedy at its own expense any
defects shrinkages or faults arising in any part of the Works (as defined in the
Agreement) of which Notice shall be given to the Council within 12 months of the
date of completion of such part of the Works
(d) To remedy defects in the design of the Works (as defined in the Agreement)
becoming apparent during the term hereby granted
(e) Not to do or allow any act or thing which may render any increased or extra
premium payable for the insurance of the demised premises or which may make void
or voidable any such policy of insurance and in particular to procure that the
rights hereby reserved shall not be exercised so as to make void or voidable any
such policy
5. PROVIDED ALWAYS AND IT IS HERBY AGREED AND DECLARED that:-
(1) Notwithstanding and without prejudice to any other remedies and powers
herein contained or otherwise available to the Council if the rent reserved or
any part thereof shall be unpaid for twenty-one days after becoming payable
(whether formally demanded or not) or if any covenant on the Lessee's part
herein contained shall not be performed or observed or if the Lessee for the
time being a Company shall enter into liquidation whether voluntary or
compulsory (save for the purpose of reconstruction or amalgamation) or being an
individual or being more than one individual or any of them shall become
bankrupt or enter into any composition with its creditors then and in such case
it shall be lawful for the Council at any time thereafter to re-enter upon the
demised premises or any part thereof in the name of the whole and thereupon this
demise shall absolutely determine but without prejudice to any right of action
of the Council in respect of any breach non-observance or non-performance of any
of the Lessee's covenants herein contained
(2) Nothing herein contained or implied shall impose or be deemed to
<PAGE> 16
impose any restriction on the use of any land or buildings not comprised in this
Lease or give the Lessee the benefit of or the right to enforce or to have
enforced or to prevent the release or modification of any covenants agreement or
condition entered into by any lessee or tenant of the Council in respect of
property not comprised in this Lease or to prevent or restrict in any way the
development of any land not comprised in this Lease provided that such
development or use does not materially affect the use of the demised premises
for any of the uses permitted by this Lease
(3) Except where this Lease provides otherwise any disputes or differences
arising as between the Council and the Lessee which under the terms hereof are
to be referred to arbitration shall be referred in accordance with the
provisions of the Arbitration Acts 1950 to 1979 or any Act amending or replacing
the same to a single arbitrator to be appointed (in default or agreement) by or
on behalf of the President for the time being of the Royal Institute of
Chartered Surveyors on the application of either party
(4) Except so far as a contrary provision is contained in this Lease any notice
decision direction determination approval authority permission or consent to be
given by or served on the Council under this Lease shall be valid and effective
if signed by the Borough Solicitor for the time being of the Council or such
other officer or agent as the Council may from time to time designate for the
purpose or addressed to the Council at the Council Offices (as the case may be)
and sent by prepaid post and shall be deemed to have been validly served on or
conveyed to the Lessee if sent by prepaid post or left addressed to the
Secretary to the Lessee at the Lessee's registered office
(5) Save to the extent herein specifically provided nothing herein contained or
implied shall prejudice or affect the rights powers duties and obligations of
the Council in the exercise of its functions as a
<PAGE> 17
[GRAPHIC OMITTED]
[BUILDING 101 AND 102]
<PAGE> 18
local authority and save as aforesaid the rights powers duties and obligations
of the Council under all enactments may be as fully and effectively exercised in
relation to the demised premises as if the Council were not the owner of the
site and this Lease had not been executed by it and any approval or consent
given or granted by the Council as landlord in pursuance of the provisions of
this Lease shall not be deemed to be given or granted by the Council in any
other capacity than as landlord
(6) Notwithstanding anything to the contrary in this deed contained the Lessee
shall have full right and liberty to make additions alterations and
re-arrangements from time to time to the interior parts of the demised premises
IN WITNESS whereof the parties hereto have caused their respective Common Seals
to be hereunto affixed the day and year first before written
THE FIRST SCHEDULE to the Lease
ALL THAT land and premises at Cheney Manor Industrial Estate Cheney Manor
Swindon Wilts comprising Bays 1 to 8 and associated offices of building 102
together with the adjoining yard and car parking area and perimeter fence all
which said premises are delineated on the plan annexed hereto and thereon edged
red
THE SECOND SCHEDULE to the Lease
1. The right in common with others having a like right to the free and
uninterrupted passage of water and soil electricity and gas to and from the
demised premises through the pipes drains sewers wires and cables now on the
said Industrial Estate any such as may replace the same with all the ancillary
rights of entry on the land wherein or whereon the same may be with all
necessary workmen and appliances for the purposes of maintaining cleansing
altering making connection to or renewing the same the Lessee making good all
damage occasioned in the exercise of
<PAGE> 19
such rights of entry
2. Full right and liberty for the Lessee and all persons lawfully entitled
thereto with or without workmen and any necessary appliances at all reasonable
times to enter upon the area hatched green on the attached plan to execute
repairs alterations painting re-decoration or other works whatsoever to the
demised premises
3. A right of way at all times and for all purposes over the access drives
connecting the demised premises with the public highway and pavement as shown
coloured yellow on the attached Plan
THE THIRD SCHEDULE to the Lease
1. The right in common with the Lessee and all other persons lawfully entitled
thereto to use all sewers and drains now in or upon the demised premises or any
part thereof and freely to run and pass water and soil through and along the
same or any of them
2. The right to have maintain repair cleanse use reconstruct alter and remove
any pipe wires cables and works on over or under the demised premises now used
for the benefit of the adjoining land
3. Full right and liberty for the Council and all other persons lawfully
entitled thereto with or without workmen and any necessary appliances at all
reasonable times by appointment to enter upon the demised premises for the
purposes of exercising the rights reserved by paragraph 2 hereof the Council or
the person or persons exercising the said rights making good any damage
occasioned to the demised premises and the property of the Lessee by the
exercise of the rights of entry aforesaid
THE FOURTH SCHEDULE to the Lease
(1) The Indexed Rent shall be an annual sum equal to the Commencing Rent with
the addition thereto of a sum bearing the same proportion to the Commencing Rent
as shall be borne by any increase in the Index of Output of Manufactured
Products (Home Sales) published monthly by the
<PAGE> 20
Department of Industry in their publication "British Business" ("the Wholesale
Index") for the month in which the relevant review date falls to the figure
shown therein for the month in which the date of this Lease falls
(2) If at any time or from time to time before the relevant review date the
figure representing the base figure used to compile the Wholesale Index shall be
stated to relate to some commencing date other than May One thousand nine
hundred and eighty five (which is the date at which for the purpose of the
present Wholesale Index the index figure was taken at 100) then for the purposes
of calculating the Indexed Rent the following formula shall be applied:
F = E x D
---------
(C x A)
(B )
Where:
A - the index figure on the old basis for the month in which the date of
this Lease falls
B - the index figure on the old basis on the day upon which the change in
the base date and figure operates or on the immediately preceding day
for which a figure is published if not published on the day of change
C - the index figure on the new basis on the day upon which the change of
the base date and figure operates or on the day for which a figure is
published immediately following that day if not published on the day
of change
D - the index figure on the new basis at the date at which the Indexed
Rent is to be assessed
E - the Commencing Rent
F - the Indexed Rent
<PAGE> 21
(3) If her Majesty's Government shall cease to publish the Wholesale Index or
any similar Index of Output of Manufactured Products or Index of Wholesale
Prices or if any event shall happen whereby it becomes impossible to implement
the foregoing provisions for calculating rent herein contained then the same
shall cease to apply and either party may by not less than one month's notice in
writing served on the other party in that behalf expiring immediately prior to
the relevant review date require the increase in the rent to be a sum bearing
the same proportion to the Commencing Rent as shall be borne by any increase in
the Index of Retail Prices or some similar provision relating to the fluctuation
of the price or value of goods money or services to be agreed between the
parties in substitution for the Wholesale Index in which case all references in
this sub-clause to the Wholesale Index shall be deemed to refer to such
substituted Index
(4) The Council shall calculate the Indexed Rent following publication of the
Wholesale Index for the month in which a relevant review date falls and
thereafter shall give to the Lessee notice in writing of the rent to operate for
the relevant period of five years (hereinafter called "the new rent")
(5) Where following any event as referred to in paragraph (3) of this Schedule
whereby it becomes impossible to implement the foregoing provisions for Rent
Review based upon the Wholesale Index the parties are unable to agree within
three months of a relevant review date upon a revision of the rent based upon
the Index of Retail Prices or some similar published index as aforesaid the
matter shall be determined by a single Chartered Surveyor acting as an expert
(and not as an arbitrator) to be nominated by or on behalf of the President for
the time being of The Royal Institution of Chartered Surveyors which said
Surveyors shall determine the Indexed Rent by reference to such other criterion
as aforesaid relating to the price or value of goods money or services as
<PAGE> 22
he shall think fit The proper charges of such a Surveyor shall be paid by the
Council and the Lessee in equal proportions
(6) In the event of the relevant period of five years starting before the new
rent has been ascertained rent shall continue to be due at the rate of the rent
operative for the period preceding the relevant period of five years on each day
appointed by this Lease for payment until the new rent has been ascertained On
the first day appointed by this Lease for payment of rent after the new rent has
been ascertained there shall fall due for payment the appropriate instalment at
the new rate together with by way of additional rent a sum equal to the
difference between the new rent and the rent actually paid for any part of the
relevant period of five years in respect of which a rent less than the new rent
has been paid with interest thereon calculated from the commencement of the
relevant period of five years to the date of payment at Lloyds Bank PLC Base
Lending Rate for the time being provided that where such sum is attributable in
part to any instalment of rent which became payable on a quarter day after the
relevant review date the interest on that part of the excess shall be computed
only from such quarter day
THE COMMON SEAL OF SAEUR- )
)
SUNDSTRAND LIMITED was )
)
hereunto affixed in the )
)
presence of:- )
Director /s/ [ILLEGIBLE] 4/12/90
Secretary /s/ [ILLEGIBLE]
[SEAL]
<PAGE> 23
Dated 1990
---------------------------------
THAMESDOWN BOROUGH COUNCIL
and
SAEUR-SUNDSTRAND LIMITED
LEASE
of Building 102 Cheney Manor
Swindon Wilts
E.71
<PAGE> 24
MEMORANDUM
Building 102 Cheney Manor Industrial Estate Swindon
THE COUNCIL OF THE BOROUGH OF THAMESDOWN of Civic Offices Swindon Wiltshire
(the Council) and SAUER-SUNDSTRAND LIMITED (formerly Sauer-Sundstrand UK
Holdings Limited) whose registered office is situate at Cheney Manor Industrial
Estate Swindon (the Lessee) HEREBY RECORD that the Rent first reserved in
respect of the above mentioned premises under the Lease short particulars
whereof are set out in the First Part of the Schedule hereto shall from the
respective date set out in the first column of the second part of the Schedule
hereto be the respective clear yearly sum set out in the second column of the
second part of the Schedule hereto such rent being the revised rent for the
Second period of Five years of the term created by the said Lease agreed in
accordance with the provisions for review of rent contained in the said Lease
As witness the hand of Stephen Barrie Edwards its Borough Solicitor for and on
behalf of the Council and the hand of COLIN JOHN WAGSTAFF its MANAGING DIRECTOR
for and on behalf of the Lessee this 22nd day of April One Thousand nine hundred
and ninety six
THE SCHEDULE
First Part
<TABLE>
<CAPTION>
Date of Lease Lessor Lessee
- ------------- ------ ------
<S> <C> <C>
8th April 1991 The Council Sauer-Sundstrand Limited
(now known as Sauer-
Sundstrand GB Limited)
</TABLE>
<PAGE> 25
Second Part
<TABLE>
<CAPTION>
Commencement Date Yearly Rent
- ----------------- -----------
<S> <C>
26th June 1995 THREE HUNDRED AND TWENTY SEVEN THOUSAND
NINE HUNDRED AND THIRTY TWO POUNDS
((pounds sterling) 327,932)
</TABLE>
Signed /s/ [ILLEGIBLE]
---------------------------------------------
Borough Solicitor for and on behalf of the
Council
<PAGE> 1
Exhibit 10.1(h)
STANDARD COMMERCIAL LEASE AGREEMENT PLYMOUTH BUSINESS CENTER - PHASE 5
(REV.- 6/85) 3500 Annapolis Lane #30
Approximately 22,719 sq. ft. office
Approximately 51,260 sq. ft. warehouse
Approximately 73,979 sq. ft. total
LEASE AGREEMENT
THIS LEASE AGREEMENT is between St. Paul Properties, Inc. (a Delaware
corporation) ("Landlord"), and Sauer Sundstrand Co. (a Delaware corporation)
("Tenant").
WITNESSETH:
1. Premises and Term. In consideration of the obligation of Tenant to pay
rent as herein provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby leases to Tenant, and Tenant hereby takes from
Landlord certain premises situated within the Country of Hennepin, State of
Minnesota, as shown outlined in red in the plan attached hereto as EXHIBIT A
(the "Premises"), which is located in a building or buildings (collectively, the
"Building") situated on the real property described on EXHIBIT B attached hereto
(the "Property") and incorporated herein by reference, together with all rights,
privileges, easements, appurtenances, and immunities belonging to or in any way
pertaining to the leased premises.
TO HAVE AND TO HOLD the same for a term commencing on the "commencement
date", as hereinafter defined, and ending 60 months thereafter, provided,
however, that in the event the "commencement date" is a date other than the
first day of a calendar month, said term shall extend for said number of months
in addition to the remainder of the calendar month following the "commencement
date".
[See Rider, Article 28]
The "commencement date" shall be the date upon which the Premises have
been substantially completed in accordance with the Plans and Specifications
described on EXHIBIT C attached hereto. Landlord shall notify Tenant in writing
as soon as Landlord deems the Premises to be completed and ready for occupancy.
In the event that the Premises are not substantially completed in accordance
with such Plans and Specifications, Tenant shall notify Landlord in writing of
its objections within five (5) days after Tenant receives such notice. Landlord
shall have a reasonable time after delivery of Tenant's notice in which to take
such corrective action as may be necessary and shall notify Tenant in writing as
soon as it deems such corrective action has been completed so that the Premises
are completed and ready for occupancy. Taking of possession by Tenant shall be
deemed conclusively to establish that the Premises have been completed in
accordance with the Plans and Specifications and that the Premises are in good
and satisfactory condition, as of when possession was so taken, except for those
uncompleted items set forth in writing by Tenant prior to such taking of
possession. Tenant acknowledges that no representations as to the condition of
the Premises or the Building have been made by Landlord, unless such are
expressly set forth in this lease. On or before such "commencement date" Tenant
shall, upon demand, execute and deliver to Landlord a letter of acceptance of
delivery of the Premises, on Landlord's standard form. In the event of any
dispute as to when or whether the work performed or required to be performed by
Landlord has been substantially completed, the certificate of Landlord's
architect or a certificate of occupancy issued by the local governmental
authority permitting occupancy of the Premises shall be conclusive evidence of
such completion, except for Tenant's miscellaneous punch list items, effective
on the date of the delivery of any such certificate to Tenant.
2. Base Rent and Security Deposit.
A. Tenant agrees to pay to Landlord base rent for the Premises, in
advance, without demand, deductions or set off, for the entire term hereof at
the rate of [see Rider, Article 27] Dollars ($ see Rider, Article 27) per
month, in advance, except that the monthly installment which otherwise shall be
due on the commencement date shall be due and payable on the date hereof.
Thereafter one such monthly installment shall be due and payable without demand
on or before the first day of each calendar month succeeding the commencement
date during the term hereof, except that the rental payment for any fractional
calendar month at the commencement or end of the lease period shall be prorated.
3. Use. The premises shall be used only for the purpose of receiving,
storing, light manufacturing, shipping and selling (other than retail) products,
materials and merchandise made and/or distributed by Tenant and for such other
lawful purposes as may be incidental thereto. Outside storage, including without
limitation, trucks and other vehicles, garbage containers and outdoor furniture
are prohibited without Landlord's prior written consent. Tenant shall at its own
cost and expense obtain any and all licenses and permits necessary for any such
use. Tenant shall comply with all governmental laws, ordinances and regulations
applicable to the use of the Premises, and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of nuisance in or upon, or connected with, the Premises, all at Tenant's sole
expense. Tenant shall not permit any objectionable or unpleasant odors, smoke,
dust, gas, noise or vibrations to emanate from the Premises, nor take any other
action which would constitute a nuisance or would disturb or endanger any other
tenants of the building or unreasonably interfere with their use of their
premises. Without Landlord's prior written consent, Tenant shall not receive,
store or otherwise handle on the Premises any product, material or merchandise
which is explosive or highly flammable. Tenant will not permit the Premises to
be used for any purpose or in any manner (including without limitation any
method of storage) which would render the insurance on the Building or the
Property void or the insurance risk more hazardous or cause the State Board of
Insurance or other insurance authority to disallow any sprinkler credits. If any
increase in the fire and extended coverage insurance premiums paid by Landlord
for the Building is caused by Tenant's use and occupancy of the Premises, then
Tenant shall pay to Landlord as additional rent the amount of such increase.
4. Operating Costs.
A. Upon demand, Tenant shall pay to Landlord, as additional rent during
the term hereof, Tenant's proportionate share of Operating Costs, as hereinafter
defined, calculated on the basis of the ratio set forth in Paragraph 4E.
As used in this lease, the term "Operating Costs" shall mean any and all
expenses, costs and disbursements of any kind and nature whatsoever incurred by
Landlord in connection with the ownership, management, maintenance, operation
and repair of the Property or the Building which Landlord shall pay or become
obligated to pay in respect of a calendar year (regardless of when such
Operating Costs were incurred). Operating Costs shall include, without
limitation, the costs of maintenance, repairs, and replacements to the Building
including roof, walls, downspouts, gutters, painting, and sprinkler systems; the
costs of maintaining and repairing parking lots, parking structures and
easements; and any utility repairs outside or up to the building, property
management fees, salaries, fringe benefits and related costs
Landlord:
--------------------------
Tenant:
----------------------------
<PAGE> 2
payable to employees of Landlord whose duties are connected with the Property;
insurance costs, all heating and air conditioning costs, electricity, sewer and
water and other utility costs not separately metered to tenants, landscape
maintenance, trash and snow removal, taxes, as defined in Paragraph 4F, and
costs and expenses incurred by Landlord in protesting any assessments, levies,
or the tax rate, provided, however, that Operating Costs shall not include the
following: (i) costs of alterations of any tenant's premises; (ii) costs of
curing construction defects; (iii) depreciation; (iv) interest and principal
payments on mortgages, and other debts costs; (v) real estate brokers' leasing
commissions or compensation; (vi) any cost of expenditure (or portion thereof)
for which Landlord is reimbursed, whether by insurance proceeds or otherwise;
and (vii) cost of any service furnished to any other occupant of the Building
which Landlord does not provide to Tenant hereunder. Notwithstanding anything
contained herein to the contrary, depreciation of any structural repairs or
replacements to the Building, or of any capital improvements made after the date
of this lease which are intended to reduce Operating Costs or any capital
improvements which are required under any governmental laws, regulations, or
ordinances which were not applicable to the Building at the time it was
constructed, shall be included in Operating Costs. The useful life of any such
improvements, structural repairs or replacement shall be reasonably determined
by Landlord. In addition, interest on the undepreciated cost of any such
improvement, structural repairs and replacement (at the prevailing construction
loan rate available to Landlord on the date the cost of such improvement was
incurred) shall also be included in Operating Costs.
B. Promptly after the commencement of this lease and during December of
each year or as soon thereafter as practicable, Landlord shall give Tenant
written notice of its estimate of amounts payable under Paragraph 4A for the
ensuing calendar year. On or before the first day of each month thereafter,
Tenant shall pay to Landlord as additional rent one/twelfth (1/12th) of such
estimated amounts, provided that if such notice is not given in December, Tenant
shall continue to pay on the basis of the prior year's estimate until the first
day of the month after the month in which such notice is given. If at any time
it appears to Landlord that the amounts payable under Paragraph 4A for the then
current calendar year will vary from its estimate by more than five percent
(5%), Landlord may, by written notice to Tenant, revise its estimate for such
year, and subsequent payments by Tenant for such year shall be based upon such
revised estimate.
Within ninety (90) days after the close of each calendar year or as soon
thereafter as practicable, Landlord shall deliver to Tenant a summary of the
total Operating Costs for the previous calendar year and Tenant's proportionate
share thereof. If such summary shows an amount due from Tenant that is less than
the estimated payments previously paid by Tenant, it shall be accompanied by a
refund of the excess to Tenant. If such summary shows an amount due from Tenant
that is more than the estimated payments previously paid by Tenant, Tenant shall
pay the deficiency to Landlord, as additional rent, within thirty (30) days
after delivery of the summary.
C. Tenant or its representatives shall have the right to examine
Landlord's books and records of Operating Costs during normal business hours
within twenty (20) days following the furnishing of the summary to Tenant.
Unless Tenant takes written exception to any item within thirty (30) days
following the furnishing of the summary to Tenant (which item shall be paid in
any event), such summary shall be considered as final and accepted by Tenant.
D. If Landlord selects the accrual accounting method rather than the cash
accounting method for operating expense purposes, Operating Costs shall be
deemed to have been paid when such expenses have accrued.
E. For purposes hereof the Premises total 73,979 square feet. The building
totals 124,214* square feet. Tenant's "proportionate share" of 59.56% is arrived
at by dividing 73,979 into 124,214.
F. Landlord agrees to pay before they become delinquent all taxes,
installments of special assessments and governmental charges of any kind and
nature whatsoever (herein collectively referred to as "taxes") lawfully due and
payable with respect to the Building and the Property.
G. If at any time during the term of this lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereon, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents for the present or any future building or
buildings on the Property, then all such taxes, assessments, levies or charges,
or the part thereof so measured or based, shall be deemed to be included within
the term "taxes" for the purposes hereof.
5. Landlord's Responsibilities. Landlord shall maintain in good repair,
reasonable wear and tear and any casualty covered by the provisions of Paragraph
12A excepted, all parts of the Building, other than tenants' premises, making
all necessary repairs and replacements, whether ordinary or extraordinary,
structural or nonstructural, including roof, foundation, walls, downspouts,
gutters, sprinkler system; regularly mow any grass, remove weeds and perform
general landscape maintenance; and maintain and repair the parking lot and
driveway areas. Tenant shall immediately give Landlord written notice of any
defect or need for repairs after which Landlord shall have a reasonable
opportunity to repair the same or cure such defect. Landlord's liability with
respect to any defects, repairs or maintenance for which Landlord is responsible
under any of the provisions of this Lease shall be limited to the cost of such
repairs or maintenance or the curing of such defect. The term "walls" as used
herein shall not include windows, glass or plate glass, doors, special store
fronts or office entries.
6. Tenant's Responsibilities.
A. Tenant shall at its own cost and expense keep and maintain all parts of
the Premises (except as provided in Paragraph 5) in good condition, promptly
making all necessary repairs and replacements, including but not limited to,
windows, glass and plate glass, doors, any special entry, interior walls and
finish work, floors and floor covering, heating and air conditioning systems,
dock boards, truck doors, dock bumpers, plumbing work and fixtures, termite and
pest extermination, regular removal or trash and debris and keeping the parking
areas, driveways, alleys and the whole of the Premises in a clean and sanitary
condition. Tenant shall not be obligated to repair any damage caused by fire,
tornado or other casualty covered by the insurance to be maintained by Landlord
pursuant to Paragraph 12A, except that Tenant shall be obligated to repair all
wind damage to glass unless caused by a tornado.
B. Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole cost and expense,
promptly repair any damage or injury to any demising wall caused by Tenant or
its employees, agents or invitees.
C. Tenant and its employees, customers and licensees shall have the
nonexclusive right to use, in common with the other parties occupying the
Building, common parking areas, if any, (exclusive of any parking or work load
areas designated or to be designated by Landlord for the exclusive use of Tenant
or other tenants occupying or to be occupying other portions of the Building),
driveways and alleys adjacent to the Building, subject to such reasonable rules
and regulations as Landlord may from time to time prescribe.
E. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
for servicing all hot water, heating and air conditioning systems and equipment
serving the Premises. The maintenance contractor and the contract must be
approved by Landlord. The service contract must include all services suggested
by the equipment manufacturer in the operation/maintenance manual and must
become effective (and a copy thereof delivered to Landlord) within sixty (60)
days of the date Tenant takes possession of the Premises.
F. Tenant shall upon demand by Landlord, pay, as additional rent, the cost
and expense of repairing any damage to the Premises resulting from and/or caused
in whole or in part by the negligence or misconduct of Tenant, its agents,
servants, employees, patrons, customers, or any other person entering upon the
property as a result of Tenant's business activities or caused by Tenant's
default hereunder to the extent the cost of repairing such damage is not
reimbursed by the insurance to be maintained by Landlord under Paragraph 12A.
7. Alterations. Tenant shall not make any alterations, additions or
improvements to the Premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord. Tenant may, without
the consent of Landlord, but at its own cost and expense and in a good
workmanlike manner erect such shelves, bins, machinery and trade fixtures as it
may deem advisable, without altering the basic character of the Building and
without overloading or damaging such Building, and in each case complying with
all applicable governmental laws, ordinances, regulations and other
requirements. Prior to commencing any such alterations, additions or
improvements Tenant shall provide such assurances to Landlord, including but not
limited to waivers of lien, surety company performance and payment bonds and
personal guaranties of persons of substance, as Landlord shall require to assure
payment of the costs thereof and to protect Landlord against any loss from
mechanics', laborers', materialmen's or other liens. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the property
of Tenant during the term of this lease and Tenant shall remove all alterations,
additions, improvements and partitions erected by Tenant and restore the
Premises to their original condition by the date of termination of this
Landlord:
--------------------------
Tenant:
----------------------------
* It being understood and agreed that the "Building" is in Phase 5 of the
project known as Plymouth Business Center and consists of two buildings
which have an aggregate rentable square footage of 124,214.
2
<PAGE> 3
lease or upon earlier vacating of the Premises. All shelves, bins, machinery and
trade fixtures installed by Tenant shall be removed by Tenant by the date of
termination of this lease or upon earlier vacating of the Premises if required
by Landlord; upon any such removal Tenant shall restore the Premises to their
original condition. All such removals and restoration shall be accomplished in a
good workmanlike manner and shall not damage the primary structure or structural
qualities of the Building.
8. Signs/Window Coverings. Tenant shall not, without the prior written
consent of Landlord, install or affix any window coverings, blinds, draperies,
signs, window or door lettering or advertising media of any type on the
Property, the Building or in or on the Premises which are visible from the
exterior of the Building. Any permitted signs shall be subject to any applicable
governmental laws, ordinances, regulations and other requirements. Tenant shall
remove any permitted signs and windows and window coverings upon the
termination of this lease. Any such installations and removals shall be made in
such manner as to avoid injury or defacement of the Building and other
improvements, and Tenant shall repair any injury or defacement, including
without limitation discoloration, caused by such installation and/or removal.
9. Inspection. Landlord and Landlord's agents and representatives shall
have the right to enter and inspect the Premises at any reasonable time during
business hours for the purpose of ascertaining the condition of the Premises or
in order to make such repairs as may be required or permitted to be made by
Landlord under the terms of this lease provided Landlord and his agents and
representatives shall use every reasonable effort not to interfere with the
business of Tenant, except in an emergency when no notice shall be required.
During the period that is six (6) months prior to the end of the term hereof,
Landlord and Landlord's agents and representatives shall have the right to enter
the Premises at any reasonable time and with reasonable notice for the purpose
of showing the Premises and shall have the right to erect on the Premises a
suitable sign indicating the Premises are available. Tenant shall give written
notice to Landlord at least thirty (30) days prior to vacating the Premises and
shall arrange to meet with Landlord for a joint inspection of the Premises prior
to vacating. In the event of Tenant's failure to give such notice or arrange
such joint inspection, Landlord's inspection at or after Tenant's vacating the
Premises shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
10. Utilities. Tenant shall pay for all water, gas, heat, light, power,
telephone, sewer and sprinkler charges and other utilities and services
separately metered for the Premises, together with any taxes, penalties,
surcharges or the like pertaining thereto and shall furnish and install all
replacement electric light bulbs and tubes. Landlord shall in no event be liable
for any interruption or failure of utility services on the Premises.
11. Assignment and Subletting.
A. Tenant shall not have the right to assign or pledge this lease or to
sublet the whole or any part of the Premises, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises by anyone other
than Tenant, without the prior written consent of Landlord, and such
restrictions shall be binding upon any assignee or subtenant to which Landlord
has consented. In the event Tenant desires to sublet the Premises, or any
portion thereof, or assign this lease, Tenant shall give written notice thereof
to Landlord within a reasonable time prior to the proposed commencement date of
such subletting or assignment, which notice shall set forth the name of the
proposed subtenant or assignee, the relevant terms of any sublease and copies
of financial reports and other relevant financial information of the proposed
subtenant or assignee. Notwithstanding any permitted assignment or subletting,
Tenant shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent herein specified and for compliance with all
of its other obligations under the terms, provisions and covenants of this
lease. Upon the occurrence of an "event of default" by Tenant (as hereafter
defined), if the Premises or any part thereof are then assigned or sublet,
Landlord, in addition to any other remedies herein provided or provided by law,
may, at its option, collect directly from such assignee or subtenant all rents
due and becoming due to Tenant under such assignment or sublease and apply such
rent against any sums due to Landlord from Tenant hereunder, and no such
collection shall be construed to constitute a novation or release of Tenant from
the further performance of Tenant's obligations hereunder.
If Landlord grants its consent to any sublease or assignment, Tenant shall
pay Landlord as additional base rent, one hundred percent (100%) of any rent
(together with escalation) payable to Tenant under the sublease or assignment,
over the base rent payable hereunder plus Tenant's share of Operating Costs. If
Landlord grants its consent to any sublease or assignment, Tenant shall pay all
of the attorney's fees of Landlord incurred with respect to such assignment or
sublease. In addition, if Tenant has any options to extend the term of this
lease, such options shall not be available to any subtenant or assignee,
directly or indirectly.
Tenant shall, at Tenant's own cost and expense, discharge in full any
outstanding commission obligation on the part of Landlord with respect to this
lease, and any commissions which may be due and owing as a result of any
proposed assignment or subletting, whether or not the Premises are recaptured
pursuant hereto and rented by Landlord to the proposed tenant or any other
tenant.
B. In addition, but not in limitation of, Landlord's right to approve of
any subtenant or assignee, Landlord shall have the option, in its sole
discretion, in the event of any proposed subletting or assignment, to terminate
the lease, or in the case of the proposed subletting of less than the entire
Premises, to recapture the portion of the Premises to be sublet, as of the date
the subletting or assignment is to be effective. The option shall be exercised,
if at all, by Landlord giving Tenant written notice thereof within sixty (60)
days following Landlord's receipt of Tenant's written notice as required above.
If this lease shall be terminated with respect to the entire Premises pursuant
to this subparagraph, the term of this lease shall end on the date stated in
Tenant's notice as the effective date of the sublease or assignment as if that
date had been originally fixed in this lease for the expiration of the term
hereof. If Landlord recaptures only a portion of the Premises under this
subparagraph, the rent during the unexpired term shall abate proportionately
based on the rent contained in this lease as of the date immediately prior to
such recapture.
12. Fire and Casualty Damage.
A. Landlord agrees to maintain standard fire and extended coverage
insurance covering the Building in an amount not less than 80% (or such greater
percentage as may be necessary to comply with the provisions of any co-insurance
clauses of the policy) of the "replacement cost" thereof as such term is defined
in the Replacement Cost Endorsement to be attached thereto, insuring against the
perils of fire, lightning and extended coverage, such coverages and endorsements
to be as defined, provided and limited in the standard bureau forms prescribed
by the insurance regulatory authority for the state in which the Building is
situated for use by insurance companies admitted in such state for the writing
of such insurance on risks located within such state. Subject to the provisions
of Paragraphs 12C, 12D and 12E, such insurance shall be for the sole benefit of
Landlord and under its sole control.
B. If the Building should be damaged or destroyed by fire, tornado or
other casualty, Tenant shall give immediate written notice thereof to Landlord.
C. If the Building should be totally destroyed by fire, tornado or other
casualty, or if it should be so damaged thereby that rebuilding or repairs
cannot in Landlord's estimation be completed within two hundred (200) days after
the date upon which Landlord is notified by Tenant of such damage, this lease
shall terminate and the rent shall be abated during the unexpired portion of
this lease, effective upon the date of the occurrence of such damage
D. If the Building should be damaged by any peril covered by the insurance
to be provided by Landlord under Paragraph 12A, but only to such extent that
rebuilding or repairs can in Landlord's estimation be completed within two
hundred (200) days after the date upon which Landlord is notified by Tenant of
such damage (except that Landlord may elect not to rebuild if such damage occurs
during the last year of the lease term), this lease shall not terminate, and
Landlord shall at its sole cost and expense thereupon proceed with reasonable
diligence to rebuild and repair the Building to substantially the condition in
which it existed prior to such damage, except that Landlord shall not be
required to rebuild, repair or replace any part of the partition, fixtures,
additions and other improvements which may have been placed in, on or about the
Premises by Tenant. If the Premises are untenantable in whole or in part
following such damage, the rent payable hereunder during the period in which
they are untenantable shall be reduced to such extent as may be fair and
reasonable under all of the circumstances. In the event that Landlord should
fail to complete such repairs and rebuilding within two hundred (200) days after
the date upon which Landlord is notified by Tenant of such damage (unless any
such delay is due to changes, deletions or additions in construction requested
by Tenant, strikes, lockouts, casualties, acts of God, war, material or labor
shortages, governmental regulation or control or other causes beyond the
reasonable control of Landlord, in which event such period shall be extended for
the amount of time Landlord is so delayed), Tenant may at its option, upon
thirty (30) days prior written notice, terminate this lease as Tenant's
exclusive remedy, whereupon all rights and obligations hereunder shall cease and
terminate.
E. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Premises or the Building requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder, whereupon all rights and
obligations hereunder shall cease and terminate. [See Rider Article 32]
Landlord:
--------------------------
Tenant:
----------------------------
3
<PAGE> 4
F. Anything in this lease to the contrary notwithstanding, Landlord and
Tenant hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the Premises,
improvements to the Building or personal property (building contents) within the
Building, by reason of fire or the elements regardless of cause or origin,
including negligence of Landlord or Tenant and their agents, officers and
employees, but only to the extent of the insurance proceeds payable under the
policies of insurance covering the Property.
13. Liability. Landlord shall not be liable for and Tenant will indemnify
and hold Landlord harmless from any loss, liability, claims, suits, costs and
expenses, including attorney's fees, arising out of any claim of injury or
damage on or about the Premises caused by the negligence or misconduct or breach
of this lease by Tenant, its employees, subtenants or invitees or arising out of
Tenant's use of the Premises or the Property or other work done by Tenant in or
on the Premises or the Property. Landlord shall not be liable to Tenant or
Tenant's agents, employees or invitees for any damage to persons or property due
to any condition, design, or defect in the Building or its mechanical systems
which may exist or occur, or due to any leakage or of damages from gas, oil,
water, steam, smoke or electricity or due to any other cause whatsoever and
Tenant assumes all risks of damage to such persons or property. Landlord shall
not be liable or responsible for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority, or other matter beyond control of Landlord, or for any injury or
damage or inconvenience, which may arise through repair or alteration of any
part of the Building, or failure to make repairs, or from any cause whatever
except Landlord's willful acts or gross negligence.
14. Insurance. Tenant shall maintain throughout the term of this lease a
policy of insurance, in form and substance satisfactory to Landlord, at Tenant's
sole cost and expense, insuring both Landlord and Tenant against all claims,
demands or actions arising out of or in connection with: (i) the Premises; (ii)
the condition of the Premises; (iii) Tenant's operations in and maintenance and
use of the Premises; and (iv) Tenant's liability assumed under this lease; with
a combined single limit of not less than $1,000,000 per occurrence in respect of
injury to persons (including death) and in the amount of not less than $250,000
per occurrence in respect of property damage or destruction, including loss of
use thereof. Such policy shall be procured by Tenant from responsible insurance
companies satisfactory to Landlord. Evidence of such policy, together with a
certificate of insurance of the premium, shall be delivered to Landlord prior to
the commencement date. Not less than thirty (30) days prior to the expiration
date of such policy, a certified copy of a renewal thereof (bearing notations
evidencing the payment of the renewal premium) shall be delivered to Landlord.
Such policy further provide that not less than thirty (30) days' written notice
shall be given to Landlord before such policy may be cancelled or changed to
reduce the insurance coverage provided thereby.
15. Condemnation.
A. If the whole or any subtantial part of the Building is taken for any
public or quasi-public use under governmental law, ordinance or regulation, or
by right of eminent domain, or by private purchase in lieu thereof and the
taking would prevent or materially interfere with the use of the Premises or the
Building for the purpose of which they are being used, this lease shall
terminate and the rent shall be abated during the unexpired portion of this
lease effective when the physical taking of the Property shall occur.
B. If part of the Premises shall be taken for any public or quasi-public
use under any governmental law, ordinace or regulation, or by right or eminent
domain, or private purchase in lieu thereof, and this lease is not terminated as
provided in the subparagraph above, this lease shall not terminate but the rent
payably hereunder during the unexpired portion of this lease shall be reduced to
such extent as may be fair and reasonable under all of the circumstances.
C. In the event of any such taking or private purchase on lieu thereof,
Landlord and Tenant shall each be entitled to receive and retain such separate
awards and/or portion of lump sum awards as may be allocated to their respective
interests in any condemnation proceedings, provided that Tenant shall not be
entitled to receive any award for Tenant's loss of its leasehold interest or
other property which would have become the property of Landlord upon termination
of this Lease; the right to such award being hereby assigned to Landlord.
16. Holding Over. Tenant will, at the termination of this lease by lapse
of time or otherwise, yield up immediate possession to Landlord. If Tenant
retains possession of the lease premises or any part thereof after such
termination, then Landlord may, at its option, serve written notice upon Tenant
that such holding over constitutes any one of (i) renewal of this lease for one
year, and from year to year thereafter, or (ii) creation of a month tenancy,
upon the terms and conditions set forth in this lease, or (iii) creation of a
tenancy at sufferance, in any case upon the terms and conditions set forth in
this lease; provided, however, that the monthly rental (or daily rental under
(iii) shall, in addition to all other sums which are to be paid by Tenant
hereunder, whether or not as additional rent, be equal to one & one-half times
the rental being paid monthly to Landlord under this lease immediately prior to
such termination (prorated in the case of (iii) on the basis of a 365 day year
for each day Tenant remains in possession). If no such notice is served, then a
tenancy at sufferance shall be deemed to be created at the rent in the preceding
sentence. Tenant shall also pay to Landlord all damages sustained by Landlord
resulting from retention of possession by Tenant, including the loss of any
proposed subsequent tenant for any portion of the leased premises. The
provisions of this paragraph shall not constitute a waiver by Landlord of any
right of re-entry as herein set forth; nor shall receipt of any rent or any
other act in apparent affirmance of the tendancy operate as a waiver of the
right to terminate this lease for a breach of any of the terms, covenants, or
obligations herein on Tenant's part to be performed.
17. Quiet Enjoyment. Landlord covenants that it now has, or will acquire
before Tenant takes possession of the Premises, good title to the Premises, free
and clear of all liens and emcumbrances, excepting only the lien for current
taxes not yet due, such mortgage or mortgages as are permitted by the terms of
this lease, zoning ordinances and other building and fire ordinances and
governmental regulations relating to the use of such property, and easements,
restrictions and other conditions of record. In the event this lease is a
sublease, then Tenant agrees to take the Premises subject to the provisions of
the prior leases. Landlord represents and warrants that it has full right and
authority to enter into this lease and that Tenant, upon paying the rental
herein set forth and performing its other covenants and agreements herein set
forth, shall peaceably and quietly have, hold and enjoy the Premises for the
term hereof without hindrance or molestation from Landlord, subject to the terms
and provisions of this lease.
18. Events of Default. The following events shall be deemed to be events
of default by Tenant under this lease:
(a) Tenant shall fail to pay any installments of the base rent,
additional rent, Operating Costs, or any other payment or reimbursement to
Landlord required herein when due, and such failure shall continue for a
period of five (5) days from the date such payment was due. See Rider
Article 33
(b) Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors.
(c) Tenant shall file a petition under any section or chapter of the
federal bankruptcy laws, or under any similar law or statue of the United
States or any State thereof, whether now or hereafter in effect, or an
order for relief shall be entered against Tenant in any such bankruptcy or
insolvency proceedings filed against Tenant thereunder or Tenant shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder.
(d) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant.
(e) Tenant shall generally not pay its debts as such debts become
due.
(f) Tenant shall vacate all or a substantial portion of the
Premises, whether or not Tenant is in default of the payments due under
this lease.
(g) Tenant shall fail to discharge any lien placed upon the premises
in violation of Paragraph 23 hereof within twenty (20) days after any such
lien or encumbrance is filed against the Premises.
(h) Tenant shall fail to comply with any term, provision or covenant
of this lease (other than the foregoing in this Paragraph 18) , and shall
not cure such failure within twenty (20) days after written notice thereof
to Tenant.
19. Remedies. Upon the occurrence of any such events of default described
in Paragraph 18 hereof, Landlord shall have the option to pursue any one or more
of the following remedies without any further notice or demand whatsoever:
(a) Landlord may, at its election, terminate this lease or terminate
Tenant's right to possession only, without terminating the lease;
(b) Upon any termination of this lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of this lease, Tenant shall surrender possession and vacate
the Premises immediately and deliver possession thereof to Landlord, and
Tenant hereby grants to Landlord full and free license to enter into and
upon the Premises in such event with or without process of law and to
repossess Landlord of the Premises as of Landlord's former
Landlord:
--------------------
Tenant:
----------------------
4
<PAGE> 5
estate and to expel or remove Tenant and any others who may be occupying
or within the Premises and to alter all locks and other security devices
at the Premises and to remove any and all property therefrom, without
being deemed in any manner guilty of trespass, eviction or forcible entry
or detainer, and without incurring any liability for any damage resulting
therefrom, Tenant hereby waiving any right to claim damage for such
reentry and expulsion, and without relinquishing Landlord's right to rent
or any other right given to Landlord hereunder or by operation of law;
(c) Upon any termination of this lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent,
including any amounts treated as additional rent hereunder, and other sums
due and payable by Tenant on the date of termination, plus the sum of (i)
an amount equal to the then present value of the rent, including any
amounts treated as additional rent hereunder, and other sums provided
herein to be paid by Tenant for the residue of the term hereof, less the
fair rental value of the Premises for such residue (taking into account
the time and expense necessary to obtain a replacement tenant or tenants,
including expenses hereinafter described in subparagraph (d) relating to
recovery of the Premises, preparation for reletting and for reletting
itself), which the parties agree shall in no event exceed 60% of the then
present value of the rent for the period and (ii) the cost of performing
any other covenants which would have otherwise been performed by Tenant;
(d) (i) Upon any termination of Tenant's right to possession only
without termination of the lease, Landlord may, at Landlord's option,
enter into the Premises, remove Tenant's signs and other evidences of
tenancy, and take and hold possession thereof as provided in subparagraph
(b) above, without such entry and possession terminating the lease or
releasing Tenant, in whole or in part, from any obligation, including
Tenant's obligation to pay the rent, including any amounts treated as
additional rent, hereunder for the full term. In any such case Tenant
shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the
entire amount of the rent, including any amounts treated as additional
rent hereunder, for the residue of the stated term hereof plus any other
sums provided herein to be paid by Tenant for the remainder of the lease
term;
(ii) Landlord may, but need not, relet the Premises or any part
thereof for such rent and upon such terms as Landlord in its sole
discretion shall determine (including the right to relet the
Premises as part of a larger area and the right to change the
character or use made of the Premises) and Landlord shall not be
required to accept any tenant offered by Tenant or to observe any
instructions given by Tenant about such reletting. In any such case,
Landlord may make repairs, alterations and additions in or to the
Premises, and redecorate the same to the extent Landlord deems
necessary or desirable, and Tenant shall, upon demand, pay the cost
thereof, together with Landlord's expenses of reletting including,
without limitation, any broker's commission incurred by Landlord. If
the consideration collected by Landlord upon any such reletting plus
any sums previously collected from Tenant are not sufficient to pay
the full amount of all rent, including any amounts treated as
additional rent hereunder and other sums reserved in this lease for
the remaining term hereof, together with the costs of repairs,
alterations, additions, redecorating. and Landlord's expenses of
reletting and the collection of the rent accruing therefrom
(including attorney's fees and broker's commissions), Tenant shall
pay to Landlord the amount of such deficiency upon demand and Tenant
agrees that Landlord may file suit to recover any sums falling due
under this subparagraph from time to time;
(e) Landlord may, at Landlord's option, enter into and upon the
Premises, with or without process of law, if Landlord determines in its
sole discretion that Tenant is not acting within a commercially reasonable
time to maintain, repair or replace anything for which Tenant is
responsible hereunder and correct the same, without being deemed in any
manner guilty of trespass, eviction or forcible entry and detainer and
without incurring any liability for any damage resulting therefrom and
Tenant agrees to reimburse Landlord, on demand, as additional rent, for
any expenses which Landlord may incur in thus effecting compliance with
Tenant's obligation under this lease;
(f) Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the lease or of law, to which Tenant
is or may be entitled, may be handled, removed and stored, as the case may
be, by or at the direction of Landlord at the risk, cost and expense of
Tenant, and Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. Tenant shall pay to Landlord, upon
demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in Landlord's
possession or under Landlord's control. Any such property of Tenant not
retaken by Tenant from storage within thirty (30) days after removal from
the Premises shall, at Landlord's options be deemed conveyed by Tenant to
Landlord under this lease as by a bill of sale without further payment or
credit by Landlord to Tenant.
In the event Tenant fails to pay any installment of rent, including any
amount treated as additional rent hereunder, or other sums hereunder within
fifteen (15) days of such date as such installment or other charge is due,
Tenant shall pay to Landlord on demand a late charge in an amount equal to five
percent (5%) of such installment or other charge overdue in any month and five
percent (5%) each month thereafter until paid in full to help defray the
additional cost to Landlord for processing such late payments, and such late
charge shall be additional rent hereunder and the failure to pay such late
charge within twenty (20) days after demand therefor shall be an additional
event of default hereunder. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No act or thing done by the Landlord or its agents
during the term hereby granted shall be deemed a termination of this lease or an
acceptance of the surrender of the Premises, and no agreement to terminate this
lease or accept a surrender of said Premises shall be valid unless in writing
signed by Landlord. No waiver by Landlord of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions, and covenants herein contained. Landlord's acceptance of the
payment of rental or other payments hereunder after the occurrence of an event
of default shall not be construed as a waiver of such default, unless Landlord
so notifies Tenant in writing. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default. If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning or to enforce or defend any of Landlord's rights or remedies
hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred.
21. Mortgages. Tenant accepts this lease subject and subordinate to any
mortgage(s) now or at any time hereafter constituting a lien or charge upon the
Property or the Premises; provided, however, that if the holder of any such
mortgage elects to have Tenant's interest in this lease superior to any such
instrument, then by notice to Tenant from such holder, this lease shall be
deemed superior to such lien, whether this lease was executed before or after
said mortgage. Tenant shall at any time hereafter on demand execute any
instruments, releases or other documents which may be required by any mortgagee
for the purpose of subjecting and subordinating this lease to the lien of any
such mortgage.
22. Landlord's Default. In the event of any default by Landlord, Tenant's
exclusive remedy shall be an action for damages (Tenant hereby waiving the
benefit of any laws granting it a lien upon the property of Landlord and/or upon
rent due Landlord), but prior to any such action Tenant will give Landlord
written notice specifying such default with particularity, and Landlord shall
thereupon have thirty (30) days in which to cure any such default. Unless and
until Landlord fails to so cure any default after such notice, Tenant shall not
have any remedy or cause of action by reason thereof. All obligations of
Landlord hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
possession of the Premises and not thereafter.
Landlord:
--------------------
Tenant:
----------------------
5
<PAGE> 6
23. Mechanic's Liens and Personal Property Taxes.
A. Tenant shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind, the interest of Landlord or Tenant in the Building or the Premises or
to charge the rentals payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform labor
for any construction or repairs. Tenant covenants and agrees that it will pay or
cause to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises on which any lien is or can be validly and legally asserted against its
leasehold interest in the Premises or the improvements thereon and that it will
save and hold Landlord harmless from any and all loss, cost or expense based on
or arising out of asserted claims or liens against the leasehold estate or
against the right, title and interest of the Landlord in the Building or the
Premises or under the terms of this lease. Tenant agrees to give Landlord
immediate written notice of the placing of any lien or encumbrance against the
Building or the Premises.
B. Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the Premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and if Landlord elects to pay the same or if the
assessed value of Landlord's properly is increased by inclusion of personal
property, furniture or fixtures placed by Tenant in the Premises, and Landlord
elects to pay the taxes based on such increase, Tenant shall pay to Landlord
upon demand that part of such taxes.
24. Notices. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address for
Landlord hereinbelow set forth or at such other address as Landlord may
specify from time to time by written notice delivered in accordance
herewith. Tenant's obligation to pay rent and any other amounts to
Landlord under the terms of this lease shall not be deemed satisfied until
such rent and other amounts have been actually received by Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address hereinbelow set forth, or at
such other address within the continental United States as Tenant may
specify from time to time by written notice delivered in accordance
herewith.
(c) Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not
when deposited in the United States Mail, postage prepaid, Certified or
Registered Mail, addressed to the parties hereto at the respective
addresses set out below, or at such other address as they have theretofore
specified by written notice in accordance herewith:
Landlord: Tenant:
St. Paul Properties, Inc. Sauer Sundstrand Co.
385 Washington Street 3500 Annapolis Lane #30
St. Paul, MN 55103 Plymouth, MN 55447
Attn: Mr. R. William Inserra Attn: Tim Kramer
With a copy to: With a copy to:
United Properties
3500 West 80th Street #200
Bloomington MN 55431
Attn: Vice President, Property Mgmt.
If and when included within the tern "Landlord", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord; if and when included within the term "Tenant", as used
in this instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address within the
continental United States for the receipt of notices and payments to Tenant. All
parties included within the terms "Landlord" and "Tenant", respectively, shall
be bound by notices given in accordance with the provisions of this paragraph to
the same effect as if each had received such notice.
25. Miscellaneous.
A. Words of any gender used in this lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in this
lease shall apply to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise herein expressly provided. Landlord shall
have the right to assign any of its rights and obligations under this lease. The
term "Landlord" shall mean only the owner, at any time of the Premises, and in
the event of the transfer by such owner of its interest in the Premises,
Landlord's grantee or Landlord's successor shall upon such transfer become
"Landlord" hereunder, thereby freeing and relieving the grantor or assignor of
all covenants and obligations of "Landlord" hereunder; but such covenants and
obligations shall be binding during the lease term upon each new owner for the
duration of such owner's ownership; provided, however, that no successor
Landlord shall be responsible for the return of any security deposit provided
for pursuant to Paragraph 2B unless such successor receives the deposit. Tenant
agrees to furnish promptly upon demand a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the due
authorization of Tenant to enter into this lease. Nothing herein contained shall
give any other tenant in the Building any enforceable rights either against
Landlord or Tenant as a result of the covenants and obligations of either party
set forth herein.
C. The captions inserted in this lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way affect the interpretation of this lease.
D. Tenant agrees from time to time within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee an estoppel certificate
in a form designated by Landlord. It is understood and agreed that Tenant's
obligation to furnish such estoppel certificates in a timely fashion is a
material inducement for Landlord's execution of this lease.
E. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to Operating Costs and all
obligations concerning the condition of the Premises. Upon the expiration or
earlier termination of the term hereof, Tenant shall pay to Landlord the amount
as estimated by Landlord, necessary (i) to repair and restore the Premises as
provided herein; and (ii) to discharge Tenant's obligation for Operating Costs
or other amounts due Landlord. All such amounts shall be used and held by
Landlord for payment of such obligations of Tenant, with Tenant being liable for
any additional costs upon demand by Landlord, or with any excess to be returned
to Tenant after all such obligations have been determined and satisfied. Any
security deposit held by Landlord shall be credited against the amount payable
by tenant under this subparagraph.
G. If there be more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several.
H. Tenant represents and warrants that it has dealt with no broker, agent
or other person in connection with this transaction or that no broker, agent or
other person brought about this transaction, other than Jeff Minea of Welsh
Companies, Inc., and Tenant agrees to indemnify and hold Landlord 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 Tenant
with regard to this leasing transaction.
Landlord:
--------------------
Tenant:
----------------------
6
<PAGE> 7
I. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this lease shall not be affected thereby, and it is also the
intention of the parties to this lease that in lieu of each clause or provision
of this lease that is illegal, invalid, or enforceable, there be added as a part
of this lease contract a clause or provision as similar in terms to such
illegal, invalid, or enforceable clause or provision as may be possible and be
legal, valid and enforceable.
J. Because the Premises are on the open market and are presently being
shown, this lease shall be treated as an offer and shall not be valid or binding
unless and until accepted by Landlord in writing.
26. Additional Provisions. See the attached Rider for additional
provisions which are a part of this lease.
DATED: ______________, 19 _________
LANDLORD:
ST. PAUL PROPERTIES, INC. (A DELAWARE CORPORATION)
By /s/ R. William Inserra
--------------------------------------------------
R. William Inserra
Its Vice President
TENANT:
SAUER SUNDSTRAND CO. (A DELAWARE CORPORATION)
By /s/ Timothy E. Kramer
--------------------------------------------------
Timothy E. Kramer
Its Director
7
<PAGE> 8
RIDER TO LEASE
by and between
ST. PAUL PROPERTIES, INC. (a Delaware corporation), as LANDLORD
and
SAUER SUNDSTRAND CO. (a Delaware corporation), as TENANT
THIS RIDER TO LEASE ("Rider") dated September 17, 1997, by and between St.
Paul Properties. Inc. and Sauer Sundstrand Co. The Lease is modified and
supplemented by this Rider. Wherever there exists a conflict between the Lease
and the provisions of this Rider, the provisions of this Rider shall control.
Except as otherwise designated herein, capitalized terms shall be defined in the
manner set forth in the Lease.
27. Base Rent and Security Deposit. The following is substituted for Paragraph
2.A. of the Lease:
A. Tenant agrees to pay to Landlord base rent for the Premises, in
advance, without demand, deduction or set off, for the entire term hereof
at the rate of:
(a) $36,262.00 per month, for the period commencing on the
commencement date and ending on the last day of the
thirty-sixth full calendar month thereafter.
(b) $39,714.00 per month, for the period commencing on the first
day of the thirty-seventh full calendar month after the
commencement date and ending on the last day of the sixtieth
full calendar month thereafter.
excepting that the monthly installment which otherwise shall be due on the
commencement date shall be due and payable on the date hereof. Thereafter,
one such monthly installment shall be due and payable without demand on or
before the first day of each calendar month succeeding the commencement
date during the term hereof, except that the rental payment for any
fractional calendar month at the commencement of the lease period shall be
prorated.
28. Commencement Date. The early occupancy commencement dale shall be the
earlier of January 23, 1998 or from the date a Certificate of Occupancy is
issued for the premises by the City of Plymouth. The first thirty (30)
days after the early occupancy commencement date shall be free of base
rent and additional rent charges and is intended for Tenant's move-in and
set-up requirements. Upon expiration of the first thirty (30) days, the
Lease shall commence for a period of sixty (60) months (the "Commencement
Date").
29. Right to Renew Lease. The following is added as Paragraph 29 to the Lease:
Landlord hereby grants to Tenant one five (5) year option to renew the
Lease as to the Premises, upon the terms and conditions of this Paragraph
29, if:
(a) Tenant is not in default under this Lease: and
(b) Tenant gives Landlord written notice of the exercise of the renewal
of this Lease not earlier than the fourth anniversary of the
commencement date and not later than nine (9) months prior to the
end of the lease term (the "Renewal Notice of Exercise"), time being
of the essence. Tenant's failure to notify landlord of its intent to
exercise the option to renew the lease term granted herein on or
before the date specified in this subparagraph (b) for such renewal
shall be deemed a waiver of Tenant's right to exercise its option to
renew.
If Tenant elects to renew this Lease under this Paragraph 29, the
following terms and conditions shall apply:
(a) the renewal term in question shall commence upon the expiration of
the initial term and continue thereafter for a period of five (5)
years;
(b) base rent for the Premises for the extension term shall be Market
Rent (as defined in Paragraph 30 of this Lease); and
(c) 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 Paragraph 29.
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 extension described in this Paragraph 29. The
rights of tenant under this Paragraph 29 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
Paragraph 29 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, or (ii) the termination of the
Tenant's rights to possession of the Premises. The right contemplated by
this Paragraph shall not survive the expiration or termination of this
Lease, and shall not be available to any assignee, subleesee or successor
to Tenant's interests hereunder.
<PAGE> 9
Rider to Lease
Page 2
30. Market Rent. The following is added as Paragraph 30 to the Lease.
"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 forty-five (45) days after Tenant exercises its right
to renew the term pursuant to Paragraph 29, Landlord shall give Tenant
notice of Market Rent for the extension 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
("Tenant's Notice"), which Tenant's Notice shall be deemed a recession of
Tenant's Renewal Notice of Exercise and, in such case, the term of the
Lease shall end on the date set forth in Paragraph 1 of the Lease, in
accordance with all other terms and conditions of this Lease. Tenant's
failure to give Tenant's Notice shall be deemed an acceptance of
Landlord's determination of Market Rent, and the term shall be deemed
extended pursuant to the Renewal Notice of Exercise.
31. Hazardous Waste. The following is added as a new Paragraph 31 to the
Lease:
The term "Hazardous Substances", as used in this lease shall mean
pollutants, contaminants, toxic or hazardous wastes, or any other
substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "Environmental Law", which term
shall mean any federal, state or local law or ordinance relating to
pollution or protection of the environment. Tenant hereby agrees that (i)
no activity will be conducted on the Premises that will produce any
Hazardous Substance, except for such activities that are part of the
ordinary course of Tenant's business activities (the "Permitted
Activities") provided said Permitted Activities are conducted in
accordance with all Environmental Laws and have been approved in advance
in writing by Landlord; (ii) the Premises will not be used in any manner
for the storage of any Hazardous Substances except for the temporary
storage of such materials that are used in the ordinary course of Tenant's
business (the "Permitted Material") provided such Permitted Materials are
properly stored in a manner and location meeting all Environmental Laws
and approved in advance in writing by Landlord; (iii) no portion of the
Premises will be used as a landfill or a dump; (iv) Tenant will not
install any underground tanks of any type; (v) Tenant will not allow any
surface or subsurface conditions to exist or come into existence that
constitute, or with the passage of time may constitute, a public or
private nuisance; (vi) Tenant will not permit any Hazardous Substances to
be brought onto the Premises, except for the Permitted Materials described
above, and if so brought or found located thereon, the same shall be
immediately removed, with proper disposal, and all required cleanup
procedures shall be diligently undertaken pursuant to all Environmental
Laws. If, at any time during or after the term of the lease the Premises
is found to be so contaminated or subject to said conditions solely by
Tenant, its agents, employees or invitees, Tenant agrees to indemnify and
hold Landlord harmless from all claims, demands, actions, liabilities,
costs, expenses, damages and obligations of any nature arising from or as
a result of the use of the Premises by Tenant. The foregoing
indemnification shall survive the termination or expiration of this Lease.
32. Fire and Casualty Damage.
Such right of termination by the Landlord shall apply only in cases where
a substantial portion of the Premises has been destroyed and it is
impractical to rebuild. Landlord's property insurance for the building and
Premises shall provide full and complete satisfaction to Landlord in the
event of damage, loss or destruction of the building and Premises due to
any peril.
33. Monetary Default.
In the event Tenant is late in its payment of rent or other monetary
obligations once in any given calendar year, Landlord shall notify Tenant
in writing and Tenant shall have ten (10) days from the date of Landlord's
notice to cure or Tenant shall be in default as provided in Article 18
herein.
34. Tenant's Obligation to Restore and Maintain "Exterior Test Area".
Tenant is modifying the exterior of the building by altering the existing
curb, lawn, plantings and asphalt area and installation of a water tank as
shown on the plans as noted on Schedule 1 herein (the "Exterior Test
Area").
On or before the expiration date of the Lease, Tenant agrees to restore
the exterior of the Building to its original condition as shown on Exhibit
"E" at Tenant's sole cost and expense. Tenant also agrees to remove any
equipment related to its closed-loop water cooling system and to cap any
water lines in the ceiling.
Tenant further agrees to maintain the Exterior Test Area during the term
of the Lease, at Tenant's sole cost and expense.
35. Termination of Existing Lease.
Landlord's predecessor in interest, Gopher I, and Tenant's predecessor
interest, Sundstrand Corporation, entered into that certain Lease
Agreement dated March 5, 1983, as the same has been amended and extended
(the "Existing Lease"). Landlord has succeeded to the interest of Gopher I
and Tenant has succeeded to the Interest of Sundstrand Corporation in the
Existing Lease. Landlord and Tenant agree
<PAGE> 10
Rider to Lease
Page 2
that, notwithstanding any term or provision of the Existing Lease to the
contrary, the Existing Lease shall be deemed to be terminated as of the
day preceding the Commencement Date of this Lease; provided, however, that
Tenant shall continue to pay base rent and operating costs under the
Existing Lease through such date; and provided further that after the
termination thereof, Tenant shall remain liable for all of its obligations
under the Existing Lease accruing prior to said termination date. On the
date of termination the Existing Lease, Tenant shall surrender the leased
premises demised by the Existing Lease in the condition required therein.
Landlord:
ST. PAUL PROPERTIES, INC.
(a Delaware corporation)
By: /s/ R. William Inserra
--------------------------------
R. William Inserra
Its: Vice President
Tenant:
SAUER SUNDSTRAND CO.
(a Delaware corporation)
By: /s/ Timothy E. Kramer
--------------------------------
Timothy E. Kramer
Its: Director
<PAGE> 11
EXHIBIT "A"
[SITE PLAN OMITTED]
<PAGE> 12
EXHIBIT "B"
Lot 1, Block 1, Plymouth Business Center, 5th Addition
<PAGE> 13
EXHIBIT C
WORK LETTER AGREEMENT
[Landlord Performs Work]
[Allowance]
This Work Agreement ("Work Letter") is executed simultaneously with that
certain Lease Agreement (the "Lease") between SAUER SUNDSTRAND CO. as "Tenant"
and ST. PAUL PROPERTIES. INC., a Delaware corporation, as "Landlord," relating
to certain demised premises numbered as Suite 30 ("Premises") at that certain
building having a street address of 3500 Annapolis Lane, 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.
For and in consideration of the agreement to lease the Premises and the
mutual covenants contained herein and in the Lease, Landlord and Tenant hereby
agree as follows:
1. Tenant's Initial Plans; the Work. Tenant desires Landlord to perform
certain leasehold improvement work in the Premises in substantial accordance
with the plan or plans (collectively, the "Initial Plan") prepared by Genesis
Architecture dated October 10, 1997, and last revised October 10, 1997, a copy
or copies is/are attached hereto as Schedule 1. Such work, as shown in the
Initial Plan and as more fully detailed in the Working Drawings (as defined and
described in Paragraph 2 below), shall be hereinafter referred to as the "Work."
On the date hereof, Tenant has furnished to Landlord such additional plans,
drawings, specifications and finish details as Landlord has requested to enable
Landlord's architects and engineers to prepare mechanical, electrical and
plumbing plans and to prepare the Working Drawings, including a final telephone
layout and special electrical connection requirements, if any. All plans,
drawings, specifications, and other details describing the Work which have been
or are hereafter furnished by or on behalf of Tenant shall be subject to
Landlord's approval, which Landlord agrees shall not be unreasonably withheld.
Landlord shall not be deemed to have acted unreasonably if it withholds its
approval of any plans, specifications, drawings or other details or of any
Additional Work (as defined in Paragraph 7 below) because, in Landlord's
reasonable opinion, the work, as described in any such item, or the Additional
Work, as the case may be: (a) is likely to adversely affect Building systems,
the structure of the Building or the safety of the Building and/or its
occupants; (b) might impair Landlord's ability to furnish services to Tenant or
other tenants in the Building; (c) might, in Landlord's sole opinion, adversely
affect Landlord's ability to re-lease the Premises; (d) would increase the cost
of operating the Building; (e) would violate any governmental laws, rules or
ordinances (or interpretations thereof); (f) contains or uses hazardous or toxic
materials or substances; (g) would adversely affect the appearance of the
Building; (h) might adversely affect another tenant's premises; (i) is
prohibited by any ground lease affecting the Building or any mortgage or other
instrument encumbering the Building or (j) is likely to be substantially delayed
because of unavailability or shortage of labor or material necessary to perform
such work or the difficulties or unusual nature of such work. The foregoing
reasons, however, shall not be the only reasons for which Landlord may withhold
its approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Landlord of the Work or the Initial Plan or
any other plans, drawings, specifications or other items associated with the
Work nor Landlord's performance, supervision or monitoring of the Work shall
constitute any warranty by Landlord to Tenant of the adequacy of the design for
Tenant's intended use of the Premises.
2. Working Drawings. If necessary for the performance of the Work and not
included as part of the Initial Plan, Landlord shall prepare or cause to be
prepared final working drawings and specifications for the Work (the "Working
Drawings") based on and consistent with the Initial Plan and the other plans,
drawings, specifications, finished details and other information furnished by
Tenant to Landlord and approved by Landlord pursuant to Paragraph 1 above. So
long as the Working Drawings are consistent with the Initial Plan, Tenant shall
approve the Working Drawing within three (3) days after receipt of same from
Landlord by initialing and returning to Landlord each sheet of the Working
Drawings or by executing Landlord's approval form then in use, whichever method
of approval Landlord may designate.
3. Performance of the Work; Allowance. Except as hereinafter provided to
the contrary, Landlord shall cause the performance of the Work using (except as
may be stated or shown otherwise in the Working Drawings) building standard
materials, quantities and procedures then in use by Landlord ("Building
Standards"). Landlord shall pay for a portion of the "Cost of the Work" (as
defined below) in an amount not to exceed $750,296 (the "Allowance"), and Tenant
shall pay for the entire Cost of the Work in excess of the Allowance (the
"Excess Costs"), currently estimated to be $1,759,721. Tenant hereby agrees that
it has had an opportunity to review the Excess Costs and the components thereof
and this Work Letter constitutes Tenant's authorization to proceed with the
Work, including that portion of the Work to be paid by Tenant as Excess Costs
and Tenant agrees to pay the Excess Costs to Landlord as specified in Paragraph
4 below. Tenant shall not be entitled to any credit, abatement
B-1
<PAGE> 14
or payment from Landlord in the event that the amount of the Allowance specified
above exceeds the Cost of the Work. For purposes of this Agreement, the term
"Cost of the Work" shall mean and include any and all costs and expenses of the
Work, including, without limitation, the cost of the Initial Plan, the Working
Drawings, the cost of an employee of Landlord or Landlord's Managing Agent
acting as tenant coordinator/construction manager and all labor (including
overtime) and materials constituting the Work.
4. Payment. On or before November 15, 1997, Tenant will deposit the sum of
$500,000 (the "Deposit") with Landlord to partially defray the Cost of the Work.
From time to time thereafter, Landlord shall submit to Tenant an American
Institute of Architects form G702 signed by Genesis Architecture indicating that
portion of the Work for which all or a portion of the Excess Costs are payable
for work performed since the date of the last submission, and containing the
required attachments specified therein. Landlord shall pay to itself from the
Deposit seventy percent (70%) of the amount specified on such draw request.
After the Deposit has been fully paid to Landlord as set forth in the preceding
sentence, Tenant shall pay to Landlord seventy percent (70%) of the amount
requested on any draw request submitted to Tenant within five (5) days after the
date such draw request is submitted to Tenant. Landlord and Tenant understand
and agree that if Tenant fails to make such payment, Landlord may stop the Work;
provided however, that such stoppage will not delay the scheduled commencement
date or expiration date of the term of the Lease. If such failure to pay
continues to a period in excess of thirty (30) days after submission of any draw
request as specified in this paragraph, such failure shall constitute an event
of default under the lease and shall entitle Landlord to the exercise of all of
its rights and remedies contained therein. In the event, and each time, that any
change order by Tenant, unknown field condition, delay caused by acts beyond
Landlord's control or other event or circumstance causes the Cost of the Work to
be increased after the time that Landlord delivers to Tenant the aforesaid
initial statement of the Cost of the Work, Landlord shall deliver to Tenant a
revised statement of the total Cost of the Work, indicating the revised
calculation of the Excess Costs, if any. Within three (3) days after submission
to Tenant of any such revised statement, Tenant shall pay to Landlord an amount
equal to the Excess Costs, as shown in such revised statement, less the amounts
previously paid by Tenant to Landlord on account of the Excess Costs, and
Landlord shall not be required to proceed further with the Work until Tenant has
paid such amount. Delays in the performance of the Work resulting from the
failure of Tenant to comply with the provisions of this Paragraph 4 shall be
deemed to be delays caused by Tenant.
5. Substantial Completion. Landlord shall cause the Work to be
"substantially completed" on or before the scheduled date of commencement of the
Term subject to delays caused by strikes, lockouts, boycotts, or other labor
problems, casualties, discontinuance of any utility or other service required
for performance of the Work, unavailability or shortages of materials or other
problems in obtaining materials necessary for performance of the Work or any
matter beyond the control of Landlord (or beyond the control of Landlord's
contractors or subcontractors performing the Work) and also subject to "Tenant
Delays" (as defined and described in Paragraph 6 of this Work Letter). The Work
shall be deemed to be "substantially completed" for all purposes under this Work
Letter and the Lease if and when Landlord's general contractor issues a written
certificate to Landlord and Tenant, certifying that the Work has been
substantially completed (i.e., completed except for "punchlist" items listed in
such architect's certificate) in substantial compliance with the Working
Drawings, or when Tenant first takes occupancy of the Premises, whichever first
occurs. If the Work is not deemed to be substantially completed on or before the
scheduled date of the commencement of the Term, (a) Landlord agrees to use
reasonable efforts to complete the Work as soon as practicable thereafter, (b)
the Lease shall remain in full force and effect, (c) Landlord shall not be
deemed to be in breach or default of the Lease or this Work Letter as a result
thereof and Landlord shall have no liability to Tenant as a result of any delay
in occupancy (whether for damages, abatement of Rent or otherwise), and (d)
except in the event of Tenant Delays and notwithstanding anything contained in
the Lease to the contrary, the Commencement Date of the Term shall be extended
to the date on which the Work is deemed to be substantially completed and the
Expiration Date of the Term shall be extended by the number of days by which the
Commencement Date was extended together with the number of days required to make
the Term expire on the next occurring last day of the month. At the request of
either Landlord or Tenant in the event of such extensions in the commencement
and expiration dates of the Term, Tenant and Landlord shall execute and deliver
an amendment to the Lease reflecting such extensions. Landlord agrees to use
reasonable diligence to complete all punchlist work listed in the aforesaid
general contractor's certificate promptly after substantial completion.
6. Tenant Delays. There shall be no extension of the scheduled commencement
or expiration date of the Term (as otherwise permissibly extended under
Paragraph 5 above) if the Work has not been substantially completed on said
scheduled commencement date by reason of any delay attributable to Tenant
("Tenant Delays"), including without limitation:
(a) the failure of Tenant to furnish all or any plans, drawings,
specifications, finished details or other information required under
Paragraph 1 above on or before the date stated in Paragraph 1;
(b) the failure of Tenant to grant approval of the Working Drawings
within the time required under Paragraph 2 above;
B-2
<PAGE> 15
(c) the failure of Tenant to comply with the requirements of
Paragraph 4 above;
(d) Tenant's requirements for special worker materials, finishes, or
installations other than the Building Standards or Tenant's requirements
for special construction staging or phasing;
(e) the performance of any Additional Work (as defined in Paragraph
7 below) requested by Tenant or the performance of any work in the
Premises by any person, firm or corporation employed by or on behalf of
Tenant, or any failure to complete or delay in completion of such work; or
(f) any other act or omission of Tenant.
7. Additional Work. Upon Tenant's request and submission by Tenant (at
Tenant's sole cost and expense) of the necessary information and/or plans and
specifications for work other than the Work described in the Working Drawings
("Additional Work") and the approval by Landlord of such Additional Work, which
approval Landlord agrees shall not be unreasonably withheld, Landlord shall
perform such Additional Work, at Tenant's sole cost and expense, subject,
however, to the following provisions of this Paragraph 7. Prior to commencing
any Additional Work requested by Tenant, Landlord shall submit to Tenant a
written statement of the cost of such Additional Work, and, concurrently with
such statement of cost, Landlord shall also submit to Tenant a proposed tenant
extra order (the "TEO") for the Additional Work in the standard form then in use
by Landlord. Tenant shall execute and deliver to Landlord such TEO and shall pay
to Landlord the entire cost of the Additional Work within five (5) days after
Landlord's submission of such statement and TEO to Tenant. If Tenant fails to
execute or deliver such TEO or pay the entire cost of such Additional Work
within such 5-day period, then Landlord shall not be obligated to do any of the
Additional Work and may proceed to do only the Work, as specified in the Working
Drawings.
8. Tenant Access. Landlord, in Landlord's reasonable discretion and upon
request by Tenant, may grant to Tenant a license to have access to the Premises
prior to the date designated in the Lease for the commencement of the Term to
allow Tenant to do other work required by Tenant to make the Premises ready for
Tenant's use and occupancy (the "Tenant's Pre-Occupancy Work"). It shall be a
condition to the grant by Landlord and continued effectiveness of such license
that:
(a) Tenant shall give to Landlord a written request to have such
access to the Premises not less than five (5) days prior to the date on
which such access will commence, which written request shall contain or
shall be accompanied by each of the following items, all in form and
substance reasonably acceptable to Landlord: (i) copies of all plans and
specifications pertaining to Tenant's Pre-Occupancy Work; (ii) copies of
all licenses and permits required in connection with the performance of
Tenant's Pre-Occupancy Work; (iii) certificates of insurance (in amounts
satisfactory to Landlord and with the parties identified in, or required
by, the Lease named as additional insureds) and instruments of
indemnification against all claims, costs, expenses, damages and
liabilities which may arise in connection with Tenant's Pre-Occupancy
Work; and (iv) assurances of the ability of Tenant to pay for all of
Tenant's Pre-Occupancy Work and/or a letter of credit or other security
deemed appropriate by Landlord securing Tenant's lien-free completion of
Tenant's Pre-Occupancy Work.
(b) Such pre-Term access by Tenant and its representatives shall be
subject to scheduling by Landlord.
(c) Tenant's employees, agents, contractors, workers, mechanics,
suppliers and invitees shall work in harmony and not interfere with
Landlord or Landlord's agents in performing the Work and any Additional
Work in the Premises, Landlord's work in other premises and in common
areas of the Building, or the general operation of the Building. If at any
time any such person representing Tenant shall cause or threaten to cause
such disharmony or interference, including labor disharmony, and Tenant
fails to immediately institute and maintain such corrective actions as
directed by Landlord, then Landlord may withdraw such license upon
twenty-four (24) hours' prior written notice to Tenant.
(d) Any such entry into and occupancy of the Premises by Tenant or
any person or entity working for or on behalf of Tenant shall be deemed to
be subject to all of the terms, covenants, conditions and provisions of
the Lease, specifically the provisions regarding Tenant's improvements and
alterations to the Premises, and excluding only the covenant to pay Rent.
Landlord shall not be liable for any injury, loss or damage which may
occur to any of Tenant's Pre-Occupancy Work made in or about the Premises
or to property placed therein prior to the commencement of the Term, the
same being at Tenant's sole risk and liability. Tenant shall be liable to
Landlord for any damage to the Premises or to any portion of the Work or
Additional Work caused by Tenant or any of Tenant's employees, agents,
contractors, workmen or suppliers. In the event that the performance of
Tenant's Pre-Occupancy Work causes extra costs to Landlord or
extraordinary use of Building services, Tenant shall reimburse Landlord
for such extra cost and/or shall pay Landlord for such elevator service or
other Building services at Landlord's standard rates then in effect.
B-3
<PAGE> 16
9. Lease Provisions. The terms and provisions of the Lease, insofar as
they are applicable to this Work Letter, are hereby incorporated herein by
reference. All amounts payable by Tenant to Landlord hereunder 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.
10. Miscellaneous.
(a) This Work Letter shall be governed by the laws of the State of
Minnesota.
(b) This Work Letter may not be amended except by a written
instrument signed by the party or parties to be bound thereby.
(c) Any person signing this Work Letter on behalf of Tenant warrants
and represents he/she has authority to sign and deliver this Work Letter
and bind Tenant.
(d) Notices under this Work Letter shall be given in the same manner
as under the Lease.
(e) The headings in this Work Letter herein are for convenience
only.
(f) This Work Letter sets forth the entire agreement of Tenant and
Landlord regarding the Work.
(g) In the event that the final working drawings and specifications
are included as part of the Initial Plan attached hereto, or in the event
Landlord performs the Work without the necessity of preparing working
drawings and specifications, then whenever the term "Working Drawings" is
used in this Agreement, such term shall be deemed to refer to the Initial
Plan and all supplemental plans and specifications approved by Landlord.
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 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.
THIS WORK LETTER AGREEMENT is executed as of the _________ day of _______,
_____.
ST. PAUL PROPERTIES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
Its: V.P.
--------------------------------
SAUER SUNDSTRAND CO.
By: /s/ [ILLEGIBLE]
------------------------------------
Its: General Manager
--------------------------------
B-4
<PAGE> 17
SCHEDULE 1
Copies of Initial Plan
The following plans are attached to the lease and made a part hereof:
Tenant Floor Plan A-1
Office Floor Plan A-1.1
Interior Elevations A-1.2
Reflected Ceiling Plan A-2
NOTE: Plans S-1 & S-2 by McConkey, M11O, M210, M300, M301, M500, M501,
P100, P110, P111, P200, P210, P300, P301, P500, P900, FP110, E110, E111,
E112, E113, E210, E211, E212, E300, E400, E401, E500, E600, & E601 by KJWW
all dated September 22, 1997 are not attached hereto.
<PAGE> 18
EXHIBIT D
Sign Criteria
1. Individual letters shall be the same letter style as used on the Plymouth
Business Center freeway monument sign and 1/4" place aluminum and 9" stud
mounted in sign band with 1" spacers on south or west wall. Color to be
#314 Old Copper. No logos on the sign band.
2. Tenant signage and colors allowed on the front main entrance door only.
Signage to be white vinyl lettering except for logo.
3. Tenant identification on rear man doors to be 2" Helvetica white vinyl. On
overhead doors, 6" helvetica white vinyl.
4. All signage to be approved by Landlord and the City of Plymouth prior to
installation.
MONUMENT SIGNAGE CRITERIA
1. Maximum signage shall be 96 square feet.
2. Maximum height shall be 36 feet.
3. If monument sign is constructed, then no signage is allowed on the west
wall of the building.
<PAGE> 19
EXHIBIT E
[FLOOR PLAN OMITTED]
<PAGE> 1
Exhibit 10.1(i)
AGREEMENT OF LEASE
by and between
ZEUNER ENTERPRISES, INC.
and
CONTROL CONCEPTS, INC.
Dated: February 18, 1994
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1. Premises....................................................... 1
2. Term........................................................... 1
3. Minimum Rent................................................... 1
4. Taxes and Other Impositions.................................... 2
5. Insurance...................................................... 3
6. Lessee's Fixtures.............................................. 5
7. Signs.......................................................... 6
8. Care, Improvement and Restoration of the Premises.............. 6
9. Lessor's Right of Entry........................................ 8
10. Non-Abatement of Rent.......................................... 8
11. Net Lease...................................................... 8
12. Utility Charges................................................ 9
13. No Services by Lessor.......................................... 9
14. Governmental Regulations....................................... 9
15. Use of Premises................................................ 10
16. Mechanic's Liens, etc.......................................... 10
17. Indemnification................................................ 11
18. Waiver of Claims Against Lessor................................ 12
19. Quiet Enjoyment................................................ 12
20. Condemnation................................................... 13
21. Assignment and Subletting...................................... 14
22. Subordination.................................................. 14
23. Certificates................................................... 15
24. Curing Lessee's Defaults....................................... 15
25. Notices; Payment of Rent....................................... 15
26. Adverse Possession............................................. 16
27. Environmental Compliance....................................... 16
28. Condition of Title and of Premises............................. 18
29. Surrender...................................................... 19
30. Defaults - Remedies............................................ 19
31. Grace Period and Notice of Default............................. 21
32. Lessor's Waiver................................................ 21
33. Brokers........................................................ 22
34. Captions....................................................... 22
35. Entire Agreement; Interpretation............................... 22
36. Definition of "Lessor"......................................... 22
37. Definition of "Lessee"......................................... 22
38. Option to Purchase............................................. 23
39. Memorandum of Lease............................................ 26
40. Consent........................................................ 26
41. Performance.................................................... 26
42. Abatement...................................................... 26
TOC-1
<PAGE> 3
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE ("Lease") made as of the ___ day of February,
1994, by and between ZEUNER ENTERPRISES, INC., a Pennsylvania corporation
(hereinafter called "Lessor") and CONTROL CONCEPTS, INC., a Pennsylvania
corporation (hereinafter called "Lessee").
WHEREAS, Lessor and Lessee were parties to a certain Lease Agreement dated
September 19, 1986 (as amended, the "Prior Lease"), with respect to the
Premises (as hereinafter defined); and
WHEREAS, all of the shares of Lessee are being acquired by
Sauer-Sundstrand Company pursuant to a Stock Purchase Agreement of even date
herewith (the "Stock Purchase Agreement"); and
WHEREAS, the Prior Lease has expired in accordance with its terms, and in
substitution therefore and as a condition of the Stock Purchase Agreement the
parties have agreed to enter into this Lease, the terms and conditions of which
shall hereinafter govern the leasing of the Premises by Lessee in all respects.
NOW THEREFORE, for and in consideration of the rents, covenants and
agreements herein contained, the parties hereto, intending to be legally bound
hereby, covenant and agree as follows:
1. Premises. Lessor does hereby demise and let unto Lessee and Lessee does
hereby hire and lease from Lessor, for the term and upon the conditions and
covenants set forth herein, all that certain piece or parcel or land, together
with the buildings and improvements thereon, as more particularly described on
Exhibit "A" attached hereto and made a part hereof (the "Premises");
2. Term. The Lease shall be for a term commencing as of the date of this
Lease (the "Commencement Date") and expiring at midnight on February 28, 1999
unless sooner terminated as hereinafter provided (the "Initial Term"). Lessee
shall have the right to extend the term of this Lease for one additional period
of five (5) years (the "Extended Term") to begin immediately upon the expiration
of the Initial Term. Except as otherwise expressly provided herein, all of the
terms, covenants and provisions of this Lease shall apply to such Extended Term.
If Lessee shall elect to exercise the aforesaid option, it shall do so by giving
Lessor notice in writing of its intention to do so not later than twelve (12)
months prior to the expiration of the Initial Term. If Lessee gives such notice,
the extension of this Lease shall be automatically effected without the
execution of any additional documents. The Initial Term and the Extended Term
are hereinafter collectively called the "Term".
3. Minimum Rent. During the Initial Term, Lessee shall pay to Lessor as
minimum rent the sum of Five Hundred Thirty-Four Thousand Dollars ($534,000)
<PAGE> 4
per annum payable in advance, without demand and without set-off (except as
hereinafter expressly provided), in equal monthly installments of Forty-Four
Thousand Five Hundred Dollars ($44,500) on the first day of each calendar month
during the Initial Term, provided that, for the first month of the term, the
minimum rent shall be apportioned pro rata on a per diem basis for the period
between the Commencement Date and the first day of the following calendar month
and such apportioned sum shall be paid on such Commencement Date.
During the Extended Term, Lessee shall continue to pay Lessor the minimum
rent in accordance with the preceding paragraph, but the minimum rent payable
during each year of the Extended Term shall be the greater of: (a) the minimum
rent per annum during the Initial Term; or (b) the minimum rent per annum during
the Initial Term multiplied by a fraction, the numerator of which is the United
States Bureau of Labor Statistics Consumer Price Index for All Urban Customers
for The Philadelphia Region (the "CPI") for December 31, 1998, and the
denominator of which is the CPI for December 31, 1993.
If the minimum rent cannot be adjusted as provided at the commencement of
the Extended Term because the relevant CPI has not yet been released, Lessee
shall pay rent at the then existing minimum rent level pending such adjustment.
Upon publication of the relevant CPI, the minimum rent shall be increased
effective as of the commencement of the Extended Term and Lessee shall
immediately pay Lessor the increase in minimum rent for the period commencing on
the commencement of the Extended Term and ending on the last day of the month of
the date of publication of the relevant CPI.
4. Taxes and Other Impositions.
(a) Payment. In addition to the minimum rent referred to above,
Lessee shall pay throughout the term hereof, as additional rent hereunder, at
least thirty (30) days before any fine, penalty, interest or cost may be added
thereto for the non-payment thereof (or sooner if elsewhere herein required),
all levies, taxes, assessments, water and sewer rents and charges, liens,
license and permit fees, charges for public utilities and all other charges,
imposts or burdens of whatsoever kind and nature, whether or not particularized
by name, and whether general or special, ordinary or extraordinary, foreseen or
unforeseen, which at any time during the term of this Lease may be created,
levied, assessed, confirmed, adjudged, imposed or charged upon or with respect
to the Premises or any improvements made thereto, or on any part of the
foregoing or any appurtenances thereto, or directly upon this Lease or the rent
payable hereunder or amounts payable by any subtenants or other occupants of the
Premises, or upon this transaction or any documents to which Lessee is a party
or successor in interest, or against Lessor because of Lessor's estate or
interest herein, by any federal, state, municipal or other authority, or under
any law, ordinance or regulation of any such authority, including, among others,
all special tax bills and general, special or other
-2-
<PAGE> 5
assessments and liens or charges made on local or general improvements or under
any governmental or public power or authority whatsoever (all of which are
hereinafter referred to as "impositions"); provided, however, if any imposition
shall be created, levied, assessed, adjudged, imposed, charged or become a lien
with respect to a period of time which commences before or ends after the
commencement and expiration dates, respectively, of the term of this Lease
(other than by reason of breach of any of the terms hereof by Lessee), then
Lessee shall only be required to pay that proportion of such imposition which is
equal to the proportion of said period which falls within the term of this Lease
and/or any period during which Lessee owns the Premises, and Lessor shall be
obligated to pay the balance thereof; and provided further that as of the date
hereof Lessor has received no notice of and has no actual knowledge of any
impositions which are presently due or overdue and which remain unpaid, or which
may hereinafter be due or imposed upon the Premises, other than general ad
valorem real estate taxes. Lessor and Lessee shall be permitted to pay (to the
extent permitted by the assessing and collecting authorities) and may elect to
pay any assessment in installments, and to the extent such installment payments
represent a customary deferral of the obligation over a period of time (as
provided for in the preceding sentence), Lessee shall be obligated to make all
such installment payments attributable to periods within the term of this Lease
(or within any period of Lessee's ownership of the Premises), and Lessor shall
be obligated to pay the balance thereof. Nothing herein contained shall require
Lessee to pay any income or excess profits taxes assessed against Lessor, or any
corporation capital stock and franchise taxes imposed upon Lessor.
(b) Contest. Lessee shall furnish Lessor, no later than ten (10)
days prior to the last day upon which they may be paid without any fine, penalty
or interest, evidence satisfactory to Lessor of the payment of all impositions.
Lessee may, without postponement of payment, bring proceedings for contesting
the validity or amount of any imposition, or to recover payments therefor, and
Lessee agrees to save Lessor harmless from all costs and expenses in connection
therewith. Lessor shall cooperate with Lessee with respect to such proceedings
to the extent reasonably necessary, but all costs, fees and expenses incurred in
connection with such proceedings shall be borne by Lessee. Lessee will give
Lessor written advance notice of Lessee's intention to make any such contest.
5. Insurance.
(a) Types. Lessee, at Lessee's sole cost and expense, shall maintain
and keep in effect throughout the term:
i. insurance against loss or damage to the building and all
other improvements now or thereafter located on the demised land by fire and
such other casualties as may be included in "all risk" insurance from time to
time available as reasonably specified by Lessor, in an amount equal to the full
insurable
-3-
<PAGE> 6
replacement value of such building and improvements, and with a deductible not
to exceed $15,000;
ii. insurance against claims for personal injury (including
death) or property damage, under a policy of general public liability insurance,
with such limits as may be reasonably requested by Lessor from time to time, but
not less than $1,000,000 in respect of bodily injury (including death) and
$1,000,000 for property damage or in such other amounts as reasonably specified
by Lessor;
iii. nothing contained in this Section 5(a) shall be deemed to
prevent Lessee from providing the foregoing insurance coverage through "blanket"
policies covering other properties of Lessee or any affiliate of Lessee,
provided the same are reasonably satisfactory to Lessor.
(b) Insured Parties. The policies of insurance described in Section
(a)i. above shall name Lessor and Lessee as the insured parties, and in addition
shall contain a standard mortgagee endorsement in favor of the holder of any
mortgage which may at any time be a lien upon the Premises or any part thereof.
The policies of the insurance described in subsection (a)ii. above shall name
Lessor, Lessee (and, if requested by Lessor, the holder of any mortgage
("Mortgagees") as the insured parties.
(c) Insurers; Replacement. Each policy shall provide that it shall
not be cancelable without at least ten (10) days' prior written notice to Lessor
(and, if requested by Lessor, the Mortgagees). Forthwith upon the execution of
this Lease, each policy shall be delivered by Lessee to Lessor unless Lessor
requests that it be delivered to one of the Mortgagees, in which case Lessee
shall deliver the policy to such holder and shall deliver to Lessor and any
other Mortgagees a certificate of the insurance carrier certifying that the
policy so delivered has been issued and is in effect and the duration thereof.
At least ten (10) days before any policy shall expire, Lessee shall deliver to
Lessor a replacement policy or certificate. If available, each policy shall have
attached thereto an endorsement to the effect that no act or omission of Lessee
shall affect the obligation of the insurer to pay the full amount of any loss
sustained. Each policy shall be in such form as Lessor may from time to time
reasonably require.
(d) Payment. If Lessee shall fail, refuse or neglect to obtain such
insurance or maintain it, Lessor shall have the right, at Lessor's option, to
purchase such insurance and to pay the premiums thereon or to pay the premiums
on insurance which Lessee should have paid for. All such payments made by Lessor
shall be recoverable by Lessor from Lessee on demand as additional rent
hereunder together with interest, at the rate of six percent (6%) per annum if
Lessee is an individual, partnership or joint venture and at the rate of twelve
percent (12%) per annum if Lessee is a corporation, from the respective dates of
Lessor's making of the payments.
-4-
<PAGE> 7
(e) Uninsured Loss. If Lessee fails to provide and keep in force
insurance as aforesaid, Lessor shall not be limited in the proof of any damages
which Lessor may claim against Lessee to the amount of the insurance premium or
premiums not paid or incurred and which would have been payable upon such
insurance; but Lessor shall also be entitled to recover as damages for such
breach the uninsured amount of any loss, to the extent of any deficiency in the
insurance required by the provisions of this Lease, and damages, expenses of
suit and costs, including without limitation reasonable cancellation fees,
suffered or incurred during any period when Lessee shall have failed or
neglected to provide insurance as aforesaid.
(f) Other Insurance Obtained by Lessee. Lessee shall not take out
separate insurance concurrent in form or contributing, in the event of loss,
with that required to be furnished by Lessee, or increase the amounts of any
then existing insurance by securing an additional policy or additional policies,
without including Lessor and, if requested by Lessor, the Mortgagees as an
insured party.
(g) Waiver of Subrogation; Rights under Insurance Policies. Each of
the parties hereto hereby releases the other, to the extent of each party's
insurance coverage, from any and all liability for any loss or damage which may
be inflicted upon the property of such party even if such loss or damage shall
be brought about by the fault or negligence of the other party, its agents or
employees; provided, however, that this release shall be effective only with
respect to loss or damage occurring during such time as the appropriate policy
of insurance shall contain a clause to the effect that this release shall not
affect said policy or the right of the insured to recover thereunder. If any
policy does not permit such a waiver, and if the party to benefit therefrom
requests that such a waiver be obtained, the other party agrees to obtain an
endorsement to its insurance policies permitting such waiver of subrogation if
it is available and if such policies do not provide therefor. If an additional
premium is charged for such waiver, the party benefitting therefrom, if it
desires to have the waiver, agrees to pay the other the amount of such
additional premium promptly upon being billed therefor.
6. Lessee's Fixtures. Lessee shall have the right to install trade
fixtures required by Lessee or used by it in its business and, if installed by
Lessee, to remove any or all such trade fixtures from time to time during and
upon termination of this Lease, provided, however, that Lessee shall repair and
restore any damage or injury to the Premises caused by the installation and/or
removal of any such trade fixtures. The parties acknowledge that all
manufacturing and processing equipment and other personal property and trade
fixtures presently located on or installed in the Premises, other than central
heating, cooling, and ventilation systems and the electrical system to the point
of the master distribution panel, are Lessee's property.
-5-
<PAGE> 8
7. Signs. Lessee may to the extent and manner allowed by law or public
regulation place, erect, maintain, or paint signs upon the Premises provided
that they are maintained by Lessee in good condition during the term hereof, and
Lessee shall remove all signs at the termination of this Lease, repairing any
damage caused by the installation and/or removal thereof.
8. Care, Improvement and Restoration of the Premises.
(a) Maintenance and Repair. Lessor agrees that it shall, at its sole
cost and expense, cause those "punch list" items shown on Exhibit "B" attached
hereto and made a part hereof, to be repaired and/or replaced within 180 days of
the Commencement Date. Lessee shall, throughout the term of this Lease and at
its sole cost and expense, take such care of the building and the other
improvements now or hereafter located upon the demised land, and any sidewalks,
parking areas, curbs and access ways upon or adjoining the Premises, and keep
them in at least as good order and condition as they now are and otherwise in an
order and condition as is sufficient for their intended use and promptly at
Lessee's own cost and expense make all repairs necessary to maintain such order
and condition, whether such repairs be interior or exterior, structural or
nonstructural, ordinary or extraordinary, foreseen or unforeseen. When used in
this Lease, the term "repairs" shall include replacements and renewals when
necessary to maintain such building and other improvements in the prescribed
order and condition, and all such repairs made by Lessee shall be at least equal
in quality and usefulness to the building and such other improvements as may
from time to time be located upon the demised land. Lessee shall keep and
maintain all portions of the Premises and any sidewalks, parking areas, curbs
and access ways adjoining them in a clean and orderly condition, free of
accumulation of dirt, rubbish, snow and ice. Lessor agrees, to the extent
permitted by the terms thereof, to make available to Lessee the benefit of any
third party warranty or guarantee held by Lessor which may cover any of the
foregoing repairs.
(b) Major Repairs. Notwithstanding the foregoing, if the useful life
of any repairs to be performed by Lessee under this Lease would extend beyond
the end of the lease term, then with respect to any such item or items the cost
of which (after deducting any insurance proceeds available with respect thereto)
would exceed $50,000, Lessor shall promptly reimburse Lessee for Lessor's share
of the excess cost of such repairs, to the extent hereinafter provided. Lessor's
share shall equal the unamortized balance of the excess cost which would remain
as of the end of the lease term after amortizing the excess cost on a
straight-line basis over the useful life of such repairs. As a condition to
Lessor's obligation to contribute to the excess cost of repairs, Lessee agrees
that it shall not undertake any such repairs without first submitting a proposal
to Lessor, which shall include an estimate of costs and of Lessor's share
thereof. Lessor shall have no obligation to share in the cost of any repairs
undertaken without its prior written consent.
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<PAGE> 9
(c) Alterations. Lessee shall not, without on each occasion first
obtaining Lessor's prior written consent (which consent shall not be
unreasonably withheld), make or permit to be made any alterations, improvements
or additions to the Premises; except that Lessee may, without the consent of
Lessor, make minor alterations and improvements to the interior of the building
on the demised land provided that they do not impair the structural strength of
the building or reduce its value, and provided further that Lessee shall take or
cause to be taken all steps that are required or permitted by law in order to
avoid the imposition of any mechanics' liens upon the Premises, and provided
further that the occupants of any adjoining real estate owned by Lessor are not
disturbed or annoyed by reason thereof. Except as otherwise provided in Section
6 (Lessee's Fixtures), all alterations, improvements, additions, repairs and all
other property attached to or used in connection with the building or any part
thereof made or installed on the Premises by or on behalf of Lessee shall
immediately upon completion or installation thereof be and become part of the
Premises and the property of Lessor without payment therefor by Lessor and shall
be surrendered to Lessor upon the expiration or earlier termination of the term
of this Lease.
(d) Restoration of Fire Damage. If the building or other
improvements on the demised land shall be damaged or destroyed by fire or other
casualty, Lessee, at Lessee's sole cost and expense, shall promptly and
diligently proceed to repair, rebuild or replace such building and other
improvements, so as to restore the Premises to the condition in which they were
immediately prior to such damage or destruction. The net proceeds of any
insurance recovered by reason of such damage or destruction in excess of the
cost of adjusting the insurance claim and collecting the insurance proceeds
(such excess being hereinafter called the "net insurance proceeds") shall be
held in trust by Lessor or, if requested by Lessor, any of the Mortgagees and
released for the purpose of paying the fair and reasonable cost of restoring
such building and other improvements. Such net insurance proceeds shall be
released from time to time as the work progresses to Lessee or to Lessee's
contractors. Prior to the commencement of the work, Lessee shall deliver to
Lessor reasonable proof that such net insurance proceeds are adequate to pay the
cost of such restoration. If such net insurance proceeds are not adequate,
Lessee shall pay, out of funds other than such net insurance proceeds and shall
furnish proof to Lessor of the payment of such excess for work performed before
Lessor or any such Mortgagee shall release any part of such net insurance
proceeds. If such net insurance proceeds are more than adequate, the amount by
which such net insurance proceeds exceed the cost of restoration (the "Excess
Proceeds") will be retained by Lessor or at Lessor's request, applied to
repayment of any mortgage secured by the Premises; provided, however, that if
Lessee is able to demonstrate to Lessor's reasonable satisfaction that the
quality of the restoration equals or exceeds the quality of the Premises as
constructed prior to the destruction or damage, and that the payment of the
Excess Proceeds does not otherwise reflect compensation for any diminution in
the value of the Premises as restored, then, subject to the prior written
consent
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<PAGE> 10
of the Mortgagees, Lessee shall be entitled to receive one-half of the Excess
Proceeds. If more than fifty percent (50%) of the building located on the
Premises (measured in terms of value immediately prior to and immediately
following the destruction) shall be destroyed or damaged by fire or other
casualty, and if the unexpired portion of the term of this Lease shall be two
(2) years or less at the date of the damage, then Lessee may, by giving written
notice within forty-five (45) days after such occurrence, elect to terminate
this Lease, in which case Lessor shall be entitled to the net insurance
proceeds.
9. Lessor's Right of Entry. Lessee agrees to permit Lessor and the
authorized representatives of Lessor and any of the Mortgagees or any
prospective mortgagee to enter the Premises at all reasonable times for the
purpose of inspecting them and making any necessary repairs thereto and
performing any work therein that may be necessary by reason of Lessee's failure
to make such repairs or perform any such work required of Lessee under this
Lease; provided that, if reasonable under the circumstances, Lessor shall give
Lessee prior written notice of its intent so to enter. Nothing herein shall
imply any duty upon the part of Lessor to do any such work which under any
provision of this Lease Lessee may be required to perform and the performance
thereof by Lessor shall not constitute a waiver of Lessee's default in failing
to perform it. During the progress of any work in the Premises Lessor may keep
and store in the Premises all necessary materials, tools and equipment. Lessor
shall not in any event be liable for inconvenience, annoyance, disturbance or
other damage to Lessee by reason of making such repairs or the performance of
such work in the Premises or on account of bringing materials, supplies and
equipment into or through the Premises during the course thereof and the
obligations of Lessee under this Lease shall not thereby be affected in any
matter whatsoever, and the cost of each of such repairs or the performance of
such work shall be payable by Lessee to Lessor pursuant to and in accordance
with Section 24 hereof (Curing Lessee's Defaults). Lessor also shall have the
right to enter the Premises at all reasonable times to exhibit the Premises to
any prospective purchaser, tenant and/or mortgagee thereof.
10. Non-Abatement of Rent. It is understood and agreed that, except
as expressly provided in this Lease, damage to or destruction of all or any
portion of the Premises by fire or by any other cause shall not terminate this
Lease nor entitle Lessee to surrender the Premises nor in any way affect
Lessee's obligation to pay the minimum rent, additional rent and other sums
payable hereunder, and, except as expressly provided in this Lease, there shall
be no abatement, diminution or reduction of the minimum rent, additional rent or
other sums payable hereunder for any cause whatsoever.
11. Net Lease. It is the intention of the parties hereto that this
Lease is a "triple net lease" and that Lessor shall receive the minimum rent
hereinabove provided as net income from the Premises, not diminished by (a) any
imposition of any public authority of any nature whatsoever during the entire
term
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<PAGE> 11
of this Lease notwithstanding any changes in the method of taxation or raising,
levying or assessing any imposition, or any changes in the name of any
imposition, or (b) any expenses or charges required to be paid to maintain and
carry the Premises or to continue the ownership of Lessor, other than payments
under any mortgage now existing or hereafter created by Lessor, and any income
or excess profits taxes assessed against Lessor, and any corporation capital
stock and franchise taxes imposed upon Lessor, and except as otherwise expressly
provided in this Lease.
12. Utility Charges. Lessee shall be solely responsible for and
shall promptly pay all rents and charges for water and sewer services and all
costs and charges for gas, steam, heat, light, electricity, power, telephone and
any other utility or service used or consumed in or servicing the Premises and
all other costs and expenses involved in the care, management and use thereof.
13. No Services by Lessor. It is expressly agreed that Lessor is not
and shall not be required to render any services of any kind to Lessee, except
as expressly provided in this Lease.
14. Governmental Regulations. The term "Legal Requirements" means
all laws and ordinances and notices, orders, rules, regulations and requirements
of all federal, state and local governments and appropriate departments,
commissions, boards and officers thereof, and notices, orders, rules and
regulations of the National Board of Fire Underwriters, or any other body now or
hereafter constituted exercising similar functions, relating to all or any part
of the Premises, exterior as well as interior, foreseen or unforeseen, ordinary
as well as extraordinary, structural as well as non-structural, or to the use or
manner of use of the Premises or the sidewalks, parking areas, curbs and access
ways adjoining the Premises. Lessor shall at its expense comply with and be
responsible for all Legal Requirements relating to or arising out of the use of
the Premises by Lessor, Lessor's prior occupants or lessees, or any prior owner
or operator of the Premises and all Legal Requirements enacted before the
commencement date of the Term requiring any repairs to the Premises. Lessee
shall at its expense comply with and be responsible for all Legal Requirements
relating to or arising out of Lessee's use of the Premises during the Term
requiring any repairs to the Premises, provided that, if the useful life of any
major repairs to be performed by Lessee hereunder would extend beyond the end of
the Term, Lessor shall reimburse Lessee for Lessor's share of the cost of such
repairs, to the extent provided for with respect to major repairs under Section
8(b). Without limiting the generality of the foregoing, Lessee shall keep in
force at all times all licenses, consents and permits necessary for the lawful
use of the Premises for the purpose herein provided and Lessee shall pay all
personal property taxes which are or may be assessed, levied or imposed upon
Lessee in connection with Lessee's use and occupancy of the Premises or the
operation of its business upon the Premises. Lessee shall likewise observe and
comply with the requirements of all policies of
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<PAGE> 12
public liability, fire and other policies of insurance at any time in force with
respect to the Premises. Lessee's obligations with respect to costs attributable
to the Term, as hereinbefore provided, shall survive termination of the Lease.
Notwithstanding anything to the contrary in this Section 14 or elsewhere in this
Lease, Lessor's liability with respect to Environmental Laws shall be governed
by and subject to the limitations provided in Sections 27(i) and 27(j) of this
Lease.
15. Use of Premises. The Premises may be used and occupied by Lessee for
the conduct of its business, including office, warehouse, manufacturing and for
any other lawful purpose which complies with applicable zoning ordinances and
private restrictions (the "Permitted Uses").
16. Mechanic's Liens, etc.
(a) No Liens. Lessee will not create or permit to be created or
remain, and will discharge, any lien, encumbrance or charge (levied on account
of any imposition or any mechanic's, laborer's or materialman's lien) which
might be or become a lien, encumbrance or charge upon the Premises or any part
thereof or the income therefrom, having any priority or preference over or
ranking on a parity with the estate, rights and interest of Lessor in the
Premises or any part thereof or the income therefrom, and Lessee will not suffer
any other matter or thing whereby the estate, rights and interest of Lessor in
the Premises and any part thereof might be impaired; provided that any
mechanic's, laborer's or materialman's lien may be discharged in accordance with
subsection (b) of this Section.
(b) Discharge of Liens. If any mechanic's, laborer's or
materialman's lien shall at any time be filed against the Premises or any part
thereof, Lessee, within fifteen (15) days after notice of the filing thereof,
will cause it to be discharged of record by payment, deposit, bond, order of the
court of competent jurisdiction or otherwise. If Lessee shall fail to cause such
lien to be discharged within the period aforesaid, then in addition to any other
right or remedy, Lessor may, but shall not be obligated to, discharge it either
by paying the amount claimed to be due or by procuring the discharge of such
lien by deposit or by bonding proceedings, and in any such event, Lessor shall
be entitled, if Lessor so elects, to compel the prosecution of any action for
the foreclosure of such lien by the lienor and to pay the amount of the
judgment in favor of the lienor with interest, costs and allowances. Any amount
so paid by Lessor and all costs and expenses incurred by Lessor in connection
therewith, together with interest thereon, at the rate of six percent (6%) per
annum if Lessee is an individual, partnership or joint venture and at the rate
of twelve percent (12%) per annum if Lessee is a corporation, from the
respective dates of Lessor's making of the payments and incurring of the costs
and expenses, shall constitute additional rent payable by Lessee under this
Lease and shall be paid by Lessee to Lessor on demand.
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<PAGE> 13
(c) Waiver of Liens. Notwithstanding anything to the contrary set
forth in this Section, prior to the making of any alterations, additions or
improvements to the Premises, Lessee shall cause to be filed in the Office of
the Prothonotary of the County in which the Premises are located a Waiver of
Mechanics' and Materialmen's Liens in form reasonably satisfactory to Lessor's
counsel, such waivers to be binding on all subcontractors and materialmen.
(d) No Consent of Lessor Intended. Nothing in this Lease contained
shall be deemed or construed in any way as constituting the consent or request
of Lessor, express or implied by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific alteration, addition, improvement
or repair to the Premises or any part thereof, nor as giving Lessee any right,
power or authority to contract for or permit the rendering of any services or
the furnishing of any materials that would give rise to the filing of any lien
against the Premises or any part thereof.
17. Indemnification.
(a) Indemnification of Lessor. Lessee agrees to indemnify and save
harmless Lessor and any Mortgagee from and against any and all claims by or on
behalf of any person or persons, firm or firms, corporation or corporations,
arising from the occupancy, conduct, operation or management of the Premises or
from any work or thing whatsoever now or hereafter done or which was not done by
Lessee in or on the Premises, or arising from any breach or default on the part
of Lessee in the performance of any covenant or agreement on the part of Lessee
to be performed pursuant to the terms of this Lease, or under the law, arising
from any act, neglect or negligence of Lessee, or any of its agents,
contractors, servants, employees, or licensees, or arising from any accident,
injury or damage whatsoever caused by any person, firm or corporation other than
Lessor or Lessor's agents, contractors, servants, employees, or licensees,
occurring during the term of this Lease, in or about the Premises, and from and
against all costs, expenses and liabilities incurred in connection with any such
claim or action or proceeding brought thereon (including without limitation the
fees of attorneys, investigators and experts); and in case any action or
proceeding be brought against Lessor by reason of any such claim, Lessee upon
notice from Lessor covenants at Lessee's cost and expense to resist or defend
such action or proceeding or to cause it to be resisted or defended by an
insurer.
(b) Indemnification of Lessee. Lessor agrees to indemnify and save
harmless Lessee from and against any and all claims by or on behalf of any
person or persons, firm or firms, corporation or corporations, arising from any
work or thing whatsoever now or hereafter done or which was not done by Lessor
in or on the Premises, or arising from any breach or default on the part of
Lessor in the performance of any covenant or agreement on the part of Lessor to
be performed
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<PAGE> 14
pursuant to the terms of this Lease, or under the law, arising from any
negligence of Lessor, or any of its agents, contractors, servants, employees, or
licensees, or arising from any accident, injury or damage whatsoever caused by
any person, firm or corporation occurring during any period prior to or after
the term of this Lease (not including any period after the term when Lessee owns
the Premises), in or about the Premises, and from and against all costs,
expenses and liabilities incurred in connection with any such claim or action or
proceeding brought thereon (including without limitation the fees of attorneys,
investigators and experts), but only to the extent Lessee has not waived such
claims pursuant to Section 18 hereof; and in case any action or proceeding be
brought against Lessee by reason of any such claim, Lessor upon notice from
Lessee covenants at Lessor's cost and expense to resist or defend such action or
proceeding or to cause it to be resisted or defended by an insurer. The
provisions of this Section 17(b) shall not apply to the Losses, as defined in
Section 27(j) of this Lease.
18. Waiver of Claims Against Lessor. Except to the extent that Lessor has
expressly assumed obligations under the terms of this Lease, Lessor and Lessor's
agents, servants, and employees shall not be liable for, and Lessee, to the full
extent it may do so, hereby releases and relieves Lessor, its agents, servants,
and employees for, all liability to Lessee in connection with any and all loss
of life, personal injury, damage to or loss of property, or loss or interruption
of business occurring to Lessee, its agents, servants, employees, invitees,
licensees, visitors, or any other person, firm, corporation or entity, in or
about or arising out of the Premises, from, without limitation, (a) any fire,
other casualty, accident, occurrence or condition in or upon the Premises; (b)
any defect in or failure of (i) plumbing, sprinkling, electrical, heating or air
conditioning systems or equipment, or any other systems and equipment of the
Premises, and (ii) the elevators, stairways, railings or walkways of the
building located on the Premises; (c) any steam, gas, oil, water, rain or snow
that may leak into, issue or flow from any part of the Premises from the drains,
pipes or plumbing, sewer or other installation of same, or from any other place
or quarter; (d) the breaking or disrepair of any installations and equipment;
(e) the falling of any fixture or wall or ceiling materials; (f) broken glass;
(g) latent or patent defects; (h) the exercise of any rights by Lessor under the
terms and conditions of this Lease unless in connection therewith Lessor acts in
a manner which constitutes negligence or willful or wanton misconduct; (i) any
acts or omissions of the other tenants or occupants of the building located on
the Premises or of nearby buildings; (j) any acts or omissions of other persons;
(k) any acts or omissions of Lessor, its agents, servants and employees unless
such acts or omissions constitute negligence or willful or wanton misconduct;
and (l) theft, Act of God, public enemy, injunction, riot, strike, insurrection,
war, court order, or any order of any governmental authorities having
jurisdiction over the Premises.
19. Quiet Enjoyment. Lessee, upon paying the minimum rent, additional rent
and other charges herein provided for and observing and keeping all
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<PAGE> 15
covenants, agreements and conditions of this Lease on its part to be kept, shall
quietly have and enjoy the Premises during the term of this Lease without
entrance or molestation by anyone claiming by or through Lessor, subject,
however, to the exceptions, reservations and conditions of this Lease.
20. Condemnation.
(a) Condemnation of Entire Premises. Except as provided in
Subsection (b) of this Section, if all or any part of the Premises is taken or
condemned for a public or quasi-public use, this Lease shall terminate as of the
date title to the condemned real estate vests in the condemnor and the rent
herein reserved shall be apportioned and paid in full by Lessee to Lessor to
that date and all rent prepaid for periods beyond that date shall forthwith be
repaid by Lessor to Lessee and neither party shall thereafter have any liability
hereunder.
(b) Partial Condemnation. If any part of the Premises is taken or
condemned for a public or quasi-public use and Lessee's ability to conduct
business in the remaining part of the Premises (after restoration as hereinafter
provided) is not substantially diminished, Lessor shall restore the building and
other improvements upon the demised land to a condition and to a size as nearly
comparable as reasonably possible to the condition and size thereof immediately
prior to the taking provided the cost of the same as reasonably estimated by
Lessor does not exceed the amount of the condemnation award, or $2,000,000,
whichever is less, and there shall be an equitable abatement of the minimum rent
according to the value of the Premises before and after the taking. In the event
that the parties are unable to agree upon the amount of such abatement, either
party may submit the issue for arbitration pursuant to the rules then obtaining
of the American Arbitration Association and the determination or award rendered
by the arbitrator/s/ shall be final, conclusive and binding upon the party and
not subject to appeal, and judgment thereon may be entered in any court of
competent jurisdiction.
(c) Award. Lessee shall have the right to make a claim against the
condemnor for moving and related expenses which are payable to tenants under
Section 1-601A of the Eminent Domain Code of Pennsylvania. Except as aforesaid,
Lessee hereby waives all claims against Lessor and all claims against the
condemnor, and Lessee hereby assigns to Lessor all claims against the condemnor
including, without limitation, all claims for leasehold damages and diminution
in the value of Lessee's leasehold interest.
(d) Temporary Taking. If the condemnor should take only the right to
possession for a fixed period of time or for the duration of an emergency or
other temporary condition, then, notwithstanding anything hereinabove provided,
this Lease shall continue in full force and effect without any abatement of
rent, but the amounts payable by the condemnor with respect to any period of
time prior to
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<PAGE> 16
the expiration or sooner termination of this Lease shall be paid by the
condemnor to Lessor and the condemnor shall be considered a subtenant of Lessee.
If the amounts payable hereunder by the condemnor are paid in monthly
installments, Lessor shall apply the amount of such installments, or as much
thereof as may be necessary for the purpose, toward the amount of rent due from
Lessee as rent for the period, and Lessee shall pay to Lessor any deficiency
between the monthly amount thus paid by the condemnor and the amount of the
rent, while Lessor shall pay over to Lessee any excess of the amount of the
award over the amount of the rent.
21. Assignment and Subletting. Lessee shall not assign, mortgage, pledge
or encumber this Lease, or sublet the whole or any part of the Premises, without
on each occasion first obtaining the prior written consent of Lessor, which
consent Lessor may not unreasonably withhold. In the event of any assignment of
this Lease made as aforesaid with Lessor's consent, Lessee shall, nevertheless,
remain liable for the performance of all of the terms, conditions and covenants
of this Lease and Lessee shall require and cause at the time of such assignment
any assignee to execute and deliver to Lessor an assumption of liability
agreement in form satisfactory to Lessor, including an assumption by the
assignee of all of the obligations of Lessee and the assignee's ratification of
and agreement to be bound by all of the provisions of this Lease.
Notwithstanding the provisions of this Section 21, Lessee may sublet or assign
this Lease, without the consent of Lessor, to any corporation or partnership
that controls or is controlled by, or is in under common control with Lessee, or
any corporation resulting from the merger or consolidation with Lessee, or to
any entity that acquires all of the assets as a going concern of the business
that is being conducted on the Premises, provided (i) Lessee gives Lessor at
least thirty (30) days prior written notice of any such assignment, and (ii)
such assignee's intended use of the Premises is substantially similar to
Lessee's then current use, and will not materially increase any environmental
hazards with respect to the Premises.
22. Subordination. This Lease shall be prior in right and shall not be
subordinate to any mortgages, deeds of trust or other encumbrances that may now
or hereafter be in existence against all or any part of the Premises; provided,
however, at the option of Lessor, Lessee shall subordinate this Lease to any
such encumbrance if Lessor provides the agreement (the "Nondisturbance
Agreement") of the holder of such encumbrance in the form of Exhibit "C"
attached as a part of this Lease. Lessee further agrees to execute and deliver
upon demand such further instrument or instruments evidencing such subordination
of this Lease to the lien of any such mortgage and/or other encumbrance and such
further instrument or instruments of attornment as shall be desired by any
mortgagee or proposed mortgagee or by any other person. Notwithstanding the
foregoing, any holder of any mortgage may at any time subordinate its mortgage
to this Lease, without Lessee's consent, by notice in writing to Lessee, and
thereupon this Lease shall be deemed prior to such mortgage without regard to
their respective dates of
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<PAGE> 17
execution and delivery and in that event such mortgagee shall have the same
rights with respect to this Lease as though it had been executed prior to the
execution and deliver of the mortgage and had been assigned to such mortgagee.
23. Certificates. Lessee and Lessor each agrees at any time and from time
to time, within fifteen (15) days after written request of the other, to
execute, acknowledge and delivery to the other a written instrument in
recordable form certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that it is in full force and effect
as modified and stating the modifications), and the dates to which minimum rent,
additional rent and other charges have been paid in advance, if any, and stating
whether or not to the best knowledge of the signer of such certificate the other
party is in default in the performance of any covenant, agreement or condition
contained in the Lease and, if so, specifying each such default of which the
signer may have knowledge, it being intended that any such statement delivered
pursuant to this Section may be relied upon by a prospective purchaser of the
fee or any mortgagee thereof or any assignee of Lessor's or Lessee's interest in
this Lease or of any mortgage upon the fee of the Premises, or any part thereof.
24. Curing Lessee's Defaults. If Lessee shall be in default in the
performance of any of its obligations hereunder, Lessor may (but shall not be
obligated to do so), in addition to any other rights it may have in law or
equity, cure such default on behalf of Lessee, and Lessee shall reimburse Lessor
upon demand for any sums paid or costs incurred by Lessor in curing such
default, including interest at the rate of twelve percent (12%) per annum from
the respective dates of Lessor's making of the payments and incurring of the
costs, on all sums advanced by Lessor as aforesaid, which sums and costs
together with interest thereon shall be deemed additional rent payable
hereunder.
25. Notices; Payment of Rent. All notices, demands, requests, consents,
certificates and waivers from either party to the other shall be in writing and
shall be deemed to have been duly given if hand delivered against receipt or
sent by United States registered or certified mail return receipt requested,
postage prepaid, addressed to Lessor at 43 Red Fox Drive, New Hope, Pennsylvania
18938, and addressed to Lessee at the Premises, with a copy to Sauer-Sundstrand
Company, 2800 East 13th Street, Ames, Iowa 50010, Attention: Kenneth D.
McCuskey, or to such other address as the party to receive the notice, demand,
request, consent, certificate or waiver may hereafter designate by written
notice to the other. All payments of rent hereunder shall be made without any
right of set-offs whatsoever to Lessor at the address from time to time
designated as aforesaid for the giving of notice. All notices, demands,
requests, consents, certificates and waivers shall be deemed to have been given
when deposited in the United States mail as aforesaid.
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<PAGE> 18
26. Adverse Possession. Lessee shall not suffer or permit the Premises or
any portion thereof to be used by the public, as such, without restriction or in
such manner as might reasonably tend to impair Lessor's title to the Premises or
in such manner as might reasonably make possible a claim or claims of adverse
usage or adverse possession by the public, as such or of implied dedication of
the Premises or any portion thereof.
27. Environmental Compliance. Without limiting the generality of any
provisions set forth elsewhere in this Lease, Lessee agrees as follows:
(a) Lessee shall not (either with or without negligence) cause or
permit the escape, disposal or release of any Hazardous Substances, as
hereinafter defined, on, in or under the Premises. Lessee shall not allow the
storage or use of such substances in any manner not sanctioned by law or by the
reasonable standards prevailing in the industry for the storage and use of such
substances, nor allow to be brought onto the Premises any such substances except
to use in the ordinary course of Lessee's business. Lessee covenants and agrees
that the Premises will, at all times during its use or occupancy thereof, be
kept and maintained so as to comply with all now existing or hereafter enacted
or issued statutes, laws, rules, ordinances, orders, permits and regulations of
all state, federal, local, and other governmental and regulatory authorities,
agencies and bodies applicable to the Premises, pertaining to environmental
matters, or regulating, prohibiting or otherwise having to do with Hazardous
Substances or asbestos and all other toxic, or hazardous, wastes (collectively
called "Environmental Laws"). Lessee agrees to clean up all spills and
discharges of Hazardous Substances on the Premises which occur during the Term,
in a manner which shall comply with all applicable Environmental Laws. Lessee
shall notify Lessor in writing of all such incidents.
(b) Lessee shall immediately deliver to Lessor a copy of any
summons, citation, directive, notice, complaint, letter or other communication
from any federal, state or local environmental agency, concerning any alleged
violations of any Environmental Laws or regulations on the Premises, or
concerning any investigation or request for information relating to the use,
generation, handling, treatment, storage or disposal of Hazardous Substances in
connection with the Premises.
(c) Upon request, Lessee shall cooperate in obtaining evidence of
compliance with any environmental law, regulation, order of any governmental
authority, which cooperation may include, without limitation, providing
affidavits, reports or responses to questions.
(d) Lessor and its engineers, technicians, and consultants
(collectively the "Auditors") may, at Lessor's sole cost and expense, and from
time to time as Lessor deems appropriate, conduct periodic tests and
examinations
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("Audits") of the Premises to confirm and monitor Lessee's compliance with the
Lease. Such Audits shall be conducted in such a manner as to minimize the
interference with Lessee's permitted activities on the Premises; however, in all
cases, the Audits shall be of such nature and scope as shall be reasonably
required by then existing technology to confirm Lessee's compliance with this
Lease. Lessee shall fully cooperate with Lessor and its Auditors in the conduct
of such Audits.
(e) Lessee shall indemnify, defend and hold Lessor, its partners,
affiliates, parents, officers, directors and employees, and other occupants of
the Premises (collectively, the "Indemnitees"), free, harmless and indemnified
from any expenses, penalties, fines, claims, demands, liabilities, costs,
personal injuries, property damage, actions and causes of action, suits, debts,
judgments, demands or charges whatsoever which the Indemnitees shall or may
incur, or which any such party would otherwise incur, by reason of Lessee's
failure to comply with Section 27 of this Lease.
(f) For the purposes of this Section, the Premises shall include the
real estate covered by this Lease; all improvements; all personal property used
in connection with the Premises (including that owned by Lessee); and the soil,
groundwater and surface water of the Premises.
(g) The covenants contained in this Section shall survive the
expiration or termination of this Lease, and shall continue for so long as
Lessor and its successors and assigns, and the Indemnitees, may be subject to
any expenses, obligations, penalties, fines, claims, demands, liabilities,
costs, personal injuries, property damage, actions and causes of action, suits,
debts, judgments, demands or charges whatsoever against which Lessee has agreed
to indemnify the Indemnitees under this Lease.
(h) All terms, except as otherwise defined herein, shall have the
meanings as set forth in the Lease. For purposes hereof, Hazardous Substances
shall mean:
i. any "Hazardous Substance," "Pollutant" or "Contaminant" (as
defined in Section 101(14) and (33) of the Comprehensive Environmental Response
and Compensation and Liability Act ("CERCLA"), 42 U.S.C.A. Section 9601(14) and
(33)) or 40 C.F.R. Part 302;
ii. any hazardous substance, hazardous waste or solid waste,
as those terms are defined in applicable state or local law;
iii. any substances containing petroleum as that term is
defined in Section 9001(8) of the Resource Conservation and Recovery Act, as
amended, 42 U.S.C.A. Section 6991(8) or 40 C.F.R. 280.1; or
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iv. any other substance for which any governmental entity
requires special handling in its collection, storage, treatment or disposal.
(i) Lessor represents and warrants to Lessee as follows: except as
provided in Schedule 5(u) to the Stock Purchase Agreement, which is hereby
incorporated into this Lease as if it were a schedule hereto, the Premises are
not currently in violation of, and are not subject to any existing, pending or
threatened investigation or inquiry by any governmental authority or to any
remedial obligations under, any Environmental Laws, and this representation and
warranty would continue to be true and correct following disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Premises; except as provided in
Schedule 5(u) to the Stock Purchase Agreement, (i) no hazardous substances,
pollutants, contaminants or solid wastes have been disposed of or otherwise
released in, on or under the Premises and (ii) all Hazardous Substances utilized
in connection with the Premises have been properly managed, transferred and
transported and disposed of; and, except as provided in Schedule 5(u) to the
Stock Purchase Agreement, all facilities of the Premises when operated under
normal conditions and at their maximum rated capacity, will not violate any
existing standard, or proposed standard as to which public notice has been
given, relating to the environment, including, without limitation, any such
standards relating to clean air, clean water or the treatment, storage or
disposal of hazardous or toxic substances, including, without limitation, any
constituent thereof.
(j) Subject to the terms and conditions of this Section 27(j),
notwithstanding the execution or the delivery of this Lease, and regardless of
any investigation at any time made by or on behalf of Tenant or of any
information Tenant may have in respect thereto, Lessor shall indemnify and save
and hold Tenant harmless from and against any damage, liability, loss,
deficiency, settlement, fees, penalties or expenses (including without
limitation, reasonable attorneys' fees and other reasonable costs and expenses
incident to any suit, action proceeding, demand, assessment, judgment, penalty,
or investigation or defense of any claim) (collectively "Losses") arising out of
or resulting from Losses relating to any of the matters referred to in Section
11(a)(ii) of the Stock Purchase Agreement, the provisions of which are hereby
incorporated by reference in this Section 27(j) as if they were set forth at
length herein, or the inaccuracy or breach of any representation or warranty set
forth in Section 27(i). Provided, however, that Lessor shall not be obligated to
indemnify Lessee until the aggregate amount of the Losses exceed $60,000 and the
Lessee's sole right of indemnification with respect to the Losses shall be to
offset such Losses against the rent payments due Lessor from Lessee under this
Lease.
28. Condition of Title and of Premises. Lessor represents and warrants
that Lessor is owner of the Premises free and clear of any claims, liens or
encumbrances except as set forth in Exhibit "D" attached as a part of this
Lease;
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that the Premises have direct and unencumbered access to Terry Drive, which is a
publicly dedicated thoroughfare; that all public utilities necessary for the
operation of Lessee's current business activities are available at the Premises;
that the zoning laws, any private restrictions applicable to the Premises and
the physical condition of the Premises permit and are suitable for the operation
of Lessee's current business activities and related uses without unusual
requirements or undue burdens or risk; that Lessor will keep the Premises free
of any private restrictions which prohibit these uses; and that Lessor has good
and sufficient right to make this Lease for the term and upon the conditions
stated in this Lease.
29. Surrender. Lessee agrees at the expiration or earlier termination of
the term hereof promptly to yield up, reasonably neat, and in the same condition
of order and repair in which they are required to be kept throughout the term
hereof, the Premises and all improvements, alterations and additions thereto.
30. Defaults - Remedies. Subject to the provisions of section 31 hereof
(Grace Period and Notice of Default), in the event Lessee shall at any time be
in default in the payment of rent herein reserved, or of any other sum required
to be paid by Lessee under this Lease, or in the performance of or compliance
with any of the terms, covenants, conditions or provisions of this Lease, or if
Lessee shall be adjudicated a bankrupt, or shall make an assignment for the
benefit of creditors or shall file a bill in equity or otherwise initiate
proceedings in bankruptcy or for reorganization or an arrangement under any
federal or state law, or if any proceedings in bankruptcy or for the appointment
of a receiver shall be instituted by any creditor of Lessee under any state or
federal law, or if Lessee is levied upon and is about to be sold out upon the
Premises under execution or other legal process (the occurrence of any such
event to constitute an event of default and a breach under this Lease), then and
in addition to any other rights or remedies Lessor may have under this Lease or
at law or in equity, Lessor shall have the following rights:
(a) To re-enter the Premises and remove all persons and all or any
property therefrom, either by summary dispossess proceedings or any suitable
action or proceeding at law, and repossess and enjoy the Premises, together with
all additions, alterations and improvements. Upon recovering possession of the
Premises by reason of or based upon or arising out of a default on the part of
Lessee, Lessor may, at Lessor's option, either terminate this Lease or make such
alterations and repairs as may be necessary in order to relet the Premises and
relet the Premises or any part or parts thereof, either in Lessor's name or
otherwise, for a term or terms which may at Lessor's option be less than or
exceed the period which would otherwise have constituted the balance of the term
of this Lease and at such rent or rents and upon such other terms and
conditions, and to such person or persons as may be available through the
exercise of commercially reasonable efforts; upon each such reletting all rents
received by Lessor from such reletting shall be applied: first, to the payment
of any indebtedness other than rent
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due hereunder from Lessee to Lessor; second, to the payment of any costs and
expenses of such reletting, including brokerage fees and attorney's fees and all
costs of such alterations and repairs; third, to the payment of "rent" (which
shall be deemed to include, without limitation, all charges, payments, costs and
expenses herein agreed to be paid by Lessee) due and unpaid hereunder; and the
residue, if any, shall be held by Lessor and applied in payment of future rent
as it may become due and payable hereunder. If such rental is to a person or
entity controlling or controlled by Lessor at a rate that is less than market
rate, then the Lessor shall be deemed to have received rent equal to the market
rate. If such rentals received from such reletting during any month shall be
less than that to be paid during that month by Lessee hereunder, Lessee shall
pay any such deficiency to Lessor. Such deficiency shall be calculated and paid
monthly, or at the option of the Lessor, the total of all projected monthly
deficiencies, through the entire unexpired balance of the term of this Lease,
shall be accelerated and shall be deemed due and payable immediately by Lessee
as if, by the terms and provisions of this Lease, such accelerated rent and
other charges, payments, costs and expenses were on that date payable in
advance. No such re-entry or taking possession of the Premises or the making of
alterations and/or improvements thereto or the reletting thereof shall be
construed as an election on the part of Lessor to terminate this Lease unless
written notice of such intention be given to Lessee. Lessor shall in no event be
liable in any way whatsoever for failure to relet the Premises or, in the event
that the Premises or any part or parts thereof are relet, for failure to collect
the rent thereof under such reletting. Lessee, for Lessee and Lessee's
successors and assigns, hereby irrevocably constitutes and appoints Lessor
Lessee's and their agent to collect the rents due and to become due under all
subleases of the Premises or any parts thereof without in any way affecting
Lessee's obligation to pay any unpaid balance of rent due or to become due
hereunder. Notwithstanding any such reletting without termination, Lessor may at
any time thereafter elect to terminate this lease for such previous breach.
(b) If, after using its reasonable efforts for a commercially
reasonable time, Lessor is unable to relet the Premises to a suitable tenant
after taking possession of the Premises in accordance with the foregoing Section
30(a), Lessor may, at its option, accelerate the whole or any part of the rent
for the entire unexpired balance of the term of this Lease, as well as all other
charges, payments, costs and expenses herein agreed to be paid by Lessee, and
any rent or other charges, payments, costs and expenses if so accelerated shall,
in addition to any and all installments of rent already due and payable and in
arrears, and/or other charge or payment herein reserved, included or agreed to
be treated or collected as rent and/or any other charge, expense or costs herein
agreed to be paid by Lessee which may be due and payable and in arrears, be
deemed due and payable immediately as if, by the terms and provisions of this
Lease, such accelerated rent and other charges, payments, costs and expenses
were on that date payable in advance.
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(c) If, at any time or from time to time after Lessee's payment of
accelerated rent in accordance with the provisions of either Section 30(a) or
30(b) above, it is determined that the projected rental deficiency upon which
such accelerated payment was based was incorrect in any material respect, either
because Lessor was subsequently able to relet the Premises for some portion of
the unexpired term, or because Lessor's new tenant failed to pay the rental
projected to be paid for any reason, then the accelerated rent shall be
redetermined, and if there was a deficiency therein Lessee shall pay such
further amount to Lessor, and if there was an overpayment, Lessor shall
reimburse Lessee to the extent of the overpayment, provided that Lessor shall be
entitled to offset against that amount the costs of collection thereof
(including reasonable attorney's fees).
(d) No right or remedy herein conferred upon or reserved to Lessor
is intended to be exclusive of any other right or remedy herein or by law
provided but each shall be cumulative and in addition to every other right or
remedy given herein or now or hereafter existing at law or in equity or by
statute.
(e) No waiver by Lessor of any breach by Lessee of any of Lessee's
obligations, agreements or covenants herein shall be a waiver of any subsequent
breach or of any obligation, agreement or covenant, nor shall any forbearance by
landlord to seek a remedy for any breach by Lessee be a waiver by Lessor of any
rights and remedies with respect to such or any subsequent breach.
31. Grace Period and Notice of Default. Notwithstanding anything
hereinabove stated, Lessor agrees that Lessor will not exercise any right or
remedy provided for in this Lease or allowed by law because of any default of
Lessee, unless Lessor shall have first given written notice thereof to Lessee,
and Lessee, within a period of fifteen (15) days thereafter shall have failed to
pay money, or if the default consists of something other than the failure to pay
money, Lessee shall have failed, within thirty (30) days thereafter to begin the
correction of the default or fails to fully correct the default within ninety
(90) days thereafter; provided, however, that no such notice from Lessor shall
be required nor shall Lessor be required to allow any part of the said notice
period if Lessee shall have filed a petition in bankruptcy or for reorganization
or a bill in equity or otherwise initiated proceedings for the appointment of a
receiver of Lessee's assets, or if a receiver or trustee is appointed for Lessee
and such appointment and such receivership or trusteeship is not terminated
within ninety (90) days, or if Lessee makes an assignment for the benefit of
creditors or if Lessee is levied upon and is about to be sold out upon the
Premises by any sheriff, marshal or constable.
32. Lessor's Waiver. At the request of Lessee, Lessor shall execute, in
form reasonably acceptable to Lessor, subordination of Lessor's lien in favor of
any bona fide third party financial institution which supplies funds for the
purchase of furniture, inventory or equipment used in the demised premises
(whether by
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lease or by loan) or a bona fide third party supplier of furniture, inventory or
equipment used in the demised premises who leases the same pursuant to a bona
fide lease or retains a security interest.
33. Brokers. Lessee represents and warrants to Lessor that Lessee has had
no dealings, negotiations or consultations with respect to the Premises or this
transaction with any broker or finder and that no broker or finder called the
Premises to Lessee's attention for lease or took any part in any dealings,
negotiations or consultations with respect to the Premises or this Lease, except
as otherwise disclosed to Lessor in writing prior to the execution hereof. In
the event that any broker or finder claims to have submitted the Premises to
Lessee, to have induced Lessee to lease the Premises or to have taken part in
any dealings, negotiations or consultations with respect to the Premises or this
Lease, Lessee will be responsible for and will indemnify and save Lessor
harmless from and against all costs, fees (including, without limitation,
attorney's fees), expenses, liabilities and claims incurred or suffered by
Lessor as a result thereof.
34. Captions. The captions in this Lease are for convenience only and are
not a part of this Lease and do not in any way define, limit, describe or
amplify the terms and provisions of this Lease or the scope or intent thereof.
35. Entire Agreement; Interpretation. This Lease represents the entire
agreement between the parties hereto with respect to the subject matter hereof,
and without limiting the foregoing is intended to supersede the Prior Lease, and
there are no collateral or oral agreements or understandings. This Lease shall
not be modified in any manner except by an instrument in writing executed by the
parties. The masculine (or neuter) pronoun and singular number shall include
the masculine, feminine and neuter genders and the singular and plural number.
36. Definition of "Lessor". The word "Lessor" is used herein to include
the Lessor named above and any subsequent owner of the Premises, as well as
their respective heirs, personal representatives, successors and assigns, each
of whom shall have the same rights, remedies, powers, authorities and privileges
as he would have had had he originally signed this Lease as Lessor, including
the right to proceed in his own name to enter judgment against Lessee.
37. Definition of "Lessee". The word "Lessee" is used herein to include
each and every person named above as Lessee as well as their heirs, personal
representatives, successors and assigns, each of whom shall be under the same
obligations, liabilities and disabilities and have only such rights, privileges
and powers as he would have possessed had he originally signed this Lease as
Lessee. Each and every of the persons named above as Lessee shall be bound
jointly and severally by the terms, covenants and agreements contained herein.
Any notice required or permitted by the terms of this Lease may be given by or
to any one of
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the persons named above as Lessee, and shall have the same force and effect as
if given by or to all thereof.
38. Option to Purchase. Lessor hereby grants to Lessee, upon and subject
to the terms and conditions hereinafter set forth, an option (the "Option") to
purchase the Premises at any time on or before February 28, 1999 (the "Option
Expiration Date"). If the Option is exercised as hereinafter provided, the
purchase price for the Premises shall be the fair market value of the Premises
as of the Closing (as hereinafter defined), but with appropriate adjustments to
account for any deficiencies in the condition of the Premises resulting from any
breach by Lessee of the terms of this Lease. Such adjusted fair market value
shall be determined by mutual agreement of Lessor and Lessee, or if the parties
are unable to agree on such fair market value within sixty (60) days of the
effective date of Lessee's exercise of the Option, then by a recognized and
qualified independent appraiser chosen by agreement of the parties, who shall be
experienced in evaluating properties similar to the Premises (a "Qualified
Appraiser"). If following expiration of the foregoing sixty (60) day period the
parties are unable to agree on a mutually acceptable Qualified Appraiser within
an additional thirty (30) days, then within ten (10) days thereafter each shall
nominate one (1) Qualified Appraiser, and those nominees shall together select a
third Qualified Appraiser within twenty (20) days following their selection,
which Qualified Appraiser shall thereupon conduct the appraisal and determine
the purchase price within sixty (60) days. Except as otherwise provided herein,
each party shall pay the fees of its own Qualified Appraiser, and one-half (1/2)
the fees of the third Qualified Appraiser. Subject to the limitations
hereinafter provided, the Option may be exercised by Lessee at any time during
the option period, provided further that Lessee shall have given Lessor at least
twelve (12) months, prior written notice of its intent to so exercise, as
provided in Section 25, which notice shall include a statement of the proposed
purchase price.
If this purchase option is exercised as aforesaid, the purchase of
the Premises shall be upon terms and conditions customary to such transactions,
including without limitation the following conditions and provisions:
(a) If the purchase price determined by the Qualified Appraiser is
more than 110% of Lessee's original good faith offer (as stated in the notice
of exercise), Lessee may elect to cancel its exercise of the Option by written
notice to Lessor given within thirty (30) days after the purchase price has been
determined as set forth above, in which case (and except as hereinafter
provided) the obligations of Lessor and Lessee with respect to the purchase of
the Premises created by Lessee's exercise of the Option shall be null and void,
and the Option shall expire. If the Purchase Price determined by the Qualified
Appraiser is less than $3,200,000, Lessor may elect to reject Lessee's offer to
purchase the Premises by written notice to Lessee given within thirty (30) days
after the purchase price has been determined as set forth above, in which case
(and except as hereinafter
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<PAGE> 26
provided) the obligations of Lessor and Lessee with respect to the purchase of
the Premises as aforesaid shall be null and void, and the Option shall expire.
Notwithstanding the foregoing, if Lessee cancels its exercise of the Option
because the purchase price exceeds 110% of the offered price, Lessee shall
nevertheless be required to purchase the Premises hereunder if Lessor agrees to
accept a purchase price equal to 110% of the offered price; and if Lessor
rejects the offer because the purchase price is less than $3,200,000, Lessor
shall nevertheless be required to sell the Premises hereunder if Lessee agrees
to purchase the Premises for $3,200,000; in either case, the party seeking to
reinstate the purchase/sale as aforesaid shall give written notice of its
election to do so within fifteen (15) days of receiving the foregoing notice of
cancellation. If either party cancels the purchase and sale as aforesaid, the
cancelling party shall reimburse the other for fees it paid to all appraisers in
connection with this Option.
(b) The closing of the purchase of the Premises shall take place on
a day specified by Lessee, which shall be at least thirty (30) days after the
purchase price for the Premises has been determined, but not later than the last
day of the Initial Term.
(c) Rent on the Premises and other charges provided for in this
Lease shall be prorated as of the date of closing. The parties shall each pay
one-half of any realty transfer taxes.
(d) Lessee intends to obtain a report on the title to the real
estate constituting the Premises and a commitment from a title insurance company
selected by Lessee (the "Title Company"), in which the Title Company shall
agree, subject to the conditions of the commitment, which shall not be
inconsistent with Lessor's obligations hereunder, to issue to Lessee forthwith
after Lessor's Special Warranty Deed shall be placed of record an owner's policy
of title insurance in the form then used by the Title Company, in an amount not
less than the purchase price specified above.
(e) On or before the closing date, Lessor shall deliver to the Title
Company Lessor's Special Warranty Deed from Lessor to Lessee, properly executed
and conveying the Premises in marketable fee simple to Lessee free and clear of
all liens and encumbrances whatsoever, except for existing building
restrictions, ordinances, easements of roads, easements visible on the ground,
privileges or rights of public service companies, if any, items listed on
Exhibit "D" to this Lease, and any liens or encumbrances created or existing in
violation of Lessee's obligations under this Lease. Lessor shall provide Lessee
the documentation required by the Internal Revenue Service under the Foreign
Investment in Real Property Tax Act and all documentation required by the Title
Company for the deletion from its owner's policy of any exception pertaining to
mechanic's liens arising from labor or materials furnished to the Premises at
the instance of Lessor. Lessee shall then and there pay to the Title Company for
the
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account of Lessor the cash payment due on delivery of the deed provided for
above.
(f) When the Title Company shall be ready to deliver its title
insurance policy to Lessee, the purchase of the Premises shall be deemed to be
consummated and Lessor shall at such time be entitled to receive the money held
by the Title Company for delivery to Lessor and Lessee shall at such time be
entitled to receive the Title Company's title insurance policy. Lessee shall pay
the cost of the title insurance policy. The Special Warranty Deed shall be
delivered to Lessee as soon as it has been recorded.
(g) If at the Closing the commitment for title insurance is not in
conformity with the provisions of Section 38(e), then subject to the following
provisions Lessee may elect to cancel its exercise of the Option by written
notice to Lessor, in which case the obligations of Lessor and Lessee with
respect to the purchase of the Premises created by Lessee's exercise of the
Option shall be null and void, and the Option shall expire; provided, however,
that if there is a deficiency in the title commitment as aforesaid and Lessee
elects to terminate as a result thereof, Lessor shall have the option but not
the obligation to extend the Closing for a period of no more than sixty (60)
days, in order to correct such deficiency. If Lessee fails to exercise its
rights under this subsection (g), it shall take title to the Premises "as is,"
and without abatement of the purchase price.
(h) The parties acknowledge and agree that the Option Expiration
Date may be accelerated if there is an event of default under Lessor's loan
arrangements with the Mortgagees, under the circumstances and subject to the
terms and conditions set forth in the Nondisturbance Agreement, which terms and
conditions are incorporated by reference in this Section 38, subject to the
following agreements. Notwithstanding any provision of the Nondisturbance
Agreement to the contrary, if Lessor's default under its loan arrangements with
the Mortgagees is the direct result of a default by Lessee under the terms of
this Lease, then Lessee shall not have the right to exercise the Option and
purchase the Premises for $3,200,000. In such event, and notwithstanding any
provision of the Nondisturbance Agreement to the contrary, the purchase price
for the Premises shall be its market value, determined in accordance with the
foregoing provisions of this Section 38, but with the time periods for fixing
market value accelerated as follows: within fifteen (15) days of their receipt
of the notice of default from Mortgagees (as provided for in the Nondisturbance
Agreement), Lessor and Lessee shall choose the Qualified Appraiser; if following
expiration of the foregoing fifteen (15) day period the parties are unable to
agree on a mutually acceptable Qualified Appraiser, then within five (5) days
thereafter each shall nominate one (1) Qualified Appraiser, and those nominees
shall together select a third Qualified Appraiser within an additional five (5)
days following their selection, which Qualified Appraiser shall thereupon
conduct the appraisal and determine the purchase price within forty-five (45)
days.
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If Lessee shall fail to exercise the Option in accordance with the
foregoing provisions and in a timely manner, i.e., at least twelve (12) months
prior to the Option Expiration Date, or having properly exercised the Option
shall (i) fail to fulfill its agreements set forth herein or (ii) fail to cure
any existing or subsequent payment default at or prior to Closing, or if this
Lease shall be terminated in accordance with its terms (or if Lessor shall have
taken possession of the Premises as a result of a default of Lessee) at any time
prior to the Option Expiration Date, then the Option shall terminate without
further action of the parties, and the provisions of this Section 38 shall be
null and void.
39. Memorandum of Lease. This Lease should not and shall not be filed for
record, but in lieu thereof, Lessor and Lessee shall execute a Memorandum of
Lease in the form of Exhibit "E" attached hereto to be recorded for the purpose
of giving record notice of the appropriate provisions of this Lease.
40. Consent. Lessor shall not unreasonably withhold its consent with
respect to any matter for which Lessor's consent is required or desirable under
this Lease. Lessor shall exercise its discretion with respect to all matters
provided for in this Lease in a manner which reasonably recognizes the
legitimate business interests and concerns of Lessee as well as Lessor,
including but not limited to Lessee's need to utilize the Premises in a
commercially feasible fashion.
41. Performance. If Lessor fails to perform any payment obligation under
Sections 4(a), 8(b), or 14 of this Lease, and such failure continues more than
thirty (30) days after notice in writing from Lessee to Lessor specifying the
failure, Lessee may, at its option and without affecting any other remedy
hereunder, perform such obligation and deduct the reasonable cost thereof from
the next accruing installment or installments of rent payable hereunder until
Lessee shall have been fully reimbursed for such expenditures, together with
interest thereon at a rate equal to the lesser of twelve percent (12%) per annum
or the then highest lawful rate. If this Lease terminates prior to Lessee's
receiving full reimbursement, Lessor shall pay the unreimbursed balance plus
accrued interest to Lessee on demand.
42. Abatement. If, as a result of any cause (unless such cause is the
result of any action or inaction by Lessee, including without limitation,
negligence or default of Lessee, or is governed by or anticipated by Section
8(c) or Section 20 or any other provision of this Lease) the whole or any
material part of the Premises shall become untenantable, dangerous, or
unavailable for Lessee's use, and if the condition continues for more than sixty
(60) days, after written notice thereof to Lessor, Lessee may, at its option,
terminate this Lease by written notice to Lessor, in which event the rent shall
be abated as of the date of such election, or as of the date Lessee shall have
removed its property and vacated the Premises, whichever is later.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this agreement under
seal the day and year first above written.
ATTEST: ZEUNER ENTERPRISES, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
-------------------------- --------------------------
Title: Secretary Title: President
[CORPORATE SEAL]
ATTEST: CONTROL CONCEPTS, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
-------------------------- --------------------------
Title: [ILLEGIBLE] Title: Vice President
[CORPORATE SEAL]
The undersigned CoreStates Bank, N.A. hereby consents to the execution of the
foregoing Agreement of Lease:
CORESTATES BANK, N.A.
By: /s/ [ILLEGIBLE]
--------------------------
Title:
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<PAGE> 30
EXHIBIT A
to
LEASE AGREEMENT
ALL THOSE THREE CERTAIN lots or tracts of land herein described as one situate
in the Township of Newtown, County of Bucks Commonwealth of Pennsylvania being
known as Lots 9 and 10 as shown on the Final Plan of Section 3, Newtown
Industrial Commons dated January 13, 1969 and Lot 5 as shown on the Final Plan
of Section 4, Newtown Industrial Commons dated March 16, 1970 and revised April
1, 1970, both of the above referenced Final Plans being prepared by Tri-State
Engineers and Land Surveyors, Inc., 801 W. Street Road, Feasterville,
Pennsylvania bounded and described as follows:
BEGINNING at a point a corner of a Lot 8 on the Westerly side of Terry Drive
(varying width, being 60.00 feet in width at this point) said point being in the
middle of a 100.00 feet wide easement, said point also being measured along the
Westerly side of the said Terry Drive the two following courses and distances
from the Westerly point of reverse curve of the Northwesterly radius corner at
the intersection of the said Terry Drive and Pheasant Run (50 feet wide) viz:
(1) by a curve to the left in a Northeasterly direction having a radius of 50.00
feet and for the arc distance of 75.82 feet to a point of compound curve; thence
(2) by a curve to the left in a Northerly direction having a radius of 3000.00
feet and for the arc distance of 319.19 feet; thence from the said point of
beginning, along the said Lot 8, along Lots 7 and 6, and passing through the
middle of the said 100.00 foot wide easement South 73 degrees 51 minutes 00
seconds West 974.03 feet to a point a corner of the Northeasterly side of Penn
Street (60 feet wide); thence along the Northeasterly side of the said Penn
Street by a curve to the left in a Northwesterly direction having a radius of
300.00 feet and for the arc distance of 126.53 feet to a point a corner of Lot
4; thence along the said Lot 4 and crossing the Southerly half of another 100.00
foot wide easement North 24 degrees 00 minutes 00 seconds East 572.60 feet to a
point in the middle thereof, a corner in line of Lot 2; thence along line of the
said Lot 2, passing through the middle of the said 100.00 foot wide easement and
crossing the Westerly half of a third 100.00 foot wide easement South 85
degrees 24 minutes 00 seconds East 140.32 feet to a point in the middle thereof,
a corner of Lot 11; thence along the said Lot 11 and crossing the Easterly half
of the last mentioned 100.00 foot wide easement North 67 degrees 10 minutes 00
seconds East 520.00 feet to a point a corner on the Westerly side of Terry Drive
aforesaid, thence along the Westerly side of the said Terry Drive, South 22
degrees 50 minutes 00 seconds East 196.45 feet to a point of curve; thence
continuing along the Westerly side of the said Terry Drive by a curve to the
right in a Southerly direction having a radius of 3000.00 feet and for the arc
distance of 346.46 feet to the point and place of beginning.
CONTAINING 10.4533 Acres.
COUNTY PARCEL NUMBER 29-10-115
<PAGE> 31
EXHIBIT B
to
AGREEMENT OF LEASE
"Punch List" Items
1. Repair existing roof leak over the current engineering and accounting
departments and conference room.
2. Repair or replace air conditioner in the current manufacturing,
engineering and inspection departments.
3. Service, and if necessary, repair or replace air conditioner in current
engineering department.
<PAGE> 32
EXHIBIT C
TO LEASE AGREEMENT
ASSIGNMENT, SUBORDINATION, ATTORNMENT
AND NONDISTURBANCE AGREEMENT
THIS ASSIGNMENT, SUBORDINATION, ATTORNMENT AND NONDISTURBANCE AGREEMENT
(the "Agreement") is made effective as of the ______________ day of February,
1994, among CONTROL CONCEPTS, INC., a Pennsylvania corporation having an address
at 15 Terry Drive, Newtown Industrial Commons, Newtown, Pennsylvania 18940
("Lessee"), ZEUNER ENTERPRISES, INC., a Pennsylvania corporation having an
address at __________________________, ("Borrower") and CORESTATES BANK, N.A., a
national banking association, which also conducts business as "Philadelphia
National Bank", as "CoreStates First Pennsylvania Bank" and as "Hamilton Bank",
having an address at 1500 Market Street, P.O. Box 7558, F.C. 1-3-15-70,
Philadelphia, PA 19101-7558, Attention: Credit Support Division ("Bank").
BACKGROUND
A. Borrower, Lessee and Bank have entered into a certain Amended and
Restated Loan and Security Agreement dated November 21, 1991, pursuant to which
Bank has extended certain credit facilities to Borrower consisting of, inter
alia, a loan in the amount of $2,702,581.35 (the "Loan"), which loan is
evidenced by a Promissory Note executed by Borrower payable to Bank in the
principal amount of $2,702,581.35 (the "Note").
B. Pursuant to the terms of that certain lease dated September 19, 1986
between Borrower and Lessee (the "Initial Lease"), Lessee leased from Borrower
that certain land and building situate at 15 Terry Drive, Newtown Industrial
Commons, Newtown Township, Bucks County, Pennsylvania, as more particularly
described in the Initial Lease and in Exhibit "A" attached hereto (the
"Premises").
C. The Note is secured by, inter alia, a Fourth Open-End Mortgage and
Security Agreement which constitutes a lien against the Premises (which
Mortgage, and all other Mortgages previously granted by Borrower to Bank
encumbering the Premises, are collectively referred to as the "Mortgage"), and
an assignment to Bank of all right, title and interest of Borrower in and to all
leases of the Premises.
D. Pursuant to a Stock Purchase Agreement dated February ______, 1994,
Sauer-Sundstrand Company, a Delaware corporation, intends to acquire all of the
capital stock of Lessee, and in connection therewith, Borrower and Lessee desire
to terminate the Initial Lease and to enter into a new lease dated
_________________, 1994 pursuant to the terms of which Lessee shall lease the
Premises from Borrower (the "Lease").
E. Bank desires that Borrower specifically assign to Bank all of
Borrower's right, title and interest in and to the Lease, that the Lease be
subordinated to the lien of the Mortgage and that Lessee agree to attorn to the
purchaser at foreclosure of the Mortgage in the event of such foreclosure or to
Bank in the event of collection of the rent by Bank, and Lessee is willing to
agree to so attorn.
-1-
<PAGE> 33
F. Notwithstanding a foreclosure by Bank, Lessee desires to obtain Bank's
agreement not to disturb Lessee's peaceful use and enjoyment of the Premises in
accordance with the terms of the Lease so long as Lessee is in compliance with
all of its obligations thereunder.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein made, the parties, intending to be legally bound hereby, agree
as follows:
1. Assignment of Lease: As security for the payment of Borrower of the
sums secured by the Mortgage and the performance by Borrower of its other
obligations under the Mortgage and all other documents and agreements executed
in connection therewith or as security for the Note, Borrower hereby conveys,
transfers and assigns unto Bank its successors and assigns, all right, title,
interest and privilege which Borrower has or may hereafter have in, to and under
the Lease and all renewals or extensions thereof, together with all rents,
income and profits due and becoming due therefrom, and Lessee hereby consents to
and acknowledges such assignment to Bank of the Lease and all rents, income and
profits therefrom.
2. Subordination of Lease. The only outstanding obligations of Borrower to
Bank which are secured by the Mortgage or any other lien in favor of Bank on the
Premises consist of: (a) indebtedness of Borrower to Bank in the outstanding
principal amount of $2,511,761.31; and (b) the obligations of Borrower to Bank
as a guarantor of certain loans from Bank to Kenneth W. Zeuner in the aggregate
outstanding principal amount of $479,762.02. The Lease and the estates,
interests and rights created thereby, are and shall be subject and subordinate
to the provisions and lien of the Mortgage and to all renewals, modifications,
consolidations, replacements and extensions thereof to the full extent of the
principal amount secured thereby, all interest thereon, and all other
indebtedness secured thereby. Except for advances made by Bank to protect its
collateral for repayment of sums evidenced by the Note or to cure defaults of
Borrower thereunder, no other amounts advanced by Bank to Borrower will be
deemed indebtedness secured by the Mortgage to which the Lease is hereby made
subject and subordinate. The lien of the Mortgage is and shall be made prior to
the Lease, with the same force and effect as if the Lease had been executed and
delivered after the execution, delivery and recording of the Mortgage.
3. Option to Purchase. The interest of Lessee in any option to purchase
all or any part of the Premises contained in the Lease is specifically
subordinated to the rights of Bank under the Mortgage and, except as set forth
in this paragraph, such option shall not be binding upon Bank, its successors or
assigns. In the event that Borrower shall be in default of any of its
obligations to Bank in connection with the Note, Bank shall notify Lessee in
writing of the existence of such default and of Bank's intent to commence
foreclosure proceedings under the Mortgage (such notice being referred to as
"Bank's Notice"). Within ninety (90) days following Lessee's receipt of Bank's
Notice, Lessee may exercise its option to purchase the Premises set forth in
Paragraph 38 of the Lease by notifying Bank in writing of its desire to exercise
the option. The purchase price shall not be less than Three Million Two Hundred
Thousand Dollars ($3,200,000.00). So long as Borrower delivers to Bank within
such ninety (90) day period a deed to the Premises in form and content required
by Paragraph 38 of the Lease, Bank shall hold the Deed in escrow pending
settlement of the sale of the Premises to Lessee, which shall occur within
forty-five (45) days after Lessee's exercise of the option, and Bank shall
postpone the Sheriff's Sale of the Premises for a sufficient length of time to
permit Lessee to purchase the Premises. At settlement Bank shall deliver the
deed to Lessee for recording and Lessee shall deliver the purchase price to
Borrower, whereupon
-2-
<PAGE> 34
Borrower shall repay all indebtedness to Bank secured by the Mortgage and all
customary closing costs, and shall be permitted to retain the balance of any
sales proceeds. If Borrower fails to deliver the Deed to Bank within ninety (90)
days following Lessee's receipt of Bank's Notice, Bank shall proceed with the
Sheriff's Sale of the Premises and settlement of Lessee's purchase of the
Premises shall occur within thirty (30) days after the Sheriff's Sale or such
later date as a Sheriff's Deed shall have been issued in respect of the
Premises.
Instead of exercising its option to purchase the Premises as set forth in
paragraph 38 of the Lease, Lessee shall have the option, exercisable within
ninety (90) days following Lessee's receipt of Bank's Notice, to purchase the
Loan from Bank for a purchase price equal to all sums due and payable to Bank
under the Loan (the "Loan Purchase Option"). Lessee shall exercise the Loan
Purchase Option by notifying Bank in writing of its exercise of its intent to do
so within ninety (90) days following Lessee's receipt of Bank's Notice. Within
fifteen (15) days after Lessee's exercise of the Loan Purchase Option, Lessee
shall make a cash payment to Bank in an amount equal to the entire amount then
due under the Loan and Bank shall then and there transfer, endorse, assign and
deliver, without recourse, to Lessee the Note, the Mortgage and all other
documents relating to the Loan and any and all further documents and instruments
reasonably required to complete the full transfer to Lessee of the Note, the
Mortgage and all other documents relating to the Loan and all rights of Bank
with respect thereto.
4. Attornment by Lessee. Lessee agrees with Bank that if the interests of
Borrower in the Premises shall be transferred to and owned by Bank or by any
purchaser at a foreclosure sale by reason of foreclosure or other proceedings
brought by Bank, or by any other manner, Lessee shall be bound to Bank or to
such purchaser under all of the terms, covenants and conditions of the Lease for
the balance of the term thereof remaining and any extensions or renewals thereof
which may be effected in accordance with any option therefor in the Lease, with
the same force and effect as if Bank or such purchaser were the lessor under the
Lease, and Lessee hereby attorns to Bank or such purchaser as its lessor, said
attornment to be effective and self-operative without the execution of any
further instruments on the part of any of the parties thereto immediately upon
Bank's or such purchaser's succeeding to the interest of Borrower in the
Premises, as though the interest of Borrower had not terminated or such
foreclosure proceedings had not been brought. If Bank shall, pursuant to any
assignment of lessor's interest in the Lease, elect to require Lessee to pay to
Bank the rental and other charges payable to Lessee under the Lease, Lessee
shall, until Bank shall have cancelled such election, be similarly bound to Bank
as its lessor and shall similarly attorn to Bank as its lessor.
5. Restoration of Fire Damage. Bank agrees to be bound by the provisions
of paragraph 8(d) of the Lease regarding restoration of fire damage; provided,
however, that Borrower and Lessee hereby agree that notwithstanding the
provisions of such paragraph 8(d): (a) Bank shall be entitled to hold and
advance all net insurance proceeds; and (b) Lessee shall have no right to
receive any "Excess Proceeds" (as defined in such paragraph 8(d)) during any
period when the Mortgage is in existence.
6. Insurance. Borrower and Lessee hereby agree to cause: (a) Bank to be
named as a mortgagee and loss payee under all property and casualty insurance
and as an additional named insured under all public liability insurance
maintained by Borrower and/or Lessee in respect of the Premises and Borrower's
and Lessee's operations thereon; and (b) all insurers to deliver to Bank
-3-
<PAGE> 35
copies of all notices of cancellation required to be given to Borrower under any
and all such policies and copies of all replacement policies issued in respect
of Borrower, Lessee or their operations on the Premises.
7. Assignment and Subletting. Bank agrees to be bound by the provisions of
paragraph 21 of the Lease; provided, however, that notwithstanding the
provisions of such paragraph 21, Lessee may only sublet or assign the Lease to a
corporation or partnership that controls or is controlled by, or is under common
control with, Lessee, or any corporation resulting from the merger or
consolidation with Lessee, or to any entity that acquires all of the assets as a
going concern of the business that is being conducted on the Premises by Lessee,
so long as:
(a) Lessee provides Bank with thirty (30) days' prior written notice
of such proposed subletting or assignment setting forth the name and intended
use of the proposed assignee or sublessee; and
(b) The use of the Premises by such corporation, partnership or
entity: (i) is not substantially different in use or character from that of
Lessee; and (ii) does not materially increase any environmental or other
hazards, dangers or risks to the Premises or the building situated thereon.
8. Limited Liability of Bank. Lessee agrees with Bank that it as assignee
hereunder and if it or any purchaser at a foreclosure sale shall succeed to the
interest of Borrower under the Lease, Bank or such purchaser shall not be:
(a) liable for any action or omission of any prior lessor (including
Borrower) under the Lease;
(b) subject to defenses or offsets which Lessee might have against
any prior lessor (including Borrower);
(c) bound by any rent or additional rent which Lessee might have
paid for more than the current month to any prior lessor (including Borrower);
(d) bound by any amendment or modification of the Lease made without
its written consent; or
(e) liable for the return of any security deposit not actually
received by Bank.
Lessee further agrees with Bank that Lessee will not voluntarily
subordinate the Lease to any lien or encumbrance other than the Mortgage without
Bank's consent.
Lessee hereby agrees that any person or entity which at any time
hereafter becomes the lessor under the Lease, including, without limitation,
Bank and such purchaser at a foreclosure sale, shall be liable only for the
performance of the obligations of the lessor under the Lease which arise during
the period of their ownership of the Premises and shall not be liable for any
obligations of the lessor under the Lease which arise prior to or subsequent to
such ownership.
-4-
<PAGE> 36
9. Nondisturbance. Bank agrees that, notwithstanding a foreclosure or
other actions by Bank under the Mortgage, Bank shall not disturb Lessee in its
quiet use and enjoyment of the Premises for the balance of the term of the Lease
and any extension or renewal thereof provided by the terms thereof so long as
Lessee abides by the terms of and in all respects performs its obligations under
the Lease.
10. Authority of Lessee. Lessee hereby represents and warrants to Borrower
and Bank that Lessee is the sole entity entitled to the use and enjoyment of the
Premises under the Lease and that no other person or entity is entitled to such
use or enjoyment during the term of the Lease. Lessee acknowledges and agrees
that Borrower and Bank are relying on such foregoing representation and warranty
by Lessee.
11. Additional Documentation. Lessee, Borrower and Bank hereby agree to
execute and deliver, in recordable form if necessary, any and all further
documents and instruments reasonably requested by any other party hereto or by
any title insurance company to give effect to the terms and provisions of this
Agreement.
12. Payment of Rent Directly to Bank. Borrower hereby directs that all
rent payable under the Lease be paid directly to Bank at the address set forth
in the heading of this Agreement and hereby directs Bank to deduct from such
rental payments all sums then due to Bank under the Loan before remitting any
balance of such payments to Borrower.
13. Lessee's Fixtures. Bank acknowledges the presence within the Premises
of manufacturing and processing equipment and other personal property and trade
fixtures of Lessee and acknowledges that such equipment, personal property and
trade fixtures are not subject to the lien of the Mortgage. Bank further
acknowledges the provisions of Paragraph 6 of the Lease which permit Lessee to
remove all such equipment, personal property and trade fixtures provided that
Lessee shall repair and restore any damage or injury to the Premises caused by
the installation and/or such removal thereof.
14. Notices. Lessee agrees to give Bank at the address set forth in the
heading of this Agreement: (a) written notice of any defaults by Borrower under
the Lease and to give Bank, at the sole option of Bank, the right to cure any
defaults by Borrower under the Lease within thirty (30) days (or such longer
time, if any, as permitted in the Lease for the curing of any defaults) after
receipt by Bank of written notice of such default; and (b) true and correct
copies of all notices given by Lessee to Borrower under the Lease or otherwise
contemporaneously with the delivery of such notices to Borrower.
15. Standards of Bank's Consent. Wherever under the Lease Lessee is
required to obtain the consent of Borrower, Lessee shall also be required to
obtain the consent of Bank, and in each such instance Bank's consent will be
subject to the same standards to which Borrower's consent is subject.
16. No Modification, Assignment. Lessee and Borrower covenant and warrant
that the Lease is unmodified and in full force and effect, that, subject to the
provisions of Paragraph 7 hereof, Lessee will not assign (nor shall Borrower
consent to any such assignment) its rights and obligations under the Lease or
consent to any amendment, modification, cancellation or termination
-5-
<PAGE> 37
of the Lease without the prior written consent of Bank, and that Lessee will not
pay to Borrower rent more than one (1) month in advance.
17. Agreement Controlling. To the extent that any provision of this
Agreement is inconsistent with any provision of the Lease, the provisions of
this Agreement shall supersede inconsistent provisions of the Lease relating to
subordination of the Lease and the interest and estates created thereby to the
lien or charge of the Mortgage.
18. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall constitute an original, but all of which shall constitute
only one agreement. It shall not be necessary, when making proof of this
Agreement, to produce or account for more than one counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
properly executed and sealed, effective as of the day and year first above
written.
ZEUNER ENTERPRISES, INC.
By:
-----------------------------
Name/Title:
---------------------
[CORPORATE SEAL]
Attest:
-------------------------
Name/Title:
---------------------
CORESTATES BANK, N.A.
By:
-----------------------------
Name/Title:
---------------------
CONTROL CONCEPTS, INC.
By:
-----------------------------
Name/Title:
---------------------
[CORPORATE SEAL]
Attest:
-------------------------
Name/Title:
---------------------
-6-
<PAGE> 38
EXHIBIT "A"
LEGAL DESCRIPTION OF PREMISES
-7-
<PAGE> 39
EXHIBIT "A"
ALL THOSE THREE CERTAIN lots or tracts of land herein described as one situate
in the Township of Newtown, County of Bucks, Commonwealth of Pennsylvania being
known as Lots 9 and 10 as shown on the Final Plan of Section 3, Newtown
Industrial Commons dated January 13, 1969 and Lot 5 as shown on the Final Plan
of Section 4, Newtown Industrial Commons dated March 16, 1970 and revised April
1, 1970, both of the above referenced Final Plans being prepared by Tri-State
Engineers and Land Surveyors, Inc., 801 W. Street Road, Feasterville,
Pennsylvania bounded and described as follows:
BEGINNING at a point a corner of a Lot 8 on the Westerly side of Terry Drive
(varying width, being 60.00 feet in width at this point) said point being in the
middle of a 100.00 feet wide easement, said point also being measured along the
Westerly side of the said Terry Drive the two following courses and distances
from the Westerly point of reverse curve of the Northwesterly radius corner at
the intersection of the said Terry Drive and Pheasant Run (50 feet wide) viz:
(1) by a curve to the left in a Northwesterly direction having a radius of 50.00
feet and for the arc distance of 75.82 feet to a point of compound curve; thence
(2) by a curve to the left in a Northerly direction having a radius of 3000.00
feet and for the arc distance of 319.19 feet; thence from the said point of
beginning; along the said Lot 5, along Lots 7 and 6, and passing through the
middle of the said 100.00 foot wide easement South 73 degrees 51 minutes 00
seconds West 974.03 feet to a point a corner of the Northeasterly side of Penn
Street (60 feet wide); thence along the Northeasterly side of the said Penn
Street by a curve to the left in a Northwesterly direction having a radius of
300.00 feet and for the arc distance of 126.53 feet to a point a corner of Lot
4; thence along the said Lot 4 and crossing the Southerly half of another 100.00
foot wide easement North 24 degrees 00 minutes 00 seconds East 572.60 feet to a
point in the middle thereof, a corner in line of Lot 2; thence along line of the
said Lot 2, passing through the middle of the said 100.00 foot wide easement and
crossing the Westerly half of a third 1001.00 foot wide easement South 85
degrees 24 minutes 00 seconds East 140.32 feet to a point in the middle thereof,
a corner of Lot 11, thence along the said Lot 11 and crossing the Easterly half
of the last mentioned 100.00 foot wide easement North 67 degrees 10 minutes 00
seconds East 520.00 feet to a point a corner on the Westerly side of Terry Drive
aforesaid, thence along the Westerly side of the said Terry Drive, South 22
degrees 50 minutes 00 seconds East 196.45 feet to a point of curve; thence
continuing along the Westerly side of the said Terry Drive by a curve to the
right in a Southerly direction having a radius of 3000.00 feet and for the arc
distance of 346.46 feet to the point and place of beginning.
CONTAINING 10.4533 Acres.
COUNTY PARCEL NUMBER 29-10-115
<PAGE> 40
COMMONWEALTH OF PENNSYLVANIA :
: SS.
COUNTY OF :
On this, the _______ day of ________________________ 19__ before me, a
Notary Public, personally appeared ________________________, who acknowledged
himself/herself to be the _______________________ of CoreStates Bank, N.A., a
national bank, and that he/she as such _________________________, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the national bank by himself/herself as
________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
-8-
<PAGE> 41
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of ________________________ 19__ before me, a
Notary Public, personally appeared ________________________________, who
acknowledged himself/herself to be the _____________________ of Zeuner
Enterprises, Inc., a Pennsylvania corporation, and that he/she as such
__________________________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself/herself as _____________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
-9-
<PAGE> 42
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of _______________________ 19__ before me, a
Notary Public, personally appeared _________________________________, who
acknowledged himself/herself to be the _____________________ of Control
Concepts, Inc., a Pennsylvania corporation, and that he/she as such
__________________________ being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself/herself as __________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
-10-
<PAGE> 43
STATE OF :
: SS.
COUNTY OF :
On this, the _______ day of _______________________ 19__ before me, a
Notary Public, personally appeared _________________________________, who
acknowledged himself/herself to be the _____________________ of Control
Concepts, Inc., a Pennsylvania corporation, and that he/she as such
__________________________ being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself/herself as _________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
-11-
<PAGE> 44
EXHIBIT D
to
AGREEMENT OF LEASE
Title Exceptions
1. Unrecorded easements, discrepancies or conflicts in boundary lines,
shortages in area and encroachments which an accurate and complete survey
would disclose.
2. Restrictions affecting title as in Deed Book 1840 page 612.
3. Unsettled taxes due the Commonwealth of Pennsylvania by mortgagor
corporation, not presently a lien, all of which taxes when assessed or
settled, if not paid will constitute a prior lien against any fund created
at a judicial sale. (none due and owing to date)
4. Declaration of Easement as in Deed Book 1875 page 366.
5. Deed of Dedication as in Deed Book 1895 page 1079.
6. Agreements as in Deed Book 1895 page 51 and 1958 page 1021.
7. Rights granted to Bell Telephone Company in Deed Book 1831 page 1037.
8. Rights granted to Philadelphia Suburban Gas and Electric Company in Deed
Book 511 page 22, 522 page 515 and 516 page 275.
9. Rights granted to Philadelphia Electric Company in Deed Book 2438 page 62.
10. Conditions disclosed by survey made by Tri-State Engineers and Land
Surveyors, Inc. dated 3/16/1970 revised 4/1/1970 and recorded in Plan Book
75 page 16: - 75 foot building set back line; 50 foot wide easement.
11. Possible additional assessments for taxes for new construction or for any
major improvements pursuant to provisions of Acts of Assembly relating
thereto, not yet due and payable.
12. Financing Statement 32334 filed 7/24/1984 in Recorder of Deeds Office in
Secure Transaction Docket 8 page 261 block 2 - TRW, Inc. A Division of
Rossgear to General Electric Credit Corporation. Equipment: fixtures,
equip.
13. Mortgage and Security Agreements, and amendments thereto, granted to
Philadelphia National Bank ("Bank") securing $2,702,581.35 loan to Lessor
("Loan").
14. Assignments of Rents, Leases and Agreements, and amendments thereto,
granted to Bank to secure Loan.
15. UCC Financing Statements filed by Bank in connection with Loan.
16. Utility Easement Agreement to Harold Beck & Sons, Inc., dated April 2,
1990.
<PAGE> 45
EXHIBIT E
to
LEASE AGREEMENT
MEMORANDUM OF LEASE
This Memorandum of Lease is made February __, 1994 between ZEUNER
ENTERPRISES, INC., a Pennsylvania corporation, having an address at 43 Red Fox
Drive, New Hope, Pennsylvania 18938 ("Landlord"), and CONTROL CONCEPTS, INC., a
Pennsylvania corporation, having an address at 15 Terry Drive, Newtown
Industrial Commons, Newtown, Pennsylvania 18940, ("Tenant"), who agree as
follows:
1. Term and Premises. Landlord leases to Tenant and Tenant leases from
Landlord the real property commonly known as 15 Terry Drive, Newtown Industrial
Commons, Newtown Township, Bucks County, Pennsylvania (the "Premises"), which is
more fully described in Exhibit A attached as a part of this Memorandum for a
term commencing February __, 1994 and ending February 28, 1999 in accordance
with that certain Agreement of Lease entered into between Lessor and Lessee,
dated February __, 1994 (the "Lease"). Lessor grants Lessee the option to extend
the term for one (1) additional period of five (5) years, under the provisions
and conditions of the Lease.
2. Option to Purchase. Lessor grants Lessee the option to purchase the
Premises, under the provisions and conditions of the Lease.
3. Purpose of Memorandum of Lease. This Memorandum of Lease is prepared
for the purpose of recordation, and it in no way modifies the provisions of the
Lease. The provisions of the Lease are incorporated into this Memorandum of
Lease by reference.
(SEAL) CONTROL CONCEPTS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
TENANT
(SEAL) ZEUNER ENTERPRISES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
LANDLORD
<PAGE> 46
COMMONWEALTH OF PENNSYLVANIA :
: SS
COUNTY OF PHILADELPHIA :
On this, the ____ day of February, 1994, before me, a notary public, the
undersigned officer, personally appeared ______________________, who
acknowledged himself to be the ___________________ of CONTROL CONCEPTS, INC., a
Pennsylvania corporation, and that as such officer, being duly authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing on behalf of such corporation as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
NOTARY PUBLIC
My Commission Expires:
COMMONWEALTH OF PENNSYLVANIA :
: SS
COUNTY OF PHILADELPHIA :
On this, the ____ day of February, 1994, before me, a notary public, the
undersigned officer, personally appeared ______________________, who
acknowledged himself to be the ___________________ of ZEUNER ENTERPRISES, INC.,
a Pennsylvania corporation, and that as such officer, being duly authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing on behalf of such corporation as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
NOTARY PUBLIC
My Commission Expires:
<PAGE> 47
APPENDIX D (AMENDED)
AMENDMENT TO FACTORY LEASE CONTRACT
THIS AMENDMENT to the Factory Lease Contract for the establishment of
Sauer Shanghai Hydrostatic Transmission Co. Ltd. dated February 16, 1995 (the
"Contract") is entered into by and between Shanghai Hydraulic Pump Company,
formerly Shanghai Hydraulics and Pneumatics Corporation Pudong Branch and Sauer
Shanghai Hydrostatic Transmission Co. Ltd. on First of March, 1996, in
accordance with relevant laws and regulations of the People's Republic of China,
after negotiations based on the principles of equality and mutual benefits (the
"Amendment").
NOW, THEREFORE, the parties agree to amend the Contract as follows:
AGREEMENT
1. Capitalized Terms.
Capitalized terms used in the Amendment, if not otherwise defined herein,
shall have the same meaning as they are defined in the Contract.
2. Amendment to General Statement 4.
General Statement 4. of the Contract which originally reads as follows:
4. Lessor agrees to lease a part of the Site and a part of the
entire Factory to Lessee pursuant to the terms and conditions
of this Contract.
is hereby replaced in its entirety by the following paragraph:
4. Lessor agrees to lease a part of the Site and the entire
Factory and related facilities to Lessee pursuant to the terms
and conditions of this Contract.
3. Amendment to Article 1.02.
Article 1.02 of the Contract which originally reads as follows:
1.02 For purposes herein, the "Leased Premises" shall mean the part
of the Site and part of the Factory as described in more
detail in Appendix 1 hereto.
is hereby replaced in its entirety by the following paragraph:
1.02 For purposes herein, the "Leased Premises" shall mean the part
of the Site and the entire Factory and related facilities as
described in more detail in Appendix 1 (Amended) hereto.
1 of 5
<PAGE> 48
4. Amendment to Article 2.01.
Article 2.01 of the Contract which originally reads as follows:
2.01 Subject to the provisions of this Contract, Lessor agrees to
lease to Lessee the Leased Premises and Lessee agrees to pay
rent for the Leased Premises to Lessor. Lessor shall also
permit Lessee use of all roads, public and private, adjacent
to circumventing and/or leading to the Leased Premises, and
allow Lessee other activities pertinent to the reasonable use
of the Leased Premises without interfering with the business
of Lessor.
is hereby replaced in its entirety by the following paragraph:
2.01 Subject to the provisions of this Contract, Lessor agrees to
lease to Lessee the Leased Premises and Lessee agrees to pay
rent for the Leased Premises to Lessor. Lessor and Lessee can
both use part of the Site of the Leased Premises where Lessor
shall allow Lessee activities pertinent to the reasonable use
of the Leased Premises without interfering with the business
of Lessor and Lessee shall allow Lessor activities pertinent
to the reasonable maintenance of the Leased Premises without
interfering with the business of Lessee. Furthermore, Lessor
shall not permit any employees, agents or contractors to
occupy or enter the Leased Premises without the advance
written consent to the Lessor's designated authority by the
designee of the Lessee.
5. Amendment to Article 3.01.
Article 3.01 of the Contract which originally reads as follows:
3.01 In consideration of Lessor's lease of the Leased Premises and
other services as provided herein, Lessee shall pay Rmb 136333
per month to Lessor (hereinafter referred to as the "Rent")
for the term of this Contract subject to the following
adjustments:
At the end of 2003, 7% of the Rent shall be adjusted by a
percentage change equal to the percentage change in an index,
publicly available and mutually agreed between Lessor and
Lessee to be representative of industrial rents in Shanghai,
over the period from the Effective Date of this Contract to
the date of adjustment. The amount of Rent in Rmb so
calculated shall be called the Adjustable Rent Amount and
shall be further adjusted each five years thereafter in the
same manner using the same or a similar mutually agreed index.
At the end of 2003, 93% of the Rent shall be converted from
Rmb into U.S. dollars (U.S. $) at the average of the rates of
exchange for buying and selling published by the Bank of
China. The amount of Rent in
2 of 5
<PAGE> 49
U.S. dollars so calculated shall be called the Fixed Rent
Amount and shall remain fixed in U.S. $ for the remaining term
of the Contract.
Each month thereafter, the Rent paid by Lessee shall be the
sum of the Adjustable Rent Amount in Rmb and an amount of Rmb
equal to the Fixed Rent Amount converted to Rmb at the average
of the rates of exchange for buying and selling published by
the Bank of China on the first day of the month in which the
payment is made.
is hereby amended to read as follows:
3.01 In consideration of Lessor's lease of the Leased Premises and
other services as provided herein, Lessee shall pay Rent each
month to Lessor calculated as follows:
(i) Rmb 196,393 of the Rent shall be fixed until the end of
1998. At the end of 1998. the Rmb 196,393 shall be
adjusted by a percentage change in an index, publicly
available and mutually agreed upon between Lessor and
Lessee to be representative of industrial rents in
Shanghai for the most recent twelve (12) months (the
Index). The amount so calculated shall be called the
Indexed Rent Amount and shall be adjusted each year
thereafter in a similar manner but in no year shall the
percentage increase exceed six percent (6%).
(ii) Rmb 13,720 of the Rent shall be fixed until the end of
2003. At the end of 2003, the Rmb 13,720 shall be
adjusted by a percentage change in the Index over the
period from the Effective Date of this Contract to the
date of the adjustment. The amount so calculated shall
be called the Adjustable Rent Amount and shall be
adjusted in a similar manner each five (5) years
thereafter.
(iii) Rmb 182,280 of the Rent shall be fixed until the end of
2003. At the end of 2003, the Rmb 182,280 shall be
converted from Rmb into US Dollars (US$) at the average
of the rates of exchange for buying and selling
published by the Bank of China. The amount of Rent in US
Dollars so calculated shall be called the Fixed Rent
Amount and shall remain fixed in US Dollars for the
remaining term of the Contract.
Each month until the end of 2003 the Rent shall be the sum of
the Rmb amounts in (i), (ii) and (iii). Thereafter, the Rent
shall be the amount of Rmb in (i) and (ii) plus an amount of
Rmb equal to the Fixed Rent Amount of (iii) converted into Rmb
from US Dollars (US$) at the average of the rates of exchange
for buying and selling published by the Bank of China on the
first day of the month in which the payment is made.
3 of 5
<PAGE> 50
Lessee agrees, without written approval from Lessor, not to
use for production purposes any of the related facilities
housing equipment.
6. Amendment to Article 3.04
Article 3.04 of the Contract which originally reads as follows:
3.04 Lessee shall pay Lessor simple interest at the rate of 0.04%
per day on all money which is due and payable to Lessor
hereunder but is unpaid on the due date, provided however,
that Lessee shall not be held responsible for any delays in
the payment of Rent pursuant to Article 3.02 and Article 3.03
where such delays are caused by the banks involved.
is hereby amended to read as follows:
3.04 Lessee shall pay Lessor simple interest per day on all money
which is due and payable to Lessor hereunder but is unpaid on
the due date at the daily rate calculated from the annual
Industry and Commercial Bank of China enterprise loan rate
plus 5% divided by 365 days, provided however, that Lessee
shall not be held responsible for any delays in the payment of
Rent pursuant to Article 3.02 and Article 3.03 where such
delays are caused by the banks involved.
7. Amendment to Article 5.02(e).
Article 5.02(e) of the Contract which originally reads as follows:
5.02(e) making repairs to the Leased Premises which are required
as the result of misuse or abuse of the Leased Premises by
Lessee.
is hereby amended to read as follows:
5.02(e) making repairs to the Leased Premises which are required
as the result of misuse or abuse of the Leased Premises by
Lessee, undertaking all normal daily repair, operation and
maintenance of the Leased Premises such that Lessor has no
requirement to have employees of Lessor undertake such work
and, for the remaining life of the lease after the first
twenty-five (25), undertaking all repairs or replacements to
the equipment of the Leased Premises.
8. Amendment to Appendix 1, Exhibits 1(b) and 1(c).
Appendix 1, together with exhibits 1a, 1b, 1c and 1d, are entirely replaced by
Appendix 1 (Amended), together with exhibits 1a, 1b (Amended) and 1d (Amended).
4 of 5
<PAGE> 51
IN WITNESS WHEREOF, each of the Parties hereto have caused this Amendment
to the Contract to be executed by their duly authorized representatives on the
first date set forth above.
PARTY A:
SHANGHAI HYDRAULIC PUMP
COMPANY, formerly known as
SHANGHAI HYDRAULICS & PNEUMATICS
CORPORATION PUDONG BRANCH
By: /s/ Bao Xiu Chun
--------------------------------------
Name: Bao Xiu Chun
Title: Legal Representative
Nationality: Chinese
PARTY B:
SAUER SHANGHAI HYDROSTATIC TRANSMISSION CO., LTD.
By: /s/ David N. Polaski
--------------------------------------
Name: David N. Polaski
Title: General Manager Officer
Nationality: American
5 of 5
<PAGE> 52
APPENDIX 1 (Amended)
Appendix 1(a)
Site
On the attached Exhibit 1a, the Site is the shaded area of block 76 of the
Jinqiao Export Processing Zone, measuring 205m x 135m and labeled 76-III, but
modified total hectares.
Appendix 1(b)(Amended)
Leased Premises
On Exhibit 1b (Amended) the area shown as the area of length B and width of the
Site is the part of the Site and the shaded area is the entire Factory, together
making the Leased Premises.
The construction drawings, which specify the standards and specification of the
Leased Premises, are contained in Exhibit 1d (Amended). The standards of
workmanship and materials are generally expected to be:
Workmanship that finishes all details of the task.
A Factory floor that not only meets the construction drawings, but uses
high quality steel reinforcement, strong aggregate, and cement all mixed,
poured and finished, to provide the strength and surface smoothness to
accept highly precise machine tools.
Utilities distribution components of high quality.
A roof quality that has no leaks and sheds rainwater successfully.
Heating, ventilating, and air conditioning (HVAC) materials and component
selection to provide comfortable air quality for the people.
An outside wall material that is energy efficient and attractive.
Windows that are clean and maintainable, upon receipt of the building.
As an overall standard, the selection of materials and components must have
suitable applied life (MTBF) and be acceptable to the Shanghai Pudong climate.
<PAGE> 53
Exhibit 1(b)(Amended)
[Floor Plan Omitted]
<PAGE> 54
Exhibit (d)(Amended)
As further explanation of the construction drawings, the utilities provided to
meet the needs that were jointly provided by Sauer, Inc. and the Design
Institute of Bengbu are generally known as following:
1. Electrical supply from an adequate on-site sub-station with proper
switch gear and safety devices;
2. Water service for both process and people that is sized to provide
cooling water and toilet service for the Factory;
3. Sanitary and waste water treatment on-site that meets all
regulations and specifications;
4. Security house (Gate Room) for the use of security staff;
5. Adequate heating and air conditioning system;
6. Air compressors that are quiet, reliable and efficient; and
7. Telephone supply system that meets the regulations and provides
service as defined.
<PAGE> 55
Appendix D
Factory Lease Contract
<PAGE> 1
Exhibit 10.1 (j)
FACTORY LEASE CONTRACT
between
SHANGHAI HYDRAULICS AND PNEUMATICS CORPORATION,
PUDONG BRANCH
and
SAUER SHANGHAI HYDROSTATIC TRANSMISSION CO. LTD.
<PAGE> 2
FACTORY LEASE CONTRACT
THIS LEASE CONTRACT ("Contract") is entered into in Shanghai, the People's
Republic of China on this 16th day of February, 1995, by and between Shanghai
Hydraulics and Pneumatics Corporation Pudong Branch, a legal person enterprise
registered in Shanghai, the People's Republic of China (hereinafter referred to
as "Lessor") and Sauer Shanghai Hydrostatic Transmission Co. Ltd., a
Chinese-foreign joint venture company registered in Shanghai, the People's
Republic of China (hereinafter referred to as "Lessee").
GENERAL STATEMENT
1. Lessor and Sauer Inc. have entered into a joint venture contract dated
16th day of February, 1995 (hereinafter referred to as the "Joint Venture
Contract") for the establishment of Lessee.
2. Lessor has the right to use the site which is described in Appendix 1
hereto (hereinafter referred to as the "Site").
3. Pursuant to the Joint Venture Contract, Lessor shall construct on a part
of the Site, a factory suitable for the intended purpose of Lessee's
business as described in Article 4 of the Joint Venture Contract
(hereinafter referred to as the "Factory").
4. Lessor agrees to lease a part of the Site and a part of the Factory to
Lessee pursuant to the terms and conditions of this Contract.
Article 1 - Definitions
1.01 Unless the context indicates otherwise and except as provided in this
Article, the terms used in this Contract shall have the same meanings as
set forth in the Joint Venture Contract.
1.02 For purposes herein, the "Leased Premises" shall mean the part of the Site
and part of the Factory as described in more detail in Appendix 1 hereto.
Article 2 - Lease of the Leased Premises
2.01 Subject to the provisions of this Contract, Lessor agrees to lease to
Lessee the Leased Premises and Lessee agrees to pay rent for the Leased
Premises to Lessor. Lessor shall also permit Lessee use of all roads,
public and private, adjacent to, circumventing and/or leading to the
Leased Premises, and allow Lessee other
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<PAGE> 3
activities pertinent to the reasonable use of the Leased Premises without
interfering with the business of Lessor.
2.02 The term of this Contract shall commence on the date of issuance of
Lessee's Business License, or Lessee's actual Possession of the Leased
Premises, whichever is later, until May 1, 2044.
2.03 Lessee may extend the term of this Contract by written notification to
Lessor not later than six (6) months before the end of the term of this
Contract. Lessor and Lessee shall then immediately enter into negotiations
on the extension.
Article 3 - Rent
3.01 In consideration of Lessor's lease of the Leased Premises and other
services as provided herein, Lessee shall pay Rmb136333 per month to
Lessor (hereinafter referred to as the "Rent") for the term of this
Contract subject to the following adjustments:
At the end of 2003, 7% of the Rent shall be adjusted by a percentage
change equal to the percentage change in an index, publicly available and
mutually agreed between Lessor and Lessee to be representative of
industrial rents in Shanghai, over the period from the Effective Date of
this Contract to the date of adjustment. The amount of Rent in Rmb so
calculated shall be called the Adjustable Rent Amount and shall be
further adjusted each five years thereafter in the same manner using the
same or a similar mutually agreed index.
At the end of 2003, 93% of the Rent shall be converted from Rmb into U.S.
dollars (U.S. $) at the average of the rates of exchange for buying and
selling published by the Bank of China. The amount of Rent in U.S. dollars
so calculated shall be called the Fixed Rent Amount and shall remain fixed
in U.S. $ for the remaining term of the Contract.
Each month thereafter, the Rent paid by Lessee shall be the sum of the
Adjustable Rent Amount in Rmb and an amount of Rmb equal to the Fixed Rent
Amount converted to Rmb at the average of the rates of exchange for buying
and selling published by the Bank of China on the first day of the month
in which the payment is made.
3.02 Payment of the Rent shall be made in Renminbi on a monthly basis on or
before the last day of the month for which the Rent is due.
3.03 Payment of the Rent shall be made to a People's Republic of China ("PRC")
bank account opened in the name of Lessor as designated by Lessor.
3.04 Lessee shall pay Lessor simple interest at the rate of 0.04% per day on
all money which is due and payable to Lessor hereunder but is unpaid on
the due date,
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<PAGE> 4
provided however, that Lessee shall not be held responsible for any delays
in the payment of Rent pursuant to Article 3.02 and Article 3.03 where
such delays are caused by the banks involved.
Article 4 - Representations and Warranties
4.01 Lessor represents and warrants:
(a) that it possesses the authority to lease the Leased Premises to
Lessee for the term of the Contract and any extensions thereof
pursuant to Article 2.03 above;
(b) that the Leased Premises is free of defects that would affect
Lessee's occupancy under this Contract;
(c) that the Leased Premises is free and clear of liens or encumbrances
that would affect Lessee's occupancy under this Contract;
(d) there exists no actual claim by any government or administrative
department, military unit, organization, company, or any other entity
in any form, or any individual, that such party has the right to use,
occupy, control the Leased Premises or any part thereof or that
otherwise may subject Lessee's right to use the Leased Premises in
any conditions except for those specified herein;
(e) that the Leased Premises is free of any industrial pollution; and
(f) that the Leased Premises meet all relevant laws, rules, regulations,
standards and codes of Shanghai and the PRC relating to safety, fire
hazard, electrical installation, water supply, drainage, lighting
protection and all other aspects which may affect Lessee's use of the
Leased Premises.
4.02 Lessee represents and warrants that it possesses the authority to lease
the Leased Premises from Lessor for the term of this Contract and any
extensions thereof pursuant to Article 2.03 above.
4.03 Indemnity
(a) With respect to the Leased Premises, Lessor shall indemnify and hold
harmless Lessee against all damages, losses, judgements, expenses
(including reasonable attorney's fees) in connection with:
(i) any pollution to the environment or other event, condition or
circumstance that interferes with the conduct of Lessee's
business or Lessee's compliance with any environmental laws or
regulations;
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<PAGE> 5
(ii) any environmental contamination presently on or arising from
the Leased Premises or failure by Lessor to have contained
substances which are or may be harmful to the environment, or
which may require Lessee to undertake any remedial or
corrective work; and
(iii) the failure by Lessor to have obtained all necessary permits,
environmental clearances and other governmental approval
required for the conduct of its operations.
(b) Lessee shall indemnify and hold harmless Lessor against all damages,
losses, judgments, expenses (including reasonable attorney's fees)
if, due to Lessee's fault, there occurs any pollution to the
environment during the term of this Contract.
4.04 No Payments
In the event that there arises any liability for payment of fees, taxes
(including but not limited to management fees, land use fees or land use
tax) or other compensation in connection with the use of the Leased
Premises, such liability will be borne by Lessor. Lessor undertakes to
keep Lessee fully indemnified in respect thereof. Lessee may, at Lessee's
option, pay any such amounts which are overdue on behalf of Lessor and
notify Lessor and deduct said payments from the Rent.
Article 5 - Responsibilities of the Parties
5.01 In addition to its other responsibilities under this Contract, Lessor
shall be responsible for:
(a) applying for and obtaining all required approval and registration of
this Contract by the relevant government department in charge of land
in Shanghai and all other approvals or registration required for the
effectiveness and implementation of this Contract, if any, and
providing Lessee with copies of all such approvals and registration
documentation;
(b) delivering to Lessee actual possession of the Leased Premises in a
state which is suitable for Lessee's use for the purposes stated in
Lessee's business license, free from rights of others, and allowing
Lessee quiet enjoyment of the Leased Premises throughout the term of
this Contract;
(c) providing and maintaining adequate and continuous power supply to the
Leased Premises subject to the availability of power from the local
power plant or any accident;
(d) supplying Lessee with adequate supply of water for industrial,
sanitary and fire fighting uses at levels sufficient for the
operations of Lessee's business at the Leased Premises;
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<PAGE> 6
(e) paying all fees, taxes and charges which may be levied by PRC
government authorities in respect of the Leased Premises, other than
fees, taxes and charges which may be levied on Lessee specifically
relating to the operation of Lessee's business at the Leased
Premises;
(f) allowing Lessee to mount or erect a sign on the wall of the Leased
Premises in a position and in proportions to be determined solely by
Lessee subject to any restrictions imposed by PRC law and, in
cooperation and with Lessor's confirmation, erect signs at other
places on the Site;
(g) except for normal daily maintenance and repairs, maintaining the
sidewalks and driveways, fences, roofs, structures and walls, floors,
drains, pipes and cables and all facilities of the Leased Premises,
all in a proper state of repair throughout the term of this Contract,
other than repairs resulting from misuse or abuse of the Leased
Premises by Lessee and all to the standards and specifications
described in Appendix 1 and with any such changes, modifications and
improvements as may be required from time to time by the laws, rules,
regulations, standards and codes of Shanghai and the PRC relating to
safety, fire hazard, electrical installation, water supply, drainage,
lightning protection and all other aspects which may affect Lessee's
use of the Leased Premises;
(h) compensating Lessee for damages incurred as a result of any defect in
the Leased Premises or any unreasonable delay in the repair of any
such defect. If Lessor fails to repair or remedy the defect within
fourteen (14) days following notice by Lessee, Lessee itself may
arrange for the repair or remedy and offset the costs of such repair
or remedy from the Rent due to Lessor; and
(i) take out and maintain at all items full and adequate property
insurance over the Leased Premises.
(j) In addition to the above, Lessee may make with Lessor's written
permission and at Lessee's cost reasonable modifications to the
structure and installations of the Leased Premises as may be required
from time to time for the purpose of Lessee's business.
5.02 In addition to its other responsibilities under this Contract, Lessee
shall be responsible for:
(a) returning the Leased Premises at the expiration or termination of
this Contract in substantially the same condition as delivered,
normal wear and tear excepted;
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<PAGE> 7
(b) assuring installations of equipment in the Factory do not affect the
structure of the Factory, save for any normal wear and tear as would
be expected from such installation of equipments;
(c) paying for its actual consumption of water and electricity and for
telephone and telex usage, based upon the prevailing standard rates
as required by the relevant PRC laws and regulations on foreign
investment;
(d) giving prompt notice to Lessor of a defect or other circumstances
which require action by Lessor; and
(e) making repairs to the Leased Premises which are required as the
result of misuse or abuse of the Leased Premises by Lessee.
(f) pay all fees, taxes and charges which may be levied on Lessee
specifically relating to the operation of Lessee's business at the
Leased Premises.
(g) that Lessee's use of the Leased Premises meets all relevant laws,
rules, regulations, standards and codes of Shanghai and the PRC
relating to safety, fire hazard, electrical installation, water
supply, drainage, lightning protection and all other aspects which
may affect Lessor's use of the Factory.
5.03 If the Leased Premises becomes defective or is substantially damaged or
destroyed (through no fault of Lessee and including through events of
force majeure), resulting in lessee's inability to use the Leased Premises
for its intended purpose, then Lessee will not be liable to pay the Rent
until the Leased Premises can be restored for its intended purpose. If
Lessee's use of the Leased Premises only is partially impaired by such
defect or destruction, then Lessee's obligation to pay Rent will be
reduced in proportion to the extent of such impairment of use.
Article 6 - Effective Date and Termination of the Contract
6.01 The Effective Date of this Contract shall be the date on which approval is
received for the Joint Venture Contract.
6.02 Lessee may terminate this Contract:
(a) if after possession by Lessee, the Leased Premises are defective,
damaged or destroyed, or any other event occurs through no fault of
Lessee, such that Lessee is unable to use the Leased Premises for its
intended purposes, and Lessor fails to remedy the situation within
sixty (60) days following receipt of written notice from Lessee; or
(b) if Lessor otherwise breaches this Contract, which breach remains
uncured ninety (90) days after Lessee has provided Lessor with
written notice of the breach; or
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<PAGE> 8
(c) by giving eighteen (18) months written notice prior to each 5th
anniversary of the date of this Contract;
(d) if after possession by Lessee, Lessee is unable to operate its
business at the Leased Premises as the result of a continuous and
repeated loss of power to the Leased Premises; or
(e) upon three (3) months prior notice in the event that any provision of
this Contract is declared invalid and the parties cannot agree to an
acceptable amendment.
6.03 Lessor may terminate the Contract if Lessee breaches this Contract, which
breach remains uncured ninety (90) days after Lessor has provided Lessee
with written notice of the breach.
6.04 Lessee may terminate this Contract upon three (3) months prior written
notice if the conditions of Force Majeure, as defined in Article 7.01,
prevent Lessee from occupying or utilizing the Leased Premises for a
period of one hundred and twenty (120) days.
Article 7 - Force Majeure
7.01 "Force Majeure" shall mean all events which are beyond the reasonable
control of the Parties, and which are unforeseen, or if foreseen
unavoidable, and which arise after the date of the signature of this
Contract and which prevent total or partial performance of this Contract
by either Party.
7.02 If an event of Force Majeure occurs, the performance of the contractual
obligations of the Party affected by such Force Majeure shall be suspended
during the period of delay caused by the Force Majeure and shall be
automatically extended, without penalty, for a period equal to such
suspension.
7.03 The Party claiming Force Majeure shall promptly inform the other Party and
shall furnish appropriate proof of the occurrence and duration of such
Force Majeure. The party claiming Force Majeure shall also use all
reasonable efforts to terminate the Force Majeure.
7.04 In the event of Force Majeure, the Parties shall immediately consult with
each other in order to find an equitable solution and shall use all
reasonable efforts to minimize the consequences of such Force Majeure.
7.05 In the event an equitable solution is not found or the consequences of
Force Majeure cannot be minimized, this Contract may be terminated
pursuant to Article 6.03 above.
7
<PAGE> 9
Article 8 - Dispute Settlement
8.01 In the event any dispute arises out of or relating to this Contract, the
Parties shall attempt in the first instance to resolve such dispute
through friendly consultations. Such consultations shall commence
immediately after one Party has provided written notice to the other Party
requesting such consultations.
8.02 Any dispute, controversy or claim arising out of or relating to this
Contract or the Appendix hereto, or the breach, termination or invalidity
thereof, shall be submitted to arbitration in the PRC to the arbitration
commission established pursuant to the Arbitration Law of the People's
Republic of China, promulgated on August 31, 1994, in the place where the
Lessee has its legal domicile. In the event there is no arbitration
commission established in the place where the Lessee has its legal
domicile, then the arbitration shall be conducted by the arbitration
commission designated by the China Arbitration Commission. The arbitration
proceedings shall be conducted in accordance with the procedural rules of
the arbitration commission.
8.03 During the legal proceedings, both Parties shall continue to perform their
obligations under this Contract, except as regards those matters which are
the subject of the legal proceedings.
8.04 In any legal proceeding to enforce any judgement and in any other legal
action between the Parties pursuant to or relating to this Contract, each
Party expressly waives the defense of sovereign immunity and any other
defense based on the fact or allegation that it is a political
subdivision, agency, or instrumentality of a sovereign state.
Article 9 - Miscellaneous
9.01 This Contract is executed in two (2) originals in both Chinese and
English. The two language versions shall have equal validity and effect.
9.02 The conclusion, validity, interpretation and performance of, as well as
the settlement of disputes in respect of, this Contract shall all be
governed by the laws of PRC which are published and publicly available.
9.03 Failure or delay on the part of either Party hereto to exercise any right,
power or privilege under this Contract shall not operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege preclude any other future exercise thereof.
9.04 This Contract may not be assigned in whole or in part by either Party
without the prior written consent of the other Party and the obtaining of
all necessary approvals from the government of PRC.
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<PAGE> 10
9.05 The invalidity of any provision of this Contract shall not affect the
validity of any other provision of this Contract.
9.06 This Contract constitutes the entire agreement between the Parties with
respect to the subject matter hereof and supersedes all prior discussions,
negotiations and agreements between them.
9.07 Any amendment to this Contract shall require both Parties to sign a
written agreement. Such amendment shall become effective only upon
approval by the government authorities which originally approved this
Contract.
9.08 Each Party shall bear its own costs in the preparation and execution of
this Contract.
IN WITNESS THEREOF this Contract has been executed on the day and year first
above written.
By: /s/ [Illegible] By: /s/ [Illegible]
----------------------- -------------------------------
on behalf of LESSOR
/s/ [Illegible]
-------------------------------
on behalf of LESSEE
Board Approval:
---------------
Date:
-------------------------
9
<PAGE> 11
APPENDIX 1
Appendix 1(a)
Site
On the attached Exhibit 1a, the Site is the shaded area of block 76 of the
Jinqiao Export Processing Zone, measuring 205m x 135m and labeled 76-III,
but modified total hectares.
Appendix 1(b)
Leased Premises
On the Site, there are various structures, roadways, sidewalks, utility
services, parking and personnel facilities which accommodate use of the
Leased Premises. The principle freight and employee Site entrance is the
north gate. Depending upon need, the east gate is primarily used for
visitors to the Leased Premises.
The main structure on the Site contains the Leased Premises. On Exhibits
1b and 1c, Labeled Area A, the shaded area is the Leased Premises.
The standards and specification of the Leased Premises are contained in
Exhibit 1d, the Construction Drawings. In particular, the standards of
workmanship and materials are generally expected to be:
o Workmanship that finishes all details of the task.
o A factory floor that not only meets the Construction Drawings, but uses
high quality steel reinforcing, aggregate, and cement all mixed, poured
and finished, to provide the strength and surface smoothness to accept
highly precise machine tools.
o Utilities distribution components of high quality.
o A roof quality that has no leaks and sheds rainwater successfully.
o Heating, ventilating, and air conditioning (HVAC) materials and
component selection to provide comfortable air quality for the people.
o An outside wall material that is energy efficient and attractive.
o Windows that are clean and maintainable, upon receipt of the building.
As an overall standard, the selection of materials and components must
have suitable applied life (MTBF) and be acceptable to the Shanghai Pudong
climate.
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[MAP OMITTED]
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[MAP OMITTED]
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[GRAPHIC OMITTED]
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[GRAPHIC OMITTED]
Exhibit 1d
Construction Drawings
<PAGE> 1
Exhibit 10.1(k)
[LOGO]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT has been entered into this 19th day of September, 1996
between SAUER INC., a Delaware Corporation (the "Company"), and Dr. Klaus
Murmann (the "Executive"). Executive is employed as Chairman and Chief Executive
Officer of the Company, the Company desires to assure the benefit of Executive's
future services, and Executive is willing to commit to render such services,
upon the terms and conditions set forth below.
It is therefore mutually agreed as follows:
1. Employment. The Company agrees to employ Executive in an executive
capacity, and Executive agrees to serve the Company, upon the terms and
conditions and for the period of employment hereinafter set forth.
Throughout the Employment Period (as hereinafter defined), unless
otherwise agreed in writing by Executive and the Company, the Company
shall neither demote Executive nor assign to Executive any duties or
responsibilities that are inconsistent with his present position, duties,
responsibilities and status, provided that a removal of Executive by the
Board of Directors of the Company shall entitle the Company to renounce
Executive's services to be rendered, the position, duties,
responsibilities and status, but not any obligation of the Company
resulting from this Agreement which otherwise will remain in force.
Executive agrees, subject to meeting his responsibilities as Chairman of
the German Employers' Association (Prasident der Bundesvereinigung der
deutschen Arbeitgeberverbande) or his responsibilities in a comparable
office as permitted under Section 12 of this Agreement, that during the
Employment Period (as hereinafter defined) he will devote substantially
all of each regularly scheduled work day of the Company and substantially
all of his efforts to the business of the Company.
2. Employment Period. The term of Executive's employment under this Agreement
shall commence as of January 1, 1997, and shall expire, subject to the
earlier termination of Executive's employment as hereinafter provided, on
December 31, 2001 (the "Employment Period").
3. Compensation. Throughout the Employment Period, the Company shall pay or
provide Executive with the following, and Executive shall accept the same,
as compensation for the performance of his undertakings and the services
to be rendered by him under this Agreement:
(a) A salary at a rate of not less than US-Dollar 450,000 per year
payable not less often than monthly.
(b) Participation in the Company's 1990 Bonus Plan as long as such plan
remains in effect, and participation in any future incentive
compensation or other bonus plan covering the Company's executive
officers.
<PAGE> 2
2
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(c) Participation in the Company's employee benefit plans, policies,
practices and arrangements in which Executive is presently eligible
to participate or plans and arrangements substituted therefore or in
addition thereto, including the individual retirement benefit as
restated in Appendix A attached to this agreement, and savings plan,
health and dental plan, disability plan, survivor income and life
insurance plan or other arrangement (collectively, the "Benefit
Plans"). In the event Executive at any time during the Employment
Period is not eligible to participate in any Benefit Plan for which
Executive was previously eligible or the Company terminates or
materially amends any Benefit Plan, the Company shall provide to
Executive benefits comparable with those benefits that would have
been received by Executive if Executive continued to participate in
such Plans.
(d) Paid vacations in accordance with the Company's vacation policy as
in effect from time to time, and all paid holidays given by the
Company to its executive officers.
(e) All fringe benefits and perquisites including without limitation the
use of an automobile and the payment by the Company of initiation
fees and dues for country clubs, luncheon clubs, or similar
facilities in accordance with the Company's policy presently in
effect.
4. Expenses. During the Employment Period, the Company shall promptly pay or
reimburse Executive for all reasonable expenses incurred by Executive in
the performance of duties hereunder.
5. Conditions of Employment. Throughout the Employment Period,
(a) the Company shall provide an office to Executive the location and
furnishings of which shall be equivalent to or better than the
office Executive occupies on the date of this Agreement, and
(b) the Company shall provide secretarial services and other
administrative services to Executive which shall be equivalent to or
better than the secretarial services and other administrative
services provided to Executive on the date of this Agreement.
Throughout the Employment Period the Company shall only require or assign
duties to Executive to be performed within the United States of America
during those periods of time for which Executive has obtained a valid work
permit from the Immigration Service of the United States of America.
During those times when the Executive has not obtained a valid work
permit, payments with respect to the compensation in accordance with
section 3 of this Agreement will be made by Sauer-Sundstrand GmbH & Co., a
partnership established under the laws of the Federal Republic of Germany.
6. Continuation of Compensation and Benefits. If the Company shall fail to
observe or perform any covenant or agreement contained in this Agreement
to be observed or performed by the Company or if the Company renounces
Executive's services pursuant to section 1 of this Agreement, then
Executive shall until such time as Executive's Employment Period hereunder
would otherwise terminate pursuant to the provisions of section 2 or
section 7 of this Agreement, continue to receive all compensation and
benefits which the Company has hereinabove in section 3 of this Agreement
agreed
<PAGE> 3
3
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to pay to and provide for Executive, in each case in the amounts and at
the times provided for in section 3 of this Agreement. The parties agree
that, in such event, such payments and benefit shall be deemed to
constitute liquidated damages for the Company's breach of this Agreement,
and the Company agrees that Executive shall not be required to mitigate
his damages by seeking other employment or otherwise.
7. Termination. This Agreement shall terminate upon the following
circumstances:
(a) The date of death of Executive during the Employment Period;
provided, however that Executive's estate, heirs and beneficiaries
shall be entitled to receive the full amount of his salary for the
month in which death occurs and all other benefits available to them
under the Company's Benefit Plans as in effect on the date of death
of Executive;
(b) the date as of which the Executive elects to terminate this
Agreement and to start receiving his individual retirement benefit
provided for in section 3(c);
(c) following conviction of Executive of a felony, the date as of which
Executive's right to file an appeal after conviction has expired,
or, if Executive files an appeal after conviction, the date as of
which the appellate court fails to reverse the conviction, and the
Company shall pay Executive his full salary through such date of
termination and the Company shall have no further obligations to
Executive under this Agreement except with respect to any rights
Executive might otherwise have under the Company's Benefit Plans as
in effect on the date of termination of Executive; or
(d) the date as of which the Company elects to terminate this Agreement
in accordance with section 10 of this Agreement.
8. Covenant Not to Compete. Without the consent of the Company, Executive
shall not at any time during the Employment Period undertake employment as
an owner, director, officer, employee 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 or
any of its subsidiaries; provided, however, that 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. For purposes hereof the term "material
product or product line of the Company" shall mean any product or product
line of the Company or any of its subsidiaries the gross sales of which
during any calendar year during the five (5) year period preceding the
Executive's undertaking such employment were at least $10 million.
9. Disclosure of Confidential Information. Without the consent of the
Company, Executive shall not at any time during the Employment Period
disclose to any other business entity confidential information concerning
the Company or any of its subsidiaries or the Company's or any of its
subsidiaries' trade secrets of which Executive has gained knowledge during
his employment with the Company.
<PAGE> 4
4
[LOGO]
10. Breach of Section 8 or Section 9. In the event of a breach by Executive of
the provisions of section 8 or section 9 of this Agreement, the Company
may terminate this Agreement under section 7(c), but only if the Company
complies with the following provisions:
(a) The Company shall provide Executive with written notice of its
belief that a breach of section 8 or section 9 of this Agreement has
occurred and shall afford Executive sixty (60) days or such longer
period as the Company may determine to cure the alleged breach.
(b) In the event Executive does not cure the breach, the Company shall
be required to institute a judicial proceeding to determine whether
a breach of section 8 or section 9 of this Agreement has occurred
and Executive has not cured such breach.
(c) This agreement may then be terminated only upon a judicial
determination that Executive has breached the provisions of section
8 or section 9 of this Agreement and has failed to cure such breach;
provided, however, that this Agreement may not be terminated until
either all appellate proceedings have been exhausted or the time
within which Executive may appeal an adverse ruling has expired.
11. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorney's fees incurred by Executive in connection
with any claim or legal action or proceeding brought under or involving
this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorney's
fees, incurred by Executive in any claim or legal Agreement if the Company
prevails in such litigation.
12. Office at the German Employers' Association. Executive holds the office as
chairman of the German Employers' Association (Prasident der
Bundesvereinigung der deutschen Arbeitgeberverbande) since December 1986.
The Company approves that Executive continues to hold this office or any
other office comparable to this office during the Employment Period. The
decision to continue the existing office or to enter a comparable new
office is at the sole discretion of Executive.
13. Notices. Notices given pursuant to this Agreement shall be in writing and
shall be deemed given when received and if mailed shall be mailed by
United States registered or certified mail, return receipt requested,
addressee only, postage prepaid if to the Company, to the Board of
Directors of Sauer Inc., Attention President and Chief Operating Officer,
2800 East 13th Street, Ames, Iowa 50010, U.S.A., or if to Executive, at
Bismarckallee 24, 24105 Kiel, Federal Republic of Germany or to such other
address as either party may have previously designated by notice to the
other party given in the foregoing manner.
14. Successors. This Agreement may not be assigned by the Company, and the
obligations of the Company provided for in this Agreement shall be binding
legal obligations of any successor to the Company by purchase, merger,
consolidation, or otherwise. This Agreement may not be assigned by
Executive during his life, and upon his death will be binding upon and
inure to the benefit of his heirs, legatees and the legal representatives
of his estate.
<PAGE> 5
5
[LOGO]
15. Waiver, Modification and Interpretation. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board. No waiver by
either party at any time of any breach by the other party of, or
compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State
of Iowa. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
16. Headings. The headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of any
provision of this Agreement.
IN WITNESS WHEREFORE, the parties hereto have executed this agreement on the day
and year first written above.
SAUER INC
By: /s/ Tonio Barlage
---------------------------
By: /s/ K H Murmann
---------------------------
aw
<PAGE> 1
Exhibit 10.1(l)
[LOGO]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT has been entered into this 19th day of September, 1996
between SAUER INC., a Delaware Corporation (the "Company"), and Tonio P. Barlage
(the "Executive"). Executive is employed as Executive President and Chief
Operating Officer of the Company, the Company desires to assure the benefit of
Executive's future services, and Executive is willing to commit to render such
services, upon the terms and conditions set forth below.
It is therefore mutually agreed as follows:
1. Employment. The Company agrees to employ Executive in an executive
capacity, and Executive agrees to serve the Company, upon the terms and
conditions and for the period of employment hereinafter set forth.
Throughout the Employment Period (as hereinafter defined), unless
otherwise agreed in writing by Executive and the Company, the Company
shall neither demote Executive nor assign to Executive any duties or
responsibilities that are inconsistent with his present position, duties,
responsibilities and status, provided that a removal of Executive by the
Board of Directors of the Company shall entitle the Company to renounce
Executive's services to be rendered, the position, duties,
responsibilities and status, but not any obligation of the Company
resulting from this Agreement which otherwise will remain in force.
Executive agrees, that during the Employment Period (as hereinafter
defined) he will devote substantially all of each regularly scheduled work
day of the Company and substantially all of his efforts to the business of
the Company.
2. Employment Period. The term of Executive's employment under this Agreement
shall commence as of January 1, 1997, and shall expire, subject to the
earlier termination of Executive's employment as hereinafter provided, on
December 31, 2001 (the "Employment Period").
3. Compensation. Throughout the Employment Period, the Company shall pay or
provide Executive with the following, and Executive shall accept the same,
as compensation for the performance of his undertakings and the services
to be rendered by him under this Agreement:
(a) A salary at a rate of not less than US-Dollar 350,000 per year
payable not less often than monthly.
(b) Participation in the Company's 1990 Bonus Plan as long as such plan
remains in effect, and participation in any future incentive
compensation or other bonus plan covering the Company's executive
officers.
<PAGE> 2
[LOGO]
(c) Participation in the Company's employee benefit plans, policies,
practices and arrangements in which Executive is presently eligible
to participate or plans and arrangements substituted therefore or in
addition thereto, including the individual retirement benefit as
restated in Appendix A attached to this agreement, and savings plan,
health and dental plan, disability plan, survivor income and life
insurance plan or other arrangement (collectively, the "Benefit
Plans"). In the event Executive at any time during the Employment
Period is not eligible to participate in any Benefit Plan for which
Executive was previously eligible or the Company terminates or
materially amends any Benefit Plan, the Company shall provide to
Executive benefits comparable with those benefits that would have
been received by Executive if Executive continued to participate in
such Plans.
(d) Paid vacations in accordance with the Company's vacation policy as
in effect from time to time, and all paid holidays given by the
Company to its executive officers.
(e) All fringe benefits and perquisites including without limitation the
use of an automobile and the payment by the Company of initiation
fees and dues for country clubs, luncheon clubs, or similar
facilities in accordance with the Company's policy presently in
effect.
4. Expenses. During the Employment Period, the Company shall promptly pay or
reimburse Executive for all reasonable expenses incurred by Executive in
the performance of duties hereunder.
5. Conditions of Employment. Throughout the Employment Period,
(a) the Company shall provide an office to Executive the location and
furnishings of which shall be equivalent to or better than the
office Executive occupies on the date of this Agreement, and
(b) the Company shall provide secretarial services and other
administrative services to Executive which shall be equivalent to or
better than the secretarial services and other administrative
services provided to Executive on the date of this Agreement.
Throughout the Employment Period the Company shall only require or assign
duties to Executive to be performed within the United States of America
during those periods of time for which Executive has obtained a valid work
permit from the Immigration Service of the United States of America.
During those times when the Executive has not obtained a valid work
permit, payments with respect to the compensation in accordance with
section 3 of this Agreement will be made by Sauer-Sundstrand GmbH & Co., a
partnership established under the laws of the Federal Republic of Germany.
6. Continuation of Compensation and Benefits. If the Company shall fail to
observe or perform any covenant or agreement contained in this Agreement
to be observed or performed by the Company or if the Company renounces
Executive's services pursuant to section 1 of this Agreement, then
Executive shall until such time as Executive's Employment Period hereunder
would otherwise terminate pursuant to the provisions of section 2 or
section 7 of this Agreement, continue to receive all compensation and
<PAGE> 3
3
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benefits which the Company has hereinabove in section 3 of this Agreement
agreed to pay to and provide for Executive, in each case in the amounts
and at the times provided for in section 3 of this Agreement. The parties
agree that, in such event, such payments and benefit shall be deemed to
constitute liquidated damages for the Company's breach of this Agreement,
and the Company agrees that Executive shall not be required to mitigate
his damages by seeking other employment or otherwise.
7. Termination. This Agreement shall terminate upon the following
circumstances:
(a) The date of death of Executive during the Employment Period;
provided, however that Executive's estate, heirs and beneficiaries
shall be entitled to receive the full amount of his salary for the
month in which death occurs and all other benefits available to them
under the Company's Benefit Plans as in effect on the date of death
of Executive;
(b) following conviction of Executive of a felony, the date as of which
Executive's right to file an appeal after conviction has expired,
or, if Executive files an appeal after conviction, the date as of
which the appellate court fails to reverse the conviction, and the
Company shall pay Executive his full salary through such date of
termination and the Company shall have no further obligations to
Executive under this Agreement except with respect to any rights
Executive might otherwise have under the Company's Benefit Plans as
in effect on the date of termination of Executive; or
(c) the date as of which the Company elects to terminate this Agreement
in accordance with section 10 of this Agreement.
8. Covenant Not to Compete. Without the consent of the Company, Executive
shall not at any time during the Employment Period undertake employment as
an owner, director, officer, employee 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 or
any of its subsidiaries; provided, however, that 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. For purposes hereof the term "material
product or product line of the Company" shall mean any product or product
line of the Company or any of its subsidiaries the gross sales of which
during any calendar year during the five (5) year period preceding the
Executive's undertaking such employment were at least $10 million.
9. Disclosure of Confidential Information. Without the consent of the
Company, Executive shall not at any time during the Employment Period
disclose to any other business entity confidential information concerning
the Company or any of its subsidiaries or the Company's or any of its
subsidiaries' trade secrets of which Executive has gained knowledge during
his employment with the Company.
10. Breach of Section 8 or Section 9. In the event of a breach by Executive of
the provisions of section 8 or section 9 of this Agreement, the Company
may terminate this Agreement under section 7 (c), but only if the Company
complies with the following provisions:
<PAGE> 4
4
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(a) The Company shall provide Executive with written notice of its
belief that a breach of section 8 or section 9 of this Agreement has
occurred and shall afford Executive sixty (60) days or such longer
period as the Company may determine to cure the alleged breach.
(b) In the event Executive does not cure the breach, the Company shall
be required to institute a judicial proceeding to determine whether
a breach of section 8 or section 9 of this Agreement has occurred
and Executive has not cured such breach.
(c) This agreement may then be terminated only upon a judicial
determination that Executive has breached the provisions of section
8 or section 9 of this Agreement and has failed to cure such breach;
provided, however, that this Agreement may not be terminated until
either all appellate proceedings have been exhausted or the time
within which Executive may appeal an adverse ruling has expired.
11. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorney's fees incurred by Executive in connection
with any claim or legal action or proceeding brought under or involving
this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorney's
fees, incurred by Executive in any claim or legal Agreement if the Company
prevails in such litigation.
12. Notices. Notices given pursuant to this Agreement shall be in writing and
shall be deemed given when received and if mailed shall be mailed by
United States registered or certified mail, return receipt requested,
addressee only, postage prepaid if to the Company, to the Board of
Directors of Sauer Inc., Attention: Chairman and Chief Executive Officer,
2800 East 13th Street, Ames, Iowa 50010, U.S.A., or if to Executive, at Am
Hirschpark 14, 22587 Hamburg, Germany or to such other address as either
party may have previously designated by notice to the other party given in
the foregoing manner.
13. Successors. This Agreement may not be assigned by the Company, and the
obligations of the Company provided for in this Agreement shall be binding
legal obligations of any successor to the Company by purchase, merger,
consolidation, or otherwise. This Agreement may not be assigned by
Executive during his life, and upon his death will be binding upon and
inure to the benefit of his heirs, legatees and the legal representatives
of his estate.
14. Waiver, Modification and Interpretation. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board. No waiver by
either party at any time of any breach by the other party of, or
compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State
of Iowa. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
<PAGE> 5
5
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15. Headings. The headings contained herein are for reference purposes only and
shall not in any way affect the meaning or interpretation of any provision
of this Agreement.
IN WITNESS WHEREFORE, the parties hereto have executed this agreement on the day
and year first written above.
SAUER INC
By: /s/ K H Murmann
---------------------------
By: /s/ Tonio Barlage
---------------------------
aw
<PAGE> 1
Exhibit 10.1(m)
Employment Contract
between Sauer Sundstrand GmbH & Co.
Krokamp 35, 24539 Neumunster
- in the following referred to as SAS -
and Dr. Thomas Kittel,
born on 5 October 1948 in Jena,
living at Boker Steig 11,
24613 Aukrug-Innien
the following employment contract will be concluded.
ss.1 Duties
Dr. Kittel, from 1 January 1992, undertook the duties of Director of Logistics.
On 1 October 1993 he was appointed to the direction of the Production area. As
from 1 January 1997 Dr. Kittel was appointed as Managing Director of
Sauer-Sundstrand GmbH. Dr. Kittel reports to the chairman of the board of the
company.
Dr. Kittel will provide his full working capacity in the service of SAS. He
undertakes to comply in all matters with the corporate policies and in addition,
to ensure that he will undertake, in agreement with the chairman of the board,
all matters within his competency which could be envisaged.
ss.2 Remuneration
As remuneration for his duties, Dr. Kittel will receive an annual gross
salary of DM 300.000 (in words: three hundred thousand Deutsche Mark)
payable in twelve part-payments at the end of each month in the sum of DM
25.000 (in words: twenty-five thousand Deutsche Mark).
In addition, Dr. Kittel is included in the Bonus system of the Sauer-Sundstrand
group. The bonus plan reflects, on the one hand the economic situation of the
company, measured by the actual result, and on the other hand the personal
success of Dr. Kittel, measured on the fulfillment of the annual objectives and
duties. The payment of the bonus is made annually in May of the following year,
based on the respective prior year annual income.
With these payments all Dr. Kittel's services are rewarded in full.
It is assumed that in order to reach the objectives a time contribution of more
than 40 hours per week will generally be required.
The salary will be reviewed as of 1 July 2000.
ss.3 Holiday
Dr. Kittel has an annual holiday entitlement of 30 days, to which are counted
all days upon which Dr. Kittel is obliged to work normal hours. The start date
and length of vacation will be set by agreement with his superior.
The loss of working time caused by marriage, moving house, birth of a child,
<PAGE> 2
convalescence (illness), death of a close relative, etc. will not normally be
counted within the holiday entitlement usage.
ss.4 Health-care and other Benefits
In the case of an inability to carry-out the contractual working duties, which
is not due to own fault, in accordance with ss.616 of the Civil Code, the
remuneration as set out in ss.2 will continue to be paid after expiry of the
statutory period for an additional six weeks. If the period of service (with the
company) lies between three and ten years, then (it will be paid) for eighteen
weeks, and if more than ten years, then for thirty weeks. The amount paid is the
difference between the Sick-Benefit (for privately insured persons in the AOK
scheme) and the salary.
In the case of the death of Dr. Kittel during the period covered by this
contract, the salary of the month of death accrues to the estate of the
deceased. The salary will continue to be paid to spouse, legitimate or
legitimated children for a further period of three months. If such relatives do
not exist, then the salary may be nominated, in full or in part, to other
dependent persons.
To cover such accidental risk, Dr. Kittel is insured, also for injuries in
private life, in the sum of
DM 150.000 for Death
DM 300.000 for Invalidity
Dr. Kittel is included in the Pension Scheme of the company as set out in the
prevalent version.
ss.5 Travel expenses
Travel and other sundry expense which are in the interest of SAS will be
reimbursed to Dr. Kittel against individual receipt. The travel expense
regulations relevant at the time are to be observed.
ss.6 Confidentiality
Dr. Kittel undertakes to maintain confidentiality on all matters pertaining to
his duties and to the contents of this contract, also following termination of
this employment contract, to the extent that he is not obliged by law to such
disclosure. On termination of the employment, all business papers and other
documents are to be returned to SAS without the retention of copies. No right of
retention is permitted.
ss.7 Creative ideas from employment environment
The work-place is covered by regulations for the further use of creative ideas
gained in the work-place and these are covered by legal requirements (to date
the Gesetz uber Arbeitnehmererfindungen in the version of 15 August 1986-
ArbNErfG -) and the company SAS internal work-place regulations in the currently
valid version.
In addition, Dr. Kittel has stated his agreement to place at the disposal of SAS
all discoveries which he may make within a period of two years after he leaves
the company, if those discoveries relate to his duties at SAS, or are primarily
arising from the experience or work there, unless this is prevented by law.
ss.8 Data Protection
<PAGE> 3
In agreeing to this contract the requirements of the Data Protection legislation
on the use of personal information (storage, transfer and changing) as set out
in ss.ss.3 and 23 et seq Bundesdatenschutzgesetz (BDSG) are agreed to.
Dr. Kittel therefore declares himself in agreement that his personal
information, to the extent that they are necessary for the employment contract
and its orderly conduct, may be stored, changed, deleted or out of other created
out of other details.
ss.9 Ancillary employment
The undertaking of ancillary employment requires the prior approval of the board
of directors.
Publications and speeches of Dr. Kittel, to the extent that they impact SAS,
require the agreement of his direct superior.
Similar rules apply for the legal or economic participation in other companies
and in the representation in supervisory authorities of other companies.
Any position which Dr. Kittel assumes by reason of his employment contract, will
be laid aside on request and under all circumstances on the termination of the
employment contract.
For the period of his employment the competition rules of ss.60 of the Civil
Code remain in force.
ss.10 Contract Period
This contract is for a fixed period and commences on 1 January 1998 and
terminates on 31 December 2002 without the need for any termination notice.
At the latest by January 2002 the contract parties will negotiate for the
inception of a follow-on contract.
SAS is able, on taking account of outstanding holiday entitlement and other
non-working periods, to place Dr. Kittel on home-leave (that is: be suspended
from duties) subject to continued payment of the regular salary.
ss.11 Company Car
Dr. Kittel is allowed, until further notice, to use a car of middle category in
the course of his duties. The vehicle may, in addition to business functions, be
used for private purposes. The total costs of the vehicle (leasing rate and
running costs) may not exceed 150% of the regulation price. The regulation price
for 1998 is DM 24.000 pa and will be reviewed annually. The benefit in kind will
be taxed on Dr. Kittel at the currently valid rates.
ss.12 Legal jurisdiction
The legal jurisdiction for all claims arising under this contract is the place
of residence of Dr. Kittel, namely Neumunster.
ss.13 Concluding agreements
With the inception of this contract all earlier agreements over an employment
relationship are rescinded. Changes and additions to this contract require the
written form to be legally effective.
<PAGE> 4
In the event that any individual elements of this contract are invalid or may
become invalid, the other elements of the contract are unaffected. In place of
the invalid clause a substitute clause is valid which achieves the nature and
objective of the invalid clause. In the case of omissions, the clause becomes
valid which would reflect the nature and objectives of this contract had the
opportunity been available to consider the matter initially.
All claims, from either party, whether from the contract or the contractual
relationship, become barred if they are not made in writing within three months
of the due date of the claim.
Should the counterparty refute the claim, or should the claim not be agreed to
within three weeks then the claim becomes barred if the claim is not pursued in
court within a period of three months after the refuting or the expiration of
the three week explanation period.
ss.14 Other agreements
For all rights and duties under this contract the commencement date of the
employment contract is 1 February 1988.
Neumunster, 30 January 1998
Sauer-Sundstrand GmbH & Co.
signed Dr. K. Murmann.......Dr.T.Barlage......Dr.Thomas Kittel
jnl
<PAGE> 1
Exhibit 10.1(n)
SAUER INC.
1996 Phantom Share Plan
September 19, 1996
<PAGE> 2
SAUER INC.
1996 PHANTOM SHARE PLAN
September 19, 1996
1. Purposes of Plan. The purposes of the 1996 Phantom Share Plan of Sauer
Inc. are as follows:
(a) To further the growth, success and interest of the Company by
enabling executive, managerial, supervisory and professional
employees of the Company, who have been or will be given
responsibility for the administration of the affairs of the Company,
to acquire phantom share rights under the terms and conditions and
in the manner contemplated by this Plan, thereby increasing their
personal involvement in the fortunes of the Company; and
(b) To enable the Company to obtain and retain the services of desirable
executive, managerial, supervisory and professional employees by
providing such employees with an opportunity to acquire phantom
share rights under the terms and conditions and in the manner
contemplated by this Plan.
The term "Company" as used herein shall mean Sauer Inc. and its majority
owned subsidiaries, including subsidiaries which may be created while this
Plan is in effect.
The terms "Early Retirement" and "Normal Retirement" as used herein shall
have the meanings as defined in the Sauer-Sundstrand Employees' Retirement
Plan.
2. Administration of Plan. This Plan shall be administered by a Committee
consisting of members of the Board of Directors of Sauer Inc. and such
other person or persons as they shall from time to time appoint. The
Committee shall interpret this Plan and to the extent and in the manner
contemplated herein it shall exercise the discretion granted to it as to
the determination of who shall participate in this Plan, how many phantom
share rights shall be granted to each participant, and when phantom share
rights will be granted. The Committee shall issue from time to time and
revise such rules and interpretations and make such other determinations
as in its judgement are necessary or appropriate in order to effectively
administer this Plan.
Decisions and determinations by the Committee shall be binding on all
parties, including participants, other employees of the Company, and
beneficiaries.
<PAGE> 3
3. Eligible Employees. Executive, managerial, supervisory and professional
employees selected by the Committee shall be eligible for participation
under this Plan.
4. Phantom Share Rights.
(a) Grants to participants under this Plan shall be in the form of
phantom share rights. As more specifically set forth in the Plan,
each phantom share right shall be a right to receive, upon
expiration of the restrictions applicable to such right, an amount
of cash equivalent to the value of a share and during the period
such right is subject to the restrictions, the right, to receive
dividend payments on each phantom share right as may periodically be
declared by the Board of Directors to participants of record on the
record dates specified by the Board of Directors. Any such dividend
payments will be made on one of the next two regular paydays, at the
Company's option, following the specified record date.
(b) The Committee, following the grant of phantom share rights to a
participant, shall cause to be delivered to such participant
correspondence evidencing the rights so granted. All grants shall be
offered only between May 1 and December 31.
(c) During the period the phantom share rights of a participant are
subject to the restrictions imposed on such rights pursuant to
Section 5 of this Plan, a participant shall receive dividend
payments on each phantom share right as may periodically be declared
by the Board of Directors to participants of record on the record
dates specified by the Board of Directors. Any such dividend
payments will be made on one of the next two regular paydays, at the
Company's option, following the specified record date.
(d) A participant, within 30 days after the restrictions on a phantom
share right lapse, shall be paid by Sauer Inc. with respect to such
phantom share right an amount equal to the value of a share. The
value of a share will be determined annually about May 1 upon
conclusion of the official audit of the prior year's results. Each
factor will be valued as of December 31 of the prior year and the
resultant share value is the basis for payment of shares released
during the remainder of that calendar year. Upon payment of such
amount with respect to a phantom share right, the right shall be
cancelled and be of no further value, force or effect.
<PAGE> 4
(e) The value of each phantom share shall be equal to the market price of the
Sauer Inc. common stock currently quoted on an American stock exchange, or
national market system. In the absence of such stock quotation, the value
of each phantom share will be computed as follows:
Value = (2 x E) + (1 x B)
-----------------
3
where: E represents the earning power of Sauer Inc. and
B reflects the net book value of Sauer Inc. assets
and liabilities,
with earnings given a weight twice that of net
book value.
The numerical value of each factor (E + B) will be calculated as follows:
E - Earning Power, will be derived using Sauer Inc.'s prior three years'
performance. E will be calculated using the formula below (but E may never
be less than zero).
E = 14 x Average of Prior 3 Years' Net Earnings
-------------------------------------------
10,000 x Year End Shares Outstanding
The applicable price/earnings ratio for a share of a company in our
industry is assumed to be 14.
B - the Net Book Value, will be calculated using the formula below:
B = 2 x Equity
------------------------------------
10,000 x Year End Shares Outstanding
The applicable price/net book value ratio for a share of a company in our
industry is assumed to be 2.
Year End Shares Outstanding are the actual number of common shares
outstanding of Sauer Inc. as of the prior year end.
The factor of 10,000 reflects the relationship of phantom shares to Sauer
Inc. common shares and will be adjusted correspondingly to reflect any
stock splits, stock dividends, or other actions that adjust the number of
Sauer Inc. common shares.
<PAGE> 5
In the case of a participant's death, payment of the applicable amount for
phantom share rights under this Plan shall be made to the participant's
designated beneficiary, or in the absence of such designation, to the
person or persons designated by will or the applicable laws of descent and
distribution.
5. Restrictions. All phantom share rights granted pursuant to this Plan shall
be subject to the following restrictions:
(a) Such rights may not be assigned, transferred, sold, pledged or
otherwise alienated or hypothecated and shall not be subject to
execution, attachment or other similar process as long as Sauer Inc.
has the right to cancel the rights as hereinafter provided in this
Section 5.
(b) In the event of termination of employment with the Company of a
participant within nine years after phantom share rights are granted
to the participant under this Plan, if such termination is for any
reason other than Normal Retirement, death, or Early Retirement with
the consent of the Committee, all phantom share rights granted under
this Plan to such terminating participant which are at the date of
such termination still subject to the restrictions imposed under
this Plan shall be automatically cancelled unless, within 30 days of
said termination, the Committee directs in writing that the phantom
share rights not be cancelled. If the Committee directs that the
phantom share rights not be cancelled, the restrictions on such
phantom share rights shall be removed as of the date of termination.
(c) In the event a participant who has been granted phantom share rights
under this Plan terminates his employment with the Company because
of Normal Retirement, death, or Early Retirement with the consent of
the Committee, then all restrictions on phantom share rights shall
be removed as of the date of termination.
(d) Except as otherwise provided above, the restrictions imposed upon
phantom share rights granted to each participant under this Plan
shall be removed as to one-fifth of the aggregate number of such
rights granted to the participant at one time upon the expiration of
each of the fifth, sixth, seventh, eighth and ninth years after the
grant to him of such rights under this Plan.
<PAGE> 6
6. Other Restrictions. The Committee may impose such other restrictions on
any phantom share rights granted pursuant to this Plan as it may deem
advisable.
7. Miscellaneous.
(a) No employee or other person shall have any claim or right to be
granted phantom share rights under this Plan. Neither this Plan nor
any action taken pursuant to this Plan shall be construed as giving
any employee any right to be retained in the employ of the Company.
(b) The Company shall have the right to deduct from any amount paid in
respect of phantom share rights any taxes required by law to be
withheld with respect to the payment of such amount.
8. Effective Date. This Plan shall be effective as of September 19, 1996.
9. Amendment and Termination. This Plan may be amended or terminated at any
time by the Committee. The amendment or termination of this Plan, however,
shall not affect any restrictions previously imposed on phantom share
rights granted pursuant to this Plan.
<PAGE> 1
Exhibit 10.1(o)
1990
S A U E R I N C.
BONUS PLAN
<PAGE> 2
1990
S A U E R I N C.
BONUS PLAN
ARTICLE I
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall have the
meaning indicated, unless a different meaning is clearly required by the
context:
1. The "Plan" means this 1990 Sauer Inc. Bonus Plan.
2. The "Company" means Sauer Inc., a Delaware stock corporation, its
successors, and the surviving companies or corporations resulting from any
merger or consolidation of Sauer Inc. with any other corporation or
partnership.
3. A "Subsidiary" means any corporation or partnership, the equity of which
is directly or indirectly majority owned by the Company.
4. The "Board of Directors" means the Board of Directors of the Company as
the same shall from time to time exist and which as of April 18, 1990,
consists of a Chairman and 7 other Board Members.
5. A "Participant" shall mean any executive who is eligible to participate in
the Plan as provided in Article II.
6. The "Plan Year" means the fiscal year of the Company which as of January
1, 1990 coincides with the calendar-year.
7 A "Bonus Compensation Award" shall mean the cash payment which may be
awarded to a Participant pursuant to the Plan with respect to any Plan
Year.
8. A "Beneficiary" shall mean the person or persons designated by a
Participant in accordance with the Plan to receive payment of the
Participant's Bonus Compensation Award in the event of the death of the
Participant prior to payment of the Participant's Bonus Compensation
Award.
<PAGE> 3
- 2 -
ARTICLE II
ELIGIBILITY
The Chairman and Chief Executive Officer, the President and Chief Operating
Officer, and the Vice President and Chief Financial Officer of the Company shall
be Participants in the Plan. The Chairman and Chief Executive Officer may select
such other executive(s) of the Company or of any Subsidiary who shall become
further Participants in the Plan. Such selected executives shall be notified of
their selection in writing by the Chairman and Chief Executive Officer.
ARTICLE III
BONUS COMPENSATION AWARDS
1. The Bonus Compensation Award granted to a Participant will be measured in
relation to the Return on Net Assets (RoNA) as derived from the
consolidated financial statements of Sauer Inc. for the twelve month
period with respect to which the bonus relates. RoNA is defined as
Earnings before taxes and Interest Expense per the audited consolidated
financial statements for the fiscal year divided by the average net assets
for the twelve months in the fiscal year (i.e net assets at the beginning
of the year and at the end of each of the next twelve months divided by
13). Interest Expense is defined as consolidated interest expense on
interest bearing indebtedness plus minority interest expense, net of
minority income on minority interests including the silent interest(s) in
Sauer-Sundstrand GmbH & Co. Net assets are defined as the sum of total
equity including minority interests such as the minority interests in
Sauer-Sundstrand GmbH & Co. and in Sauer-Daikin Systemtechnik GmbH, and
all interest bearing indebtedness shown in the consolidated balance sheet.
If RoNA is negative, no Bonus Compensation Award will be granted.
2. Based upon many factors, including product line maturity, market position,
age and type of ownership of assets, historical and planned performance,
and returns for alternative investment opportunities, a target RoNA of 20%
for each twelve month period with respect to which a Bonus Compensation
Award may be granted has been established.
3. Achievement of the target RoNA of 20% will result in a Bonus Compensation
Award for the twelve month period to which it relates equal to the Target
Incentive Opportunity of 80% of annual base salary at the beginning of
the Plan Year.
<PAGE> 4
- 3 -
Achievement of a RoNA of 25% or more will result in a Bonus Compensation
Award for the twelve month period to which it relates equal to the Maximum
Potential Incentive Opportunity of 100 % of annual base salary at the
beginning of the Plan Year.
4. A graphic portrayal of the Incentive Opportunity is shown below:
[GRAPH OMITTED]
<PAGE> 5
- 4 -
5. The total Bonus Compensation Award granted to a Participant shall be paid
in cash to the Participant on or before May 1 of the Plan Year following
the Plan Year with respect to which such total Bonus Compensation Award is
granted.
6. Forfeiture. Nothwithstanding anything to the contrary contained in the
Plan, subject to the approval of the Board of Directors of the Company,
the right of a Participant to receive a Bonus Compensation Award which has
been granted but which has not been paid will be forfeited in the event
the Participant's employment with the Company or any Subsidiary is
terminated under circumstances other than death, permanent and total
disability, normal retirement or other retirement under conditions of
eligibility for a retirement benefit. Furthermore, if the Board of
Directors, in its sole discretion, determines that a Participant has
engaged in activities constituting gross misconduct, the right of such
Participant to be granted a Bonus Compensation Award will be forfeited.
ARTICLE IV
AMENDMENT AND TERMINATION
The Board of Directors reserves the right to amend or terminate the Plan at any
time by written action of the Board of Directors; provided, however, that no
such action shall adversely affect any Participant or Beneficiary with respect
to the amount of a Bonus Compensation Award theretofore granted.
ARTICLE V
MISCELLANEOUS
1. Nonalienation. No Participant or Beneficiary shall in any manner encumber
or dispose of the right to receive any payment of a Bonus Compensation
Award hereunder.
2. Interest of Participant and Beneficiary. The obligation of the Company
under the Plan to make payments of a Bonus Compensation Award merely
constitutes the unsecured promise of the Company to make payments from its
general assets as provided therein, and no Participant or Beneficiary
shall have any interest, or a lien or prior claim upon any property of the
Company or any Subsidiary.
3. Claims of other Persons. The provisions of the Plan shall in no event be
construed as giving any person, firm or corporation any legal or equitable
right as
<PAGE> 6
- 5 -
against the Company or any Subsidiary, their officers, employees, or
directors, except any such rights as are especially provided for in the
Plan or are hereafter created in accordance with the terms and provisions
of the Plan.
4. Facility of Payment. If any person to whom a Bonus Compensation Award is
payable is unable to care for his affairs because of illness or accident,
any payment due (unless prior claim therefore shall have been made by a
duly qualified guardian or other legal representative) may be paid to the
spouse, parent, child, brother or sister, or any other individual deemed
by the Chairman and Chief Executive Officer of the Company to be
maintaining or responsible for the maintenance of such person. Any payment
made in accordance with the provisions of this Section 4 shall be a
complete discharge of any liability of the Plan with respect to such
payment.
5. Absence of Liability. No member of the Board of Directors of the Company
or of a Subsidiary, or the Chairman and Chief Executive Officer, or any
officers of the Company or a Subsidiary shall be liable for any act or
action hereunder, whether of commission or omission, taken by any other
member, or by any officer, agent, or employee, or except in circumstances
involving his bad faith, for anything done or omitted to be done by him.
6 Severability. The invalidity or unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the
Plan shall be construed in all respects as if such invalid or
unenforceable provision were omitted herefrom.
7. Governing Law. The provisions of the Plan shall be governed and construed
in accordance with the laws of the State of Iowa.
Approved this 18th day of
April, 1990
S A U E R INC.
By: /s/ KH Murmann
---------------------
Klaus H. Murmann
<PAGE> 1
Exhibit 10.1(p)
Sauer Inc.
1998 Long-Term Incentive Plan
(Effective April 22, 1998)
<PAGE> 2
Contents
================================================================================
Article 1. Establishment, Objectives, and Duration 1
Article 2. Definitions 1
Article 3. Administration 5
Article 4. Shares Subject to the Plan and Maximum Awards 6
Article 5. Eligibility and Participation 7
Article 6. Stock Options 7
Article 7. Stock Appreciation Rights 9
Article 8. Restricted Stock 11
Article 9. Performance Units and Performance Shares 12
Article 10. Other Incentive Awards 14
Article 11. Performance Measures 14
Article 12. Beneficiary Designation 15
Article 13. Deferrals 15
Article 14. Rights of Employees 16
Article 15. Change in Control 16
Article 16. Amendment, Modification, and Termination 17
Article 17. Withholding 17
Article 18. Indemnification 18
Article 19. Successors 18
Article 20. Legal Construction 18
<PAGE> 3
Sauer Inc.
1998 Long-Term Incentive Plan
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of the Plan. Sauer Inc., a Delaware corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "Sauer Inc. 1998 Long-Term Incentive Plan"
(hereinafter referred to as the "Plan"), as set forth in this document. The Plan
permits the grant of Non-qualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares and Performance Units,
and Other Incentive Awards.
Subject to approval by the Company's stockholders, the Plan shall be
effective as of April 22, 1998 (the "Effective Date") and shall remain in effect
as provided in Section 1.3 hereof.
1.2 Objectives of the Plan. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives which are consistent
with the Company's goals and which link and align the personal interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 16 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after April 21, 2008.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "Award" means, individually or collectively, a grant under this Plan
of Non-qualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or
Performance Units, or Other Incentive Awards.
2.2 "Award Agreement" means an agreement entered into by the Company and
a Participant evidencing and setting forth the terms and provisions
applicable to an Award granted under this Plan, in such form as the
Committee may, from time to time, approve.
1
<PAGE> 4
2.3 "Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
2.4 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.5 "Change in Control" of the Company means, and shall be deemed to
have occurred upon, any of the following events:
(a) 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 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; or
(b) 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
(c) The stockholders of the Company approve: (i) a plan of
complete liquidation of the Company; or (ii) an agreement for
the sale or disposition of all or substantially all the
Company's assets; or (iii) 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 a Participant, if the Participant is
part of a purchasing group which consummates the Change-in-Control
transaction. A Participant shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if the Participant is
an equity participant in the purchasing company or group (except for
(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
2
<PAGE> 5
significant, as determined prior to the Change in Control by a
majority of the nonemployee continuing Directors).
2.6 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 "Committee" means the Compensation Committee of the Board, or such
other committee appointed by the Board to administer the Plan, as
described in Article 3 herein.
2.8 "Company" means Sauer Inc., a Delaware corporation, as well as any
successor to the Company as provided in Article 19 herein.
2.9 "Director" means any individual who is a member of the Board of
Directors of the Company.
2.10 "Disability" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan.
2.11 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "Employee" means any employee of the Company or its Subsidiaries.
Nonemployee Directors shall not be considered Employees under this
Plan unless specifically designated otherwise.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor Act thereto.
2.14 "Fair Market Value" shall be determined on the basis of the closing
sale price on the New York Stock Exchange or, if there is no such
sale on the relevant date, then on the last previous day on which a
sale was reported. If the Shares are not traded on the New York
Stock Exchange, Fair Market Value shall be determined by the
Committee in its absolute discretion, such amount to be calculated
pursuant to the formula established under the Sauer Inc. 1996
Phantom Share Plan, which formula is hereby incorporated by
reference and made a part hereof.
2.15 "Freestanding SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
2.16 "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an
Incentive Stock Option and which is intended to meet the
requirements of Code Section 422.
2.17 "Insider" shall mean an individual who is, on the relevant date, an
officer, director, or ten percent (10%) beneficial owner of any
class of the Company's equity securities that
3
<PAGE> 6
is registered pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
2.18 "Named Executive Officer" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the
group of "covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor statute.
2.19 "Nonemployee Director" means a Director who is not also an Employee.
2.20 "Non-qualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to
meet the requirements of Code Section 422.
2.21 "Option" means an Incentive Stock Option or a Non-qualified Stock
Option, as described in Article 6 herein.
2.22 "Option Price" means the price at which a Share may be purchased by
a Participant pursuant to an Option.
2.23 "Other Incentive Award" means an award granted pursuant to Article
10 hereof.
2.24 "Participant" means any individual selected to receive an Award by
the Committee in accordance with Article 5 and who has an
outstanding Award granted under the Plan.
2.25 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.26 "Performance Period" means the time period during which performance
goals must be achieved with respect to an Award, as determined by
the Committee.
2.27 "Performance Share" means an Award granted to a Participant, as
described in Article 9 herein.
2.28 "Performance Unit" means an Award granted to a Participant, as
described in Article 9 herein.
2.29 "Period of Restriction" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the
occurrence of other events as determined by the Committee, at its
discretion), and the Shares are subject to a substantial risk of
forfeiture, as provided in Article 8 herein.
4
<PAGE> 7
2.30 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
2.31 "Restricted Stock" means an Award granted to a Participant pursuant
to Article 8 herein.
2.32 "Retirement" means the normal retirement date on which a Participant
qualifies for full retirement benefits under the Company's qualified
retirement plan, as identified by the Committee.
2.33 "Shares" means the shares of Common Stock of the Company.
2.34 "Stock Appreciation Right" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant
to the terms of Article 7 herein.
2.35 "Subsidiary" means any corporation, limited liability company,
partnership, joint venture, affiliate, or other entity in which the
Company has a majority voting interest.
2.36 "Tandem SAR" means an SAR that is granted in connection with a
related Option pursuant to Article 7 herein, the exercise of which
shall require forfeiture of the right to purchase a Share under the
related Option (and when a Share is purchased under the Option, the
Tandem SAR shall similarly be canceled).
Article 3. Administration
3.1 The Committee. The Plan shall be administered by the Board, the
Committee, or by any other committee appointed by the Board. The Board may
delegate to the Committee any or all of the administration of the Plan. Any such
Committee shall be comprised entirely of Nonemployee Directors who meet the
applicable requirements of a "nonemployee director" under Rule 16b-3 of the
General Rules and Regulations under the Exchange Act and of an "outside
director" under Section 162(m) of the Code. To the extent that the Board has
delegated to the Committee any authority and responsibility under the Plan, all
applicable references to the Board in the Plan shall be to the Committee. To the
extent that the Board has not delegated to the Committee any authority and
responsibility under the Plan or has delegated such authority and responsibility
to any other committee appointed by the Board, all applicable references to the
Committee in the Plan shall be to the Board or other committee, as applicable.
The Committee shall have the authority to delegate administrative duties to
officers or Directors of the Company.
3.2 Authority of the Committee. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select from eligible
persons as described in Section 5.1, those persons who shall participate in the
Plan; determine the sizes and types of Awards; determine the terms and
conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the
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Plan's administration; and (subject to the provisions of Article 16 herein)
amend the terms and conditions of any outstanding Award to the extent such terms
and conditions are within the discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authority as identified herein.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee shall be final, conclusive, and binding on all
persons, including the Company, its stockholders, Employees, Participants, and
their estates and beneficiaries.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.3 herein, the number of Shares hereby reserved for
issuance under the Plan shall be two million four hundred thousand (2,400,000).
However, the aggregate maximum number of Shares of Restricted Stock which may be
granted pursuant to Article 8 shall be one million two hundred thousand
(1,200,000). Shares issued pursuant to the Plan may be either authorized and
unissued Shares or issued Shares which have been reacquired by the Company, or
any combination thereof.
Unless and until the Committee determines that an Award to a Named
Executive Officer shall not be designed to comply with the Performance-Based
Exception, the following rules shall apply to grants of such Awards under the
Plan:
(a) Stock Options. The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to Awards granted in
any one fiscal year to any one Participant shall be two hundred
thousand (200,000).
(b) SARs. The maximum aggregate number of Shares that may be granted in
the form of Stock Appreciation Rights, pursuant to Awards granted in
any one fiscal year to any one Participant shall be two hundred
thousand (200,000).
(c) Restricted Stock. The maximum aggregate number of Shares that may be
granted in the form of Restricted Stock, pursuant to Awards granted
in any one fiscal year to any one Participant shall be fifty
thousand (50,000).
(d) Performance Shares/Performance Units/Other Incentive Awards. The
maximum aggregate payout (determined as of the end of the applicable
Performance Period) with respect to Awards of Performance Shares,
Performance Units, or Other Incentive Awards granted in any one
fiscal year to any one Participant shall not exceed the value of
fifty thousand (50,000) Shares.
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4.2 Lapsed Awards. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such Award
again shall be available for the grant of an Award under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1 herein, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award Limits set forth in
subsections 4.1(a) through (d) herein, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan include all
Employees and officers of the Company or its Subsidiaries, including Employees
who reside in countries other than the United States of America, provided,
however, that ISOs shall be granted only to Employees.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee from time to time, shall, in its discretion, select from all eligible
persons those to whom Awards shall be granted and shall determine the nature and
amount and other terms and conditions of each Award. In making such
determinations, the Committee may consider the position and responsibilities of
the Participant, the nature and value to the Company of his or her services and
accomplishments, his or her present and potential contribution to the Company,
and such other factors as the Committee may deem relevant.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time, as shall be determined by the Committee in
its absolute discretion. No Employee may be granted ISOs under the Plan which
would result in Shares with an aggregate Fair Market Value (measured on the date
of grant) of more than $100,000 first becoming exercisable in any one calendar
year.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Option Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
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6.3 Option Price. Unless otherwise designated by the Committee at the time
of grant, the Option Price for each grant of an NQSO under this Plan shall be at
least equal to one hundred percent (100%) of the Fair Market Value of a Share on
the date the NQSO is granted. The Option Price for each grant of an ISO under
this Plan shall be at least equal to one hundred percent of the Fair Market
Value of a Share on the date the ISO is granted, provided, however, in the event
that an ISO is granted to an Employee who possesses more than 10% of the total
combined voting power of all classes of stock of the Company, taking into
account the attribution rules of Code Section 422(d), the Option price for each
grant of such an ISO shall be determined by the Committee on the date of grant
and shall not be less than 110% of the Fair Market Value of a Share on the date
of grant.
6.4 Duration of Options. Each Option granted to a Participant shall expire
at such time as the Committee shall determine at the time of grant; provided,
however, that: (a) no ISO shall be exercisable later than the tenth anniversary
date of its grant, and (b) unless otherwise designated by the Committee at the
time of grant, no NQSO shall be exercisable later than the tenth anniversary
date of its grant. Any Option not exercised within these time periods shall
automatically terminate at the expiration of such period.
6.5 Exercise of Options. Subject to the other provisions of this Article
6, options granted under this Article 6 shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or for each
Participant, provided, however, that in the event ISOs are granted to an
Employee who possesses more than 10% of the total combined voting power of all
classes of stock of the Company, taking into account the attribution rules of
Code Section 422(d), such ISOs shall not be exercisable later than the fifth
anniversary of their grant.
6.6 Payment. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a combination of
(a) and (b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
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<PAGE> 11
6.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8 Termination of Employment. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment with
the Company and/or its Subsidiaries, provided, however, that an ISO shall not be
exercisable later than three months following the termination of the Employee's
employment with the Company and/or its Subsidiaries, or later than one year if
the termination is due to disability. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination of employment.
6.9 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such Participant.
(b) Non-qualified Stock Options. Except as otherwise determined by
the Committee and provided in a Participant's Award Agreement, no NQSO
granted under this Article 6 may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by the laws
of descent and distribution. Further, except as otherwise determined by
the Committee and provided in a Participant's Award Agreement, all NQSOs
granted to a Participant under this Article 6 shall be exercisable during
his or her lifetime only by such Participant.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs, or any combination of these forms of SAR.
Subject to the terms and provisions of the Plan, the Committee shall have
absolute discretion in determining the number of SARs granted to each
Participant (subject to Article 4 herein) and in determining the terms and
conditions pertaining to such SARs.
Unless otherwise designated by the Committee at the time of grant, the
grant price of a Freestanding SAR shall be at least equal to one hundred percent
(100%) of the Fair Market Value of
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a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes
upon them.
7.4 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine, subject to the terms and provisions
of the Plan.
7.5 Term of SARs. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
unless otherwise designated by the Committee, such term shall not exceed ten
(10) years.
7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date
of exercise less the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be
in cash, in Shares of equivalent value, or in some combination thereof.
7.7 Termination of Employment. Each SAR Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company and/or
its Subsidiaries. Such provisions shall be determined in the sole discretion of
the Committee, shall be included in the Award Agreement entered into with
Participants, need not be uniform among all SARs issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.
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7.8 Nontransferability of SARs. Except as otherwise determined by the
Committee and provided in a Participant's Award Agreement, no SAR granted under
the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise determined by the Committee and provided in a
Participant's Award Agreement, all SARs granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such Participant.
Article 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by an Award Agreement that shall specify the Period(s) of Restriction,
the number of Shares of Restricted Stock granted, and such other provisions as
the Committee shall determine, subject to the terms and provisions of the Plan.
8.3 Transferability. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Agreement. All rights with respect to the Restricted Stock
granted to a Participant under the Plan shall be available during his or her
lifetime only to such Participant.
8.4 Other Restrictions. Subject to Article 11 herein, the Committee may
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional, and/or individual),
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable federal or state securities laws.
The Committee may in its absolute discretion terminate, shorten, or
accelerate any period of restriction or waive any terms or conditions applicable
to all or any portion of a Restricted Stock Award.
The Company shall retain the certificates representing Shares of
Restricted Stock in the Company's possession until such time as all conditions
and/or restrictions applicable to such Shares have been satisfied and such
certificates shall bear an appropriate legend referring to the restrictions
applicable thereto.
If and to the extent that the restrictions and other terms and conditions
applicable to Shares of Restricted Stock are not satisfied, such Shares and any
dividends or other rights applicable thereto
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shall be forfeited and reacquired by the Company, and all rights of the
Participant shall terminate to the extent of the forfeiture without further
obligation on the part of the Company.
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.5 Voting Rights. Unless otherwise designated by the Committee at the
time of grant, Participants holding Shares of Restricted Stock granted hereunder
may exercise full voting rights with respect to those Shares during the Period
of Restriction.
8.6 Dividends and Other Distributions. Unless otherwise designated by the
Committee at the time of grant, Participants holding Shares of Restricted Stock
granted hereunder shall be credited with regular cash dividends paid with
respect to the underlying Shares while they are so held during the Period of
Restriction. The Committee may apply any restrictions to the dividends that the
Committee deems appropriate.
8.7 Termination of Employment. Each Restricted Stock Award Agreement shall
set forth the extent to which the Participant shall have the right to receive
unvested Restricted Shares following termination of the Participant's employment
with the Company and/or its Subsidiaries. Such provisions shall be determined in
the sole discretion of the Committee, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Shares of
Restricted Stock issued pursuant to the Plan, and may reflect distinctions based
on the reasons for termination of employment; provided, however, that except in
the cases of terminations connected with a Change in Control and terminations by
reason of death or Disability, the vesting of Shares of Restricted Stock which
qualify for the Performance-Based Exception and which are held by Named
Executive Officers shall occur at the time they otherwise would have, but for
the employment termination.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units/Shares. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee. The Committee shall establish at the time
of grant the Performance Period and the performance measures, as described in
Article 11, for each Award.
9.2 Value of Performance Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set performance goals in its
absolute discretion which, depending on the extent to which they are met, will
determine the number and/or value of Performance Units/Shares that will be paid
out to the Participant.
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9.3 Earning of Performance Units/Shares. Subject to the terms of this Plan
and the Award Agreement, after the applicable Performance Period has ended, the
holder of Performance Units/Shares shall be entitled to receive payout on the
number and value of Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.
9.4 Form and Timing of Payment of Performance Units/ Shares. Payment of
earned Performance Units/Shares shall be made in a single lump sum within
seventy-five (75) calendar days following the close of the applicable
Performance Period. Subject to the terms of this Plan, the Committee, in its
sole discretion, may pay earned Performance Units/Shares in the form of cash or
in Shares (or in a combination thereof) which have an aggregate Fair Market
Value equal to the value of the earned Performance Units/Shares at the close of
the applicable Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee.
Prior to the beginning of each Performance Period, Participants may elect
to defer the receipt of Performance Unit/Share payout upon such terms as the
Committee deems appropriate.
At the discretion of the Committee, Participants may be entitled to
receive any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which have
been earned, but not yet distributed to Participants. In addition, Participants
may, at the discretion of the Committee, be entitled to exercise their voting
rights with respect to such Shares.
9.5 Termination of Employment Due to Death, Disability, or Retirement. In
the event the employment of a Participant is terminated by reason of death,
Disability, or Retirement during a Performance Period, the Participant shall
receive a prorated payout of the Performance Units/Shares. The prorated payout
shall be determined by the Committee, in its absolute discretion, shall be based
upon the length of time that the Participant held the Performance Units/Shares
during the Performance Period, and shall further be adjusted based on the
achievement of the pre-established performance goals.
Payment of earned Performance Units/Shares shall be made at the time
specified by the Committee in its sole discretion as set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect to
Employees who retire during the Performance Period, payments shall be made at
the same time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.
9.6 Termination of Employment for Other Reasons. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited by
the Participant to the Company unless determined otherwise by the Committee in
its sole discretion as set forth in the Participant's Award Agreement.
9.7 Nontransferability. Except as otherwise determined by the Committee
and provided in a Participant's Award Agreement, Performance Units/Shares may
not be sold, transferred, pledged,
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assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise determined by the
Committee and provided in a Participant's Award Agreement, a Participant's
rights under the Plan shall be exercisable during the Participant's lifetime
only by the Participant or the Participant's legal representative.
Article 10. Other Incentive Awards
10.1 Grant of Other Incentive Awards. Subject to the terms and provisions
of the Plan, Other Incentive Awards may be granted to Participants in such
amount, upon such terms, and at any time and from time to time as shall be
determined by the Committee.
10.2 Other Incentive Award Agreement. Each Other Incentive Award grant
shall be evidenced by an Award Agreement that shall specify the amount of the
Other Incentive Award granted, the terms and conditions applicable to such Other
Incentive Award, the applicable Performance Period and performance goals, and
such other provisions as the Committee shall determine, subject to the terms and
provisions of the Plan.
10.3 Nontransferability. Except as otherwise determined by the Committee
and provided in a Participant's Award Agreement, Other Incentive Awards may not
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution.
10.4 Form and Timing of Payment of Other Incentive Awards. Payment of
Other Incentive Awards shall be made at such times and in such form, either in
cash or in Shares (or a combination thereof) as established by the Committee
subject to the terms of the Plan. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee. Without limiting the
generality of the foregoing, annual incentive awards may be paid in the form of
Other Incentive Awards (which may or may not be subject to restrictions, at the
discretion of the Committee).
Article 11. Performance Measures
Unless and until the Committee proposes for stockholder vote and
stockholders approve a change in the general performance measures set forth in
this Article 11, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Named Executive Officers which are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of granting performance-based Awards shall be
chosen from among the following alternatives:
(a) Return on Assets ("ROA");
(b) Cash Flow Return on Investment ("CFROI");
(c) Earnings Before Interest and Taxes ("EBIT");
(d) Net Earnings;
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(e) Total Shareholder Return;
(f) Return on Sales ("ROS");
(g) Return on Equity ("ROE);
(h) Economic Value Added;
(i) Division Operating Income; or
(j) Return on Net Assets.
The Committee shall have the discretion to adjust the determinations of
the degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Named Executive Officers, may not be adjusted
upward (the Committee shall retain the discretion to adjust such Awards
downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
Article 12. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
Article 13. Deferrals
The Committee may permit a Participant to defer such Participant's receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option or SAR, the lapse or
waiver of restrictions with respect to Restricted Stock, or the satis faction of
any requirements or goals with respect to Performance Units/Shares, Cash Bonus
Awards, or Other Incentive Awards. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
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Article 14. Rights of Employees
14.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
For purposes of this Plan, a transfer of a Participant's employment
between the Company and a Subsidiary, or between Subsidiaries, shall not be
deemed to be a termination of employment. Upon such a transfer, the Committee
may make such adjustments to outstanding Awards as it deems appropriate to
reflect the changed reporting relationships.
14.2 Participation. No Employee or officer of the Company or its
Subsidiaries shall have the right to be selected to receive an Award under this
Plan, or, having been so selected, to be selected to receive a future Award.
Article 15. Change in Control
15.1 Treatment of Outstanding Awards. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout
their entire term.
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse.
(c) The target payout opportunities attainable under all outstanding
Awards of Performance Units and Performance Shares and Other
Incentive Awards shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of the Change
in Control.
The vesting of all Awards denominated in Shares shall be accelerated as of the
effective date of the Change in Control, and there shall be paid out to
Participants within thirty (30) days following the effective date of the Change
in Control a pro rata number of shares based upon an assumed achievement of all
relevant targeted performance goals and upon the length of time within the
Performance Period which has elapsed prior to the Change in Control. Awards
denominated in cash shall be paid pro rata to Participants in cash within thirty
(30) days following the effective date of the Change in Control, with the
pro-ration determined as a function of the length of time within the Performance
Period which has elapsed prior to the Change in Control, and based on an assumed
achievement of all relevant targeted performance goals.
(d) Subject to Article 16 herein, the Committee shall have the authority
to make any modifications to the Awards as determined by the
Committee to be appropriate before the effective date of the Change
in Control.
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15.2 Termination, Amendment, and Modification of Change-in-Control
Provisions. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 15 may not be terminated,
amended, or modified to affect adversely any Award theretofore granted under the
Plan without the prior written consent of the Participant with respect to said
Participant's outstanding Awards; provided, however, that the Board, upon
recommendation of the Committee, may terminate, amend, or modify this Article 15
at any time and from time to time prior to the date of a Change in Control to
affect Awards not yet granted under the Plan.
Article 16. Amendment, Modification, and Termination
16.1 Amendment, Modification, and Termination. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; provided, however, that unless the Board specifically provides
otherwise, any revision or amendment that would cause the Plan to fail to comply
with any requirement of applicable law, regulation, or rule if such amendment
were not approved by stockholders, shall not be effective unless and until such
approval of stockholders of the Company is obtained.
16.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
16.3 Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 16, make any adjustments it deems appropriate.
Article 17. Withholding
17.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
17.2 Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
17
<PAGE> 20
Article 18. Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
Article 19. Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
Article 20. Legal Construction
20.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
20.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
20.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
20.4 Securities Law and Tax Law Compliance. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee.
20.5 Governing Law. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Delaware.
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<PAGE> 1
Exhibit 10.1(q)
Sauer Inc.
Non-employee Director
Stock Option and
Restricted Stock Plan
Effective April 22, 1998
<PAGE> 2
Contents
================================================================================
Article 1. Establishment, Purpose, and Duration 1
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Shares Subject to the Plan 4
Article 5. Eligibility and Participation 5
Article 6. Non-qualified Stock Options 5
Article 7. Restricted Stock 7
Article 8. Change in Control 8
Article 9. Amendment, Modification, and Termination 9
Article 10. Withholding 9
Article 11. Miscellaneous 9
<PAGE> 3
Sauer Inc.
Non-employee Director Stock Option and Restricted Stock Plan
Article 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. Sauer Inc., a Delaware corporation (the
"Company"), hereby establishes an incentive compensation plan to be known as the
"Sauer Inc. Non-employee Director Stock Option and Restricted Stock Plan" (the
"Plan"), as set forth in this document. The Plan permits the grant of
Non-qualified Stock Options and Shares of Restricted Stock, subject to the terms
and provisions set forth herein.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of April 22, 1998 (the "Effective Date"), and shall remain in
effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
achievement of long-term objectives of the Company by linking the personal
interests of Non-employee Directors to those of Company shareholders, and to
attract and retain Non-employee Directors of outstanding competence.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date,
and shall remain in effect, subject to the right of the Board of Directors to
terminate the Plan at any time pursuant to Article 9 herein, until all Shares
subject to it shall have been purchased or acquired according to the Plan's
provisions. However, in no event may Stock Options or Restricted Stock be
granted under the Plan on or after April 21, 2008.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
(a) "Award" means the grant of a Stock Option and/or the grant of
Restricted Stock hereunder.
(b) "Award Agreement" means an agreement entered into by and between the
Company and a Non-employee Director, setting forth the terms and
provisions applicable to an Option and/or Restricted Stock grant
under the Plan.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(d) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(e) "Change in Control" of the Company means, and shall be deemed to
have occurred upon, any of the following events:
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<PAGE> 4
(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 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; 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 stockholders of the Company approve: (i) a plan of
complete liquidation of the Company; or (ii) an agreement for
the sale or disposition of all or substantially all the
Company's assets; or (iii) 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 a Participant, if the Participant is part
of a purchasing group which consummates the Change-in-Control
transaction. A Participant shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if the Participant is
an equity participant in the purchasing company or group (except for
(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
non-employee continuing Directors).
(f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(g) "Company" means Sauer Inc., a Delaware corporation.
(h) "Director" means any individual who is a member of the Board of
Directors of the Company.
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<PAGE> 5
(i) "Disability" shall have the meaning ascribed to it in the Company's
governing long-term disability plan.
(j) "Employee" means any employee of the Company or of the Company's
Subsidiaries. For purposes of the Plan, an individual whose only
employment relationship with the Company is as a Director or
Chairman of the Board shall not be deemed to be an Employee.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
(l) "Fair Market Value" shall be determined on the basis of the closing
sale price on the New York Stock Exchange, or, if there is no such
sale on the relevant date, then on the last previous day on which a
sale was reported. If the shares are not traded on the New York
Stock Exchange, Fair Market Value shall be determined by the
Committee in its absolute discretion, such amount to be calculated
pursuant to the formula established under the Sauer, Inc. 1996
Phantom Stock Plan, which Formula is hereby incorporated by
reference and made a part hereof.
(m) "1998 Initial Public Offering" means the initial public offering of
Common Stock of the Company in the United States, Europe, and
elsewhere as described in the Form S-1 filed with the Securities and
Exchange Commission on March 20, 1998.
(n) "Non-employee Director" means a Director who is not also an
Employee.
(o) "Non-qualified Stock Option," "NQSO," or "Option" means an option to
purchase Shares, granted under Article 6 herein.
(p) "Option Price" means the price at which a Share may be purchased
pursuant to an Option.
(q) "Participant" means a Non-employee Director of the Company, who has
an outstanding Option and/or Restricted Stock grant under the Plan.
(r) "Restricted Stock" means a grant of Shares that is subject to
certain restrictions, as provided in Article 7 herein.
(s) "Shares" means the shares of Common Stock of the Company.
(t) "Subsidiary" means any corporation, limited liability company,
partnership, joint venture, affiliate, or other entity in which the
Company has a majority voting interest.
3
<PAGE> 6
Article 3. Administration
3.1 The Board of Directors. The Plan shall be administered by the Board
(excluding those Directors who are eligible to be Participants under the Plan),
subject to the restrictions set forth in the Plan. The Board shall have the
authority to delegate its authority to any committee appointed by the Board. To
the extent that the Board has delegated any authority and responsibility under
the Plan to such a committee, all applicable references to the Board in the Plan
shall be to such committee.
Administration by the Board. The Board shall have the full power,
discretion, and authority to interpret and administer the Plan in a
manner which is consistent with the Plan's provisions. In addition,
the Board shall have the power to determine Plan eligibility, to
determine the number, the value, the vesting period, the timing, and
other terms and conditions of Options and Restricted Stock to be
granted under the Plan. The Board shall also have full power to
construe and interpret the Plan and any agreement or instrument
entered into under the Plan, including but not limited to Award
Agreements; establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 9
herein) amend the terms and conditions of any Option and Restricted
Stock granted hereunder. Further, the Board shall make all other
determinations which may be necessary or advisable for the
administration of the Plan.
Decision Binding. All determinations and decisions made by the Board
pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board shall be final, conclusive, and binding on
all persons, including the Company, its stockholders, employees,
Participants, and their estates and beneficiaries.
Article 4. Shares Subject to the Plan
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the number of Shares hereby reserved for issuance under the Plan shall
be two hundred fifty thousand (250,000). The grant of an Award shall reduce the
Shares available for grant under the Plan by the number of Shares subject to
such Award.
4.2 Lapsed Awards. If any Award granted under the Plan is canceled,
terminates, expires, or lapses for any reason, any Share underlying such Award
again shall be available for grant under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1 herein and in the number and class of and/or price of Shares subject
to outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Board, in its sole discretion, to prevent
4
<PAGE> 7
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
Article 5. Eligibility and Participation
Persons eligible to participate in the Plan are limited to Non-employee
Directors who are serving on the Board on the date of each scheduled grant under
the Plan.
Article 6. Non-qualified Stock Options
6.1 Grants of Options. During the time period beginning as of the
Effective Date and ending April 21, 2008, and subject to the limitation on the
number of Shares subject to the Plan, on the day following each annual meeting
of the Company's stockholders, beginning with the first annual meeting after
consummation of the Company's 1998 Initial Public Offering during which the
Board agrees that these automatic annual Stock Option grants should begin, each
Non-employee Director shall be granted a Non-qualified Stock Option to purchase
such number of Shares as the Board shall determine in its absolute discretion,
effective as of each such day following the annual stockholders' meeting.
However, the Board has the absolute discretion to make additional Non-qualified
Stock Option grants to Non-employee Directors at any time and to determine the
number of shares to which each such Option pertains. The grants of and number of
Shares pertaining to Non-qualified Stock Options need not be uniform amongst the
Participants. The specific terms and provisions of such Non-qualified Stock
Options shall be incorporated in Award Agreements, executed pursuant to Section
6.2 of the Plan.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Board shall determine.
6.3 Option Price. Unless otherwise designated by the Board at the time of
grant, the Option Price for each grant of an Option under this Plan shall be at
least equal to one hundred percent (100%) of the Fair Market Value of a Share on
the date the Option is granted.
6.4 Duration of Options. Each Option granted to a Participant shall expire
at such time as the Board shall determine at the time of grant; provided,
however, that unless otherwise designated by the Board at the time of grant, no
Option shall be exercisable later than the tenth anniversary date of its grant.
6.5 Vesting of Shares Subject to Option. Unless otherwise designated by
the Board, all Options granted under this Plan shall vest one hundred percent
(100%) and shall be exercisable in whole or in part on the date of grant, and
shall remain exercisable in whole or in part, at any time and from time to time,
until the tenth anniversary of their grant date.
6.6 Termination of Directorship. Unless otherwise designated by the Board,
all unvested Options will be forfeited upon termination of service from the
Board for any reason.
5
<PAGE> 8
Unless otherwise designated by the Board, in the event of death or
Disability of a Participant, all vested Options held by such Participant shall
remain exercisable at any time prior to such Option's expiration date, or for
one (1) year after the date of death or the date of Disability as determined by
the Board, whichever period is shorter, by the Participant or such person or
persons that have acquired the Participant's rights under the Option by will or
by the laws of descent and distribution. For reasons other than death or
Disability, all vested Options shall remain exercisable for six (6) months
following the date the Director's service on the Board terminates or until their
expiration date, whichever period is shorter.
6.7 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having a Fair Market Value at the time of exercise
equal to the total Option Price (provided that the Shares tendered upon Option
exercise have been held by the Participant for at least six (6) months prior to
their tender to satisfy the Option Price), or (c) by a combination of (a) and
(b).
The Board also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Board determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased pursuant to the exercise of the Option.
6.8 Restrictions on Share Transferability. The Board may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option under
the Plan as it may deem advisable, including, without limitation, restrictions
under applicable federal securities laws, under the requirements of any stock
exchange or market upon which such Shares are then listed and/or traded, and
under any blue sky or state securities laws applicable to such Shares.
6.9 Nontransferability of Options. Except as otherwise determined by the
Board and provided in a Participant's Award Agreement, no Option granted under
the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise determined by the Board and provided in a
Participant's Award Agreement, all Options granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such Participant,
or in the event of Disability, by his or her legal representative if one is
appointed.
6.10 Rights with Respect to Shares. No Participant or beneficiary, as
applicable, shall have rights as a shareholder with respect to any Shares
issuable pursuant to an Option until the date of
6
<PAGE> 9
issuance of a stock certificate to the Participant or beneficiary, as
applicable, for such Shares. Except as provided in Section 4.3, no adjustment
shall be made for dividends, distributions, or other rights for which a record
date is prior to the date such stock certificate is issued.
Article 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to the limitation on the number of
Shares subject to the Plan, beginning with the first meeting of the Board after
the consummation of the 1998 Initial Public Offering during which the Board
agrees that these automatic Restricted Stock grants should begin, upon first
being elected or appointed to the Board, newly elected or appointed Non-employee
Directors will each receive a one-time grant of such number of Shares of
Restricted Stock as the Board shall determine in its absolute discretion, on the
day following such election or appointment. Those persons who are currently
Non-employee Directors and who continue as Non-employee Directors will each also
receive a one-time grant of such number of Shares of Restricted Stock as the
Board shall determine in its absolute discretion, on the day following the first
meeting of the Board after the consummation of the 1998 Initial Public Offering.
However, the Board has the absolute discretion to provide additional grants of
Restricted Stock to Non-employee Directors at any time and to determine the
number of Shares pertaining to each such grant. The number of Shares pertaining
to grants of Restricted Stock need not be uniform amongst the Participants. The
specific terms and provisions of such Restricted Stock grants shall be
incorporated in an Award Agreement, executed pursuant to Section 7.2 of the
Plan.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by an Award Agreement that shall specify the Period(s) of Restriction,
the number of Shares of Restricted Stock granted, and such other provisions as
the Board shall determine.
7.3 Vesting of Restricted Stock. Unless otherwise designated by the Board,
all Shares of Restricted Stock granted under this Plan shall vest ratably over a
three (3) year period such that one-third (1/3) of the award vests on each
anniversary of the date of grant.
7.4 Restrictions on Share Transferability. The Shares of Restricted Stock
granted herein may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable vesting period
established by the Board and specified in the Restricted Stock Award Agreement,
or upon earlier satisfaction of any other conditions, as specified by the Board
in its sole discretion and set forth in the Restricted Stock Agreement. All
rights with respect to the Restricted Stock granted to a Participant under the
Plan shall be available during his or her lifetime only to such Participant.
7.5 Other Restrictions. The Board may impose other conditions and/or
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional, and/or individual), time-based restrictions on
vesting following the attainment of the performance goals, and/or restrictions
under applicable federal or state securities laws or other statutes.
7
<PAGE> 10
The Company shall retain the certificates representing Shares of
Restricted Stock in the Company's possession until such time as all conditions
and/or restrictions applicable to such Shares have been satisfied and such
certificates shall bear an appropriate legend referring to the restrictions
applicable thereto.
If and to the extent that the restrictions and other terms and conditions
applicable to Shares of Restricted Stock are not satisfied, such Shares and any
dividends or other rights applicable thereto shall be forfeited and reacquired
by the Company, and all rights of the Participant shall terminate to the extent
of the forfeiture without further obligation on the part of the Company.
Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable vesting
period.
7.6 Voting Rights. Unless otherwise designated by the Board at the time of
grant, Participants holding Shares of Restricted Stock granted hereunder may
exercise full voting rights with respect to those Shares during the vesting
period.
7.7 Dividends and Other Distributions. Unless otherwise designated by the
Board at the time of grant, Participants holding Shares of Restricted Stock
granted hereunder shall be credited with regular cash dividends paid with
respect to the underlying Shares while they are so held during the vesting
period. The Board may apply any restrictions to the dividends that the Board
deems appropriate.
7.8 Termination of Directorship. Unless otherwise designated by the Board,
all unvested Shares of Restricted Stock will be forfeited upon termination of
service from the Board for any reason.
Article 8. Change in Control
8.1 Treatment of Outstanding Awards. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) To the extent that any Options granted hereunder are not already
vested, any and all Options shall become immediately exercisable,
and shall remain exercisable throughout their entire term.
(b) Any restriction periods and restrictions imposed on outstanding
Restricted Stock grants shall immediately lapse.
8.2 Termination, Amendment, and Modification of Change-in-Control
Provisions. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 8 may not be terminated,
amended, or modified to affect adversely any Award theretofore granted under the
Plan without the prior written consent of the Participant with respect to
8
<PAGE> 11
said Participant's outstanding Awards; provided, however, that the Board may
terminate, amend, or modify this Article 8 at any time and from time to time
prior to the date of a Change in Control to affect Awards not yet granted under
the Plan.
Article 9. Amendment, Modification, and Termination
9.1 Amendment, Modification, and Termination. The Board may at any time
and from time to time, alter, amend, suspend, or terminate the Plan in whole or
in part; provided, however, that unless the Board specifically provides
otherwise, any revision or amendment that would cause the Plan to fail to comply
with any requirement of applicable law, regulation, or rule if such amendment
were not approved by stockholders, shall not be effective unless and until such
approval of stockholders of the Company is obtained.
9.2 Awards Previously Granted. Unless required by law, no termination,
amendment, or modification of the Plan shall in any material manner adversely
affect any Award previously granted under the Plan, without the written consent
of the Participant holding the Award.
Article 10. Withholding
10.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
10.2 Share Withholding. With respect to withholding required upon the
exercise of Options or upon the lapse of restrictions on Restricted Stock, or
upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Board, in its sole discretion, deems important.
Article 11. Miscellaneous
11.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
11.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
11.3 Beneficiary Designation. Each Participant under the Plan may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in the event of his or her death. Each designation will revoke all
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<PAGE> 12
prior designations by the same Participant, shall be in a form prescribed by the
Board, and will be effective only when filed by the Participant in writing with
the Board during his or her lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
11.4 No Right of Nomination. Nothing in the Plan shall be deemed to create
any obligation on the part of the Board to nominate any Director for reelection
by the Company's shareholders.
11.5 Shares Available. The Shares made available pursuant to the Plan may
be either authorized but unissued Shares, or Shares which have been or may be
reacquired by the Company, as determined from time to time by the Board.
11.6 Successors. All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
11.7 Requirements of Law. The granting of Awards under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
11.8 Governing Law. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Delaware.
10
<PAGE> 1
Exhibit 10.1(r)
SAUER INC.
MANAGEMENT INCENTIVE PLAN
January 1, 1996 Restatement
<PAGE> 2
1996 SAUER INC.
MANAGEMENT INCENTIVE PLAN
WHEREAS, Sauer Inc. (the "Company") restates effective January 1, 1996,
the Sauer Inc. Management Incentive Plan, designed to achieve the following
objectives:
a) To provide to selected executive and management personnel of the Company,
a meaningful incentive opportunity, the amount of each manager's incentive
to be determined and awarded based upon the performance by such manager
toward pre-established Company, business and, if applicable, division and
unit goals;
b) To focus the attention of such executive and management personnel on
important Company objectives as determined annually by the Executive
Office of the Company;
c) To encourage such executive and management personnel to set goals and plan
for the achievement of such goals;
d) To facilitate the Company's objectives of recruiting, retaining, and
utilizing high performing executive and management personnel;
e) To include within the Company's executive and management compensation plan
an incentive program which is comparable and competitive with other
companies.
NOW, THEREFORE, the Sauer Inc. Management Incentive Plan is hereby adopted and
restated in its entirety effective January 1, 1996 as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall have the
meaning indicated, unless a different meaning is clearly required by the
context:
1. The "Plan" means the 1996 Sauer Inc. Management Incentive Plan with all
amendments and supplements hereafter made.
2. The "Company" means Sauer Inc., a Delaware Corporation, or its successor.
3. A "Subsidiary" means any partnership or corporation, the issued and
outstanding equity of which is majority-owned by the Company.
4. The "Executive Office" means the Executive Office of Sauer Inc. as the same
shall from time to time exist.
5. An "Employee" shall mean any person employed by the Company or a Subsidiary
in a high executive or management position.
6. A "Participant" shall mean any Employee who is selected by the Executive
Office, as provided in Article II, to participate in the Plan.
7. The "Plan Year" means the twelve-month period commencing January 1, 1996 and
the twelve month period commencing each January 1 thereafter.
8. An "Incentive Compensation Award" shall mean the cash payment which may be
awarded to a Participant pursuant to the Plan with respect to any Plan Year.
9. An "Incentive Point" means a point which may be awarded to a Participant as
provided in Article III which is used to calculate the amount of a Participant's
Incentive Compensation Award.
10. A Participant's "Base Percentage" shall be established for each Plan Year by
the Executive Office in its sole discretion and shall be the number of tenths of
one percentage point as the Executive Office so determines.
11. A "Beneficiary" shall mean the person or persons designated by a Participant
in accordance with the Plan to receive payment of the Participant's Incentive
Compensation Award in the event of the death of the Participant prior to the
payment of the Participant's Incentive Compensation Award.
ARTICLE II
ELIGIBILITY
The Executive Office shall select the Employees who are to participate in the
Plan for each Plan Year. The selected Employees shall be notified of their
selection in writing by the Executive Office.
ARTICLE III
INCENTIVE COMPENSATION AWARDS
1. Establishment of Performance Objective. It is understood that the performance
objective established and the basis for awarding Incentive Points shall be
determined at the sole discretion of the Executive Office and may vary from
Participant to Participant and from Plan Year to Plan Year.
With respect to each Participant, the Executive Office will establish an overall
objective which shall include Company goals and personal business plan goals.
Additionally, for Participant's having division or unit responsibility, the
objective may include goals for such unit or division.
The Executive Office when it establishes the Company goals and, if applicable,
the division or unit goals for the Participant, shall also determine the number
of Incentive
<PAGE> 3
Points which shall be awarded to a Participant with respect to each goal which
is achieved and the maximum number of Incentive Points which can be awarded with
respect to each goal which is exceeded.
The personal business plan goals for a Participant shall be established by the
Executive Office after discussion with the Participant. At the time the personal
business plan goals for a Participant are established, the Executive Office
shall also determine the number of Incentive Points which shall be awarded to
the Participant if the personal business plan as a whole is achieved, it being
understood that Incentive Points will not be allocated to specific goals of the
Participant's personal business plan. The foregoing notwithstanding, the
Executive Office reserves the right to, from time to time during a Plan Year,
add to, decrease or revise in such manner as it shall determine in its sole
discretion, the personal business plan goals of a Participant or any portion
thereof, it being recognized, however, that the number of Incentive Points which
will be awarded for the achievement of the personal business plan will not be
changed during such Plan Year.
After the performance objective for a Plan Year has been established for a
Participant and the basis for awarding Incentive Points determined, the
Executive Office shall advise or shall cause the Participant to be advised
thereof on or before May 1 of such Plan Year, or on such date shall advise the
Participant of the date such advice will be given. Such advice, in the event the
Executive Office in its sole discretion determines it to be appropriate, shall
within a reasonable time thereafter be confirmed in writing. In the event the
goals of the personal business plan of a Participant are changed during the Plan
Year, the Executive Office shall notify the Participant of such change(s) as
soon as reasonably practical and, in the event the Executive Office in its sole
discretion determines it to be appropriate, shall within a reasonable time
thereafter confirm such change(s) in writing.
Notwithstanding anything to the contrary contained herein, the Executive Office
for a Plan Year may delegate to such person or persons as it shall in its sole
discretion determine the responsibility for establishing, including the right to
add to, decrease or revise, the personal business plan goals of a Participant
for such Plan Year. Such person or persons in establishing the personal business
plan goals of a Participant for a Plan Year shall comply with all of the
requirements which the Executive Office would have to comply with if it were
establishing the personal business plan goals of the Participant, such as
discussion with the Participant before establishing such goals and where
determined by the Executive Office to be appropriate, confirmation in writing.
In no event, however, will the determination of the number of Incentive Points
which can be awarded to a Participant in a Plan Year if the personal business
plan as a whole is achieved be delegated.
2. Incentive Compensation Awards. Prior to May 1 of the year following the Plan
Year with respect to which an Incentive Compensation Award is to be made, the
Executive Office shall evaluate the performance of a Participant and the
operations under his direction and compare such performance to the performance
objective established for such Participant. Based upon such evaluation, the
Executive Office shall award to the Participant the number of Incentive Points
to which it determines such Participant is entitled. It is understood that the
number of Incentive Points which the Executive Office may award to a Participant
with respect to any Plan Year may range from a low of zero to a maximum of 175.
It is further understood that if, in the sole opinion of the Executive Office, a
Participant achieves the entire performance objective established for him, then
he would normally be awarded 100 Incentive Points. If such performance objective
or any part thereof, is exceeded or not achieved, the Participant may be granted
more or less than 100 Incentive Points respectively, as determined by the
Executive Office in its sole discretion. In any event, the Executive Office
shall advise each Participant in writing on or before May 1 of the year
following the Plan Year with respect to which an Incentive Compensation Award is
to be made, if any, of the number of Incentive Points awarded to the
Participant.
The foregoing notwithstanding, in the event the Executive Office with respect to
a Participant for a Plan Year has delegated the responsibility for establishing
the personal business plan for such Participant for such Plan Year, the person
or persons to whom such responsibility has been delegated shall evaluate the
performance of the Participant in achieving the personal business plan for such
Plan Year, and based upon such evaluation shall recommend to the Executive
Office the number of Incentive Points (up to but not exceeding the number which
may be awarded as determined by the Executive Office pursuant to Section 1 of
this Article) which should be awarded to the Participant, if any, for such Plan
Year for achieving such personal business plan. Such person or persons to whom
the responsibility for establishing personal business plan goals for a Plan Year
was delegated shall, upon the request of the Executive Office, prepare a written
evaluation of the Participant's performance regarding the personal business plan
for such Plan Year, and shall submit such evaluation to the Executive Office
with the written advice to the Participant of the number of Incentive Points
awarded.
The Incentive Compensation Award for a Participant for a Plan Year will be
determined by multiplying the product determined under (i) by the amount
determined under (ii), with (i) and (ii) being as follows:
(i) the Participant's Base Percentage multiplied by one-hundredth (.01) of the
number of Incentive Points awarded to the Participant for such Plan Year;
and
(ii) the Participant's base salary paid during the Plan Year. Should a
Participant have periods of illness or injury during the Plan Year,
payments such as sick leave or disability pay, which are paid to the
Participant in lieu of base salary during those periods, will be
considered as base salary for the purpose of computing Incentive
Compensation Awards.
The Executive Office on or before March 31 of each Plan Year shall advise a
Participant in writing of the Base Percentage established for him for such Plan
Year.
<PAGE> 4
Notwithstanding anything to the contrary contained herein, in the event a
Participant's employment is terminated during a Plan Year under circumstances
other than death, permanent and total disability, normal retirement at age 65,
or retirement under conditions of eligibility for a retirement benefit other
than a normal retirement benefit under the retirement plan in which the
Participant participates and with the approval of the Executive Office, such a
terminated Participant will not be eligible to receive any Incentive
Compensation Award with respect to the Plan Year in which his employment was
terminated. In the event of a Participant's termination of employment during a
Plan Year due to death, permanent and total disability, normal retirement at age
65, or retirement under conditions of eligibility for a retirement plan in which
the Participant participates and with the approval of the Executive Office, such
a terminated Participant will be eligible to receive an Incentive Compensation
Award with respect to the Plan Year in which his employment terminated, only if
the Executive Office in its sole discretion so decides, the amount of such
Incentive Compensation Award to be determined by the Executive Office in its
sole discretion.
3. Payment of Incentive Compensation Award. Each Incentive Compensation Award
shall be paid in cash to the Participant on or before May 1 of the Plan Year
following the Plan Year with respect to which such Incentive Compensation Award
is granted to such Participant. All payments of Incentive Compensation Awards
shall be in cash from the general assets of the Company or applicable
Subsidiary.
4. Death of Participant. In the event of the death of a Participant prior to the
payment of an Incentive Compensation Award granted to a Participant, such amount
shall be paid to the Beneficiary designated in writing by the Participant. Such
unpaid Incentive Compensation Award shall be paid in a lump sum at the same time
as such amount would have been paid to the Participant if he had not died.
A Participant's Beneficiary designation may be changed at any time prior to the
Participant's death and the Beneficiary designation on file with the Company at
the time of the Participant's death which bears the latest date shall govern. In
the absence of a Beneficiary designation or the failure of any Beneficiary to
survive the Participant, such unpaid Incentive Compensation Award shall be paid
to the Participant's estate in a lump sum within 90 days after the appointment
of an executor or administrator.
5. Forfeiture. Notwithstanding anything to the contrary contained in the Plan,
subject to the approval of the Executive Office the right of a Participant to
receive an Incentive Compensation Award which has been granted but which has not
been paid will be forfeited in the event the Participant's employment with the
Company or a Subsidiary is terminated under circumstances other than death,
permanent and total disability, normal retirement at age 65, or retirement under
conditions of eligibility for a retirement benefit other than a normal
retirement benefit under the retirement plan in which the Participant
participates. Furthermore, if the Executive Office, in its sole discretion,
determines that a Participant has engaged in activities constituting gross
misconduct, or the Executive Office, in its sole discretion, determines that a
Participant has engaged in activities which cause significant harm to the
Company or a Subsidiary, the right of such Participant to be granted an
Incentive Compensation Award will be forfeited and the right of a Participant or
his beneficiary to receive an Incentive Compensation Award which has been
granted but which has not been paid will be forfeited.
ARTICLE IV
ADMINISTRATION
The Executive Office shall be responsible for the general administration of the
Plan and for carrying out the provisions hereof and shall have all such powers,
authorities and responsibilities expressly retained by it herein and as may be
necessary to carry out the provisions of the Plan, including the power to
determine all questions relating to eligibility for and the amount of an
Incentive Compensation Award, all questions pertaining to its claims for
benefits and procedures for claim review, and the power to resolve any and all
other questions arising under the Plan, including any questions of construction.
The Executive Office may designate such person or persons as it shall determine
to carry out any of such powers, authorities or responsibilities.
The actions taken and the decisions made by the Executive Office hereunder shall
be final and binding upon all interested parties. The Executive Office may, as
to all questions of accounting, rely conclusively upon any determination made by
the independent public accountants for the Company.
ARTICLE V
AMENDMENT AND TERMINATION
The Executive Office reserves the right to amend or terminate the Plan at any
time by written action of the Executive Office; provided, however, that no such
action shall adversely affect any Participant or Beneficiary with respect to the
amount of an Incentive Compensation Award theretofore granted.
ARTICLE VI
MISCELLANEOUS
1. Nonalienation. No Participant or Beneficiary shall in any manner encumber or
dispose of the right to receive any payment of an Incentive Compensation Award
hereunder. If a Participant or Beneficiary attempts to assign, transfer,
alienate or encumber the right to receive the amount of an Incentive
Compensation Award hereunder or permits the same to be subject to alienation,
garnishment, attachment, execution or levy of any kind, then the Executive
Office in its sole discretion may hold or apply such amount or any part thereof
to or for the benefit of such Participant or Beneficiary, the Participant's or
Beneficiary's spouse, children, blood relatives or other dependents, or any of
them in such manner and in such proportions as the Executive Office may consider
proper. Any such application of the amount of an Incentive Compensation Award
may be made without the intervention of a guardian. The receipt by the payee
shall constitute a complete acquittance to the Company with respect thereto and
neither the Company nor any Subsidiary nor the Executive Office shall have any
responsibility for the proper application thereof.
<PAGE> 5
2. Plan Noncontractual. Nothing herein contained shall be construed as a
commitment or agreement on the part of any person employed by the Company or a
Subsidiary to continue such person's employment with the Company or Subsidiary,
and nothing herein contained shall be construed as a commitment or agreement on
the part of the Company or any Subsidiary to continue the employment or the
annual rate of compensation of any such person for any period, and all
Participant's shall remain subject to discharge to the same extent as if the
Plan had never been put into effect.
3. Interest of Participant and Beneficiary. The obligation of the Company under
the Plan to make payments of Incentive Compensation Awards merely constitutes
the unsecured promise of the Company to make payments from its general assets as
provided herein, and no Participant or Beneficiary shall have any interest, or a
lien or prior claim upon any property of the Company or any Subsidiary.
4. Claims of Other Persons. The provisions of the Plan shall in no event be
construed as giving any person, firm or corporation any legal or equitable right
as against the Company or any Subsidiary, their officers, employees, or
directors, except any such rights as are specifically provided for in the Plan
or are hereafter created in accordance with the terms and provisions of the
Plan.
5. Facility of Payment. If any person to whom an Incentive Compensation Award is
payable is unable to care for his affairs because of illness or accident, any
payment due (unless prior claim therefore shall have been made by a duly
qualified guardian or other legal representative) may be paid to the spouse,
parent, child, brother or sister, or any other individual deemed by the
Executive Office to be maintaining or responsible for maintenance of such
person. Any payment made in accordance with the provisions of this Section 5
shall be a complete discharge of any liability of the Plan with respect to such
payment.
6. Absence of Liability. No member of the Board of Directors of the Company or a
Subsidiary, or the Executive Office, or any officer of the Company or a
Subsidiary shall be liable for any act or action hereunder, whether of
commission or omission, taken by any other member, or by any officer, agent, or
employee, or, except in circumstances involving his bad faith, for anything done
or omitted to be done by himself.
7. Severability. The invalidity or unenforceability of any particular provision
of the Plan shall not affect any other provision hereof, and the Plan shall be
construed in all respects as if such invalid or unenforceable provision were
ommitted herefrom.
8. Governing Law. The provisions of the Plan shall be governed and construed in
accordance with the laws of the State of Iowa, U.S.A.
Executed at Ames, Iowa on the 21st day of February, 1996.
/s/ Dr. Klaus Murmann
- ----------------------------
Dr. Klaus Murmann
/s/ Dr. Tonio Barlage
- ----------------------------
Dr. Tonio Barlage
/s/ Dr. Tilman E. Fischer
- ----------------------------
Dr. Tilman E. Fischer
/s/ David L. Pfeifle
- ----------------------------
David L. Pfeifle
<PAGE> 6
INTRODUCTION
Effective January 1, 1996, Sauer Inc. restated its Management Incentive Plan to
supplement its other compensation plans.
The purpose is to use a series of performance measurements which will focus
management attention on various objectives and reward participants according to
how well the Company, its Divisions, and their Units perform against these
objectives.
-i-
<PAGE> 7
I. DESIGN CRITERIA
This incentive plan is designed to achieve the following objectives:
Provide significant incentive opportunities to participants based on
achievement of challenging Company, division, unit and personal business
goals.
Focus attention on important Company objectives as determined annually by
the Executive Office. The following are illustrative of the objectives to
be stressed:
SAUER INC. DIVISION OR UNIT
--Return on Average Total Equity --Return on average net assets
vs budget
--Return on Average Net Assets --Return on average net assets
objectives (PAR)
--Return on average net assets
(lower of "actual" or
"budget") vs. specific
objectives (PAR)
Encourage throughout the organization effective setting of goals and
planning for their achievement.
Structure the Company's compensation plan along lines which are comparable
and competitive with other well managed companies.
Facilitate the Company's efforts to recruit, retain, and utilize high
performing personnel.
An incentive plan should contribute to the continued progress of the Company by
focusing attention on primary Company objectives and by providing significant
rewards and recognition to selected executives and managers for excellent
performance. It should also benefit the owning partners by emphasizing
management's attention to those objectives which will provide the best overall
economic results for the Company.
-1-
<PAGE> 8
II. PARTICIPATION
Participation in the Management Incentive Plan for Sauer Inc. is limited to
individuals whose job performance can have a measurable impact on the Company
and the division or unit to which they are attached. Participant's will be able
to relate the level of their award to their individual contribution.
-2-
<PAGE> 9
INCENTIVE OPPORTUNITY
<TABLE>
<CAPTION>
Target Maximum
Incentive Potential
Opportunity Award
----------- ---------
<S> <C>
16.0%* 28.0%*
</TABLE>
* Percentage of base salary paid during the Plan Year.
-3U-
<PAGE> 10
INCENTIVE OPPORTUNITY
<TABLE>
<CAPTION>
Target Maximum
Incentive Potential
Opportunity Award
----------- ---------
<S> <C>
22.0%* 38.5%*
</TABLE>
* Percentage of base salary paid during the Plan Year.
-3M-
<PAGE> 11
INCENTIVE OPPORTUNITY
<TABLE>
<CAPTION>
Target Maximum
Incentive Potential
Opportunity Award
----------- ---------
<S> <C>
30.0%* 52.5%*
</TABLE>
* Percentage of base salary paid during the Plan Year.
-3E-
<PAGE> 12
PERFORMANCE MEASUREMENT ELEMENTS FOR UNITS
TOTAL COMPANY ELEMENTS
I. Return on average total equity
II. Return on average net assets
DIVISION ELEMENTS
III. Return on average net assets vs. budget
IV. Return on average net assets vs. specific division objective (PAR)
V. Return on average net assets (lower of "actual" or "budget") vs. specific
division objective (PAR)
UNIT ELEMENTS
VI. Return on average net assets vs. budget
VII. Return on average net assets vs. specific unit objective (PAR)
VIII. Return on average net assets (lower of "actual" or "budget) vs. specific
unit objective (PAR)
BUSINESS ELEMENTS
IX. Achievement of "business plan".
Specific objectives for each individual "business plan" will vary from
operation to operation and from year to year, and are subject to change
during a plan year. The Executive Office and the unit general manager, or
the person or persons designated by the Executive Office will discuss the
nature of these specific objectives before they are finalized by the
Executive Office or its designee(s).
-4U-
<PAGE> 13
PERFORMANCE MEASUREMENT ELEMENTS FOR COMPANY
TOTAL COMPANY ELEMENTS
I. Return on average total equity
II. Return on average net assets
III. Return on average net assets vs. budget
IV. Return on average net assets vs. specific Company objective (PAR)
V. Return on average net assets (lower of "actual" or "budget") vs. specific
Company objective (PAR)
BUSINESS ELEMENTS
VI. Achievement of "business plan".
Specific objectives for each individual "business plan" will vary from
operation to operation and from year to year, and are subject to change
during a plan year. The Executive Office and the unit general manager, or
the person or persons designated by the Executive Office will discuss the
nature of these specific objectives before they are finalized by the
Executive Office or its designee(s).
-4C-
<PAGE> 14
PERFORMANCE MEASUREMENT ELEMENTS FOR DIVISIONS
TOTAL COMPANY ELEMENTS
I. Return on average total equity
II. Return on average net assets
DIVISION ELEMENTS
III. Return on average net assets vs. budget
IV. Return on average net assets vs. specific division objective (PAR)
V. Return on average net assets (lower of "actual" or "budget") vs. specific
division objective (PAR)
BUSINESS ELEMENTS
VI. Achievement of "business plan".
Specific objectives for each individual "business plan" will vary from
operation to operation and from year to year, and are subject to change
during a plan year. The Executive Office and the unit general manager, or
the person or persons designated by the Executive Office will discuss the
nature of these specific objectives before they are finalized by the
Executive Office or its designee(s).
-4D-
<PAGE> 15
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INCENTIVE AWARD POINTS
- --------------------------------------------------------------------------------
Minimum Target Maximum
------- ------ -------
(Points) (Points) (Points)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Company Elements (Sauer Inc.)
I. Return on average total equity 0 8.0 12.0
II. Return on average net assets 0 15.0 24.0
- --------------------------------------------------------------------------------
Division Elements
III. Return on average net assets vs. budget 0 8.0 12.0
IV. Return on average net assets vs. specific
division objective (PAR) 0 10.0 25.0
V. Return on average net assets (lower of
"actual" or "budget") vs. Specific
division objective (PAR) 0 10.0 25.0
- --------------------------------------------------------------------------------
Unit Elements
VI. Return on average net assets vs. budget 0 8.0 12.0
VII. Return on average net assets vs. specific
unit objective (PAR) 0 8.0 20.0
VIII. Return on average net assets vs. (lower of
"actual" or "budget") specific unit
objective (PAR) 0 8.0 20.0
- --------------------------------------------------------------------------------
Business Elements
IX. Achievement of "Business Plan" 0 25.0 25.0
- --------------------------------------------------------------------------------
Total 0 100.0 175.0
- --------------------------------------------------------------------------------
</TABLE>
-5U-
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INCENTIVE AWARD POINTS
- --------------------------------------------------------------------------------
Minimum Target Maximum
------- ------ -------
(Points) (Points) (Points)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Company Elements (Sauer Inc.)
I. Return on average total equity 0 8.0 12.0
II. Return on average net assets 0 15.0 24.0
- --------------------------------------------------------------------------------
Division Elements
III. Return on average net assets vs. budget 0 16.0 24.0
IV. Return on average net assets vs. specific
division objective (PAR) 0 18.0 45.0
V. Return on average net assets (lower of
"actual" or "budget") vs. specific
division objective (PAR) 0 18.0 45.0
- --------------------------------------------------------------------------------
Business Elements
VI. Achievement of "Business Plan" 0 25.0 25.0
- --------------------------------------------------------------------------------
Total 0 100.0 175.0
- --------------------------------------------------------------------------------
</TABLE>
-5D-
<PAGE> 17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INCENTIVE AWARD POINTS
- --------------------------------------------------------------------------------
Minimum Target Maximum
------- ------ -------
(Points) (Points) (Points)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Company Elements (Sauer Inc.)
I. Return on average total equity 0 8.0 12.0
II. Return on average net assets 0 15.0 24.0
III. Return on average net assets vs. budget 0 16.0 24.0
IV. Return on average net assets vs.
specific Company objective (PAR) 0 18.0 45.0
V. Return on average net assets (lower of
"actual" or "budget") vs. specific
Company objective (PAR) 0 18.0 45.0
- --------------------------------------------------------------------------------
Business Elements
VI. Achievement of "Business Plan" 0 25.0 25.0
- --------------------------------------------------------------------------------
Total 0 100.0 175.0
- --------------------------------------------------------------------------------
</TABLE>
-5C-
<PAGE> 18
INCENTIVE COMPENSATION AWARD
The number of incentive award points granted to a Participant will be determined
solely by the Executive Office based on its evaluation of the Participant's
performance compared to the objectives established for him.
Based upon the number of points granted, the amount of the Participant's
Incentive Compensation Award will be calculated. All (100%) of the Incentive
Compensation Award granted with respect to a Plan Year will be paid, in cash, to
the Participant by May 1 of the following Plan Year.
If a Participant's employment is terminated during any year due to death,
permanent and total disability, normal retirement at age 65, or retirement under
conditions of eligibility for a retirement benefit other than a normal
retirement benefit and with the approval of the Executive Office, the terminated
Participant will be eligible to receive an Incentive Compensation Award for such
year only if the Executive Office so decides, the amount of such award to be
determined by the Executive Office. If a Participant's employment is terminated
during a year for any other reason, the terminated Participant will not be
eligible to receive an Incentive Compensation Award with respect to such year.
-6-
<PAGE> 19
UNPAID BALANCES
In the event of the termination of a Participant's employment under
circumstances other than death, permanent and total disability, normal
retirement at age 65, or other retirement where the Participant is eligible for
a retirement benefit and the Executive Office approves such retirement, the
right of the Participant to an Incentive Compensation Award will be terminated
and forfeited.
In the event of the death of a Participant, any unpaid Incentive Compensation
Award will be paid to the Participant's designated beneficiary or, in the
absence of the designation of a Beneficiary, to the Participant's estate.
-7-
<PAGE> 20
TOTAL COMPANY PERFORMANCE MEASUREMENT ELEMENT I
RETURN ON AVERAGE TOTAL EQUITY
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 18%
Points Maximum 27%
</TABLE>
NET EARNINGS ON AVERAGE TOTAL EQUITY (%)
I. RETURN ON AVERAGE TOTAL EQUITY
EXPLANATIONS: A primary measure of management effectiveness is the company's
ability to provide an after-tax return on total equity. This
element calls for a target return of 18% to achieve an award
of 8 points. A return on total equity of 27% or more will
yield an award of 12 points.
DEFINITIONS: Net Earnings -- Consolidated net earnings for the fiscal year
before distributions.
Total Equity -- Equity of Sauer Inc. (excluding minority
interest).
Average Total Equity -- The average of total equity at the
beginning of the year and at the end of each of the four
succeeding fiscal quarters.
ADJUSTMENTS: None, except as may be approved by the Executive Office.
-8-
<PAGE> 21
TOTAL COMPANY PERFORMANCE MEASUREMENT ELEMENT II
RETURN ON AVERAGE NET ASSETS
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 15%
Points Maximum 24%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
II. RETURN ON AVERAGE NET ASSETS
EXPLANATIONS: Achievement of 15% return on average net assets will result in
an award equal to 15 points. Additional points will be awarded
if the return on average net assets exceeds 15%. A return on
average net assets of 24% or more will yield an award of 24
points.
DEFINITIONS: Return -- Consolidated profit before interest expense and
taxes -- P.B.I.T.
Net Assets -- Total assets of Sauer Inc. less non-interest
bearing liabilities (this equals total equity of Sauer Inc.
plus total interest bearing debt).
Average Net Assets -- The average of net assets employed at
the beginning of the year and at the end of each of the four
succeeding fiscal quarters.
ADJUSTMENTS: Adjustments will be made for extraordinary, unusual and
nonrecurring items. Any adjustment must be approved by the
Executive Office.
-9-
<PAGE> 22
DIVISION PERFORMANCE MEASUREMENT ELEMENT III
RETURN ON AVERAGE NET ASSETS vs. BUDGET
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target +/-0%
Points Maximum +5%
</TABLE>
Example: If the budgeted return is 15%, the minimum
award is above a 10% return and the maximum award is at
or above a 20% return.
DEVIATION OF RETURN ON AVERAGE NET ASSETS FROM BUDGETED RETURN (%)
III. RETURN ON AVERAGE NET ASSETS vs. BUDGET
EXPLANATIONS: This performance measurement element compares the budgeted return
on average net assets with the actually achieved return. No award can be made
under this performance measurement element if the actual return is five
percentage points or more worse than the budgeted number of percentage points.
Achievement of the budgeted return on average net assets will result in an award
equal to 16 points. Additional points will be awarded if the return exceeds the
budgeted return. A return on average net assets which is five or more percentage
points higher than the budgeted number of percentage points will yield an award
of 24 points.
DEFINITIONS: Return -- Consolidated profit before Corporate charges, interest
expense and taxes - P.B.I.T. (consolidated P.B.I.T. of the division for the
fiscal year after elimination of intradivision profits).
Net Assets -- Total assets of the division less intercompany investments and
non-interest bearing liabilities (this equals total equity plus total interest
bearing debt less intercompany investments).
Average Net Assets -- The average of Net Assets employed at the beginning of the
year and at the end of each of the four succeeding fiscal quarters.
ADJUSTMENTS: Adjustments will be made for extraordinary, unusual and
nonrecurring items. Any adjustment must be approved by the Executive Office.
-10-
<PAGE> 23
DIVISION PERFORMANCE MEASUREMENT ELEMENT III
RETURN ON AVERAGE NET ASSETS vs. BUDGET
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target +/-0%
Points Maximum +5%
</TABLE>
Example: If the budgeted return is 15%, the minimum
award is above a 10% return and the maximum award is at
or above a 20% return.
DEVIATION OF RETURN ON AVERAGE NET ASSETS FROM BUDGETED RETURN (%)
III. RETURN ON AVERAGE NET ASSETS vs. BUDGET
EXPLANATIONS: This performance measurement element compares the budgeted return
on average net assets with the actually achieved return. No award can be made
under this performance measurement element if the actual return is five
percentage points or more worse than the budgeted number of percentage points.
Achievement of the budgeted return on average net assets will result in an award
equal to 8 points. Additional points will be awarded if the return exceeds the
budgeted return. A return on average net assets which is five or more percentage
points higher than the budgeted number of percentage points will yield an award
of 12 points.
DEFINITIONS: Return -- Consolidated profit before Corporate charges, interest
expense and taxes - P.B.I.T. (consolidated P.B.I.T. of the division for the
fiscal year after elimination of intradivision profits).
Net Assets -- Total assets of the division less intercompany investments and
non-interest bearing liabilities (this equals total equity plus total interest
bearing debt less intercompany investments).
Average Net Assets -- The average of Net Assets employed at the beginning of the
year and at the end of each of the four succeeding fiscal quarters.
ADJUSTMENTS: Adjustments will be made for extraordinary, unusual and
nonrecurring items. Any adjustment must be approved by the Executive Office.
-10U-
<PAGE> 24
COMPANY PERFORMANCE MEASUREMENT ELEMENT III
RETURN ON AVERAGE NET ASSETS vs. BUDGET
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target +/-0%
Points Maximum +5%
</TABLE>
Example: If the budgeted return is 15%, the minimum
award is above a 10% return and the maximum award is at
or above a 20% return.
DEVIATION OF RETURN ON AVERAGE NET ASSETS FROM BUDGETED RETURN (%)
III. RETURN ON AVERAGE NET ASSETS vs. BUDGET
EXPLANATIONS: This performance measurement element compares the budgeted return
on average net assets with the actually achieved return. No award can be made
under this performance measurement element if the actual return is five
percentage points or more worse than the budgeted number of percentage points.
Achievement of the budgeted return on average net assets will result in an award
equal to 16 points. Additional points will be awarded if the return exceeds the
budgeted return. A return on average net assets which is five or more percentage
points higher than the budgeted number of percentage points will yield an award
of 24 points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element II.
-10C-
<PAGE> 25
DIVISION PERFORMANCE MEASUREMENT ELEMENT IV
RETURN ON AVERAGE NET ASSETS vs. SPECIFIC DIVISION OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 22%
Points Maximum 31%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
IV. RETURN ON AVERAGE NET ASSETS vs. SPECIFIC DIVISION OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 22% has been
established for this Division. Achievement of this target
return will result in an award equal to 18 points. A minimum
threshold return of 9% is required before any award can be
made under this performance measurement element. A return on
average net assets of 31% or more will yield an award of 45
points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element III.
-11-
<PAGE> 26
DIVISION PERFORMANCE MEASUREMENT ELEMENT IV
RETURN ON AVERAGE NET ASSETS vs. SPECIFIC DIVISION OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 22%
Points Maximum 31%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
IV. RETURN ON AVERAGE NET ASSETS vs. SPECIFIC DIVISION OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 22% has been
established for this Division. Achievement of this target
return will result in an award equal to 10 points. A minimum
threshold return of 9% is required before any award can be
made under this performance measurement element. A return on
average net assets of 31% or more will yield an award of 25
points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element III.
-11U-
<PAGE> 27
COMPANY PERFORMANCE MEASUREMENT ELEMENT IV
RETURN ON AVERAGE NET ASSETS vs. SPECIFIC COMPANY OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 20%
Points Maximum 28%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
IV. RETURN ON AVERAGE NET ASSETS vs. SPECIFIC COMPANY OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 20% has been
established for the Company. Achievement of this target return
will result in an award equal to 18 points. A minimum
threshold return of 9% is required before any award can be
made under this performance measurement element. A return on
average net assets of 28% or more will yield an award of 45
points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element II.
-11C-
<PAGE> 28
DIVISION PERFORMANCE MEASUREMENT ELEMENT V
RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC DIVISION OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 22%
Points Maximum 31%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
V. RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC DIVISION OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 22% has been
established for this Division. In order to encourage the
establishment of challenging budgets, the lower of the
budgeted return on average net assets or the actual return on
average net assets will determine the award under this
performance measurement element. Planning and achieving the
target return will result in an award equal to 18 points. A
minimum threshold of 9% must be planned and achieved before
any award can be made under this element. Planning and
achieving a return on average net assets of 31% or more will
yield an award of 45 points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element III.
-12-
<PAGE> 29
COMPANY PERFORMANCE MEASUREMENT ELEMENT V
RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC COMPANY OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 20%
Points Maximum 28%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
V. RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC COMPANY OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 20% has been
established for the Company. In order to encourage the
establishment of challenging budgets, the lower of the
budgeted return on average net assets or the actual return on
average net assets will determine the award under this
performance measurement element. Planning and achieving the
target return will result in an award equal to 18 points. A
minimum threshold of 9% must be planned and achieved before
any award can be made under this element. Planning and
achieving a return on average net assets of 28% or more will
yield an award of 45 points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element II.
-12C-
<PAGE> 30
DIVISION PERFORMANCE MEASUREMENT ELEMENT V
RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC DIVISION OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 22%
Points Maximum 31%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
V. RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC DIVISION OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 22% has been
established for this Division. In order to encourage the
establishment of challenging budgets, the lower of the
budgeted return on average net assets or the actual return on
average net assets will determine the award under this
performance measurement element. Planning and achieving the
target return will result in an award equal to 10 points. A
minimum threshold of 9% must be planned and achieved before
any award can be made under this element. Planning and
achieving a return on average net assets of 31% or more will
yield an award of 25 points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element III.
-12U-
<PAGE> 31
UNIT PERFORMANCE MEASUREMENT ELEMENT VI
RETURN ON AVERAGE NET ASSETS vs. BUDGET
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target +/-0%
Points Maximum +5%
</TABLE>
Example: If the budgeted return is 15%, the minimum
award is above a 10% return and the maximum award is at
or above a 20% return.
DEVIATION OF RETURN ON AVERAGE NET ASSETS FROM BUDGETED RETURN (%)
VI. RETURN ON AVERAGE NET ASSETS vs. BUDGET
EXPLANATIONS: This performance measurement element compares the budgeted return
on average net assets with the actually achieved return. No award can be made
under this performance measurement element if the actual return is five
percentage points or more worse than the budgeted number of percentage points.
Achievement of the budgeted return on average net assets will result in an award
equal to 8 points. Additional points will be awarded if the return exceeds the
budgeted return. A return on average net assets which is five or more percentage
points higher than the budgeted number of percentage points will yield an award
of 12 points.
DEFINITIONS: Return -- Profit before interest expense and taxes - P.B.I.T.
Net Assets -- Total assets of the unit less intercompany investments and
non-interest bearing liabilities (this equals total equity plus total interest
bearing debt less intercompany investments).
Average Net Assets -- The average of Net Assets employed at the beginning of the
year and at the end of each of the four succeeding fiscal quarters.
ADJUSTMENTS: Adjustments will be made for extraordinary, unusual and
nonrecurring items. Any adjustment must be approved by the Executive Office.
-13U-
<PAGE> 32
UNIT PERFORMANCE MEASUREMENT ELEMENT VII
RETURN ON AVERAGE NET ASSETS vs. SPECIFIC UNIT OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 22%
Points Maximum 31%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
VII. RETURN ON AVERAGE NET ASSETS vs. SPECIFIC UNIT OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 22% has been
established for this Unit. Achievement of this target return
will result in an award equal to 8 points. A minimum threshold
return of 9% is required before any award can be made under
this performance measurement element. A return on average net
assets of 31% or more will yield an award of 20 points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element VI.
-14U-
<PAGE> 33
UNIT PERFORMANCE MEASUREMENT ELEMENT VIII
RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OF BUDGET) vs.
SPECIFIC UNIT OBJECTIVE (PAR)
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Incentive
Award Target 22%
Points Maximum 31%
</TABLE>
RETURN ON AVERAGE NET ASSETS (%)
VIII. RETURN ON AVERAGE NET ASSETS (LOWER OF ACTUAL OR BUDGET) vs.
SPECIFIC UNIT OBJECTIVE (PAR)
EXPLANATIONS: Based upon many factors, including product line maturity,
market position, age of assets and historical performance a
target return on average net assets of 22% has been
established for this Unit. In order to encourage the
establishment of challenging budgets, the lower of the
budgeted return on average net assets or the actual return on
average net assets will determine the award under this
performance measurement element. Planning and achieving the
target return will result in an award equal to 8 points. A
minimum threshold of 9% must be planned and achieved before
any award can be made under this element. Planning and
achieving a return on average net assets of 31% or more will
yield an award of 20 points.
DEFINITIONS
&
ADJUSTMENTS: Same as performance measurement element VI.
-15U-
<PAGE> 1
Exhibit 10.1(s)
SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
(An Amendment and Restatement,
effective January 1, 1991)
<PAGE> 2
SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
(January 1, 1991 Amendment and Restatement)
PAGE
----
ARTICLE I DEFINITIONS .................................................. 3
ARTICLE II YEARS OF SERVICE AND YEARS OF PARTICIPATION ................... 13
2.1 Years of Service and Years of Participation Prior
to January 1, 1991 .................................... 13
2.2 Years of Service and Years of Participation
on or After January 1, 1991 ........................... 13
2.3 Military Service, Disability Leave of Absence and
Lay Off ............................................... 13
2.4 Transfers ............................................. 14
2.5 Loss of Years of Service and Years of Participation;
Service Spanning ...................................... 15
2.6 Reinstatement of Years of Service and
Years of Participation ................................ 15
2.7 Finality of Determinations and Non-duplication ........ 17
2.8 Predecessors .......................................... 17
ARTICLE III NORMAL RETIREMENT ............................................. 18
3.1 Eligibility ........................................... 18
3.2 Benefit Amount ........................................ 18
3.3 Transitional Benefits ................................. 18
3.4 Benefit Payments ...................................... 19
ARTICLE IV EARLY RETIREMENT .............................................. 20
4.1 Eligibility ........................................... 20
4.2 Benefit Amount ........................................ 20
4.3 Benefit Payments ...................................... 20
ARTICLE V VESTED RIGHTS ................................................. 21
5.1 Eligibility ........................................... 21
5.2 Benefit Amount ........................................ 21
5.3 Benefit Payments ...................................... 21
ARTICLE VI "RULE OF 50" RIGHTS ........................................... 23
6.1 Eligibility ........................................... 23
6.2 Benefit Amount ........................................ 23
6.3 Benefit Payments ...................................... 24
i
<PAGE> 3
ARTICLE VII OPTIONAL METHODS OF PAYMENT AND AUTOMATIC
ELECTION ...................................................... 25
7.1 Available Options ..................................... 25
7.2 Election of Form of Benefits .......................... 28
7.3 Revocation and Change of Option ....................... 29
7.4 Effect of Various Circumstances upon Option ........... 30
7.5 Payment Under Options ................................. 30
7.6 Availability of Options for Employee
Terminated by Layoff .................................. 32
7.7 Automatic Election .................................... 32
ARTICLE VIII SPECIAL AGE 65 BENEFIT ........................................ 35
8.1 Eligibility ........................................... 35
8.2 Benefit Amount ........................................ 35
8.3 Benefit Payments ...................................... 35
ARTICLE IX SURVIVOR BENEFIT .............................................. 36
9.1 Eligibility ........................................... 36
9.2 Benefit Amount ........................................ 36
9.3 Benefit Payments ...................................... 37
9.4 Surviving Spouse Defined .............................. 37
ARTICLE X GENERAL PROVISIONS AND LIMITATIONS
REGARDING BENEFITS ............................................ 38
10.1 Limitations on Commencement ........................... 38
10.2 Reemployment and Employment After Normal Retirement
Date .................................................. 40
10.3 Restriction on Alienation of Retirement Benefits ...... 44
10.4 Payment to Incompetent Persons ........................ 45
10.5 Payment of Small Benefits ............................. 46
10.6 Application of Certain Plan Provisions ................ 46
ARTICLE XI MAXIMUM RETIREMENT BENEFITS ................................... 47
11.1 Maximum Benefit Limitations ........................... 47
11.2 Exception to Application of Section 11.1 Limitation ... 48
11.3 Treatment of Employee Contributions ................... 48
11.4 Cost of Living Adjustments ............................ 48
11.5 Adjustments to Maximum Benefit Limitation ............. 48
11.6 Sum of Defined Benefit and Defined Contribution
Plan Fractions ........................................ 50
11.7 Miscellaneous ......................................... 50
11.8 Limitation Year Defined ............................... 50
ii
<PAGE> 4
11.9 Compensation Defined .................................. 50
11.10 Adjustment for Retired Employees ...................... 51
ARTICLE XII FINANCING ..................................................... 53
12.1 Trust Fund and Trustee ................................ 53
12.2 Contributions by an Employer .......................... 53
12.3 No Reversion: Return of Contributions ................. 53
12.4 Forfeitures Not to Increase Benefits .................. 54
12.5 Change of Funding Medium .............................. 54
ARTICLE XIII ADMINISTRATION ................................................ 56
13.1 Plan Administrator .................................... 56
13.2 Rights and Duties of the Board ........................ 56
13.3 Rights and Duties of the Trustee ...................... 57
13.4 Rights and Duties of the Committee .................... 57
13.5 Rights and Duties of the Plan Benefit Committee ....... 58
13.6 Rights and Duties of the Appeal Review Committee ...... 59
13.7 Indemnification ....................................... 59
13.8 Reliance Upon Others .................................. 59
13.9 Claims Procedures ..................................... 60
ARTICLE XIV MISCELLANEOUS ................................................. 62
14.1 Plan Non-Contractual .................................. 62
14.2 Claims of Other Persons ............................... 62
14.3 No Guarantees ......................................... 62
14.4 Limitations on Liability .............................. 63
14.5 Merger or Consolidation of Plan ....................... 63
14.6 Nonforfeitability of Benefits ......................... 63
14.7 Prudent Man Rule ...................................... 63
14.8 Duty to Furnish Information and Documents ............. 64
14.9 Precedent ............................................. 64
14.10 Litigation ............................................ 65
14.11 Service of Process .................................... 65
14.12 Trust Agreement ....................................... 65
14.13 Governing Law ......................................... 65
14.14 Titles ................................................ 65
14.15 References ............................................ 65
14.16 Masculine to Include Feminine ......................... 65
ARTICLE XV ADOPTION OF PLAN BY RELATED CORPORATIONS EXTENSION TO
NON-COVERED UNITS; ORGANIZATIONAL CHANGES ..................... 67
15.1 Adoption by Related Corporations ...................... 67
iii
<PAGE> 5
15.2 Extension to Non-Covered Units 67
15.3 Special Provision Regarding Eligibility and
Benefits 67
15.4 Changes in Employer Organization 68
ARTICLE XVI AMENDMENT AND DURATION 69
16.1 Internal Revenue Code Qualification 69
16.2 Amendment and Termination 69
16.3 Termination 70
16.4 Adjustment of Allocations 71
16.5 Assets Insufficient for Allocation 71
16.6 Assets Insufficient for Allocation Under Section
16.3(c) 71
16.7 Residual Assets 72
16.8 Immediate Vesting Upon Termination or
Discontinuance 72
16.9 Meanings of Terms 72
16.10 Provisions to Prevent Discrimination in
Case of Early Termination of Plan 73
16.11 Withdrawal of an Employer 74
ARTICLE XVII TOP-HEAVY PROVISIONS 75
17.1 Top-Heavy Status 75
17.2 Definitions 75
17.3 Determination of Top-Heavy Status 75
17.4 Actuarial Assumption 76
17.5 Vesting 76
17.6 Minimum Benefit 77
17.7 Maximum Allocation 78
17.8 Safe Harbor 79
17.9 Limits on Benefits to Key Employees 79
APPENDIX A FORMER SUNDSTRAND EMPLOYEES 80
APPENDIX B 1990 EARLY RETIREMENT PROGRAM 86
APPENDIX C 1993 EARLY RETIREMENT PROGRAM 88
iv
<PAGE> 6
SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
(January 1, 1991 Amendment and Restatement)
WHEREAS, Sauer-Sundstrand Company, a Delaware corporation and Plan
Administrator herein, is the successor to Sundstrand-Sauer, a partnership formed
effective January 1, 1987, by a subsidiary of Sundstrand Corporation, a Delaware
corporation, and a subsidiary of Sauer Getriebe AG, an Aktiengesellschaft
organized under the laws of the Federal Republic of Germany; and
WHEREAS, Sauer-Sundstrand Company has sponsored and maintained the
Sundstrand-Sauer Employees' Retirement Plan for certain employees of
Sauer-Sundstrand; and
WHEREAS, Sauer-Sundstrand Company has sponsored and maintained the
Sundstrand-Sauer Minneapolis, Minnesota Employees' Retirement Plan and the
Sundstrand-Sauer Freeport, Illinois Employees' Retirement Plan for employees of
Sauer-Sundstrand at that company's Minneapolis, Minnesota and Freeport, Illinois
locations; and
WHEREAS, Sauer-Sundstrand Company desires to continue the Sundstrand-Sauer
Employees Retirement Plan, as hereby amended and restated as the
Sauer-Sundstrand Employees' Retirement Plan ("Plan"), to provide retirement
benefits for its eligible employees who were either transferred from the
employment of Sundstrand Corporation on January 1, 1987, or hired on or after
said date; and
WHEREAS, for reasons of administrative convenience and efficiency the
Sundstrand-Sauer Minneapolis, Minnesota Employees' Retirement Plan and the
Sundstrand-Sauer Freeport, Illinois Employees' Retirement Plan were merged into
and became a part of the Plan effective January 1, 1991, pursuant to resolutions
of the Board of Directors of Sauer-Sundstrand Company; and
<PAGE> 7
WHEREAS, Sauer-Sundstrand Company further desires that the Plan as amended
and restated comply with the Employee Retirement Income Security Act of 1974 and
its amendments, and the Internal Revenue Code requirements for qualification of
a pension plan and all applicable regulations;
NOW, THEREFORE, in compliance with the foregoing, Sauer-Sundstrand Company
adopts and makes effective as of January 1, 1991, this Plan, to provide as
follows:
2
<PAGE> 8
ARTICLE I
DEFINITIONS
For the purposes of this Retirement Plan, the following words and phrases
shall have the meanings indicated, unless a different meaning is clearly
required by the context:
1.1 The "Act" means the Employee Retirement Income Security Act of 1974,
as amended from time to time. Reference to a section of the Act shall include
such section or sections of any future legislation that amends, supplements or
supercedes such section.
1.2 The term "Actuarial Equivalent" means equality in value of the
aggregate amounts expected to be received under different forms of payment based
on the interest rate and mortality assumptions applicable, as defined below:
(a) Interest rate assumption - For purposes of computing the value of a
lump sum payment the interest rate assumption shall be 8 1/2% or the
interest rate described in Section 417(e)(3) of the Internal Revenue
Code (determined as of the first day of the Plan Year during which
the payment is to be made) whichever produces the greater benefit;
and for purposes of computing any other optional form of benefit
payment (unless such optional form is calculated based on a formula
specified in the Plan) and for purposes of computing any adjustments
called for under the terms of the Plan for any benefit other than a
Normal Retirement Benefit (when such adjustment is not otherwise
provided for in the Plan), the interest rate assumption shall be
8-1/2%.
(b) Mortality assumption - The mortality assumption used for purposes of
computing any optional form of benefit payment (unless such optional
form is calculated based on a formula specified in the Plan) and for
purposes of computing any adjustments called for under the terms of
the Plan for any benefit other than a Normal Retirement Benefit
(when such adjustment is not otherwise provided for in the Plan),
shall be the Unisex Mortality Table commonly referred to as UP-1984.
1.3 The "Actuary" means an independent actuary, selected by the Plan
Administrator, who is an enrolled actuary as defined in Section 7701(a)(35) of
the Code, or a firm or corporation of actuaries having such a person on its
staff, which person, firm or corporation is to serve as the actuary for the
Plan.
3
<PAGE> 9
1.4 "Average Annual Earnings" shall have the following meanings:
(a) in the case of an Employee who has five or more Years of
Participation, the greater of (A) $9,000 or (B) one-fifth of such
Employee's Considered Compensation for the highest-paid 60
consecutive calendar months of his or her employment following said
date, or
(b) in the case of such Employee who has less than 60 consecutive
calendar months of employment, the average of his or her monthly
Considered Compensation, provided that if he or she has any Years of
Service credited to him under Section 2.1(a) for any periods of
employment, then all such periods of employment shall be combined in
order to determine the said highest-paid 60 consecutive calendar
months.
In connection with the foregoing sub-sections, the following shall apply:
(a) The "Considered Compensation" of an Employee for any period means
the compensation paid to him for services rendered in the employment
of the Employer or a Related Corporation during such period,
including sales commissions to the extent provided in rules of
uniform application adopted by the Employer, but excluding overtime
compensation, bonuses, incentive awards and similar types of
discretionary payments.
(b) If an Employee receives no compensation (or reduced compensation)
for any period because he or she is disabled or on an approved leave
of absence or temporary absence from active service, there shall be
treated as compensation received by him during such period of
absence an amount equal to the compensation he or she would have
received had he or she not been disabled or absent, such amount to
be determined by the Employer upon the basis of the Employee's
salary or wage rate in effect immediately prior to such disability
or absence.
(c) The Considered Compensation of any Employee for purposes of the Plan
shall not exceed $200,000, as adjusted by the Secretary of the
Treasury at the same time and in the same manner as under Section
415(d) of the Code. In determining the compensation of an Employee
for purposes of this limitation, the rules of Section 414(q)(6) of
the Code shall apply, except in applying such rules, the term
"family" shall include only the spouse of the Employee and any
lineal descendants of the Employee who have not attained age 19
before the close of the year. If, as a result of the application of
such rules, the adjusted $200,000 limitation is exceeded, then the
limitation shall be prorated among the affected individuals in
proportion to each such individual's compensation as determined
under this Paragraph prior to the application of this limitation.
4
<PAGE> 10
1.5 The "Code" means the Internal Revenue Code of 1986, as amended from
time to time. Reference to a section of the Code shall include such section and
any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
1.6 "Covered Compensation" of an Employee shall mean the average (without
indexing) of the taxable wage bases in effect for each calendar year during the
35-year period ending with the last day of the calendar year in which the
Employee attains (or will attain) Social Security Retirement Age. No increase in
Covered Compensation shall decrease an Employee's accrued benefit under the
Plan. In determining an Employee's Covered Compensation for a Plan Year, the
taxable wage base in effect for the current Plan Year and any subsequent Plan
Year will be assumed to be the same as the taxable wage base in effect as of the
beginning of the Plan Year for which the determination is being made. An
Employee's Covered Compensation for a Plan Year before the 35-year period ending
with the last day of the calendar year in which the Employee attains Social
Security Retirement Age is the taxable wage base in effect as of the beginning
of the Plan Year. An Employee's Covered Compensation for a Plan Year after such
35-year period is the Employee's Covered Compensation for the plan year during
which the Employee attained Social Security Retirement Age.
1.7 "Disability Income Plan" means the plan or plans established from time
to time by the Employer to provide disability benefit payments to its Employees
who are unable to work by reason of physical or mental disability.
1.8 The "Effective Date" means October 1, 1985, and as to any amendment to
this Plan, the effective date appearing on such amendment.
1.9 An "Employee" means any person employed by Sauer-Sundstrand Company by
its Ames, Iowa; Minneapolis, Minnesota; or Freeport, Illinois locations; or who
5
<PAGE> 11
is employed by Sauer-Sundstrand Company in the office only at its LaSalle,
Illinois location; or who is employed by Sauer, Inc., primarily at its Ames,
Iowa location; provided that such person:
(a) is regularly employed by the Employer and has:
(i) completed 1,000 Hours of Employment, or
(ii) completed one Year of Service,
provided, that such person shall for all purposes of the Plan be
deemed an Employee as of the time when the said 1,000 Hours of
Employment or the said one Year of Service, whichever is applicable,
commenced;
(b) is customarily employed by the Employer on a part-time, temporary or
irregular basis for less than 1,000 Hours of Employment a year and
has completed 1,000 Hours of Employment or more during any 12
consecutive calendar month period which commences with his or her
employment date or any anniversary thereof; provided, that such
person shall for all purposes of the Plan be deemed an Employee as
of the beginning of the said 12 month period during which he or she
completed at least 1,000 Hours of Employment; or
(c) was employed by the Employer and is eligible for benefits under the
Employer's Disability Income Plan.
In no event shall the word "Employee" include a leased employee, as defined in
Section 414(n) of the Code.
1.10 The "Employer" means Sauer-Sundstrand and any Related Corporation
which adopts the Plan in accordance with the provisions of Article XV.
1.11 An Employee's "Final Average Compensation" is the average of the
Employee's annual compensation from the Employer for the 3-consecutive year
period ending with or within the Plan Year. If an Employee's entire period of
service with the employer is less than three consecutive years, compensation is
averaged on an annual basis over the Employee's entire period of service. An
Employee's Final Average Compensation shall not exceed his or her Covered
Compensation.
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<PAGE> 12
1.12 The "Freeport Plan" means the Sundstrand-Sauer Freeport, Illinois
Employees' Retirement Plan, which was merged into the Plan effective January 1,
1991.
1.13 The "Frozen December 31, 1988, Benefit" of any Employee shall be the
monthly Normal Retirement Benefit of such Employee, if any, earned by such
Employee under the Plan or the Minneapolis or Freeport Plans as of December 31,
1988, as set forth in Appendix C to the Plan.
1.14 The "Frozen December 31,1990, Benefit" of any Employee shall be the
monthly Normal Retirement Benefit of such Employee, if any, earned by such
Employee under the Plan or the Minneapolis or Freeport Plans as of December 31,
1990, as set forth in Appendix C to the Plan.
1.15 "Hour of Employment" shall include:
(a) (i) each hour for which an Employee is directly or indirectly paid
or entitled to payment by the Employer or any Related
Corporation for the performance of services during such
period,
(ii) each hour for which an Employee is directly or indirectly
paid, or entitled to payment, by the Employer or any Related
Corporation but is excused from the performance of services
(including periods of vacation, sickness, military duty,
authorized leave of absence, and jury duty and paid holidays
during a regular work week) but not in excess of 501 hours in
any continuous period during which the performance of service
is excused, and
(iii) each hour (not credited under paragraph (i) or (ii) of Section
1.15(a)) for which back pay, irrespective of mitigation of
damages, has been awarded or agreed to by the Employer or any
Related Corporation with respect to such period.
Hours of Employment shall be calculated in accordance with Department of
Labor Regulations Section 2530.200b-2 or any future legislation or regulation
that amends, supplements or supercedes said section.
(b) for purposes of determining Hours of Employment:
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<PAGE> 13
(i) The Employer may use whatever records may be reasonably
accessible to it and may make whatever calculations are
necessary to determine the approximate number of Hours of
Employment accumulated during such period, and
(ii) If accessible records are insufficient to make an
approximation of the number of Hours of Employment for an
Employee for any period on or after December 13, 1981: (A) an
Employee who is employed on other than an hourly-rated basis
shall be credited with ten (10) Hours of Employment per day
for each day the Employee would, if hourly-rated, be credited
with Years of Service pursuant to Section 1.34; and (B) an
Employee shall be credited with the number of regularly
scheduled working hours included in the units of time on the
basis of which the payment is calculated and an Employee
without a regular work schedule shall be credited with eight
(8) Hours of Employment per day (to a maximum of forty (40)
Hours of Employment per week), for each day that an Employee
is paid for reasons other than for the performance of duties.
(c) Hours of Employment shall be credited:
(i) in the case of hours referred to in paragraph (i) of Section
1.15(a), for the computation period in which the duties are
performed,
(ii) in the case of hours referred to in paragraph (ii) of Section
1.15(a), for the computation period or periods in which the
period during which no duties are performed occurs, and
(iii) in the case of hours for which back pay is awarded or agreed
to by the Employer or any Related Corporation, for the
computation period or periods to which the award or agreement
pertains rather than to the computation period in which the
award, agreement or payment is made.
1.16 The "Minneapolis Plan" means the Sundstrand-Sauer Minneapolis,
Minnesota Employees' Retirement Plan, which was merged into the Plan effective
January 1, 1991.
1.17 "Normal Retirement Age" is the attainment of the later of age 65 or
the 5th anniversary of commencement of participation in the Plan.
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<PAGE> 14
1.18 "Normal Retirement Date" means with respect to any Employee, the last
day of the month in which he or she attains Normal Retirement Age.
The foregoing notwithstanding, any Employee who, upon attainment of any
age at or after his attainment of age 65, provided he has been employed by his
Employer in a bona fide executive or high policy making position during the
two-year period immediately preceding his attainment of such age, and who would
be eligible (if he retired at such time) for an immediate nonforfeitable annual
Retirement Benefit from this Plan, or from this Plan in combination with any
other pension, profit sharing, savings or deferred compensation plan maintained
by his Employer, which equals in the aggregate at least $44,000 or such other
amount as may be specified in the federal Age Discrimination in Employment Act
or regulations promulgated thereunder, shall be automatically retired on the
last day of the month in whch he attains such age.
1.19 An Employee's "Offset Factor" means 0.714 if the Employee's Social
Security Retirement Age is 65; 0.658 if the Employee's Social Security
Retirement Age is 66; and 0.610 if the Employee's Social Security Retirement Age
is 67.
1.20 "Period of-Severance" has the following meaning:
(a) A "Period of Severance" with respect to any Employee means the
period beginning on the date his or her Years of Service are lost
under the provisions of Section 2.5 and ending on the date he or she
is reemployed by the Employer.
(b) A Period of Severance shall not include the twelve consecutive month
period beginning on the first anniversary of the date an Employee is
first absent from work with the Employer because of
(i) the Employee's pregnancy,
(ii) the birth of the Employee's child,
(iii) the placement of a child with the Employee in connection with
the Employee's adoption of such child, or
9
<PAGE> 15
(iv) caring for such child immediately following such birth or
placement.
The preceding sentence will not be applicable to an Employee unless
the Employee furnishes to the Employer such timely information as
the Employer may reasonably require to establish
(i) that the absence from work is for one of the reasons specified
in the preceding sentence, and
(ii) the number of days for which there was such an absence.
No credit for employment will be given pursuant to this Section
1.20(b) for any purpose of the Plan other than avoiding the
occurrence of a Period of Severance.
1.21. The "Plan" means this Sauer-Sundstrand Employees' Retirement Plan
with all amendments and supplements hereafter made.
1.22 The "Plan Administrator" is Sauer-Sundstrand, a Delaware corporation.
1.23 The "Plan Year" means the period from each January 1 to the following
December 31.
1.24 A "Related Corporation" means:
(a) any corporation, now in existence or created or acquired hereafter,
which is a member of a controlled group of corporations (as defined
in Section 414(b) of the Code) of which the Plan Administrator is a
member;
(b) any trade or business, whether or not incorporated, which is under
common control (as defined in Section 414(c) of the Code) with the
Plan Administrator; and
(c) any member of an affiliated service group (as defined in Section
414(m) of the Code) which includes the Plan Administrator.
1.25 "Retirement Benefit" means the monthly benefit payments payable to a
retired Employee under the terms of the Plan.
1.26 "Severance From Service Date" means, with respect to any Employee,
the first to occur of:
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<PAGE> 16
(a) the date on which the Employee retires or his or her employment with
the Employer and all Related Corporations terminates for any other
reason; or
(b) the first date following one full year of absence from work by the
Employee due to any cause other than retirement or termination of
employment; provided that, for purposes hereof, the said one year
period of absence shall not commence prior to the end of any period
of absence with respect to which the Employee receives Years of
Service credit.
1.27 An Employee's "Social Security Retirement Age" means age 65 if the
Employee attains age 62 before January 1, 2000 (i.e., born before January 1,
1938); age 66 if the Employee attains age 62 after December 31, 1999, but before
January 1, 2017 (i.e., born after December 31, 1937, but before January 1,
1955); and age 67 if the Employee attains age 62 after December 31, 2016 (i.e.,
born after December 31, 1954).
1.28 "Surviving Spouse" of a deceased Employee means and shall be limited
to the person who:
(a) was such deceased Employee's spouse at the time of his or her death;
and
(b) was his or her spouse at the time payment of such Employee's
Retirement Benefit commenced.
1.29 The "Taxable Wage Base" is the contribution and benefit base in
effect under Section 230 of the Social Security Act at the beginning of the Plan
Year.
1.30 "Trustee" means the bank or trust company duly qualified and acting
under the Trust Agreement.
1.31 "Trust Agreement" means the agreement entered into by the Plan
Administrator with the Trustee, which is referred to in Article XII as the same
may be amended from time to time.
1.32 "Trust Fund" means the contributions of the Employer made with
respect to the Plan, and all increments, proceeds, investments, and
reinvestments thereof, and income
11
<PAGE> 17
therefrom, held and administered by the Trustee in accordance with the Trust
Agreement, and to be used for the purpose of paying the benefits provided by the
Plan.
1.33 "Years of Participation" of an Employee means the amount of service
at the time credited to such Employee under the provisions of Article II hereof,
and which is used to determine the amount of any Retirement Benefit for which he
or she is eligible under the Plan.
1.34 "Years of Service" for an Employee means the amount of service at the
time credited to such Employee under the provisions of Article II hereof, and
which is used to determine his or her eligibility for and the vesting of
Retirement Benefits under the Plan.
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<PAGE> 18
ARTICLE II
YEARS OF SERVICE AND YEARS OF PARTICIPATION
2.1 Years of Service and Years of Participation Prior to January 1, 1991.
Each person who was an Employee on or prior to January 1, 1991, shall be
credited with:
(a) Years of Service equal to the Years of Service with which he or she
had been credited through December 31, 1990, for purposes of
determining his or her eligibility for benefits under the Plan or
the Minneapolis or Freeport Plans in accordance with the provisions
of those Plans in effect on December 31, 1990; and
(b) Years of Participation (up to a maximum of 30) equal to the Years of
Participation with which he or she had been credited through
December 31, 1990, for purposes of determining the amount of any
benefit under the Plan or the Minneapolis or Freeport Plans in
accordance with the provisions of those Plans in effect on December
31, 1990.
2.2 Years of Service and Years of Participation on or After January 1,
1991. In addition to Years of Service and Years of Participation credited
pursuant to Section 2.1, each person who is an Employee on or after January 1,
1991, shall be credited with:
(a) a Year of Service for each 12 consecutive month period of his or her
employment with the Employer or any Related Corporation, beginning
with the later of January 1, 1991, or the date on which his or her
employment commenced and ending on his or her Severance From Service
Date; and
(b) a Year of Participation (up to a maximum total of 30) for each 12
consecutive month period of his or her employment with the Employer,
beginning with the later of January 1, 1991 or the date on which his
or her employment as such Employee commenced, and ending on the date
he or she ceases to be such an Employee.
2.3 Military Service, Disability Leave of Absence and Lay Off.
(a) An Employee who enters the armed services of the United States shall
retain the Years of Service and Years of Participation which he or
she had upon entering military service, so long as he or she retains
reemployment rights with the Employer by law. If during the period
he or she retains such reemployment rights such Employee returns to
work or reports to the
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<PAGE> 19
Employer and receives a leave of absence or is given laid-off status
he or she shall be credited with Years of Service and Years of
Participation equal to the period of his or her service in the
military service.
(b) An Employee who is absent from work due to disability for which he
or she is entitled to benefits under a Disability Income Plan shall
retain the Years of Service and Years of Participation which he or
she had upon commencement of such absence due to disability. For
purposes of determining his or her Years of Service and Years of
Participation under the Plan, he or she shall be credited with Years
of Service and Years of Participation equal to the period of absence
due to disability for so long as he or she is entitled to benefits
under a Disability Income Plan.
(c) An Employee who is granted an approved leave of absence or is
laid-off from work by the Employer shall retain the Years of Service
and Years of Participation which he or she had upon commencement of
such leave of absence or layoff. For purposes of determining his or
her Years of Service and Years of Participation under the Plan, he
or she shall be credited with Years of Service and Years of
Participation in accordance with rules established by the Plan
Administrator and applied on a uniform nondiscriminatory basis.
2.4 Transfers. Notwithstanding the provisions of Section 2.1 and 2.2,
Years of Service and Years of Participation credited to an Employee shall be
subject to the following:
(a) Upon any transfer or retransfer of a person to employment with the
Employer as an Employee directly from other employment,
(i) with the Employer in a capacity other than as an Employee, or
(ii) with any Related Corporation,
such person shall be credited with Years of Service, but not Years
of Participation, for such other employment as if such other
employment were employment with the Employer as an Employee for the
entire period of employment.
(b) Upon the transfer of a person from employment with the Employer as
an Employee directly to other employment,
(i) with the Employer in a capacity other than as an Employee, or
(ii) with any Related Corporation,
such transfer shall be deemed not to cause a loss of his or her
Years of Service or Years of Participation, and he or she shall be
deemed not to
14
<PAGE> 20
retire or otherwise terminate his or her employment as an Employee
until such time as he or she is no longer in the employment of the
Employer or any Related Corporation, at which time he or she shall
become entitled to benefits if he or she is otherwise eligible
therefor under the provisions of the Plan; provided, however, that
up to such time he or she shall receive credit only for Years of
Service, but not for Years of Participation, for such other
employment as if such other employment were employment with the
Employer as an Employee.
2.5 Loss of Years of Service and Years of Participation; Service Spanning.
Except as otherwise specifically provided in the Plan, an Employee's Years of
Service and Years of Participation shall be lost on his or her Severance From
Service Date and, subject to applicable Plan provisions for the reinstatement of
Years of Service and Years of Participation, if he or she thereafter returns to
employment as an Employee, he or she shall be treated for Plan purposes as a new
Employee. If an Employee is reemployed within 12 months after his or her
Severance From Service Date his or her Years of Service and Years of
Participation shall be deemed to not have been lost and the Employee shall be
given Years of Service credit for the period beginning with his or her Severance
From Service Date and ending on his or her reemployment date.
2.6 Reinstatement of Years of Service and Years of Participation. A
retired or former Employee who returns to employment as an Employee prior to his
or her Normal Retirement Date shall be reinstated with the Years of Service and
Years of Participation with which he or she was credited on his or her Severance
From Service Date if:
(a) he or she was eligible for any Retirement Benefit on his or her
Severance From Service Date;
(b) (i) in the case of a former participant in the Minneapolis Plan,
his or her Severance From Service Date occurred on or after
January 1, 1984, but prior to January 1, 1987; or, in the case
of any other former participant, his or her Severance From
Service Date occurred on or after January 1, 1977, but prior
to December 31, 1984; and
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<PAGE> 21
(ii) the former participant's Severance From Service Date occurred
before the former Participant satisfied the conditions of
eligibility for a Vested Retirement Benefit, and the former
participant's Severance does not exceed his or her total Years
of Service on his or her Severance From Service Date; or
(c) (i) in the case of a former participant in the Minneapolis Plan,
his or her Severance From Service Date occurred on or after
February 1, 1987; or, in the case of any other former
Participant, his or her Severance From Service Date occurred
on or after January 1, 1985; and
(ii) the former participant's Severance From Service Date occurred
before the former Participant satisfied the conditions of
eligibility for a Vested Retirement Benefit, and the former
participant's Period of Severance does not exceed the greater
of his or her total Years of Service on his or her Severance
From Service Date or 5 Years of Service.
For purposes of Sections 2.6(b) and (c), the total Years of Service shall
not include any Years of Service not required to be taken into account due to
previous Periods of Severance.
Notwithstanding the foregoing provisions of this Section 2.6, if a former
Employee whose Severance From Service Date occurred before satisfying the
conditions of eligibility for a vested Retirement Benefit returns to employment
as an Employee, and if his or her Years of Service and Years of Participation
which he or she had at the time of his or her previous termination of employment
are not reinstated pursuant to Section 2.6(b) or (c), such Years of Service and
Years of Participation shall be reinstated for purposes of the Plan upon his or
her completion of five continuous Years of Service as an Employee after his or
her return to employment.
Years of Service and Years of Participation which are reinstated under
this Section 2.6 shall be reinstated in accordance with and subject to all
applicable provisions of the Plan with respect to reemployment.
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<PAGE> 22
2.7 Finality of Determinations and Non-duplication. All determinations
with respect to the crediting of Years of Service and Years of Participation
under the Plan shall be made on the basis of the records of the Employer, and
all determinations so made shall be final and conclusive upon Employees, former
Employees, and all other persons claiming a benefit under the Plan.
Notwithstanding anything to the contrary contained in this Article II there
shall be no duplication of Years of Service and Years of Participation credited
to an Employee for any one period of his or her employment.
2.8 Predecessors. The Employer may, by action of its Board of Directors,
adopt (for all purposes of the Plan) rules for determining what businesses or
activities shall be regarded as the Employer's predecessors, and predecessors
thereof, and for counting as Years of Service and Years of Participation
continuous employment with any of such predecessors, or predecessors thereof.
Such rules shall be applied uniformly to all persons similarly situated.
17
<PAGE> 23
ARTICLE III
NORMAL RETIREMENT
3.1 Eligibility. An Employee shall be eligible for a Normal Retirement
Benefit if his employment with the Employer and all Related Corporations is
terminated on or after he or she has attained Normal Retirement Age.
3.2 Benefit Amount. The monthly amount of a Normal Retirement Benefit
shall be an amount equal to one-twelfth of the amount derived from the following
calculation:
(a) Two percent for each of the Employee's Years of Participation at the
time of retirement (up to a maximum of 30 such years), multiplied by
the Employee's Average Annual Earnings; minus
(b) The lesser of
(i) 0.6% for each of the Employee's Years of Participation at the
time of retirement (up to a maximum of 30 such years)
multiplied by such Employee's Final Average Compensation; or
(ii) one-half of the amount determined under subsection 3.2(a), not
taking into account any of the Employee's Average Annual
Earnings which exceed such Employee's Final Average
Compensation; or
(iii) the Employees' Offset Factor, multiplied by the Employee's
Years of Participation at the time of retirement (up to a
maximum of 30 such years).
3.3 Transitional Benefits. Notwithstanding the provisions of Section 3.2,
the normal Retirement Benefit of an Employee shall in no case be less than the
sum of:
(a) The Employee's Frozen December 31, 1988 Benefit, plus
(b) The amount determined under Section 3.2, taking into account
only Years of Participation accrued by the Employee on or
after January 1, 1989. For this purpose, any Years of
Participation accrued on or after the date the Employee has
accrued 30 total Years of Participation under the Plan shall
not be taken into account.
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<PAGE> 24
3.4 Benefit Payments. A monthly Normal Retirement Benefit shall be paid to
a retired Employee commencing with the month following the month in which he or
she becomes eligible for such Benefit and shall be payable monthly thereafter
during the life of such retired Employee, the last payment being for the month
in which his or her death occurs.
19
<PAGE> 25
ARTICLE IV
EARLY RETIREMENT
4.1 Eligibility. An Employee with five or more Years of Service, whose
employment with the Employer and all Related Corporations is terminated when or
after he or she attains age 55, but prior to his or her Normal Retirement Date,
shall be eligible for an Early Retirement Benefit.
4.2 Benefit Amount. The monthly amount of an Early Retirement Benefit
shall be an amount equal to the Employee's monthly Normal Retirement Benefit
based upon the Employee's Years of Participation at the time of his or her early
retirement, provided that such amount shall be reduced by .5 percent for each
month by which the Employee is less than 65 years of age at the time Early
Retirement Benefit payments commence.
4.3 Benefit Payments. A monthly Early Retirement Benefit shall be paid to
a retired Employee commencing with the month following the month in which:
(a) he or she becomes eligible for such Early Retirement Benefit and has
made written application to the Employer therefor; or
(b) he or she attains age 65 if he or she became eligible for such
Retirement Benefit prior to his or her attainment of age 65 and
elected to postpone commencement until he or she attained age 65,
and shall be payable monthly thereafter during the life of such retired
Employee. The last Early Retirement Benefit payment shall be for the month in
which the death of the retired Employee occurs.
20
<PAGE> 26
ARTICLE V
VESTED RIGHTS
5.1 Eligibility. An Employee with five or more Years of Service whose
employment with the Employer and all Related Corporations terminates for any
reason other than death, and who is not eligible for any other Retirement
Benefit under the Plan, shall be eligible for a Vested Retirement Benefit.
5.2 Benefit Amount. The monthly amount of a Vested Retirement Benefit
shall be, at the option of the Employee, either:
(a) an immediate Vested Retirement Benefit which shall be an amount
equal to a monthly Normal Retirement Benefit determined in
accordance with Article III, based upon the Employee's Years of
Participation at the time of his or her termination of employment
with the Employer and all Related Corporations, provided, that such
amount shall be reduced to its Actuarial Equivalent value to account
for commencement of benefit payments prior to his or her attainment
of age 65; or
(b) an age 65 vested Retirement Benefit which shall be an amount equal
to a monthly Normal Retirement Benefit determined in accordance with
Article III, based upon the Employee's Years of Participation at the
time of his or her termination of employment with Employer and all
Related Corporations.
5.3 Benefit Payments. A monthly immediate Vested Retirement Benefit under
Section 5.2(a) shall be paid to a retired Employee commencing with any month
following the month in which the Employee attains age 55 and which the Employee
designates in his or her application to the Plan Administrator, and shall be
payable monthly thereafter during the life of such retired Employee; such
application to be filed with the Plan Administrator not more than 90 days nor
less than 60 days prior to the date on which he or she elects to have his or her
immediate Vested Retirement Benefit commence.
Subject to Section 10.1(b), a monthly age 65 Vested Retirement Benefit
under Section 5.2(b) shall be paid to an Employee commencing with the month
following the later of
21
<PAGE> 27
the month in which such retired Employee's Normal Retirement Date occurs or the
month in which he or she makes written application to the Plan Administrator for
such Retirement Benefit, and shall be payable monthly thereafter during the life
of such retired Employee.
The last Vested Retirement Benefit payment shall be for the month in which
the death of the retired Employee occurs.
22
<PAGE> 28
ARTICLE VI
"RULE OF 50" RIGHTS
6.1 Eligibility. An Employee with less than five Years of Service, whose
employment with the Employers and all other Related Corporations terminates for
any reason, shall be eligible for a "Rule of 50" Retirement Benefit if, at the
time of such termination of employment, the total of his or her age and Years of
Service is 50 or more.
6.2 Benefit Amount. The monthly amount of a "Rule of 50" Retirement
Benefit shall be an amount equal to the Employee's monthly Normal Retirement
Benefit based upon the Employee's Years of Participation at the time of his or
her termination of employment with all Employers multiplied by his or her
"Applicable Percentage"; provided that if such "Rule of 50" Retirement Benefit
commences prior to the Employee's attainment of age 65 such amount shall be
reduced by .5 percent for each month by which the Employee is less than 65 years
of age at the time his or her "Rule of 50" Retirement Benefit payments commence.
For purposes of this Article, an Employee's Applicable Percentage shall be
determined in accordance with the following schedule:
Years of Service completed
after first becoming eligible
for "Rule of 50" Retirement
Benefit Applicable Percentage
--------------------------- ---------------------
Date on which Employee first 50%
becomes eligible for Benefit
For each Year of Service An additional 10% per
completed (up to five such) Year of Service (computed Years
after first becoming eligible for to nearest one thousandth)
Benefit (computed to the
nearest one thousandth)
Five or more Years of Service 100%
completed after first becoming
eligible for Benefit
23
<PAGE> 29
6.3 Benefit Payments. A monthly "Rule of 50" Retirement Benefit shall be
paid to a retired Employee as follows:
(a) commencing with the month following the month in which the retired
Employee is both at least age 55 and has filed a written election
with the Plan Administrator to begin receiving benefit payments; or
(b) commencing with the month following the month in which he or she
attains age 65 if he or she does not file an election for early
commencement prior to his or her attainment of age 65;
and shall be payable monthly thereafter during the life of such retired
Employee, the last "Rule of 50" Retirement Benefit payment being for the month
in which his or her death occurs.
24
<PAGE> 30
ARTICLE VII
OPTIONAL METHODS OF PAYMENT AND AUTOMATIC ELECTION
7.1 Available Options. Under conditions set forth in this Article, an
Employee who becomes entitled to a Retirement Benefit under the Plan by reason
of his or her retirement under the conditions specified in any of Sections 3.1,
4.1, 5.1 or 6.1 may, as an alternative to having such Retirement Benefit paid in
the regular straight-life annuity form, or if applicable, the automatic election
form described in Section 7.7, elect (subject to the provisions of Section 7.7)
payment of such Retirement Benefit in accordance with any one of the optional
methods of payment stated below (an Employee who is entitled to a Vested
Retirement Benefit under Article V and an Employee who retired prior to
attainment of age 55 and who is entitled to a "Rule of 50" Retirement Benefit
under Article VI may only elect Option D).
Option A. A reduced monthly Retirement Benefit payable to such retired
Employee for life, with the continuance of monthly payments equal to 50
percent of such reduced amount after his or her death to his or her
Surviving Spouse during the lifetime of such Surviving Spouse;
The monthly payments to be made to a retired Employee under this Option A
shall be an amount equal to the monthly Retirement Benefit otherwise payable to
the retired Employee reduced by whichever of the following is applicable:
(a) if the age of the retired Employee and his or her spouse are the
same, or if such spouse's birth date is within five years of the
birth date of the Employee, ten percent;
(b) if the age of the retired Employee is more than five years less than
the age of his or her spouse, ten percent less .5 of one percent for
each full year by which such Surviving Spouse's birth date is more
than five years prior to the birth date of the retired Employee (the
total reduction to be not less than 0 percent); or
(c) if the age of the retired Employee is more than five years greater
than the age of his or her spouse, ten percent plus .5 of one
percent for each full year by which the Surviving Spouse's birth
date is more than five years after the birth date of the retired
Employee (provided that the total
25
<PAGE> 31
reduction shall not cause the Retirement Benefit to be less than the
Retirement Benefit the Employee and his or her spouse would have
received if he or she had elected Option D).
The monthly payment to be made to such retired Employee's Surviving Spouse
under Option A shall be an amount equal to 50 percent of the monthly payment
made under Option A to the retired Employee.
Option B. A reduced monthly Retirement Benefit payable to such retired
Employee for life, with the continuance of monthly payments equal to 100
percent of such reduced amount after his or her death to his or her
Surviving Spouse, during the lifetime of such Surviving Spouse;
Option C. A reduced monthly Retirement Benefit payable to such retired
Employee for life, with the continuance of monthly payments equal to 75
percent of such reduced amount after his or her death to his or her
Surviving Spouse, during the lifetime of such Surviving Spouse;
Option D. A reduced monthly Retirement Benefit payable to such retired
Employee for life, with the continuance of monthly payments equal to 50
percent of such reduced amount after his or her death to his or her
Surviving Spouse, during the lifetime of such Surviving Spouse;
Option E. A reduced monthly Retirement Benefit payable to the retired
Employee for life, with the continuance to the person or persons
designated by him as Term-Certain Beneficiary of monthly payments in such
reduced amount after his or her death for the remainder, if any, of the
five-year term commencing with the date as of which the first payment of
such monthly Retirement Benefit is made, and with any monthly payments
remaining unpaid upon the death of the survivor of the Employee and his or
her Term-Certain Beneficiary to be made to the estate of such survivor;
Option F. A reduced monthly Retirement Benefit payable to the retired
Employee for life, with the continuance to the person or persons
designated by him as Term-Certain Beneficiary of monthly payments in such
reduced amount after his or her death for the remainder, if any, of the
ten-year term commencing with the date as of which the first payment of
such monthly Retirement Benefit is made, and with any monthly payments
remaining unpaid upon the death of the survivor of the Employee and his or
her Term-Certain Beneficiary to be made to the estate of such survivor;
Option G. A reduced monthly Retirement Benefit payable to the retired
Employee for life, with the continuance to the person or persons
designated by him as Term-Certain Beneficiary of monthly payments in such
reduced amount after his or her death for the remainder, if any, of the
fifteen-year term commencing with
26
<PAGE> 32
the date as of which the first payment of such monthly Retirement Benefit
is made, and with any monthly payments remaining unpaid upon the death of
the survivor of the Employee and his or her Term-Certain Beneficiary to be
made to the estate of such survivor;
Option H. A reduced monthly Retirement Benefit payable to the retired
Employee for life, with the continuance to the person or persons
designated by him as Contingent Annuitant of monthly payments, if any are
required, in such reduced amount after his or her death until the total
amount paid to the Employee and Contingent Annuitant combined is equal to
the Actuarial Equivalent of the Retirement Benefit payable to the Employee
if neither an option under this Section nor the automatic election under
Section 8.7 were applicable, and with any monthly payments remaining
unpaid upon the death of the survivor of the Employee and Contingent
Annuitant to be made to the estate of such survivor;
Option I. With respect to an Employee's Frozen December 31, 1990, Benefit,
a reduced Retirement Benefit payable to such retired Employee in a single
lump sum.
The monthly payments to be made to a retired Employee and his or her
Surviving Spouse under Option B, option C or Option D, to a retired Employee and
his or her Term-Certain Beneficiary under Option E, Option F or Option G, or to
a retired Employee and his or her Contingent Annuitant under option H, shall be
in amounts which at the time of commencement of Retirement Benefit payments
under the Option, or at the time of the Employee's Normal Retirement Date, if
earlier, are the Actuarial Equivalent of all Retirement Benefits otherwise
payable to him under the Plan, including any automatic election benefits payable
under Section 7.7, taking into account the age of the retired Employee and,
where applicable, the age of his or her Surviving Spouse, Contingent Annuitant,
or beneficiary.
The lump sum payment to be made to a retired Employee under Option I shall
be in lieu of all benefit payments (including any Special Age 65 benefit under
Article VIII), otherwise payable to such Employee under the Plan with respect to
the Employee's Frozen December 31, 1990, Benefit; and shall
(a) in the case of an Employee who is not married on the date of
retirement, be an amount which at the time the lump sum payment is
made is the
27
<PAGE> 33
Actuarial Equivalent of the Employee's Frozen December 31, 1990,
Benefit otherwise payable to him under the Plan; or
(b) in the case of an Employee who is married on the date of retirement,
be an amount which at the time the lump sum payment is made is the
Actuarial Equivalent of the Employee's Frozen December 31, 1990,
Benefit which would have been paid to the retired Employee and his
or her spouse if the retired Employee had elected Option A with
respect to that portion of his or her benefit.
Notwithstanding the foregoing provisions of this Section 7.1, if an
Employee elects Option H and designates someone other than his or her Surviving
Spouse as Contingent Annuitant or beneficiary, the present value of the total
payments to be made to such Contingent Annuitant or beneficiary, must, at the
time the Option becomes effective, be less than 50 percent of the present value
of the total payments to be made to the retired Employee and such Contingent
Annuitant or beneficiary combined, and if such is not the case the monthly
amount payable to such Contingent Annuitant or beneficiary shall be reduced to
the extent necessary to satisfy such requirement. Any reduction made pursuant to
this paragraph shall be determined by the Plan Administrator on the basis of the
assumptions set forth in Section 1.2.
In addition, notwithstanding anything to the contrary contained in this
Article VII, in the event that the spouse of a retired Employee who has elected
Option A predeceases the Employee, the monthly Retirement Benefit payable to the
Employee commencing with the third monthly payment following the month in which
the death of the retired Employee's spouse occurs, shall be increased to the
amount which would have been payable to the retired Employee if the retired
Employee had not elected any optional method of payment. Monthly payments in
such increased amount shall thereafter be paid to the retired Employee during
his life, the last payment being for the month in which his death occurs.
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<PAGE> 34
7.2 Election of Form of Benefits.
(a) Not less than 30 days and not more than 90 days prior to the date
for commencement of payment of an Employee's Retirement Benefit the
Plan Administrator shall give the Employee a written notice of his
or her right to elect not to receive his or her Retirement Benefit
(under any of Section 3.1, 4.1, 5.1 or 6.1, whichever is applicable)
pursuant to the regular straight-life annuity form, or if
applicable, the automatic election form set forth in Section 7.7,
and of his or her right to make an election of an optional form of
payment of his or her Retirement Benefit pursuant to Section 7.1.
Such notice shall include a general description of:
(i) the terms and conditions of the normal form of payment,
(ii) the Employee's right to make, and the effect of, an election
to waive such form,
(iii) if applicable, the rights of the Employee's spouse not to
consent to such an election under Section 7.7,
(iv) the Employee's right to make, and the effect of, a revocation
of such an election,
(v) the optional forms available under Section 7.1, and
(vi) the right to request an estimate of the financial effect upon
the Employee's Retirement Benefit of making the elections set
forth in Sections 7.1 and 7.7.
(b) The elections provided in Sections 7.1, 7.2(a) and 7.7 may be made
by giving a written notice of election to the Plan Administrator, in
the form prescribed by the Plan Administrator, at any time during
the period (the "Election Period") consisting of the 90 calendar day
period ending on the date for commencement of payment of an
Employee's Retirement Benefit. Any election provided in Sections 7.1
and 7.7 may be rescinded as set forth in Section 7.3. At the time of
his or her election of an Option an Employee shall identify his or
her spouse, Term-Certain Beneficiary, Contingent Annuitant or
beneficiary.
(c) If an Employee makes a request for additional information pursuant
to Section 7.2(a) on or before the last day of the Election Period,
the Election Period shall be extended to the extent necessary to
include at least the 90 calendar days immediately following the day
the additional requested information is personally delivered or
mailed to the Employee.
7.3 Revocation and Change of Option. An Employee, by written notice
delivered to the Plan Administrator at any time prior to his or her retirement,
may revoke or
29
<PAGE> 35
change any election of an option theretofore made by him. Moreover, by written
notice delivered to the Plan Administrator at any time before or after
retirement, an Employee may designate a new Term-Certain Beneficiary under
Option E, Option F or Option G, or a new Contingent Annuitant under Option H.
Except as otherwise provided in Section 7.7, no revocation, change or new
designation under this Section shall require the consent of a spouse,
Term-Certain Beneficiary, Contingent Annuitant or beneficiary.
7.4 Effect of Various Circumstances upon Option. The election of an option
shall become effective for all purposes upon the Employee's retirement under the
conditions specified in any of Sections 3.1, 4.1, 5.1 or 6.1. If an Employee,
having validly elected an optional method of payment, shall die before such
retirement and before his or her Normal Retirement Date, any election of an
optional method of payment theretofore made by him shall be inoperative, and no
payment shall become due to his or her Surviving Spouse, Term-Certain
Beneficiary, Contingent Annuitant or beneficiary under such Option.
In the event that, before the Employee's retirement, such Employee's
spouse shall die or otherwise cease to be his or her spouse, or as to such
Employee the Plan shall be terminated, or in the event that an Employee shall
retire or otherwise terminate his or her employment under conditions other than
as specified in any of Sections 3.1, 4.1, 5.1 or 6.1, any election of an
optional method of payment theretofore made by him shall be inoperative and
ineffective and he or she shall receive the Retirement Benefit, if any, which he
or she would have received under the Plan had such election not been made.
Notwithstanding anything to the contrary contained herein, this Section
7.4 shall not apply to Section 7.7.
7.5 Payment Under Options. The monthly Retirement Benefit of a retired
Employee who has elected, or who is deemed under Section 7.7 to have elected, an
optional
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<PAGE> 36
method of payment shall be payable commencing at the same time as the Retirement
Benefit to which he or she was otherwise entitled would have commenced. Such
Retirement Benefit shall be payable to the retired Employee monthly thereafter
during his or her life, the last such payment being for the month in which his
or her death occurs; provided, however, that such monthly Retirement Benefit
payments shall cease under the same circumstances and in the same manner as
specified with respect to the monthly Retirement Benefit otherwise payable to
the Employee under the Plan. Notwithstanding the foregoing, upon recommencement
of a Retirement Benefit because of subsequent termination or retirement
following reemployment as provided in Section 10.3, payments shall be made as
applicable under the option previously elected by the Employee, unless
(a) the option has been revoked or changed as provided in Section 7.3;
or
(b) except as otherwise provided in Section 10.1(b)(v), if the Employee
had not previously elected an option, the automatic election form
provisions of Section 7.7 would have applied upon such subsequent
termination of employment or retirement, in which event the Benefit
shall be paid in the form required under Section 7.7 unless, prior
to such subsequent termination of employment or retirement the
Employee had filed with the Plan Administrator a new option election
or a written rejection of the automatic election form as provided in
Section 7.7.
If payments are made under such Option upon such subsequent retirement the
amount thereof shall be adjusted in accordance with the provisions of Section
10.3.
Subject to Section 10.1(b), monthly benefit payments which become payable
to an Employee's Surviving Spouse or Contingent Annuitant shall commence with
the later of:
(a) the month following the month in which the death of the retired
Employee shall occur; or
(b) the month in which the Surviving Spouse or Contingent Annuitant
files an application with the Plan Administrator therefor;
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<PAGE> 37
and shall be payable monthly thereafter during the life of such Surviving Spouse
or Contingent Annuitant, the last payment being for the month in which the death
of the Surviving Spouse or Contingent Annuitant occurs. Subject to Section
10.1(b), monthly payments which become payable to an Employee's Term-Certain
Beneficiary shall commence with the later of:
(a) the month following the month in which the death of the retired
Employee shall occur; or
(b) the month in which such Term-Certain Beneficiary files an
application with the Plan Administrator therefor;
and the last such monthly payment shall be made for the last month in the term
certain; provided, however, that should any such monthly payments become payable
to the estate of any person, or to a trust, a lump-sum amount shall be paid to
such estate or trust in lieu thereof, such lump-sum amount to be equal to the
aggregate value of the monthly payments otherwise payable to such estate or
trust, discounted to the date of payment of the lump-sum amount for interest, as
determined by the Actuary, on the basis of the assumptions set forth in Section
1.2.
7.6 Availability of Options for Employee Terminated by Layoff. The
provisions of Section 7.1 notwithstanding, an Employee who is terminated by
layoff and not recalled within one year from the date of such termination, and
who at the time of such termination meets the eligibility requirements for a
vested Retirement Benefit under Article V or a "Rule of 50" Retirement Benefit
under Article VI may, in lieu of such options as are available under the
respective Retirement Benefit, elect, subject to and in accordance with the
terms of this Article, any of the Options set forth in Section 7.1.
7.7 Automatic Election. An Employee who becomes entitled to a Retirement
Benefit under the Plan by reason of his or her retirement under conditions
specified in any of Sections 3.1, 4.1, 5.1 or 6.1 and who has attained age 55
and is married on the date payment of such Retirement Benefit commences, shall
be deemed to have elected the qualified joint and
32
<PAGE> 38
survivor annuity described as Option D in Section 7.1, and to have identified
his or her spouse on such date as his or her Surviving Spouse thereunder, unless
prior to such date he or she has elected an optional method of payment under
this Article which became or would have become effective on his or her
retirement.
The foregoing notwithstanding, no Retirement Benefit shall become payable
under this Section 7.7 to a spouse, if such spouse has not been married to such
Employee for at least one year on the date of death of such Employee and if such
spouse is not the same spouse to whom the retired or former Employee was married
on the date payment of his or her benefit commenced.
Notwithstanding any other provision in this Article, any election by an
Employee to waive the receipt of Retirement Benefits pursuant to the automatic
election form set forth in this Section 7.7 shall not take effect unless such
Employee's spouse consents in writing to such election to waive such election,
acknowledges the effect of such election to waive, and such consent is witnessed
by a representative of the Plan or a notary public, unless the Employee
establishes to the satisfaction of the Plan Administrator that such consent may
not be obtained because there is no spouse, the spouse cannot be located, or
because of such other circumstances as the Secretary of the Treasury may by
regulations prescribe. Any such consent and acknowledgment will not be effective
unless the election designates a form of benefit payment and, if applicable, a
beneficiary, which may not be changed without spousal consent. Any consent by a
spouse, or establishment that the consent of a spouse may not be obtained under
this Section, shall be effective only with respect to such spouse.
For purposes of this Section 7.7, "date payment of benefit commences"
shall mean the first day of the first period for which an amount is payable as
an annuity or, in the case of
33
<PAGE> 39
a benefit not payable as an annuity, the first day on which all events have
occurred which entitle the participant to such benefit.
34
<PAGE> 40
ARTICLE VIII
SPECIAL AGE 65 BENEFIT
8.1 Eligibility.
(a) A retired or terminated Employee (other than an Employee whose
eligibility for a Retirement Benefit accrued under the
provisions of Article V) who at the time of retirement or
termination of employment with the Employer and all Related
Corporations has attained at least age 55 and has 10 or more
Years of Service and who is receiving a Retirement Benefit
under the Plan shall be eligible for a Special Age 65 Benefit.
(b) The Surviving Spouse (other than the Surviving Spouse of a
deceased Employee whose eligibility for a Retirement Benefit
accrued under the provisions of Article V) of a deceased
Employee or deceased retired Employee, which deceased Employee
or deceased retired Employee at the time of retirement or
termination of employment met the age and service requirement
set forth in Section 8.1(a) and who is receiving a benefit
under the Plan shall be eligible for a Special Age 65 Benefit.
8.2 Benefit Amount. The monthly amount of a Special Age 65 Benefit
shall be $9.70.
8.3 Benefit Payments. A Special Age 65 Benefit shall be paid to a
retired Employee, or the Surviving Spouse of a deceased Employee or deceased
retired Employee, commencing with the month following the month in which such
retired Employee or such Surviving Spouse attains age 65 and shall be payable
monthly thereafter during the life of such retired Employee or such Surviving
Spouse, the last payment being for the month in which the death of the retired
Employee or the Surviving Spouse occurs.
The foregoing notwithstanding, in the event a retired Employee
elects payment of his or her Frozen December 31, 1990, Benefit under Option I
described in Section 7.1, he or she shall not be entitled to receive any Special
Age 65 benefit payments under this Article VIII.
35
<PAGE> 41
ARTICLE IX
SURVIVOR BENEFIT
9.1 Eligibility. The Surviving Spouse of a deceased Employee shall
be eligible to receive a Survivor Benefit if the deceased Employee at the time
of his or her death,
(a) had satisfied the requirements for a Retirement Benefit under
any of Sections 3.1, 4.1, 5.1 or 6.1; and
(b) had not commenced receiving Retirement Benefit payments under
the Plan.
9.2 Benefit Amount.
(a) If a deceased Employee at the time of death met the
requirements for a Retirement Benefit under either Section 3.1
or 4.1, or met the requirements for a Retirement Benefit under
Section 5.1 and had attained at least age 45, or Section 6.1
and had attained at least age 55, the monthly amount of the
Survivor Benefit payable to his or her Surviving Spouse shall
be equal to the greater of:
(i) one-half of a monthly Normal Retirement Benefit
determined in accordance with Section 3.2, based upon
the Employee's Years of Participation at the time of
death; provided, that if the Surviving Spouse's birth
date is more than five years after the birth date of the
deceased Employee, such amount shall be reduced by a
fraction, the numerator of which is the actuarial lump
sum factor under Section 1.2 determined as if the
Surviving Spouse's birth date was exactly five years
after the birth date of the deceased Employee, and the
denominator of which is the actuarial lump sum factor
under Section 1.2 applicable to such Surviving Spouse
based upon such Surviving Spouse's age as of the date of
death of the Employee; and
(ii) the amount which would be payable to the Surviving
Spouse as a survivor annuity pursuant to the terms of a
qualified joint and survivor annuity described as Option
D of Section 7.1 if the Employee had retired and
commenced receiving a Retirement Benefit pursuant to
such qualified joint and survivor annuity on the day
before the date of such Employee's death.
(b) If a deceased Employee at the time of death met the
requirements for a Retirement Benefit under Section 5.1 but
had not attained age 45 or met the requirements for a
Retirement Benefit under Section 6. 1 but had not attained age
55, and did not meet the requirements for any other
36
<PAGE> 42
Retirement Benefit, the monthly amount of the Survivor Benefit
payable to such Employee's Surviving Spouse shall be the
amount which would be payable to the Surviving Spouse as a
survivor annuity pursuant to the terms of a qualified joint
and survivor annuity described as Option D of Section 7.1 if
the Employee had retired and commenced receiving a Retirement
Benefit pursuant to such qualified joint and survivor annuity
on the day before the date Survivor Benefit payments commence
(provided the number of Years of Participation used to
determine such amount shall be the number of Years of
Participation the Employee had at the time of death); provided
further that such amount shall be reduced to its Actuarial
Equivalent value to account for commencement of benefit
payments prior to the time the deceased Employee, had he or
she survived, would have attained age 65.
9.3 Benefit Payments.
(a) A Survivor Benefit determined under Section 9.2(a) shall be
paid to a deceased Employee's Surviving Spouse commencing with
the month following the month in which the Employee's death
occurs and shall be payable monthly thereafter during the life
of such Surviving Spouse, the last payment being for the month
in which the death of the Surviving Spouse occurs.
(b) A Survivor Benefit determined under Section 9.2(b) shall be
paid to a deceased Employee's Surviving Spouse commencing with
the month following the month in which such Surviving Spouse
requests that Survivor Benefit payments commence, the last
payment being for the month in which the death of the
Surviving Spouse occurs.
9.4 Surviving Spouse Defined. The provisions of Section 1.28
notwithstanding, for purposes of this Article IX, the Surviving Spouse of a
deceased Employee shall mean and be limited to the person who:
(a) was the Employee's spouse at the time of his or her death, and
(b) was his or her spouse for at least one full year immediately
prior to the date of his or her death.
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<PAGE> 43
ARTICLE X
GENERAL PROVISIONS AND LIMITATIONS
REGARDING BENEFITS
10.1 Limitations on Commencement.
(a) Payment of a retired Employee's Retirement Benefit shall
commence not later than the 60th day after the end of the Plan
Year in which the latest of the following occurs:
(i) the Employee's Normal Retirement Date;
(ii) the tenth anniversary of the date on which he or she
first became an Employee; or
(iii) the Employee's retirement or other termination of
employment with the Employer and all Related
Corporations.
If the amount of monthly benefit payable to a retired
Employee, or any person claiming under or through him, cannot
be determined for any reason (including lack of information as
to whether the Employee is still living or as to his or her
marital status) on the date payment of such benefit is to
commence under this Section 10.1, payments shall be made
retroactively to such date no later than 60 days after the
date on which the amount of such monthly benefit can be
determined.
(b) Notwithstanding anything to the contrary contained elsewhere
in the Plan:
(i) the payment of benefits under the Plan to any Employee
will:
(A) be distributed to such Employee not later than the
Required Distribution Date (as defined in
paragraph (iii) of this Section 10.1(b), or
(B) be distributed to such Employee commencing not
later than the Required Distribution Date, in
accordance with regulations prescribed by the
Secretary of the Treasury, (aa) over the life of
such Employee or over the lives of such Employee
and his or her beneficiary, or (bb) over a period
not extending beyond the life expectancy of such
Employee or the life expectancy of such Employee
and his or her beneficiary.
(ii) (A) If the Employee dies after distribution to him
has commenced pursuant to clause (B) of paragraph
(i) of Section 10.1(b) but before his or her
entire interest in the
38
<PAGE> 44
Plan has been distributed to him the remaining
portion of such interest shall be distributed at
least as rapidly as under the method of
distribution being used under clause (B) of
paragraph (i) of Section 10.1(b) at the date of
his or her death.
(B) If the Employee dies before distribution to him
has commenced pursuant to clause (B) of paragraph
(i) of Section 10.1(b), then, except as provided
in clauses (C) and (D) of paragraph (ii) of
Section 10.1(b), his or her entire interest in the
Plan will be distributed within five years after
his or her death.
(C) Notwithstanding the provisions of clause B of
paragraph (ii) of Section 10.1(b), if the Employee
dies before distribution to him has commenced
pursuant to clause (B) of paragraph (i) of Section
10. 1(b), and if (aa) any portion of his or her
interest in the Plan is payable to or for the
benefit of his or her beneficiary, (bb) such
portion will be distributed in accordance with
regulations prescribed by the Secretary of the
Treasury over the life expectancy of such
beneficiary or over a period not extending beyond
the life expectancy of such beneficiary, and (cc)
distribution of such portion will begin not later
than one year after the date of the Employee's
death, or such later date as the Secretary of the
Treasury may prescribe by regulations, then the
portion of such Employee's interest referred to in
this clause (C) of paragraph (ii) of Section
10.1(b) shall be treated as distributed on the
date on which such distribution begins.
(D) Notwithstanding the provisions of clauses (B) and
(C) of paragraph (ii) of Section 10.1(b), if the
Employee's beneficiary referred to in clause (C)
of paragraph (ii) of Section 10.1(b) is the
Surviving Spouse of the Employee, then: (aa) the
date on which the distributions are required to
begin under subclause (cc) of clause (C) of
paragraph (ii) of Section 10.1(b) shall not be
earlier than the date on which the Employee would
have attained age 70-1/2, and (bb) if the
Employee's Surviving Spouse dies before the
distributions to such spouse begin, then this
clause (D) of paragraph (ii) of Section 10.1(b)
shall be applied as if such Surviving Spouse were
the Employee.
(iii) For purposes of this Section 10.1(b) the "Required
Distribution Date" means April 1 of the calendar year
following the calendar year in which the Employee
attains age 70-1/2. Notwithstanding the preceding
sentence, the "Required Distribution Date" of an
39
<PAGE> 45
Employee who is not a 5-percent owner, within the
meaning of Treasury Regulation Section 1.401(a)(9)-1 Q/A
B-2, and who attains age 70-1/2 before January 1, 1989,
shall mean April 1 of the calendar year following the
calendar year in which such Employee attains age 70-1/2
or retires, whichever occurs later. For this purpose, an
Employee who attained age 70-1/2 in 1988 and had not
retired as of January 1, 1989, shall be treated as
having retired on January 1,1989.
(iv) For purposes of this Section 10.1(b), the life
expectancy of an Employee and his or her spouse may be
redetermined at any time, but not more frequently than
annually.
(v) In the event an Employee accrues additional benefits
under the Plan after payment of such Employee's benefits
commence pursuant to this Section 10.1(b), such
additional benefits shall be paid in the same form in
which the Employee's benefit is currently being paid,
and shall be reflected in the monthly amount payable to
the Employee commencing with the first payment made in
the calendar year following the calendar year such
additional benefits are accrued.
10.2 Reemployment and Employment After Normal Retirement Date.
(a) If a retired Employee who, on termination of employment met
the requirements for an Early Retirement Benefit under Article
IV, a Vested Retirement Benefit under Article VI, or a "Rule
of 50" Retirement Benefit under Article VI, is reemployed by
the Employer as an Employee prior to the commencement of
Benefit payments, his or her right to such Retirement Benefit
shall be cancelled and in lieu thereof the Years of Service
and Years of Participation which he or she had at the time of
his or her termination of employment shall be reinstated as
provided in Section 2.6.
If a retired Employee who is receiving Retirement
Benefit payments is reemployed by the Employer as an Employee,
his or her Retirement Benefit payments shall cease and shall
resume with the month following his or her subsequent
retirement. The monthly Retirement Benefit payable upon such
subsequent retirement shall be determined as if he or she were
then first retired but shall be based upon his or her Years of
Service and Years of Participation at the time of his or her
last retirement plus his or her Years of Service and Years of
Participation during the period of reemployment; provided that
not more than 30 Years of Participation shall be used in the
determination of such Employee's monthly Retirement Benefit;
and provided further, that such monthly Retirement Benefit
shall be reduced actuarially based on the assumptions set
forth in Section 1.2 to reflect the value of any Early
Retirement
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<PAGE> 46
Benefit, Vested Retirement Benefit or "Rule of 50" Retirement
Benefit payments which he or she received under the Plan prior
to his or her Normal Retirement Date.
If an Employee:
(i) is reemployed by the Employer after his or her Normal
Retirement Date,
(ii) is reemployed by the Employer prior to his or her Normal
Retirement Date and he or she continues in employment
beyond his or her Normal Retirement Date, or
(iii) continues in employment with the Employer after his or
her Normal Retirement Date without a prior termination
of Employment, and
the Retirement Benefit accrued by reason of his or her
employment after his or her Normal Retirement Date is less
than the adjustment that would have been made to his or her
Retirement Benefit if it had been increased to its Actuarial
Equivalent for commencement after his or her Normal Retirement
Date, then notwithstanding the provisions of this Section
10.2, Sections 10.2(b), (c), (d), (e), (f), (g) and (h) shall
become applicable to him as of the latest of:
(A) his Normal Retirement Date,
(B) his date of reemployment, or
(C) the date on which the conditions of paragraph (i), (ii)
or (iii) of Section 10.2(a) are met and the Retirement
Benefit accrued by reason of his or her employment after
his or her Normal Retirement Date is less than the
adjustment that would have been made to his or her
Retirement Benefit if it had been increased to its
Actuarial Equivalent for commencement after his or her
Normal Retirement Date.
(b) For purposes of Sections 10.2(b), (c), (d), (e), (f), (g) and
(h), the following definitions shall apply:
(i) "Post-Retirement Date Service" means each calendar month
of employment of an Employee with the Employer or a
Related Corporation after his or her Normal Retirement
Date and subsequent to the time that:
(A) payment of Retirement Benefits commenced to such
Employee if he or she returned to employment, or
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(B) payment of Retirement Benefits would have
commenced to such Employee if he or she had not
remained in employment,
if in either case such Employee:
(A) completes forty (40) or more Hours of Employment
in such calendar month, or
(B) receives from the Employer or a Related
Corporation payment for any Hours of Employment
performed on each of eight (8) or more days in
such calendar month.
The determination of the Plan Administrator with respect
to whether an Employee is performing Post-Retirement
Date Service shall be based on a reasonable and good
faith evaluation of the facts, and shall be conclusive
and binding.
(ii) "Suspendable Amount" means:
(A) in the case of a Retirement Benefit payable
periodically on a monthly basis for as long as a
life (or lives) continues, the monthly Retirement
Benefit otherwise payable in a calendar month in
which the Employee is engaged in Post-Retirement
Date Service, or
(B) in the case of a Retirement Benefit payable other
than in the form described in clause (A) of
paragraph (ii) of Section 10.2(b), the lesser of
(1) the amount of Retirement Benefit which would
have been payable to the Employee if he or she had
been receiving monthly benefits under the Plan
since actual retirement based on a single life
annuity commencing at his or her actual retirement
date; or (2) the actual amount paid or scheduled
to be paid to the Employee for such month.
Payments which are scheduled to be paid less
frequently than monthly may be converted to
monthly payments for purposes of this clause (B)
of paragraph (ii) of Section 10.2(b).
(c) Payment of an Employee's Retirement Benefit, not in excess of
the Suspendable Amount, shall be permanently withheld for each
calendar month during which the Employee is employed in
Post-Retirement Date Service.
(d) If payment of an Employee's Retirement Benefit has been
suspended pursuant to Section 10.2(c), Retirement Benefit
payments shall resume no
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later than the first day of the third calendar month after the
calendar month in which the Employee ceases to be employed in
Post-Retirement Date Service. The initial payment upon
resumption shall include the payment scheduled to occur in the
calendar month when payments resume and any amounts withheld
during the period between the cessation of Post-Retirement
Date Service and the resumption of payment, less any amounts
which are subject to offset pursuant to Section 10.2(e).
(e) Retirement Benefit payments made subsequent to Post-Retirement
Date Service shall be reduced
(i) by the Actuarial Equivalent of any Retirement Benefit
paid to the Employee prior to the time he or she is
reemployed by the Employer after his or her Normal
Retirement Date; and
(ii) by the amount of any payments previously made during
those calendar months in which the Employee was engaged
in Post-Retirement Date Service;
provided, however, that such reduction under (ii) shall not
exceed in any one month, twenty-five (25) percent of that
month's total Retirement Benefit payment (excluding amounts
described in Section 10.2(d)) which would have been due but
for the offset.
(f) Any Employee whose Retirement Benefit payments are suspended
pursuant to Section 10.2(c) shall be notified (by personal
delivery or certified mail) during the first calendar month in
which payments are withheld, that his or her Retirement
Benefit payments are suspended. Such notification shall
include:
(i) a description of the specific reasons for the suspension
of payments;
(ii) a general description of the Plan provisions relating to
the suspension;
(iii) a copy of the provisions;
(iv) a statement to the effect that applicable Department of
Labor regulations may be found at Section 2530.203-3 of
the Code of Federal Regulations; and
(v) the procedure for appealing the suspension which
procedure shall be governed by Section 13.9 herein.
If Retirement Benefit payments which are resumed after the
cessation of Post-Retirement Date Service are to be reduced by
an offset pursuant to
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<PAGE> 49
Section 10.2(e), the notification shall specifically identify
the periods of employment for which the amounts to be offset
were paid, the Suspendable Amounts subject to offset, and the
manner in which the Plan intends to offset such Suspendable
Amounts.
If the Summary Plan Description ('SPD') for the Plan contains
information which is substantially the same as the information
required pursuant to the preceding portions of this Section
10.2(f), the notification required by this Section 10.2(f) may
refer the Employee to the relevant pages of the SPD. If the
notification refers to the SPD, the notification shall also
inform the Employee how to obtain a copy of the SPD, or
relevant pages thereof and any request for the referenced
information shall be honored within thirty (30) days of the
receipt by the Employer of such request.
(g) An Employee may request, pursuant to the procedure contained
in Section 13.9 herein, a determination as to whether specific
contemplated employment will constitute Post-Retirement Date
Service.
(h) The application of Section 10.2 and its construction and
interpretation by the Employer shall be in conformity with
Department of Labor Regulations found at Section 2530.203-3 of
the Code of Federal Regulations.
(i) In the event an Employee retires and commences to receive his
or her Retirement Benefit prior to attainment of Normal
Retirement Age, and is subsequently reemployed and accrues
additional benefits under the Plan, the election and form of
payment provisions of Article VII of the Plan shall be applied
independently with respect to such additionally accrued
benefits.
10.3 Restriction on Alienation of Retirement Benefits.
(a) Except as provided in Sections 10.3(b) and 10.3(c), the rights
and interests of any person under the Plan, including any
right to receive distributions from the Trust Fund shall not
be subject in any manner to sale, transfer, encumbrance,
assignment, pledge or alienation of any kind; nor may such
rights or interest be resorted to, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person, including claims
for alimony, support, separate maintenance and claims in
bankruptcy proceedings. No such person shall have the power in
any manner to sell, transfer, encumber, assign, pledge or
alienate any of his or her interest or rights under the plan,
including his or her right to receive any distribution from
the Trust Fund, and any attempt to do so shall be void.
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<PAGE> 50
(b) Notwithstanding the provisions of Section 10.3(a), all or any
part of the accrued benefit of an Employee under the Plan
shall be subject to and payable in accordance with the
applicable requirements of any Qualified Domestic Relations
Order, as that term is defined in Section 206(d)(3) of the
Act, and the Plan Administrator shall direct the Trustee to
provide for payment in accordance with such Order and Section
and any regulations promulgated under such Section. All such
payments pursuant to a Qualified Domestic Relations Orders
shall be subject to reasonable rules and regulations
promulgated by the Plan Administrator; provided that such
rules and regulations are consistent with such Section 206(d)
(3) of the Act. If prior to a commencement of payment of an
Employee's Retirement Benefit any amount attributable to his
or her Retirement Benefit is allocated for, or paid to, an
alternate payee or payees pursuant to a Qualified Domestic
Relations Order, the amount of his or her Retirement Benefit
shall be reduced by an amount equal to the Actuarial
Equivalent of the amount so paid or allocated to an alternate
payee or payees.
(c) In addition, notwithstanding the provisions of Section
10.3(a), an Employee, former Employee, or spouse or
beneficiary of an Employee or former Employee who is a
participant in a health plan sponsored by Sauer-Sundstrand
Company may elect to have a portion of his or her Retirement
Benefit withheld and paid directly on his or her behalf to
such plan or to Sauer-Sundstrand Company. Any such election
shall be in writing on a form perscribed by the Plan
Administrator, and shall at all times be revocable, on a
prospective basis, by the filing of a written revocation with
the Plan Administrator. The amount withheld pursuant to such
an election shall not exceed the amount charged under the
health plan for the coverage purchased by the person who made
the election. The amount withheld pursuant to such an election
shall be treated as a distribution for all purposes under the
Plan, and all provisions of the Plan shall apply to such
withheld amounts to the same extent as if such amounts were
distributed in cash to the persons making the elections.
10.4 Payment to Incompetent Persons. Every person receiving or
claiming a benefit under the Plan shall be presumed to be mentally competent and
of age until the Plan Administrator receives reliable, written notice that such
person is incompentent or a minor. Payments otherwise due a minor shall be paid
to any custodial parent of such minor. Payments otherwise due any other
incompentent person shall be paid to the guardian, conservator, or other legal
representative of such person. In the event that the Plan Administrator is
unable to locate a parent, guardian, conservator, or other legal representative
of an incompetent person who is
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<PAGE> 51
otherwise entitled to payment under the Plan, such payment shall be made to the
individual determined by the Plan Administrator to have assumed financial
responsibility for the care of such person. Before the initial payment is made
to an individual designated in this Paragraph Section 10.4, the minor or other
legally incompetent person shall be notified of the Plan Administrator's intent
to make such payment to that other individual. The Trustee shall make such
payment only upon receipt of written instructions to such effect from the Plan
Administrator. Any such payment made in accordance with the provisions of this
Section 10.4 shall be a complete discharge of liability therefor under the Plan
and the Trust Agreement.
10.5 Payment of Small Benefits. Notwithstanding anything to the
contrary contained in the Plan, if, upon termination of employment or upon
eligibility for benefits under the plan, the Actuarial Equivalent value of the
entire benefit ever accrued by an Employee under the Plan is $3,500 or less, the
Plan Administrator shall direct that the person entitled to receive such benefit
shall receive, in lieu thereof, the Actuarial Equivalent value of such benefit
in the form of a lump sum payment. No lump sum payment may be made under the
preceding sentence after commencement of payment of a benefit to an Employee
unless the Employee and his or her spouse, if any, (or where the Employee has
died, such spouse), consent in writing to such lump sum payment.
10.6 Application of Certain Plan Provisions. For purposes of the
general administrative provisions and limitations of the Plan, a former
Employee's spouse determined under Article IX shall be treated as any other
person entitled to receive benefits under the Plan. Upon any termination of the
Plan, any such spouse who has an interest under the Plan at the time of such
termination, which does not cease by reason thereof, shall be deemed to be a
retired Employee for all purposes of the Plan and Trust Agreement.
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ARTICLE XI
MAXIMUM RETIREMENT BENEFITS
11.1 Maximum Benefit Limitations. Notwithstanding any other
provisions of the Plan to the contrary but, subject to the provisions of this
Article, in no event may an Employee's annual Retirement Benefit which is
attributable to Employer contributions exceed the lesser of:
(a) $90,000 (or such other limitation amount as may hereafter be
set forth in Section 415 of the Code or as may be determined
under Treasury regulations issued pursuant to Section 415(d)
of the Code); or
(b) one hundred percent (100%) of the Employee's average annual
compensation over the three consecutive calendar years during
which he or she had the greatest aggregate compensation from
the Employer (in the case of an Employee whose employment with
the Employer and all other Related Corporations has
terminated, such amount shall be increased to reflect cost of
living adjustments determined by Treasury regulations issued
pursuant to Section 415 of the Code).
If an Employee has fewer than ten Years of Service, the dollar
limitation specified in Section 11.1(a) shall be reduced by multiplying such
amount by a fraction, the numerator of which is the Employee's number of Years
of Service (or part thereof) and the denominator of which is ten. If the
Employee has fewer than ten years of service with the Company, the compensation
limitation specified in Section 11.1(b) shall be reduced by multiplying such
amount by a fraction, the numerator of which is the Employee's number of years
of service (or part thereof) with the Company and the denominator of which is
ten. Notwithstanding the foregoing, however, the limitations specified above
shall in no case be reduced below one-tenth of the amount of such limitations as
adjusted.
The foregoing notwithstanding, the maximum Retirement Benefit
payable to an Employee under this Section 11.1 shall be an amount which is
equivalent to a retirement benefit
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paid in the form of a straight life annuity (with no ancillary benefits) under a
plan to which a participant therein does not contribute and under which no
rollover contributions are made.
11.2 Exception to Application of Section 11. 1 Limitation.
Notwithstanding the provisions of Section 11.1, a Retirement Benefit payable
under the Plan shall not be deemed to exceed the limitation of this Article in a
Plan Year if the total retirement benefit derived from Employer contributions
payable with respect to the Employee under this Plan and all other defined
benefit plans of the Employer does not exceed $10,000 for such Plan Year or for
any prior Plan Year. The provisions of this Section 11.2 shall not apply with
respect to any Employee if the Employer has at any time maintained a defined
contribution plan in which the Employee participated.
11.3 Treatment of Employee Contributions. Employee contributions
will be treated as a separate defined contribution plan maintained by an
Employer which is subject to the limitations on contributions and other
additions described in Treasury Regulation Section 1.415-6.
11.4 Cost of Living Adjustments. If the $90,000 amount contained in
Section 11.1(a) is increased pursuant to Treasury regulations issued under
Section 415(d) of the Code, such increase shall be effective as of January 1 of
the calendar year for which such Treasury regulations were effective and shall
apply with respect to Limitation Years ending with or within that calendar year.
11.5 Adjustments to Maximum Benefit Limitation. For purposes of this
Article:
(a) If a Retirement Benefit under the Plan is payable in any form
other than a straight life annuity (with no ancillary
benefits), the determination as to whether the limitation
described in Section 11.1 has been satisfied shall be made in
accordance with regulations prescribed by the Secretary of the
Treasury, by adjusting such benefit so that it is the
equivalent to the benefit described in the last paragraph of
Section 11.1. For purposes of
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this Section 11.5(a), any ancillary benefit which is not
directly related to Retirement Benefits shall not be taken
into account and that portion of any joint and survivor
pension which constitutes a qualified joint and survivor
annuity under Section 417(b) of the Code shall not be taken
into account.
(b) If a Retirement Benefit under the Plan begins before age 62,
the determination as to whether the $90,000 limitation set
forth in Section 11.1(a), as adjusted, has been satisfied
shall be made, in accordance with regulations prescribed by
the Secretary of the Treasury, by reducing such Benefit so
that it is equivalent to a $90,000 Retirement Benefit
beginning at age 62.
(c) If a Retirement Benefit under the Plan begins after the
Employee's Social Security Retirement Age, the determination
as to whether the $90,000 limitation set forth in Section
11.1(a), as adjusted, has been satisfied shall be made, in
accordance with regulations prescribed by the Secretary of the
Treasury, by increasing such limitation so that it is
equivalent to a $90,000 annual benefit beginning at the
Employee's Social Security Retirement Age.
(d) If a Retirement Benefit under the Plan begins before the
Employee's Social Security Retirement Age, but on or after age
62, the dollar limitation of Section 11.1(a), as adjusted,
shall be determined as follows:
(i) If an Employee's Social Security Retirement Age is 65,
the dollar limitation of benefits commencing on or after
age 62 is determined by reducing the adjusted dollar
limitation by 5/9 of one percent for each month by which
benefits commence before the month in which the Employee
attains age 65.
(ii) If an Employee's Social Security Retirement Age is
greater than 65, the dollar limitation for benefits
commencing on or after age 62 is determined by reducing
the adjusted dollar limitation by 5/9 of one percent for
each of the first 36 months and 5/12 of one percent for
each of the additional months (up to 24 months) by which
benefits commence before the month of the Employee's
Social Security Retirement Age.
(e) (i) For purposes of adjusting any benefit under Section
11.5(a), the interest rate assumption shall be the
greater of five (5) percent or the rate specified in
Section 1.2 of the Plan.
(ii) For purposes of adjusting any benefit under
Section 11.5(b), the interest rate assumption shall be
the greater of five (5) percent or the rate utilized
in reducing the amount of an early Retirement Benefit
payable to an Employee on account of commencement
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prior to such Employee's Normal Retirement Date under
Section 4.2 of the Plan.
(iii) For purposes of adjusting any Benefit under Section
11.5(c), the interest rate assumption shall be five (5)
percent.
11.6 Sum of Defined Benefit and Defined Contribution Plan Fractions.
In the event that any Employee under this Plan is also a participant in a
defined contribution plan or plans (as defined in Section 415 of the Code)
maintained by the Employer, the sum of the defined benefit plan fraction (as
defined in Code Section 415(e)(2)) and the defined contribution plan fraction
(as defined in Code Section 415(e)(3)) for any Limitation Year with respect to
such Employee shall not exceed one (1.0). If such sum exceeds one (1.0) and the
annual additions (as defined in Code Section 415(c)(2)) for such Employee to
such defined contribution plan or plans are not reduced to obtain compliance
with Code Section 415(e), then the Employee's Retirement Benefits under this
Plan shall be reduced to obtain such compliance.
11.7 Miscellaneous.
(a) The total annual benefit payable to an Employee under all
qualified plans maintained by the Employer will not exceed the
limits under Section 415 of the Code as set forth in Section
11.1.
(b) For purposes of the limitations imposed by this Article, a
defined benefit plan or defined contribution plan shall be
treated as maintained by the Employer if the plan is
maintained by any Related Corporation.
11.8 Limitation Year Defined. For purposes of this Article, the term
"Limitation Year" means the period to be used in determining the Plan's
compliance with Section 415 of the Code and the regulations thereunder. The Plan
Administrator shall take all necessary and appropriate action to ensure that the
Limitation Year is the same period as the Plan Year.
11.9 Compensation Defined. For purposes of this Article,
"compensation" shall mean wages, salaries, fees for professional services
actually rendered in the course of
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employment with the Employer, excluding, however, contributions made by the
Employer to a plan of deferred compensation to the extent that, before the
application of the limitations of Code Section 415 to such plan, the
contributions are not includable in the gross income of the Employee for the
taxable year in which contributed, contributions made by the Employer on his or
her behalf to a simplified employee pension plan described in Section 408(k) of
the Code, any distributions from a plan of deferred compensation (except amounts
received pursuant to an unfunded non-qualified plan in the year such amounts are
includable in the gross income of the Employee), amounts received from the
exercise of a non-qualified stock option or when restricted stock or other
property held by the Employee becomes freely transferable or is no longer
subject to substantial risk of forfeiture, amounts received from the sale,
exchange, or other disposition of stock acquired under a qualified stock option,
and any other amounts which receive special tax benefits, such as premiums for
group term life insurance (but only to the extent that the premiums are not
includable in the gross income of the Employee).
11.10 Adjustment for Retired Employees. In the event that the annual
Retirement Benefit payable to a retired Employee absent the limitations of this
Article would be greater than his or her annual Retirement Benefit after
application of such limitations, the annual Retirement Benefit otherwise payable
following his or her retirement shall be increased for each Limitation Year to
reflect, as appropriate with respect to him, any increase in the limitation set
forth in Section 11.1(a), which limitation shall be determined as described
therein, or any increase in the limitation set forth in Section 11.1(b), which
limitation shall be determined by multiplying the limitation applicable to him
under Section 11.1(b) in the Limitation Year in which he or she retired by a
fraction, the numerator of which is the maximum permissible dollar limitation
for the Limitation Year in which the compensation limitation is being adjusted
and the denominator
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of which is the maximum permissible dollar limitation for the Limitation Year
in which he or she retired.
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ARTICLE XII
FINANCING
12.1 Trust Fund and Trustee. The Trust Fund is held and administered
under the Sauer-Sundstrand Consolidated Retirement Trust for Employee Retirement
Plans with State Street Bank and Trust Company, Boston, Massachusetts, as
Trustee, subject to the additional provisions of Section 13.3. Subject to the
provisions of Title IV of the Act, benefits under the Plan shall be only such as
can be provided by the assets of the Trust Fund, and no liability for the
payment of benefits under the Plan shall be imposed upon any Employer or any
Related Corporation, or any of their officers, employees, directors or
stockholders.
12.2 Contributions by an Employer. So long as the Plan continues,
contributions will be made by each Employer at such times and in such amounts as
the Board of Directors of such Employer in its sole discretion shall from time
to time determine, based on the advice of the Actuary and consistent with the
funding policy for the Plan. Subject to the provisions of Section 12.5, all such
contributions shall be delivered to the Trust for deposit in the Trust Fund.
Employees shall make no contributions to the Plan. Unless paid by the Plan
Administrator, all expenses incident to the operation and management of the Plan
shall be paid out of the Trust Fund.
12.3 No Reversion: Return of Contributions. The Trust Fund shall be
for the exclusive benefit of Employees, retired and former Employees, and
persons claiming under or through them. Under no circumstances or conditions
whatsoever shall the Trust fund, or any portion of the principal or income
thereof, ever be used for or diverted to any other purpose, or ever revert, be
paid, or inure to the benefit, directly or indirectly, of an Employer or any
other Related Corporation; provided, however, that, as more particularly set
forth in the Trust
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<PAGE> 59
Agreement, in the event of the termination of the Plan, after satisfaction of
all benefit liabilities of the Plan, such remaining portion of the Trust Fund,
if any, shall revert to the Employer with respect to which it relates.
The foregoing provisions of this Section 12.3 notwithstanding:
(a) If any contribution under the Plan is conditioned on initial
qualification of the Plan under Section 401(a) of the Code and
if the Plan does not so qualify, the Trustee shall upon
written request of the Employer that made the contribution,
return to such Employer the amount of such contribution and
any increment thereon within one calendar year after the date
qualification of the Plan is denied;
(b) If a contribution is conditioned upon the deductibility of the
contribution under Section 404 of the Code, then, to the
extent the deduction is disallowed, the Trustee shall, upon
written request of the Employer that made the contribution,
return the contribution (to the extent disallowed) and any
increment thereon to such Employer within one year after the
date the deduction is disallowed; and
(c) If a contribution or any portion thereof is made by an
Employer by a mistake of fact, the Trustee shall, upon written
request of the Employer that made the contribution, return the
contribution or such portion and any increment thereon to such
Employer within one year after the date of payment to the
Trustee.
12.4 Forfeitures Not to Increase Benefits. Any forfeiture arising
from the termination of employment or death of an Employee, or for any other
reason, shall be used to reduce the contributions of such Employee's Employer to
the Trust Fund, and shall not be applied to increase the benefits any Employee
or any other person otherwise would receive under the Plan at any time prior to
the termination of the Plan.
12.5 Change of Funding Medium. The Plan Administrator shall have the
right to change at any time the means through which benefits under the Plan
shall be provided, including the substitution of a contract or contracts with an
insurance company or companies, and may thereupon make suitable provision for
the use of assets of the Trust to provide for the payment of benefits under such
insurance contract or contracts. No such change shall constitute
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a termination of the Plan or result in the diversion to any Employer of any
funds previously contributed in accordance with the Plan.
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ARTICLE XIII
ADMINISTRATION
13.1 Plan Administrator. Sauer-Sundstrand is the Plan Administrator
and has sole responsibility for the administration of the Plan, including but
not limited to the rights to interpret and construe the Plan, and to determine
any disputes arising thereunder. The Plan Administrator shall have all powers
necessary to administer the Plan in accordance with its terms. Not in
limitation, but in amplification of the foregoing and of the authority conferred
upon the Plan Administrator elsewhere in the Plan, the parties hereto
specifically intend that the Plan Administrator have the greatest permissable
discretion to construe the terms of the Plan and to determine all questions
concerning eligibility, participation and benefits. Any such decision made by
the Plan Administrator shall be binding on all Employees and beneficiaries, and
is intended to be subject to the most deferential standard of judicial review.
Such standard of review is not to be affected by any real or alleged conflict of
interest on the part of the Plan Administrator. All payments of benefits under
the Plan shall be made by the Trustee in accordance with the written direction
of the Plan Administrator. The decision of the Plan Administrator upon all
matters within the scope of its authority shall be final and binding. The Plan
Administrator hereby designates to those named in Sections 13.2 through 13.5
certain rights and duties for the general administration of the Plan, and from
time to time may further designate or change responsibilities under the Plan.
13.2 Rights and Duties of the Board. The Board of Directors of
Sauer-Sundstrand Company ('the Board'), shall
(a) adopt the Plan and such amendments thereto as the Board has
not delegated to the Committee under Section 13.4;
(b) appoint the Committee.
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The Board shall act through a majority of its members, either by
vote at a meeting or in writing without a meeting.
13.3 Rights and Duties of the Trustee. The Trustee shall have such
rights and duties as are set forth in this Section 13.3.
(a) Hold Assets. The Trustee shall hold the assets of this Plan.
(b) Trust Agreement. The Plan Administrator will enter into a
Trust Agreement with one or more Trustees, and the Trustee
will receive contributions made by the Employers pursuant to
the Plan and will hold and distribute the same in accordance
with the terms and provisions of the Trust Agreement(s). The
Plan Administrator will determine the form and terms of such
Trust Agreement and may modify such Trust Agreement from time
to time to accomplish the purposes of this Plan.
(c) Records. The Trustee will keep full books of account and will,
at least once during each calendar year, submit to the
Committee a report, which shall include a list of the
investments comprising the trust fund at the end of the period
covered by the report, showing the valuation placed on each
item on such list by the Trustee at the end of such period and
the total of such valuations, and shall include a statement of
purchases, sales and any other investment changes and of
income and disbursements since the last report. Copies of such
reports shall be available for inspection at the principal
office of the Employer and at such other places as the
Committee shall specify.
(d) Removal/Resignation of Trustee. The Board may remove the
Trustee at any time upon the notice required by the terms of
such Trust Agreement, and upon such removal, or upon the
resignation of the Trustee, the Board will designate a
successor Trustee.
13.4 Rights and Duties of the Committee. The Sauer-Sundstrand
Employee Benefit Committee ("the Committee") shall have such rights and duties
as are set forth in this Section 13.4.
(a) The Committee members shall be appointed by, and serve at the
pleasure of, the Board. Vacancies will be filled in the same
manner as original appointments.
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(b) The Committee will hold meetings upon such notice and at such
place or places, and at such time or times, as it may from
time to time determine. A majority of the members of the
Committee at the time in office will constitute a quorum for
the transaction of business.
The Committee may act at a meeting or in writing without a
meeting. The Committee may adopt such regulations and rules as
it deems desirable for the conduct of its affairs, which will
be uniformly and consistently applied. All decisions of the
Committee will be made by the vote of the majority, including
actions in writing taken without a meeting.
No member of the Committee will have any right to vote or
decide upon any matter relating solely to himself or solely to
any of his or her rights or benefits under the Plan.
(c) The Committee shall have the right to appoint, remove and
replace a Trustee, Trustees, insurance company or companies,
or any qualified institution or institutions to act as Funding
agent with respect to the Plan.
(d) The Committee shall set funding and investment policies for
assets of the Plan.
(e) The Committee shall appoint the Appeal Review Committee and
the Plan Benefit Committee and have the right to appoint
others or to employ individuals to assist in the
administration of the Plan.
(f) The Committee shall have final authority over construction and
direction of the Plan. The Committee shall take such steps as
are considered necessary and appropriate to remedy any
inequity that results from incorrect information received or
communicated in good faith or as the consequence of an
administrative error. It shall endeavor to act, whether by
general rules or by particular decisions, so as not to
discriminate in favor of, or against, any person and so as to
treat all persons in similar circumstances uniformly. The
Committee shall correct any defect, reconcile any
inconsistency, or supply any omission with respect to this
Plan. All such corrections, reconciliations, interpretations
and completions of Plan provisions shall be final and binding
upon the parties.
(g) The Committee shall adopt all Plan amendments.
13.5 Rights and Duties of the Plan Benefit Committee. The Plan
Benefit Committee shall have such rights and duties as are set forth in this
Section 13.5.
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<PAGE> 64
(a) The Plan Benefit Committee shall receive and reply to
applications or claims for benefits filed with him by
Employees or beneficiaries in accordance with Section 13.8 of
the Plan.
(b) The Plan Benefit Committee shall issue directions to the
Trustee concerning all benefits which are to be paid pursuant
to the provisions of the Plan.
(c) The Plan Benefit Committee shall receive from Employers and
Employees such information as is necessary for proper
administration of the Plan.
(d) The Plan Benefit Committee shall prepare and distribute, in
such form as he or she determines appropriate, information
explaining the Plan.
(e) The Plan Benefit Committee shall furnish to the Company, upon
request, such reports with respect to the Plan administration
as are necessary or appropriate.
13.6 Rights and Duties of the Appeal Review Committee. The Appeal
Review Committee shall have such rights and duties as are stated in Section
13.9(b).
13.7 Indemnification. Each member of the Board and the aforenamed
Committees, and Employer officers, directors and employees associated with
administration of the Plan, shall be indemnified by Sauer-Sundstrand against
costs, expenses and liabilities (other than amounts paid in settlement to which
the Plan Administrator does not consent) reasonably incurred by him or them in
connection with any action to which he or she or they may be a party by reason
of performance of designated duties except in relation to matters as to which he
or she or they shall be adjudged in such performance to be personally guilty of
gross negligence or willful misconduct. The foregoing right to indemnification
shall be in addition to such other rights these individuals may enjoy as a
matter of law or by reason of insurance coverage of any kind.
13.8 Reliance Upon Others. The Board members, the Trustee, and the
respective Committee members may rely upon the direction, information or actions
of each other
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as being proper under the Plan, and are not required to inquire into the
propriety of such direction, information or action. They may also rely upon all
tables, valuations, certificates and reports made by an accountant, attorney,
actuary, consultant or other person selected or approved by any one of them.
Except as prohibited by ERISA, they will be indemnified in accordance with
Section 13.7 with respect to their reliance upon others as stated herein.
13.9 Claims Procedures.
(a) Application for Benefits. At least 60 days before intended
commencement of a Plan benefit, each Employee and/or
beneficiary believing himself eligible shall apply for such
benefit by completing and filing with the Plan Benefit
Committee an application for benefits on a form supplied by
the Plan Benefit Committee. Before the date on which benefit
payments commence, each such application must be supported by
such information and data as the Plan Benefit Committee deems
relevant and appropriate. Evidence of age, marital status
(and, in the appropriate instances, health, death, or
disability), and location of residence shall be required of
all applicants for benefits.
(b) Appeals of Denied Claims for Benefits. In the event that any
claim for benefits is denied in whole or in part, the Employee
or beneficiary whose claim has been so denied shall be
notified of such denial in writing by the Plan Benefit
Committee. The notice advising of the denial shall specify the
reason or reasons for denial, make specific reference to
pertinent Plan provisions, describe any additional material or
information necessary for the claimant, perfect the claim
(explaining why such material or information is needed), and
shall advise the Employee or beneficiary, as the case may be,
of the procedure for the appeal of such denial. All appeals
shall be made by the following procedure:
(1) The Employee or beneficiary whose claim has been denied
shall file with the Appeal Review Committee a notice of
desire to appeal the denial. Such notice shall be filed
within ninety (90) days from receipt of notification by
the Plan Benefit Committee of claim denial, shall be
made in writing, and shall set forth all of the facts
upon which the appeal is based. Appeals not timely filed
shall be barred.
(2) The Appeal Review Committee shall, within thirty (30)
days of receipt of the Employee's or beneficiary's
notice of appeal, establish a hearing date on which the
Employee or beneficiary may make an oral presentation to
the Appeal Review Committee
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or a Named Appeals Fiduciary in support of his or her
appeal. The Employee or beneficiary shall be given not
less than ten (10) days' notice of the date set for the
hearing.
(3) The Appeal Review Committee or a Named Appeals Fiduciary
shall consider the merits of the claimant's written and
oral presentations, the merits of any facts or evidence
in support of the denial of benefits, and such other
facts and circumstances as the Appeal Review Committee
or a Named Appeals Fiduciary shall deem relevant. If the
claimant elects not to make an oral presentation, such
election shall not be deemed adverse to his or her
interest, and the Appeal Review Committee or a Named
Appeals Fiduciary shall proceed as set forth below as
though an oral presentation of the contents of the
claimant's written presentation had been made.
(4) The Appeal Review Committee or a Named Appeals Fiduciary
shall render a determination upon the appealed claim
which determination shall be accompanied by a written
statement as to the reasons therefor. The determination
so rendered shall be binding upon all parties.
(c) Appointment of a Named Appeals Fiduciary. A Named Appeals
Fiduciary shall be the person or persons named as such by the
Appeal Review Committee. The Named Appeals Fiduciary shall be
a "Named Fiduciary" within the meaning of ERISA, and, unless
appointed to other fiduciary responsibilities, shall have no
authority, responsibility, or liability with respect to any
matter other than the proper discharge of his or her appointed
functions.
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ARTICLE XIV
MISCELLANEOUS
14.1 Plan Non-Contractual. Nothing herein contained shall be
construed as a commitment or agreement on the part of any person to continue his
or her employment with the Employer, and nothing herein contained shall be
construed as a commitment on the part of the Employer to continue the employment
or the rate of compensation of any such person for any period. All Employees
shall remain subject to discharge, layoff, or disciplinary action to the same
extent as if the Plan had never been put into effect.
14.2 Claims of Other Persons. The provisions of the Plan shall in no
event be construed as giving any Employee or any other person, firm or
corporation, any legal or equitable right as against the Employer, its officers,
employees or directors, or as against the Trustee, except any such rights as are
specifically provided for in the Plan or are hereafter created in accordance
with the terms and provisions of the Plan.
14.3 No Guarantees. The benefits provided under the Plan shall be
paid solely from the assets of the Trust Fund and neither the Plan
Administrator, nor the Trustee shall have any obligation to pay any benefits
hereunder, except for such benefits as may be satisfied out of such assets in
accordance with the terms of the Plan. Except to the extent provided by ERISA,
nothing contained in the Plan or in the Trust Agreement shall constitute a
guaranty by the Plan Administrator or the Trustee, that the assets of the Trust
Fund will be sufficient to pay any benefit to any person and neither the Plan
Administrator, its officers, employees or directors, nor the Trustee, in any
manner guarantees the Trust against loss or depreciation nor, to the extent
permitted under the applicable law, shall any of them be liable for any act or
failure to act not amounting to gross negligence or willful misconduct.
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<PAGE> 68
14.4 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, neither the Plan Administrator, the Trustee, nor any
individual acting as an employee or agent of either of them shall be liable to
any Employee, former Employee, Surviving Spouse or beneficiary for any claims,
loss, liability or expense incurred in connection with the Plan, except when the
same shall have been judicially determined to be due to the gross negligence or
willful misconduct of the Plan Administrator, the Trustee or an individual
acting as an employee or agent of any of them.
14.5 Merger or Consolidation of Plan. Any merger or consolidation of
the Plan with another plan, or any transfer of Plan assets or liabilities to any
other plan, shall be effected in accordance with such regulations, if any, as
may be issued pursuant to Section 208 of ERISA, in such a manner that each
Employee in the Plan would receive, if the merged, consolidated or transferred
plan were terminated immediately following such event, a benefit which is equal
to or greater than the benefit he or she would have been entitled to receive if
the Plan had terminated immediately before such event.
14.6 Nonforfeitability of Benefits. Notwithstanding any other
provisions of the Plan, an Employee's right to a normal Retirement Benefit under
the Plan shall be nonforfeitable upon and after his or her attainment of Normal
Retirement Age.
14.7 Prudent Man Rule. Notwithstanding any other provision of this
Plan and Trust Agreement, the Plan Administrator, and the Trustee, shall
exercise their powers and discharge their duties under the Plan and the Trust
Agreement for the exclusive purpose of providing benefits to Employees, former
Employees, Surviving Spouses and beneficiaries, and shall act with the care,
skill, prudence and diligence under the circumstances that a prudent man
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<PAGE> 69
acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
14.8 Duty to Furnish Information and Documents.
(a) Every person with an interest in the Plan or claiming benefits
under the Plan shall furnish the Plan Administrator and the
Trustee with such documents, evidence, data, or information as
the Plan Administrator or its designee considers necessary or
desirable for the purpose of administerinq the Plan, and the
benefit provisions of the Plan shall be applicable to such
person upon the condition that such person will furnish
promptly full, true and complete documents, evidence, data and
information requested by the Plan Administrator. The Plan
Administrator, in its sole discretion, may postpone payment of
benefits until such information and such documents have been
furnished.
(b) Every person claiming a benefit under the Plan shall give
written notice to the Plan Administrator of his or her or her
post office address and each change of post office address.
Any communication, statement or notice addressed to such
person at his or her or her latest post office address, as
filed with the Plan Administrator will, on deposit in the
United States mail with postage prepaid, be binding upon such
person for all purposes of the Plan. If a person fails to give
notice of his or her or her correct address, the Plan
Administrator and Plan fiduciaries shall not be obligated to
search for, or to ascertain, his or her or her whereabouts. If
the location of a person entitled to a benefit is not made
known to the Plan Administrator within three (3) years after
the date on which payment of such benefit would otherwise
commence, payment may be made as though such person had died
at the end of the three-year period. If, within one additional
year after such three year period has elapsed, or, within
three years after the actual death of such person, the Plan
Administrator is unable to locate any individual who would
receive a distribution under the Plan upon the death of an
Employee, such benefit shall be deemed forfeited and shall be
used to reduce the Employer's contributions to the Plan for
the Plan Year next following the year in which the forfeiture
occurs; provided, however, that in the event that a Surviving
Spouse or a beneficiary makes a claim for any amount which has
been forfeited, the amounts which have been forfeited shall be
reinstated.
14.9 Precedent. Except as otherwise specifically provided, no action
taken in accordance with the Plan by the Plan Administrator or the Trustee shall
be construed or relied upon as a precedent for similar action under similar
circumstances.
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14.10 Litigation. In order to protect the Trust Fund against
depletion as a result of litigation, costs incurred by the Trustee in defending
any action arising out of or based on the Plan by an Employee, former Employee,
Surviving Spouse or any person claiming any interest through an Employee, former
Employee or Surviving Spouse shall be charged as far as possible directly
against the benefit to which such Employee, former Employee, Surviving Spouse or
other person is entitled, but only if the result of the action is adverse to
such Employee, former Employee, Surviving Spouse or other person.
14.11 Service of Process. The Director, Personnel and Information of
Sauer-Sundstrand is hereby designated as agent for the service of legal process
on the Plan.
14.12 Trust Agreement. The Trust Agreement and the Trust Fund shall
be deemed to be a part of the Plan, and the provisions of the Trust Agreement
are hereby incorporated by reference into the Plan.
14.13 Governing Law. The Plan and Trust shall be interpreted,
administered and enforced in accordance with the Code and the Act, and the
rights of Employees, former Employees, Surviving Spouses, beneficiaries and all
other persons shall be determined in accordance therewith; provided however,
that, to the extent that state law is applicable, the laws of the State of Iowa
shall apply.
14.14 Titles. Titles are provided in the Plan for convenience of
reference only and are not to serve as a basis for interpretation or
construction of the Plan.
14.15 References. Unless the context clearly indicates to the
contrary, a reference to a Plan or Trust provision, statute, regulation or
document shall be construed as referring to any subsequently enacted, adopted or
executed counterpart.
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14.16 Masculine to Include Feminine. Where used in this Plan,
references to the masculine gender shall be deemed to include the feminine
gender.
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ARTICLE XV
ADOPTION OF PLAN BY RELATED CORPORATIONS
EXTENSION TO NON-COVERED UNITS: ORGANIZATIONAL CHANGES
15.1 Adoption by Related Corporations. Any Related Corporation which
is not an Employer hereunder, with the consent of the Board of Directors of
Sauer-Sundstrand Company, may adopt the Plan and become an Employer by
resolution of its Board of Directors, a certified copy of which shall be filed
with the Plan Administrator. Such resolution shall specify the covered unit or
units of the Employer to which the Plan is being extended by virtue of its
adoption of the Plan, and shall specify the effective date of such adoption. Any
Related Corporation which adopts the Plan shall make contributions to the Plan
in accordance with the provisions of Section 12.2.
15.2 Extension to Non-Covered Units. Sauer-Sundstrand, or any other
Employer with its consent, may extend the Plan to cover any division or other
segment of its business not theretofore covered by the Plan by resolution of its
Board of Directors. Such resolution shall specify the effective date of the
extension of coverage to such division or segment.
15.3 Special Provision Regarding Eligibility and Benefits. In the
event that it is necessary to accommodate the transition from benefit
arrangements which were in effect for the benefit of the employees of a Related
Corporation, or a division or other segment of business of a Related Corporation
prior to the adoption of the Plan by such Related Corporation, or the extension
of the Plan to a division or segment of business of a Related Corporation or of
Sauer-Sundstrand, an Appendix setting forth special overriding provisions
applicable to the adoption of the Plan by such Related Corporation or to the
extension of the Plan to such a division or
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<PAGE> 73
segment of business of a Related Corporation or of Sauer-Sundstrand may be added
to the Plan. Each such Appendix shall for all purposes constitute a part of the
Plan.
15.4 Changes in Employer Organization. Once Plan coverage has been
extended to a division or segment of business of an Employer or of
Sauer-Sundstrand as specified in Sections 15.1 or 15.2, such division or segment
of business shall remain covered under the Plan notwithstanding any subsequent
changes in the organizational structure of the Employer or Sauer-Sundstrand.
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ARTICLE XVI
AMENDMENT AND DURATION
16.1 Internal Revenue Code Qualification. Any modification or
amendment of the Plan may be made as necessary to qualify or maintain the Plan
as a qualified plan and trust meeting the requirements of Sections 401(a) and
501(a) of the Code, as now in effect or hereafter amended or adopted, and the
regulations issued thereunder.
16.2 Amendment and Termination. Sauer-Sundstrand reserves the right
to amend the Plan, or to terminate the Plan at any time and from time to time by
resolution of its Board of Directors, and all persons claiming any interest
under the Plan shall be bound thereby; provided, however, that no amendment
shall be adopted, the effect of which would
(a) revest in the Employer any right, title or interest in or to
any Trust Fund assets except as provided in Sections 12.3 and
16.8;
(b) directly or indirectly, result in discrimination in favor of
officers, shareholders or highly compensated employees;
(c) cause any part of the assets of the Trust Fund to be used for
any purpose other than the exclusive benefit of Employees,
retired Employees, former Employees, Surviving Spouses or
persons entitled to or receiving a benefit under or through
them;
(d) directly or indirectly affect, on the effective date of the
amendment, the vesting of benefits pursuant to Articles V and
VI of the Plan unless the conditions of Section 411(a)(l0) of
the Code are satisfied; and
(e) directly or indirectly divest the interest of any Employee, or
any person entitled to receive a benefit of an Employee, in
any amount that any of them would have received had the
Employee's employment with the Employer and all Related
Corporations terminated immediately prior to the effective
date of such amendment.
A complete discontinuance of contributions by the Employer shall
automatically constitute a termination of the Plan.
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16.3 Termination. In the event of a complete discontinuance of
contributions by the Employer hereunder, or other termination of the Plan with
respect to the Employer, the benefit interests, as specified in this Section
16.3, of all Employees, retired Employees and former Employees of the Employer,
or person or persons entitled to or receiving a benefit under or through them,
shall be determined and distributed in accordance with the provisions of this
Section 16.3. As of the date of termination of the Plan, all assets remaining in
the Trust Fund attributable to contributions of the Employer (as determined in
accordance with the advice of the Actuary for the Plan), after provision has
been made for expenses of administration and liquidation, shall be allocated by
the Actuary, to the extent that they shall be sufficient, to such persons in the
following manner and order of precedence (subject to the provisions of Section
16.4 through 16.11):
(a) First, in the case of benefits payable as an annuity
(i) in the case of the benefit of an Employee, Surviving
Spouse or beneficiary which was in pay status as of the
beginning of the 3-year period ending on the termination
date of the Plan, to each such benefit, based on the
provisions of the Plan (as in effect during the 5-year
period ending on such date) under which such benefit
would be the least; and
(ii) in the case of an Employee's or beneficiary's benefit
(other than a benefit described in subpart (i) of this
Section 16.3(a)) which would have been in pay status as
of the beginning of such 3-year period if the Employee
had retired prior to the beginning of the 3-year period
and if payment of his or her benefit had commenced (in
the normal form of annuity under the Plan) as of the
beginning of such period, to each such benefit based on
the provisions of the Plan (as in effect during the
5-year period ending on such date) under which such
benefit would be the least.
For purposes of subpart (i) of this Section 16.3(a), the
lowest benefit in pay status during a 3-year period
shall be considered the benefit in pay status for such
period.
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(b) Second,
(i) to all other benefits, if any, of individuals under the
Plan guaranteed under Title IV of the Act (determined
without regard to Section 4022(b)(5) of the Act); and
(ii) to the additional benefits, if any, which would be
determined under subpart (i) of this Section 16.3(b) if
Section 4022(b)(6) of the Act did not apply.
For purposes of this Section 16.3(b), Section 4021 of the Act
shall be applied without regard to subsection (c) thereof.
(c) Third, to all nonforfeitable benefits under the Plan.
(d) Fourth, to all other benefits under the Plan.
16.4 Adjustment of Allocations. The amount allocated under any
section of Section 16.3 with respect to any benefit shall be properly adjusted
for any allocation of assets with respect to that benefit under a prior Section
of Section 16.3.
16.5 Assets Insufficient for Allocation. If the assets available for
allocation under any section of Section 16.3 (other than Section 16.3(c) and
16.3(d)) are insufficient to satisfy in full the benefits of all individuals
which are described in that Section, the assets shall be allocated pro rata
among such individuals on the basis of the present value (as of the termination
date) of their respective benefits described in that Section.
16.6 Assets Insufficient for Allocation Under Section 16.3(c). This
Section 16.6 applies if the assets available for allocation under Section
16.3(c) are not sufficient to satisfy in full the benefits of individuals
described in that Section.
(a) If this Section 16.6 applies, except as provided in Section
16.6(b), the assets shall be allocated to the benefits of
individuals described in such Section 16.3(c) on the basis of
the benefits of individuals which would have been described in
Section 16.3(c) under the Plan as in effect at the beginning
of the 5-year period ending on the date of Plan termination.
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(b) If the assets available for allocation under Section
16.6(a) are sufficient to satisfy in full the benefits
described in such Section (without regard to this Section
16.6(b)), then for purposes of Section 16.6(a), benefits
of individuals described in Section 16.6(a) shall be
determined on the basis of the Plan as amended by the most
recent Plan amendment effective during such 5-year period
under which the assets available for allocation are
sufficient to satisfy in full the benefits of individuals
described in Section 16.6(a) and any assets remaining to
be allocated under Section 16.6(a) shall be allocated
under Section 17.6(a) on the basis of the Plan as amended
by the next succeeding Plan amendment effective during
such period.
16.7 Residual Assets. Any residual assets of the Plan shall be
distributed to the Employer if
(a) all liabilities of the Plan to Employees and their
beneficiaries have been satisfied; and
(b) the distribution does not contravene any provision of law.
16.8 Immediate Vesting Upon Termination or Discontinuance. Upon
termination or partial termination of the Plan or discontinuance of
contributions thereto by the Employer pursuant to Sections 16.1, through 16.7,
the rights of all affected Employees and persons claiming a benefit under or
through Employees to benefits accrued to the date of such termination, partial
termination or discontinuance shall be fully vested and nonforfeitable; however,
such benefits will be payable only out of the Trust Fund in accordance with
Sections 16.3 through 16.6 or by the Pension Benefit Guaranty Corporation and no
Employee or person claiming a benefit under or through an Employee shall have
any recourse against Sauer-Sundstrand in the event the assets of the Trust Fund
and the amounts paid by the Pension Benefit Guaranty Corporation shall not be
sufficient to provide such benefits in full.
16.9 Meanings of Terms. The terms used in Sections 16.3 through 16.8
shall have, where required, the same meaning as the same terms as used in
Section 4044 of the Act;
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provided, however, that any term specifically defined in Article I of the Plan
shall have the meaning as defined therein.
16.10 Provisions to Prevent Discrimination in Case of Early
Termination of Plan.
(a) In the event of Plan termination, the following benefit
limitations shall apply:
(i) The benefit of any highly compensated active or former
Employee will be limited to a benefit that is
nondiscriminatory under Section 401(a)(4) of the
Internal Revenue Code.
(ii) Benefits distributed to any of the 25 most highly
compensated active and former highly compensated
Employees will be restricted such that the annual
payments are no greater than an amount equal to the
payment that would be made on behalf of the Employee
under a single life annuity that is the Actuarial
Equivalent of the sum of the Employee's accrued benefit
and the Employee's other benefits under the Plan.
(b) The limitation described in subsection 16.10(a) shall not
apply if:
(i) After payment of the benefit to an Employee described in
said subparagraph, the value of Plan assets equals or
exceeds one hundred ten percent (110%) of the value of
current liabilities, as defined in Section 412(l)(7) of
the Internal Revenue Code, or
(ii) The value of the benefits for an Employee described in
said subparagraph is less than one percent (1%) of the
value of current liabilities.
(c) For purposes of this Section 16.10, "benefit" includes loans
in excess of the amount set forth in Section 72(p)(2)(A) of
the Internal Revenue Code, any periodic income, any withdrawal
values provided to a living Employee, and any death benefits
not provided for by insurance on the Employee's life.
(d) For purposes of this Section 16.10, the determination of
whether an active or former Employee is "highly compensated"
shall be made in accordance with Section 414(q) of the
Internal Revenue Code and the regulations promulgated
thereunder.
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16.11 Withdrawal of an Employer. Each Employer, other than
Sauer-Sundstrand, shall have the right to withdraw from the Plan by action of
its Board of Directors, and by filing written notice thereof with the Plan
Administrator, in which event the Employer shall cease to be an Employer for
purposes of the Plan. A complete discontinuance of contributions to the Plan by
an Employer automatically shall constitute a withdrawal of such Employer from
the Plan. Upon any withdrawal of an Employer, there shall be allocated and
segregated for the benefit of such Employer's Employees, retired or former
Employees, Surviving Spouses, or persons claiming under or through them, all
assets remaining in the Trust Fund which are attributable to contributions of
such Employer, as determined by the Plan Administrator in accordance with the
advice of the Actuary for the Plan, such portion to be disposed of as follows:
(a) If such withdrawal is for the purpose of establishing or
merging with a separate plan which meets the requirements for
qualification under applicable provisions of the Internal
Revenue Code, the portion of the assets of the Plan so
segregated shall be transferred to and become a part of the
trust fund or other financing medium established in connection
with the separate plan.
(b) If such withdrawal is for any other purpose such withdrawal
shall constitute a termination of the Plan with respect to the
withdrawing Employer (but not with respect to the Plan
Administrator or any other Employer which has not so withdrawn
from the Plan), and the portion of the assets of the Plan so
segregated shall be allocated in accordance with the advice of
the Actuary, subject to provision for expenses of
administration and liquidation, for the benefit of persons
employed by the withdrawing Employer who have a benefit
interest under the Plan and who, following such withdrawal, do
not remain Employees within the meaning of the Plan, and for
the benefit of former and retired Employees of the withdrawing
Employer, Surviving Spouses and all persons claiming under or
through them, in the manner, order and subject to the
conditions specified in Sections 16.3 thru 16.10.
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ARTICLE XVII
TOP-HEAVY PROVISIONS
17.1 Top-Heavy Status. The provisions of this Article shall not
apply to the Plan with respect to any Plan Year for which the Plan is not
Top-Heavy (provided that if the Plan becomes Top Heavy the provisions of Section
17.5(b) and 17.5(c) shall apply as set forth therein to periods of time before
and after the period during which the Plan is Top Heavy). If the Plan is or
becomes Top-Heavy in any Plan Year, the provisions of this Article XVII will
supersede any conflicting provisions elsewhere in the Plan.
17.2 Definitions. For purposes of this Article XVII, the following
words and phrases shall have the meanings stated below unless a different
meaning is plainly required by the context:
(a) "Determination Date" means, with respect to any Plan Year: (i)
the last day of the preceding Plan Year, or (ii) in the case
of the first Plan Year of the Plan, the last day of such Plan
Year.
(b) "Key Employee" means an employee meeting the definition of
"key employee" contained in Section 416(i)(l) of the Code and
the Treasury Regulations interpreting said Section. For
purposes of applying such definitions, "compensation" shall
have the meaning set forth in Section 11.9.
(c) "Non-Key Employee" means any employee who is not a Key
Employee.
(d) "Valuation Date" means with respect to a particular
Determination Date, the most recent date for valuation of the
Trust Fund occurring within a 12-month period ending on the
applicable Determination Date and used for computing Plan
costs for purposes of the minimum funding requirements of the
Code.
17.3 Determination of Top-Heavy Status.
(a) The Plan will be "Top-Heavy" with respect to any Plan Year, if
as of the Determination Date applicable to such Year, the
ratio of the present value of accrued benefits under the Plan
for Key Employees (determined as of the Valuation Date
applicable to such Determination Date) to the present
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value of accrued benefits under the Plan for all Employees
(determined as of such Valuation Date) exceeds 60 percent. For
purposes of computing such ratio, and for all other purposes
of applying and interpreting this Section 17.3, the provisions
of Section 416 of the Code and all Treasury Regulations
interpreting said Section shall be applied.
(b) For purposes of determining whether the Plan is Top-Heavy,
those qualified retirement plans maintained by the Employer
which, under the applicable provisions of Section 416(g) of
the Code and the Treasury Regulations interpreting said
section, are required to be aggregated, shall be aggregated
with the Plan. If elected by the Employer, such other
qualified retirement plans maintained and formerly maintained
by the Employer and each Related Corporation shall be
aggregated to the extent permitted by Section 416(g) of the
Code and the Treasury Regulations interpreting said section.
In addition, for purposes of determining whether the Plan is
Top-Heavy, the accrued benefits of an individual shall be
disregarded if he or she has not performed any services for
the Employer at any time during the five-year period preceding
the Determination Date.
17.4 Actuarial Assumption. For purposes of determining whether the
Plan is Top-Heavy, the actuarial assumptions set forth in Section 1.2 shall be
used.
17.5 Vesting.
(a) If the Plan becomes Top-Heavy, the vested interest of an
Employee in the portion of his or her Retirement Benefit
referred to in Section 17.5(b) shall be determined in
accordance with the following schedule, notwithstanding the
provisions of Sections 5.1 or 6.1 (if vesting under either of
such sections would not be as fast as provided herein):
<TABLE>
<CAPTION>
Years of Vested Forfeitable
Service Percentage Percentage
------- ---------- ----------
<S> <C> <C> <C>
Less than 2 years 0% 100%
2 but less than 3 20% 80%
3 but less than 4 40% 60%
4 but less than 5 60% 40%
5 but less than 6 80% 20%
6 or more years 100% 0%
</TABLE>
For purposes of this Section 17.5(a), Years of Service shall
include all Years of Service required to be counted under
Section 411(a) of the Code, disregarding all Years of Service
permitted to be disregarded under Section 411(a)(4) of the
Code.
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<PAGE> 82
(b) The vesting provisions of Section 17.5(a) shall apply to all
Retirement Benefits which have accrued while the Plan is
Top-Heavy and during the period of time before the Plan
becomes Top-Heavy. These vesting provisions shall not apply to
the Retirement Benefit of any Employee who does not have an
Hour of Employment after the Plan becomes Top-Heavy.
(c) If the Plan becomes Top-Heavy and subsequently ceases to be
Top-Heavy, the vesting provisions of Section 17.5(a) shall
automatically cease to apply, and the provisions set forth in
Section 5.1 (or if applicable, Section 6.1) of the Plan shall
automatically apply, with respect to Retirement Benefits which
accrue to an Employee for all Plan Years after the Plan Year
with respect to which the Plan was last Top-Heavy. For
purposes of this Section 17.5(c), this change in vesting
provisions shall only be valid to the extent that the
conditions of Section 16.2 of the Plan and Section 411(a)(l0)
of the Code are satisfied.
17.6 Minimum Benefit.
(a) If the Plan shall be Top-Heavy, the accrued benefit under the
Plan at any point in time for each Non-Key Employee described
in Section 17.6(c) shall be equal to the actuarial value
(based on the assumptions set forth in Section 17.4) of a
single life annuity (with no ancillary benefits) payable over
the life of the Non-Key Employee, commencing on his or her
65th birthday, equal to a percentage (as determined pursuant
to the next sentence of this Section 17.6(a)) of such
Employee's average compensation (as defined in Section 11.9)
for the five consecutive Plan Years during which the Employee
had the highest aggregate amount of such compensation from an
Employer and all Related Corporations. Such percentage shall
equal the lesser of
(i) two percent (2%) multiplied by such Employee's Years of
Service (as computed pursuant to Section 17.6(b)), or
(ii) twenty percent (20%).
The minimum benefit payable pursuant to this Section 17.6 will
be determined without regard to any contributions for any
Employee under the federal Social Security Act.
Notwithstanding the provisions of Section 10.2, if the
Retirement Benefit of a Non-Key employee does not commence
until after his or her 65th birthday, or is suspended for any
period after his or her 65th birthday pursuant to Section
10.2, the amount of the Retirement Benefit required under this
Section upon the commencement or recommencement of Retirement
Benefit payments to such Non-Key Employee after his or her
65th birthday shall be adjusted
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<PAGE> 83
so that such payments are equal to the Actuarial Equivalent of
the Retirement Benefit required by this Section at his or her
65th birthday minus the Actuarial Equivalent of any Retirement
Benefit payments previously made to the Employee.
(b) For purposes of this Section 17.6, Years of Service shall not
include Plan Years when
(i) the Plan was not Top-Heavy for any Plan Year ending
during such Year of Service, and
(ii) Years of Service completed in a Plan Year beginning
before January 1, 1984.
(c) Each Non-Key Employee who completes at least 1,000 hours of
employment in a Plan Year (or equivalent service as defined in
Department of Labor Regulation Section 2530-200b-3) shall
accrue the minimum benefit described in Section 17.6(a) for
such Year. A Non-Key Employee shall not fail to accrue such
benefit merely because the Employee was not employed on a
specific date or because he or she failed to earn a minimum
amount of compensation for such Year.
(d) For purposes of Section 17.6(a) compensation in Plan Years
beginning before January 1, 1984 and compensation in Plan
Years after the close of the last Plan Year in which the Plan
is Top-Heavy shall be disregarded.
17.7 Maximum Allocation. For purposes of determining whether the
Plan would be Top-Heavy if "90%" were substituted for "60%" each place it
appears in paragraphs (l)(A) and (2)(8) of Section 416(g) of the Code, as
required by Section 416(h) of the Code, all of the preceding provisions of this
Article XVII shall be applicable except that the phrase "90 percent" shall be
substituted for the phrase "60 percent" where it appears in Section 17.3(a). If,
pursuant to the preceding sentence, it is determined that the Plan would be
Top-Heavy if "90 percent" were so substituted for "60 percent", then for
purposes of applying Sections 415(e) and 416(h) of the Code and Article XI of
the Plan to the maximum benefit permitted for any Participant, 11.01 shall be
substituted for "1.25" in each applicable place in paragraph (2)(B) and (3)(B)
of Section 415(e) of the Code.
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<PAGE> 84
17.8 Safe Harbor. If, in a Plan Year in which this Plan is
Top-Heavy, a Non-Key Employee who is a participant in this Plan is also a
participant in a Top-Heavy defined contribution plan maintained by the Employer
or a Related Corporation, such Non-Key Employee shall be entitled to receive
only the minimum benefit under Section 17.6 of this Plan for such Plan Year and
shall not be entitled to receive any minimum allocation under such defined
contribution plan for such Plan Year on account of its Top-Heavy status.
17.9 Limits on Benefits to Key Employees. Subject to the exception
provided below, if, for any Plan Year, this Plan is a Top-Heavy Plan, then the
overall limitation imposed by Section 415(e) and 416(h) of the Code and Article
XI of the Plan, in the case of a Key Employee who is a participant in both this
Plan and a Top-Heavy defined contribution plan maintained by the Employer or any
Related Corporation, shall be applied by substituting "1.0" for "1.25" in each
applicable place in paragraphs (2)(B) and (3)(B) of Section 415(e) of the Code.
The change in the Section 415(e) limitation specified in the preceding sentence
shall not be applicable to an Employee for a Plan Year in which this Plan is a
Top-Heavy Plan if
(a) the sum of the present values of the accrued benefits and
account balances of all participants in all defined benefit
plans and defined contribution plans maintained by the
Employer or any Related Corporation who are Key Employees does
not exceed 90% of the sum of the present values of the accrued
benefits and account balances of all participants in all
defined benefit plans and defined contribution plans
maintained by the Employer or any Related Corporation, and
(b) the minimum benefit percentage in Section 17.6 is increased to
3 percent.
Executed this 17th day of December, 1991.
SAUER-SUNDSTRAND
By: /s/ [Illegible]
-------------------------------------
Title: Vice President, Administration
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<PAGE> 85
APPENDIX A TO SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
This Appendix A to the Sauer-Sundstrand Employees' Retirement Plan is
applicable only to Employees who have been credited under this Plan with Years
of Service earned under the Sundstrand Corporation Retirement Plan, the
Sundstrand Corporation Freeport-Hydro-Transmission Employees' Retirement Plan,
or the Sundstrand Corporation Mobile Controls Division Employees' Retirement
Plan prior to February 1, 1987. (Such Employees are hereinafter referred to as
"Former Sundstrand Employees.")
With respect to the Former Sundstrand Employees, the provisions of the
Plan shall apply with the following modifications:
1. For purposes of this Appendix, the following words and phrases shall
have the meanings indicated:
(a) "The "Frozen Part B Benefit" of any Former Sundstrand Employee shall
be the monthly amount of such Employee's Part B Normal Retirement
Benefit under the Plan, the Sundstrand-Sauer Freeport, Illinois,
Employees' Retirement Plan or the Sundstrand-Sauer Minneapolis,
Minnesota Employees' Retirement Plan, as amended prior to January
1,1991, calculated as of December 31, 1988. The amount of the Frozen
Part B Benefit for each Former Sundstrand Employee is set forth in
Appendix C to this Plan.
(b) The "Part A Benefit" of any Former Sundstrand Employee shall be the
amount of such Employee's Normal Retirement Benefit as determined
under Article III of the Plan, less such Employee's Frozen Part B
Benefit.
2. Payment of a monthly Normal Retirement Benefit to a Former Sundstrand
Employee shall be paid according to the terms of the Plan, provided additionally
that the Former Sundstrand Employee may elect the same or separate commencement
dates for each of his Part A and Frozen Part B Benefits, and further may elect
the same or different optional methods of payment for each such Part, subject to
the provisions of Article VII of the Plan.
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<PAGE> 86
3. The monthly amount of an Early Retirement Benefit for each Former
Sundstrand Employee shall, notwithstanding Section 4.2 of the Plan, be an amount
equal to:
(a) for a Part A Benefit, the monthly Normal Retirement Benefit based
upon the Employee's Years of Participation at the time of his early
retirement, provided that such amount shall be reduced by .5 percent
for each month by which the Employee is less than 65 years of age at
the time early Retirement Benefit payments commence, and
(b) for a Frozen Part B Benefit, the monthly Normal Retirement Benefit
based upon the Employee's Years of Participation at the time of his
early retirement, reduced by the percentage from the following table
which corresponds to such Employee's age at the time his early
Retirement Benefit payments commence:
<TABLE>
<CAPTION>
Age at Benefit Percentage
Commencement Date Reduction*
----------------- ----------
<S> <C>
55 42
56 33
57 25
58 18
59 12
60 7
61 3
62 and over 0
</TABLE>
*Percentage shall be adjusted for intervening ages determined to the
nearest whole month.
4. A monthly Early Retirement Benefit for a Former Sundstrand Employee
shall be payable according to the terms of Section 4.3, except that in the case
of a Frozen Part B Early Retirement Benefit recipient, Section 4.3 shall be
modified by substituting "age 62" for "age 65" wherever it appears in such
Section.
5. The monthly amount of a "Rule of 50" Retirement Benefit for each Former
Sundstrand Employee shall, notwithstanding Section 6.2 of the Plan, be an amount
equal to:
(a) for a Part A Benefit, a monthly Normal Retirement Benefit based upon
the Employee's Years of Participation at the time of his termination
of employment multiplied by his "Applicable Percentage"; provided
that if such "Rule of 50" Retirement Benefit commences prior to the
Employee's attainment of age 65 such
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<PAGE> 87
amount shall be reduced by .5 percent for each month by which the
Employee is less than 65 years of age at the time his "Rule of 50"
Retirement Benefit payments commence.
(b) for a Frozen Part B Benefit, a monthly Normal Retirement Benefit
based upon the Employee's Years of Participation at the time of his
termination of employment with all Employers multiplied by his
"Applicable Percentage"; provided that if such "Rule of 50"
Retirement Benefit commences prior to the Employee's attainment of
age 62 such amount shall be reduced by the percentage from the
following table which corresponds to such Employee's age at the time
his "Rule of 50" Retirement Benefit payments commence:
<TABLE>
<CAPTION>
Age at Benefit Percentage
Commencement Date Reduction*
----------------- ----------
<S> <C>
55 42
56 33
57 25
58 18
59 12
60 7
61 3
62 and over 0
</TABLE>
*Percentage shall be adjusted for intervening ages determined to the
nearest whole month.
6. A monthly "Rule of 50" Retirement Benefit for a Former Sundstrand
Employee shall be payable according to the terms of Section 6.3, except that in
the case of a Frozen Part B Early Retirement Benefit recipient, Section 6.3
shall be modified by substituting "age 62" for "age 65" wherever it appears in
such Section.
7. Section 7.1 of the Plan shall be applied with respect to a Former
Sundstrand Employee according to the terms of such Section, but as modified by
replacing the description of "Option A" in such Section with the following:
Option A for Part A benefit recipient. A reduced monthly Retirement
Benefit payable to such retired Employee for life, with the
continuance of monthly payments equal to 50 percent of such reduced
amount after his death to his Surviving Spouse during the lifetime
of such Surviving Spouse;
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<PAGE> 88
The monthly payments to be made to a retired Employee under this Option A
as applicable to a Part A benefit recipient shall be an amount equal to the
monthly Retirement Benefit otherwise payable to the retired Employee reduced by
whichever of the following is applicable:
(a) if the age of the retired Employee and his spouse are the same, or
if such spouse's birth date is within five years of the birth of the
Employee, ten percent;
(b) if the age of the retired Employee is more than five years less than
the age of his spouse, ten percent less .5 of one percent for each
full year by which Surviving Spouse's birth date is more than five
years prior to the birth date of the retired Employee (the total
reduction to be not less than 0 percent); or
(c) if the age of the retired Employee is more than five years greater
than the age of his spouse, ten percent plus .5 of one percent for
each full year by which the Surviving Spouse's birth date is more
than five years after the birth date of the retired Employee
(provided that the total reduction shall not cause the Retirement
Benefit to be less than the Retirement Benefit the Employee and his
spouse would have received if he had elected Option D).
The monthly payment to be made to such retired Employee's Surviving Spouse
under Option A shall be an amount equal to 50 percent of the monthly payment
made under Option A to the retired Employee.
Option A for Frozen Part B benefit recipient. A reduced monthly Retirement
Benefit payable to such retired Employee for life, with the continuance of
monthly payments equal to 60 percent of such reduced amount after his
death to his Surviving Spouse during the lifetime of such Surviving
Spouse;
The monthly payments to be made to a retired Employee under this Option A
applicable to a Frozen Part B benefit recipient shall be an amount equal to the
monthly Retirement Benefit otherwise payable to the retired Employee reduced by
whichever of the following is applicable:
(a) if the age of the retired Employee is the same as, less than or not
more than five years greater than that of his spouse, five percent;
(b) if the age of the retired Employee is more than five years greater
than the age of his spouse, five percent plus .5 percent for each
full year by which the Surviving Spouse's birth date is more than
five years after the birth date of the retired Employee (provided
that the total reduction shall not cause the Retirement Benefit to
be less than the Retirement Benefit the
83
<PAGE> 89
Employee and his Spouse would have received if he had elected Option
D).
The monthly payment to be made to such retired Employee's Surviving
Spouse under Option A shall be an amount equal to 60 percent of the
monthly payment made under Option A to the retired Employee.
8. The amount of the survivor benefit payable pursuant to Section 9.2 of
the Plan with respect to the Surviving Spouse of a deceased Former Sundstrand
Employee shall not be less than:
(a) If the deceased Former Sundstrand Employee at the time of
death met the requirements for a Retirement Benefit under
Sections 3.1 or 4.1 or met the requirements for a Retirement
Benefit under either Section 5.1 or 6.1 and had attained at
least age 45, the minimum monthly amount of the Survivor
Benefit payable to his Surviving Spouse shall be equal to the
greater of:
(i) One-half of the Former Sundstrand Employee's Frozen Part
B Benefit determined in accordance with Parts 2 and 3 of
this Appendix; provided, that if the Surviving Spouse's
birth date is more than five years after the birth date
of the deceased Employee, such amount shall be reduced
by a fraction, the numerator of which is the actuarial
lump sum factor under Section 1.2 determined as if the
Surviving Spouse's birth date was exactly five years
after the birth date of the deceased Employee, and the
denominator of which is the actuarial lump sum factor
under Section 1.2 applicable to such Surviving Spouse
based upon such Surviving Spouse's age as of the date of
death of the Employee; and
(ii) the amount which would be payable to the Surviving
Spouse with respect to the Former Sundstrand Employee's
Frozen Part B Benefit as a survivor annuity pursuant to
the terms of a qualified joint and survivor annuity
described as Option D of Section 7.1 if the Employee had
retired pursuant to such qualified joint and survivor
annuity on the day before the date of such Employee's
death.
(b) If a deceased Employee at the time of death met the
requirements for a Retirement Benefit under Section 5.1 but
had not attained age 45 or met the requirements for a
Retirement Benefit under Section 6.1 but had not attained age
45, and did not meet the requirements for any other Retirement
Benefit, the minimum monthly amount of the Survivor Benefit
payable to such Employee's
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<PAGE> 90
Surviving Spouse shall be equal to the greater of the amounts
determined under the following paragraphs (i) and (ii) at the
time such Surviving Spouse elects to have such Survivor
Benefit payments commence:
(i) One-half of the Former Sundstrand Employee's Frozen Part
B Benefit determined in accordance with Parts 2 and 3 of
this Appendix; provided that if the Employee at the time
of death met the requirements for a "Rule of 50"
Retirement Benefit only such amount shall be multiplied
by the Employee's applicable percentage as determined
under Section 6.2; provided, further, that if the
Surviving Spouse's birth date is more than five years
after the birth date of the deceased Employee, such
amount shall be reduced by a fraction, the numerator of
which is the actuarial lump sum factor under Section 1.2
determined as if the Surviving Spouse's birth date was
exactly five years after the birth date of the deceased
Employee, and the denominator of which is the actuarial
lump sum factor under Section 1.2 applicable to such
Surviving Spouse based upon such Surviving Spouse's age
as of the date of death of the Employee; and provided
further, that such amount shall be reduced to its
Actuarial Equivalent value to account for commencement
of benefit payments prior to the time the deceased
Employee had he survived would have attained age 65; and
(ii) The amount which would be payable to the Surviving
Spouse under the Former Sundstrand Employee's Frozen
Part B Benefit as a survivor annuity pursuant to the
terms of a qualified joint and survivor annuity
described as Option D of Section 7.1 if the Employee had
retired and commenced receiving a Retirement Benefit
pursuant to such qualified joint and survivor annuity on
the day before the date Survivor Benefit payments
commence.
85
<PAGE> 91
APPENDIX B TO SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
This Appendix B to the Sauer-Sundstrand Employees' Retirement Plan is
applicable only to Employees who (a) were actively employed on December 15,
1990, in Sauer-Sundstrand's Ames, Freeport, or LaSalle locations; (b) were born
on or before December 31, 1930; and (c) elected on or before January 25, 1991,
to participate in Sauer-Sundstrand's 1990 Early Retirement Program. (Such
Employees are hereinafter referred to as "1990 Early Retirees.")
With respect to 1990 Early Retirees, the provisions of the Plan, as
modified by all other applicable appendices, shall apply with the following
additional modifications:
1. The monthly amount of a Normal Retirement Benefit for each 1990 Early
Retiree shall be an amount equal to the monthly amount determined under Section
3.2 of the Plan as modified by any other applicable appendices, except that:
(a) For purposes of calculating the Normal Retirement Benefit of a 1990
Early Retiree, there shall be taken into account such Retiree's
Years of Participation determined under the Plan without regard to
this Appendix B, plus three additional Years of Participation;
provided, however, that in no case shall the total Years of
Participation taken into account for any 1990 Early Retiree exceed
30; and
(b) There shall be added to each 1990 Early Retiree's Normal Retirement
Benefit, calculated after application of the foregoing paragraph
(a), a monthly amount which, when expressed as a straight life
annuity over the life of such 1990 Early Retiree, is the Actuarial
Equivalent of a lump sum payment of $10,000 payable upon the
retirement of such Retiree.
2. All of a 1990 Early Retiree's Normal Retirement Benefit (except any
portion of such Benefit accrued with respect to employment on or after February
1, 1991) shall be considered as part of such 1990 Early Retiree's Frozen
December 31, 1990, Benefit.
3. The portion of a 1990 Early Retiree's Normal Retirement Benefit
described in Part 1(b) of this Appendix B (the $10,000 lump-sum equivalent)
shall be payable, at the election
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<PAGE> 92
of such Retiree and satisfaction of all applicable spousal consent requirements,
as a lump sum of $10,000 upon retirement, under Option I of Section 7.1 of the
Plan, regardless of whether the remainder of such Retiree's benefits under the
Plan are payable as a lump sum. If such Retiree does not elect (and, where
applicable, obtain the necessary spousal consent) to receive such portion of his
or her Normal Retirement Benefit as a lump sum, such portion shall be payable in
the same form as the remainder of such Retiree's Part A Benefit under the Plan
and Appendix A.
4. All terms of the Plan and any other applicable appendices, other than
Section 1.14 (Definition of "Frozen December 31, 1990, Benefit"), Article III
(Normal Retirement), and Section 7.1 (Available Forms), shall apply to each 1990
Early Retiree as set forth in the Plan. All cross-references in the Plan and any
other applicable appendices to Section 1.14, Article III and Section 7.1 with
respect to any 1990 Early Retiree shall be applied as though such Sections and
Article were modified as described in Parts 1, 2 and 3 of this Appendix.
87
<PAGE> 93
AMENDMENT NUMBER ONE
TO THE JANUARY 1, 1991, RESTATEMENT OF THE
SAUER-SUNDSTRAND EMPLOYEES' RETIREMENT PLAN
Pursuant to Section 16.2 of the Plan, Sauer-Sundstrand Company hereby
amends the Plan by substituting the attached page iv for the version of that
page currently in effect and by adding the attached new pages 88 and 89.
This Amendment describes Sauer-Sundstrand Company's 1993 Early Retirement
Program. The changes made by this Amendment shall be effective as of December
21, 1992.
IN WITNESS WHEREOF, Sauer-Sundstrand Company has authorized the execution
on its behalf of this Amendment Number One this 8th day of February, 1993.
By: /s/ Gregory [ILLEGIBLE]
----------------------------------
Title: Vice President, Administration
------------------------------
<PAGE> 94
APPENDIX C TO SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
This Appendix C to the Sauer-Sundstrand Employees' Retirement Plan is
applicable only to Employees who (a) were actively employed on December 21,
1992, in Sauer-Sundstrand's Ames, Minneapolis, Freeport, or LaSalle locations;
(b) will have reached their 55th birthday and have five or more Years of Service
on or before December 31, 1992; (c) elect on or before February 8, 1993, to
participate in Sauer-Sundstrand's 1993 Early Retirement Program; (d) leave
Sauer-Sundstrand's employ on February 26, 1993; and (e) elect to begin receiving
their retirement benefits on March 1, 1993. (Such Employees are hereinafter
referred to as "1993 Early Retirees.")
With respect to 1993 Early Retirees, the provisions of the Plan, as
modified by all other applicable appendices, shall apply with the following
additional modifications:
1. Each 1993 Early Retiree may elect between the following two benefit
improvements:
(a) Solely for purposes of computing the reduction appropriate to
reflect the commencement of benefits prior to the Retiree's
Normal Retirement Date, an additional three years shall be
added to the Retiree's actual age; or
(b) The Retiree shall receive an additional benefit of $25,000,
payable as provided in paragraph 2 of this Appendix.
2. If a 1993 Early Retiree elects to receive the additional $25,000
benefit, as provided in subparagraph 1(b) of this Appendix, that benefit shall
be paid as follows:
(a) If the Retiree is unmarried on March 1,1993, the benefit shall
be paid to the Retiree in the form of an Ordinary Life Annuity
that is the Actuarial Equivalent of an immediate $25,000
single-sum payment; provided, however, that such Retiree may
instead elect to receive such benefit either in the form of an
immediate single-sum payment or in the form in which the
remainder of his or her retirement benefit is to be paid.
88
<PAGE> 95
(b) If the Retiree is married on March 1, 1993, the benefit shall
be paid to the Retiree and his or her spouse in the form of a
Qualified Joint and Survivor Annuity (as described under
Option D of Section 7.1) that is the Actuarial Equivalent of
an immediate $25,000 single-sum payment; provided, however,
that such Retiree may instead elect (with spousal consent) to
receive such benefit either in the form of an immediate
single-sum payment or in the form in which the remainder of
his or her retirement benefit is to be paid.
3. The following rules shall apply to any 1993 Early Retiree having Years
of Participation under both this Plan and the Factory Pension Plan of
Sauer-Sundstrand (LaSalle) and International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America, and its Local Union No. 285 (the
"Factory Plan"). (Such Retirees are hereinafter referred to as "Dual Service
Retirees.")
(a) If a Dual Service Retiree elects to have three years added to
his or her actual age, as provided in subparagraph 1(a) of
this Appendix, any increased benefits resulting from that
election shall be paid under this Plan to the extent of the
Retiree's Years of Participation under this Plan, and under
the Factory Plan to the extent of the Retiree's Years of
Participation under the Factory Plan.
(b) If a Dual Service Retiree elects to receive the additional
$25,000 benefit, as provided in subparagraph 1(b) of this
Appendix, that benefit (regardless of the form of payment
elected) shall be paid under this Plan.
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<PAGE> 96
AMENDMENT NUMBER TWO
TO THE JANUARY 1, 1991, RESTATEMENT OF THE
SAUER-SUNDSTRAND EMPLOYEES' RETIREMENT PLAN
Pursuant to Section 16.2 of the Plan, Sauer-Sundstrand Company hereby
amends the Plan by substituting the attached page 88 for the version of that
page currently in effect.
This Amendment extends by two weeks the deadline for an Ames office
employee's election to participate in Sauer-Sundstrand Company's 1993 Early
Retirement Program. The changes made by this Amendment shall be effective as of
February 8, 1993.
IN WITNESS WHEREOF, Sauer-Sundstrand Company has authorized the execution
on its behalf of this Amendment Number Two this 8th day of February, 1993.
By: /s/ Gregory [ILLEGIBLE]
----------------------------------
Title: Vice President, Administration
------------------------------
<PAGE> 97
APPENDIX C TO SAUER-SUNDSTRAND
EMPLOYEES' RETIREMENT PLAN
This Appendix C to the Sauer-Sundstrand Employees' Retirement Plan is
applicable only to Employees who (a) were actively employed on December 21,
1992, in Sauer-Sundstrand's Ames, Minneapolis, Freeport, or LaSalle locations;
(b) will have reached their 55th birthday and have five or more Years of Service
on or before December 31, 1992; (c) elect on or before February 8, 1993
(February 22, 1993, in the case of Employees at the Ames office location), to
participate in Sauer-Sundstrand's 1993 Early Retirement Program; (d) leave
Sauer-Sundstrand's employ on February 26, 1993; and (e) elect to begin receiving
their retirement benefits on March 1, 1993. (Such Employees are hereinafter
referred to as "1993 Early Retirees.")
With respect to 1993 Early Retirees, the provisions of the Plan, as
modified by all other applicable appendices, shall apply with the following
additional modifications:
1. Each 1993 Early Retiree may elect between the following two benefit
improvements:
(a) Solely for purposes of computing the reduction appropriate to
reflect the commencement of benefits prior to the Retiree's
Normal Retirement Date, an additional three years shall be
added to the Retiree's actual age; or
(b) The Retiree shall receive an additional benefit of $25,000,
payable as provided in paragraph 2 of this Appendix.
2. If a 1993 Early Retiree elects to receive the additional $25,000
benefit, as provided in subparagraph 1(b) of this Appendix, that benefit shall
be paid as follows:
(a) If the Retiree is unmarried on March 1, 1993, the benefit
shall be paid to the Retiree in the form of an Ordinary Life
Annuity that is the Actuarial Equivalent of an immediate
$25,000 single-sum payment; provided, however, that such
Retiree may instead elect to receive such benefit either in
the form of an immediate single-sum payment or in the form in
which the remainder of his or her retirement benefit is to be
paid.
88
<PAGE> 98
AMENDMENT NUMBER THREE
TO THE JANUARY 1, 1991, RESTATEMENT OF THE
SAUER-SUNDSTRAND EMPLOYEES' RETIREMENT PLAN
Pursuant to Section 16.2 of the Plan, Sauer-Sundstrand Company hereby
amends the Plan by substituting the attached page ii for the version of that
page currently in effect and by adding the attached new page 46A.
This Amendment adds the "direct rollover" provisions required by Section
401(a) (31) of the Internal Revenue Code. These provisions shall apply to
distributions made on or after January 1, 1993.
IN WITNESS WHEREOF, Sauer-Sundstrand Company has authorized the execution
on its behalf of this Amendment Number Three this 21st day of July, 1993.
By: /s/ Gregory [ILLEGIBLE]
----------------------------------
Title: Vice President, Administration
------------------------------
<PAGE> 99
AMENDMENT NUMBER FOUR
TO THE JANUARY 1, 1991, RESTATEMENT OF THE
SAUER-SUNDSTRAND EMPLOYEES' RETIREMENT PLAN
Pursuant to Section 16.2 of the Sauer-Sundstrand Employees' Retirement
Plan (the "Plan"), Sauer-Sundstrand Company hereby amends the Plan by
substituting the attached revisions of pages 4, 5, 18 and 51 for the versions of
those pages currently in effect, and by adding the attached new pages 5A, 5B,
18A, 18B and 51A.
This Amendment brings the Plan into compliance with the version of
Internal Revenue Code Section 401(a)(17) in effect after the Omnibus Budget
Reconciliation Act of 1993. The changes made by this Amendment shall be
effective as of January 1, 1994.
IN WITNESS WHEREOF, Sauer-Sundstrand Company has authorized the execution
on its behalf of this Amendment Number Four this 1st day of November, 1994.
By: /s/ Gregory [ILLEGIBLE]
----------------------------------
Title: Vice President, Administration
------------------------------
<PAGE> 100
1.4 "Average Annual Earnings" shall have the following meanings:
(a) in the case of an Employee who has five or more Years of
Participation, the greater of (A) $9,000 or (B) one-fifth of
such Employee's Considered Compensation for the highest-paid
60 consecutive calendar months of his or her employment
following said date, or
(b) in the case of such Employee who has less than 60 consecutive
calendar months of employment, the average of his or her
monthly Considered Compensation, provided that if he or she
has any Years of Service credited to him under Section 2.1(a)
for any periods of employment, then all such periods of
employment shall be combined in order to determine the said
highest-paid 60 consecutive calendar months.
4
<PAGE> 101
1.5 The "Code" means the Internal Revenue Code of 1986, as amended
from time to time. Reference to a section of the Code shall include such section
and any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
1.6 "Considered Compensation" means, for any period, the
compensation paid to an Employee for services rendered in the employment of the
Employer or a Related Corporation during such period, including sales
commissions to the extent provided in rules of uniform application adopted by
the Employer, but excluding overtime compensation, bonuses, incentive awards and
similar types of discretionary payments. If an Employee receives no compensation
(or reduced compensation) for any period because he or she is disabled or on an
approved leave of absence or temporary absence from active service, there shall
be treated as compensation received by him during such period of absence an
amount equal to the compensation he or she would have received had he or she not
been disabled or absent, such amount to be determined by the Employer upon the
basis of the Employee's salary or wage rate in effect immediately prior to such
disability or absence.
(a) For Plan Years beginning after December 31,1988, but before
December 31, 1993, an Employee's annual Considered
Compensation shall be limited to the "TRA '86 Annual
Compensation Limit" for each calendar year. The "TRA '86
Annual Compensation Limit" for each such year is as follows:
<TABLE>
<CAPTION>
TRA '86 Annual
Calendar Year Compensation Limit
------------- ------------------
<S> <C>
1989 $200,000
1990 $209,200
1991 $222,220
1992 $228,860
1993 $235,840
</TABLE>
5
<PAGE> 102
If compensation earned during any prior Plan Year is taken
into account in determining an Employee's benefits accruing in
a Plan Year beginning after December 31, 1988, but before
December 31, 1993, the Employee's Considered Compensation for
that prior Plan Year shall be subject to the TRA '86 Annual
Compensation Limit in effect for the later Plan Year (i.e.,
the Plan Year in which benefits are accrued).
(b) For Plan Years beginning after December 31, 1993, an
Employee's annual Considered Compensation shall be limited to
the "OBRA '93 Annual Compensation Limit" for each calendar
year. The "OBRA '93 Annual Compensation Limit" is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service
for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. The cost-of-living adjustment in
effect for a calendar year shall apply to any Plan Year
beginning in such calendar year. If compensation earned during
any Plan Year beginning before December 31, 1993, is taken
into account in determining an Employee's benefits accruing in
a Plan Year beginning after December 31, 1993, the Employee's
Considered Compensation for that prior Plan Year shall be
subject to the OBRA '93 Annual Compensation Limit in effect
for that prior Plan Year. For this purpose, the OBRA '93
Annual Compensation Limit for any Plan Year beginning before
December 31, 1993, is $150,000, unadjusted for any subsequent
increases in the cost of living.
(c) In determining the Considered Compensation of an Employee for
purposes of either the TRA '86 Annual Compensation Limit or
the OBRA '93 Annual Compensation Limit, the rules of Section
414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of the
Employee and any lineal descendants of the Employee who have
not attained age 19 before the close of the Plan Year. If, as
a result of the application of such rules, either such
limitation is exceeded, then (except for purposes of
determining the Employee's Covered Compensation) the
limitation shall be prorated among the affected individuals in
proportion to each such individual's Considered Compensation
as determined under this Section before the application of the
limitation.
1.6A "Covered Compensation" of an Employee shall mean the average
(without indexing) of the taxable wage bases in effect for each calendar year
during the 35-year period ending with the last day of the calendar year in which
the Employee attains (or will attain) Social Security Retirement Age. No
increase in Covered Compensation shall decrease an Employee's accrued benefit
under the Plan. In determining an Employee's Covered Compensation for a Plan
5A
<PAGE> 103
Year, the taxable wage base in effect for the current Plan Year and any
subsequent Plan Year will be assumed to be the same as the taxable wage base in
effect as of the beginning of the Plan Year for which the determination is being
made. An Employee's Covered Compensation for a Plan Year before the 35-year
period ending with the last day of the calendar year in which the Employee
attains Social Security Retirement Age is the taxable wage base in effect as of
the beginning of the Plan Year. An Employee's Covered Compensation for a Plan
Year after such 35-year period is the Employee's Covered Compensation for the
plan year during which the Employee attained Social Security Retirement Age.
1.7 "Disability Income Plan" means the plan or plans established
from time to time by the Employer to provide disability benefit payments to its
Employees who are unable to work by reason of physical or mental disability.
1.8 The "Effective Date" means October 1, 1985, and as to any
amendment to this Plan, the effective date appearing on such amendment.
1.9 An "Employee" means any person employed by Sauer-Sundstrand
Company by its Ames, Iowa; Minneapolis, Minnesota; or Freeport. Illinois
locations; or who
5B
<PAGE> 104
ARTICLE III
NORMAL RETIREMENT
3.1 Eligibility. An Employee shall be eligible for a Normal
Retirement Benefit if his employment with the Employer and all Related
Corporations is terminated on or after he or she has attained Normal Retirement
Age.
3.2 Benefit Amount. The monthly amount of a Normal Retirement
Benefit shall be an amount equal to one-twelfth of the amount derived from the
following calculation:
(a) Two percent for each of the Employee's Years of Participation
at the time of retirement (up to a maximum of 30 such years),
multiplied by the Employee's Average Annual Earnings; minus
(b) The least of
(i) 0.6% for each of the Employee's Years of Participation
at the time of retirement (up to a maximum of 30 such
years) multiplied by such Employee's Final Average
Compensation; or
(ii) one-half of the amount determined under subsection
3.2(a), not taking into account any of the Employee's
Average Annual Earnings which exceed such Employee's
Final Average Compensation; or
(iii) the Employees' Offset Factor, multiplied by the
Employee's Years of Participation at the time of
retirement (up to a maximum of 30 such years) multiplied
by such Employee's Final Average Compensation.
3.3 Transitional Benefits. Notwithstanding the provisions of Section
3.2, the Normal Retirement Benefit of an Employee who is either a "TRA '86
Employee" or an "OBRA '93 Employee" shall be determined as follows:
(a) TRA '86 Employees. The Normal Retirement Benefit of each "TRA
'86 Employee" shall be the greater of:
(i) The Employee's Normal Retirement Benefit determined
under the Plan's benefit formula in effect at the time
the determination is made, as applied to the Employee's
total Years of Participation; or
18
<PAGE> 105
(ii) The sum of:
(A) The Employee's Normal Retirement Benefit as of
December 31, 1988, frozen in accordance with the
Treasury Regulations set forth at 26 C.F.R.
Section 1.401(a)(4)-13; provided, however, that in
determining the Employee's Normal Retirement
Benefit as of December 31, 1988, the Employee's
Considered Compensation shall not be limited to
either the TRA '86 Annual Compensation Limit or
the OBRA '93 Annual Compensation Limit, and
(B) The Employee's Normal Retirement Benefit
determined under the Plan's benefit formula in
effect at the time the determination is made, as
applied to the Employee's Years of Participation
during Plan Years beginning after December 31,
1988.
A "TRA '86 Employee" means any Employee whose current Normal
Retirement Benefit as of any date after December 31, 1988, is
based on Considered Compensation for a Plan Year beginning
before December 31, 1988, that exceeded the TRA '86 Annual
Compensation Limit.
(b) OBRA '93 Employees. The Normal Retirement Benefit of each
"OBRA '93 Employee" shall be the greater of:
(i) The Employee's Normal Retirement Benefit determined
under the Plan's benefit formula in effect at the time
the determination is made, as applied to the Employee's
total Years of Participation; or
(ii) The sum of:
(A) The Employee's Normal Retirement Benefit as of
December 31, 1993, frozen in accordance with the
Treasury Regulations set forth at 26 C.F.R.
Section l.401(a)(4)-13; provided, however, that in
determining the Employee's Normal Retirement
Benefit as of December 31, 1993, the Employee's
Considered Compensation shall not be limited to
the OBRA '93 Annual Compensation Limit; provided
further, however, that, except with respect to any
portion of such Employee's Normal Retirement
Benefit that was frozen under Section
3.3(a)(ii)(A) as of December 31, 1988, the
Employee's Considered Compensation shall be
limited to the TRA '86 Annual Compensation Limit,
and
(B) The Employee's Normal Retirement Benefit
determined under the Plan's benefit formula in
effect at the time the
18A
<PAGE> 106
determination is made, as applied to the
Employee's Years of Participation during Plan
Years beginning after December 31, 1993.
An "OBRA '93 Employee" means any Employee whose current Normal
Retirement Benefit as of any date after December 31, 1993, is
based on Considered Compensation for a Plan Year beginning
before December 31, 1993, that exceeded $150,000.
(d) Adjusting Frozen Benefits. Any TRA '86 Employee's Normal
Retirement Benefit frozen as of December 31, 1988, and any
OBRA '93 Employee's Normal Retirement Benefit frozen as of
December 31, 1993, shall be adjusted to reflect increases in
the Employee's Considered Compensation after December 31,
1993, if the result would be to increase the Employee's frozen
Normal Retirement Benefit. No such adjustment shall be made,
however, unless permitted under the Treasury Regulations set
forth at 26 C.F.R. Section 1.401(a)(17)-l. Thus, for example,
the definition of Considered Compensation used in making any
such adjustment shall be the same as that in effect on the
date the Employee's Normal Retirement Benefit was frozen,
except that such definition shall not be subject to the TRA
'86 Annual Compensation Limit and shall be subject to the OBRA
'93 Annual Compensation Limit in effect at the time the
adjustment is made.
18B
<PAGE> 107
employment with the Employer, excluding, however, contributions made by the
Employer to a plan of deferred compensation to the extent that, before the
application of the limitations of Code Section 415 to such plan, the
contributions are not includable in the gross income of the Employee for the
taxable year in which contributed, contributions made by the Employer on his or
her behalf to a simplified employee pension plan described in Section 408(k) of
the Code, any distributions from a plan of deferred compensation (except amounts
received pursuant to an unfunded non-qualified plan in the year such amounts are
includable in the gross income of the Employee), amounts received from the
exercise of a non-qualified stock option or when restricted stock or other
property held by the Employee becomes freely transferable or is no longer
subject to substantial risk of forfeiture, amounts received from the sale,
exchange, or other disposition of stock acquired under a qualified stock option,
and any other amounts which receive special tax benefits, such as premiums for
group term life insurance (but only to the extent that the premiums are not
includable in the gross income of the Employee). "Compensation" shall not exceed
either the TRA '86 Annual Compensation Limit or the OBRA '93 Annual Compensation
Limit, both as set forth in Section l.5A.
11.10 Adjustment for Retired Employees. In the event that the
annual Retirement Benefit payable to a retired Employee absent the limitations
of this Article would be greater than his or her annual Retirement Benefit after
application of such limitations, the annual Retirement Benefit otherwise payable
following his or her retirement shall be increased for each Limitation Year to
reflect, as appropriate with respect to him, any increase in the limitation set
forth in Section 11.1(a), which limitation shall be determined as described
therein, or any increase in the limitation set forth in Section 11.1(b), which
limitation shall be determined by multiplying the limitation applicable to him
under Section 11.1(b) in the Limitation Year in which he or she
51
<PAGE> 108
retired by a fraction, the numerator of which is the maximum permissible dollar
limitation for the Limitation Year in which the compensation limitation is being
adjusted and the denominator
51A
<PAGE> 109
AMENDMENT NUMBER FIVE
TO THE JANUARY 1,1991, RESTATEMENT OF THE
SAUER-SUNDSTRAND EMPLOYEES' RETIREMENT PLAN
Pursuant to Section 16.2 of the Sauer-Sundstrand Employees' Retirement
Plan ("the Plan"), Sauer-Sundstrand Company hereby amends the Plan by
substituting the attached revisions of pages 6, 15, 17, 40, 41, 42, 43 and 44
for the versions of those pages currently in effect
This Amendment clarifies the Plan's references to "retired Employees" and
"former Employees," provides an exception to the Plan's suspension of benefit
rules for reemployed retired Employees, and provides that reemployed retired
Employees may accrue additional benefits during a period of reemployment, which
benefits shall be based solely on the reemployed retired Employee's years of
participation and earnings during the period of reemployment. The changes made
by this Amendment are effective with respect to retired Employees who are
reemployed on or after June 1, 1997.
IN WITNESS WHEREOF, Sauer-Sundstrand Company has authorized the execution
on its behalf of this Amendment Number Five this 15th day of December, 1997.
By: /s/ [ILLEGIBLE]
----------------------------------
Title: Director Human Resources
------------------------------
<PAGE> 110
is employed by Sauer-Sundstrand Company in the office only at its LaSalle,
Illinois location; or
who is employed by Sauer, Inc., primarily at its Ames, Iowa location; provided
that such person:
(a) is regularly employed by the Employer and has:
(i) completed 1,000 Hours of Employment, or
(ii) completed one Year of Service,
provided, that such person shall for all purposes of the Plan
be deemed an Employee as of the time when the said 1,000 Hours
of Employment or the said one Year of Service, whichever is
applicable, commenced;
(b) is customarily employed by the Employer on a part-time,
temporary or irregular basis for less than 1,000 Hours of
Employment a year and has completed 1,000 Hours of Employment
or more during any 12 consecutive calendar month period which
commences with his or her employment date or any anniversary
thereof; provided, that such person shall for all purposes of
the Plan be deemed an Employee as of the beginning of the said
12 month period during which he or she completed at least
1,000 Hours of Employment; or
(c) was employed by the Employer and is eligible for benefits
under the Employer's Disability Income Plan.
In no event shall the word "Employee" include a leased employee, as defined in
Section 414(n) of the Code. A "former Employee" is a person who once was but is
no longer an Employee, but did not receive nor is receiving retirement benefits
under this Plan. A "retired Employee" is a person who once was but is no longer
an Employee, but who received or is receiving retirement benefits under this
Plan.
1.10 The "Employer" means Sauer-Sundstrand and any Related
Corporation which adopts the Plan in accordance with the provisions of Article
XV.
1.11 An Employee's "Final Average Compensation" is the average of
the Employee's annual compensation from the Employer for the 3-consecutive year
period ending with or within the Plan Year. If an Employee's entire period of
service with the employer is less than three consecutive years, compensation is
averaged on an annual basis over the Employee's entire period of service. An
Employee's Final Average Compensation shall not exceed his or her Covered
Compensation.
6
<PAGE> 111
retire or otherwise terminate his or her employment as an
Employee until such time as he or she is no longer in the
employment of the Employer or any Related Corporation, at
which time he or she shall become entitled to benefits if he
or she is otherwise eligible therefor under the provisions of
the Plan; provided, however, that up to such time he or she
shall receive credit only for Years of Service, but not for
Years of Participation, for such other employment as if such
other employment were employment with the Employer as an
Employee.
2.5 Loss of Years of Service and Years of Participation; Service
Spanning. Except as otherwise specifically provided in the Plan, an Employee's
Years of Service and Years of Participation shall be lost on his or her
Severance From Service Date and, subject to applicable Plan provisions for the
reinstatement of Years of Service and Years of Participation, if he or she
thereafter returns to employment as an Employee, he or she shall be treated for
Plan purposes as a new Employee. If an Employee is reemployed within 12 months
after his or her Severance From Service Date his or her Years of Service and
Years of Participation shall be deemed to not have been lost and the Employee
shall be given Years of Service credit for the period beginning with his or her
Severance From Service Date and ending on his or her reemployment date.
2.6 Reinstatement of Years of Service and Years of Participation. A
former Employee who returns to employment as an Employee prior to his or her
Normal Retirement Date shall be reinstated with the Years of Service and Years
of Participation with which he or she was credited on his or her Severance From
Service Date if:
(a) he or she was eligible for any Retirement Benefit on his or
her Severance From Service Date;
(b) (i) in the case of a former participant in the Minneapolis
Plan, his or her Severance From Service Date occurred on
or after January 1, 1984, but prior to January 1, 1987;
or, in the case of any other former participant, his or
her Severance From Service Date occurred on or after
January 1, 1977, but prior to December 31, 1984; and
15
<PAGE> 112
2.7 Finality of Determinations and Non-duplication. All
determinations with respect to the crediting of Years of Service and Years of
Participation under the Plan shall be made on the basis of the records of the
Employer, and all determinations so made shall be final and conclusive upon
Employees, retired Employees, former Employees, and all other persons claiming a
benefit under the Plan. Notwithstanding anything to the contrary contained in
this Article II there shall be no duplication of Years of Service and Years of
Participation credited to an Employee for any one period of his or her
employment.
2.8 Predecessors. The Employer may, by action of its Board of
Directors, adopt (for all purposes of the Plan) rules for determining what
businesses or activities shall be regarded as the Employer's predecessors, and
predecessors thereof, and for counting as Years of Service and Years of
Participation continuous employment with any of such predecessors, or
predecessors thereof. Such rules shall be applied uniformly to all persons
similarly situated.
17
<PAGE> 113
Employee who is not a 5-percent owner, within the
meaning of Treasury Regulation Section l.401(a)(9)-l Q/A
B-2, and who attains age 70-1/2 before January 1, 1989,
shall mean April 1 of the calendar year following the
calendar year in which such Employee attains age 70-1/2
or retires, whichever occurs later. For this purpose, an
Employee who attained age 70-1/2 in 1988 and had not
retired as of January 1, 1989, shall be treated as
having retired on January 1, 1989.
(iv) For purposes of this Section 10.1(b), the life
expectancy of an Employee and his or her spouse may be
redetermined at any time, but not more frequently than
annually.
(v) In the event an Employee accrues additional benefits
under the Plan after payment of such Employee's benefits
commence pursuant to this Section 10.1(b), such
additional benefits shall be paid in the same form in
which the Employee's benefit is currently being paid,
and shall be reflected in the monthly amount payable to
the Employee commencing with the first payment made in
the calendar year following the calendar year such
additional benefits are accrued.
10.2 Reemployment and Employment After Normal Retirement Date.
(a) If an Employee who, on termination of employment met the
requirements for an Early Retirement Benefit under Article IV,
a Vested Retirement Benefit under Article VI, or a "Rule of
50" Retirement Benefit under Article VI, is reemployed by the
Employer prior to the commencement of Retirement Benefit
payments, his or her right to such Retirement Benefit shall be
canceled and in lieu thereof the Years of Service and Years of
Participation which he or she had at the time of his or her
termination of employment shall be reinstated as provided in
Section 2.6 (the rules of Section 2.6 shall apply irrespective
of whether he or she is an Employee upon his or her
reemployment).
If a retired Employee who is receiving Retirement
Benefit payments (or who has already received the lump sum
Actuarial Equivalent of his or her Retirement Benefit payments
due under the Plan) is reemployed by the Employer, his or her
Retirement Benefit payments shall not be discontinued, and
such retired Employee shall recommence participation in the
Plan either immediately upon his or her reemployment, provided
he or she is reemployed within 12 months after his or her
Severance From Service Date; or, where he or she is reemployed
12 or more months after the Severance From Service Date, on
the date he or she again is an Employee (disregarding for this
purpose Years of Service prior to the Severance From Service
Date), provided that upon again becoming an Employee he or she
shall be credited with Years of Participation from the date of
his or her reemployment. Upon his or her subsequent
retirement, he or she shall be entitled to an additional
benefit based solely
40
<PAGE> 114
on his or her Years of Participation, Final Average Earnings
and Final Average Compensation during or with respect to the
period of reemployment; provided, however, that in no event
will the Plan take into account, for purposes of determining
this additional benefit, Years of Service during the period of
reemployment to the extent such Years of Participation, when
added to his or her Years of Participation as of his or her
reemployment date, exceed thirty (30).
If:
(i) a former Employee is reemployed by the Employer after
his or her Normal Retirement Date,
(ii) a former Employee is reemployed by the Employer prior to
his or her Normal Retirement Date and he or she
continues in employment beyond his or her Normal
Retirement Date, or
(iii) an Employee continues in employment with the Employer
after his or her Normal Retirement Date without a prior
termination of Employment, and
the Retirement Benefit accrued by reason of his or her
employment after his or her Normal Retirement Date is less
than the adjustment that would have been made to his or her
Retirement Benefit if it had been increased to its Actuarial
Equivalent for commencement after his or her Normal Retirement
Date, then notwithstanding the provisions of this Section
10.2, Sections 10.2(b), (c), (d), (e), (f), (g) and (h) shall
become applicable to him as of the latest of:
(A) his Normal Retirement Date,
(B) his date of reemployment, or
(C) the date on which the conditions of paragraph (i), (ii)
or (iii) of Section 10.2(a) are met and the Retirement
Benefit accrued by reason of his or her employment after
his or her Normal Retirement Date is less than the
adjustment that would have been made to his or her
Retirement Benefit if it had been increased to its
Actuarial Equivalent for commencement after his or her
Normal Retirement Date.
The rules described in Section l0.2(a)(i), (ii) and (iii)
shall also apply to any reemployed retired Employee, provided
that where such rules refer to an Employee's Retirement
Benefit, such Retirement Benefit means only the Retirement
Benefit accrued by such reemployed retired Employee during his
or her period of reemployment.
(b) For purposes of Sections 10.2(b), (c), (d), (e), (f), (g) and
(h), the following definitions shall apply:
41
<PAGE> 115
(i) "Post-Retirement Date Service" means each calendar month
of employment of an Employee with the Employer or a
Related Corporation after his or her Normal Retirement
Date and subsequent to the time that payment of
Retirement Benefits would have commenced to such
Employee if he or she had not remained in employment, if
such Employee:
(A) completes forty (40) or more Hours of Employment
in such calendar month, or
(B) receives from the Employer or a Related
Corporation payment for any Hours of Employment
performed on each of eight (8) or more days in
such calendar month.
The determination of the Plan Administrator with respect
to whether an Employee is performing Post-Retirement
Date Service shall be based on a reasonable and good
faith evaluation of the facts, and shall be conclusive
and binding.
(ii) "Suspendable Amount" means:
(A) in the case of a Retirement Benefit payable
periodically on a monthly basis for as long as a
life (or lives) continues, the monthly Retirement
Benefit otherwise payable in a calendar month in
which the Employee is engaged in Post-Retirement
Date Service, or
(B) in the case of a Retirement Benefit payable other
than in the form described in clause (A) of
paragraph (ii) of Section 10.2(b), the lesser of
(1) the amount of Retirement Benefit which would
have been payable to the Employee if he or she had
been receiving monthly benefits under the Plan
since actual retirement based on a single life
annuity commencing at his or her actual retirement
date; or (2) the actual amount paid or scheduled
to be paid to the Employee for such month.
Payments which are scheduled to be paid less
frequently than monthly may be converted to
monthly payments for purposes of this clause (B)
of paragraph (ii) of Section 10.2(b).
(c) Payment of an Employee's Retirement Benefit, not in excess of
the Suspendable Amount, shall be permanently withheld for each
calendar month during which the Employee is employed in
Post-Retirement Date Service.
(d) [Reserved]
(e) [Reserved]
42
<PAGE> 116
(f) Any Employee whose Retirement Benefit payments are suspended
pursuant to Section 10.2(c) shall be notified (by personal
delivery or certified mail) during the first calendar month in
which payments are withheld, that his or her Retirement
Benefit payments are suspended. Such notification shall
include:
(i) a description of the specific reasons for the suspension
of payments;
(ii) a general description of the Plan provisions relating to
the suspension;
(iii) a copy of the provisions;
(iv) a statement to the effect that applicable Department of
Labor regulations may be found at Section 2530.203-3 of
the Code of Federal Regulations; and
(v) the procedure for appealing the suspension which
procedure shall be governed by Section 13.9 herein.
If the Summary Plan Description ('SPD') for the Plan contains
information which is substantially the same as the information
required pursuant to the preceding portions of this Section
10.2(f), the notification required by this Section 10.2(f) may
refer the Employee to the relevant pages of the SPD. If the
notification refers to the SPD, the notification shall also
inform the Employee how to obtain a copy of the SPD, or
relevant pages thereof and any request for the referenced
information shall be honored within thirty (30) days of the
receipt by the Employer of such request.
(g) An Employee may request, pursuant to the procedure contained
in Section 13.9 herein, a determination as to whether specific
contemplated employment will constitute Post-Retirement Date
Service.
(h) The application of Section 10.2 and its construction and
interpretation by the Employer shall be in conformity with
Department of Labor Regulations found at Section 2530.203-3 of
the Code of Federal Regulations.
(i) In the event an Employee retires and commences to receive his
or her Retirement Benefit prior to attainment of Normal
Retirement Age, and is subsequently reemployed and accrues
additional benefits under the Plan, the election and form of
payment provisions of Article VII of the Plan shall be applied
independently with respect to such additionally accrued
benefits.
43
<PAGE> 117
10.3 Restriction on Alienation of Retirement Benefits.
(a) Except as provided in Sections 10.3(b) and 10.3(c), the rights
and interests of any person under the Plan, including any
right to receive distributions from the Trust Fund shall not
be subject in any manner to sale, transfer, encumbrance,
assignment, pledge or alienation of any kind; nor may such
rights or interest be resorted to, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person, including claims
for alimony, support, separate maintenance and claims in
bankruptcy proceedings. No such person shall have the power in
any manner to sell, transfer, encumber, assign, pledge or
alienate any of his or her interest or rights under the Plan,
including his or her right to receive any distribution from
the Trust Fund, and any attempt to do so shall be void.
44
<PAGE> 1
Exhibit 10.1(t)
SAUER-SUNDSTRAND COMPANY
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
FOR CERTAIN KEY EXECUTIVES
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. PURPOSE ............................................................ 2
2. DEFINITIONS ........................................................ 2
3. SUPPLEMENTAL RETIREMENT BENEFIT .................................... 3
4. PAYMENT ............................................................ 5
5. NO FUNDING OBLIGATION .............................................. 5
6. EXAMPLES ARE NOT BINDING ........................................... 6
7. MISCELLANEOUS ...................................................... 6
EXHIBIT A .......................................................... 7
-i-
<PAGE> 3
1. PURPOSE
It is the Company's present intention to provide Executive with an
additional retirement benefit (the "Supplemental Retirement Benefit"). The
objective of the Company is for the Supplemental Retirement Benefit to be an
amount equal to what the Executive would have received from the Company
Retirement Plans if the limitations contained in Sections 415 and 401(a)(17) of
the Internal Revenue Code of 1986 (the "Code") were inapplicable to those of the
Company Retirement Plans that are defined benefit plans, minus the retirement
benefit the Executive is entitled to receive under the Company Retirement Plans.
The payment of any Supplemental Retirement Benefit shall be made solely at
the discretion of the Company, which also has the exclusive right to determine
the amount of such benefit, if any.
2. DEFINITIONS
For the purpose of this Plan, the following terms shall have the following
meanings:
(a) "Company" shall mean Sauer-Sundstrand Company (including the
predecessor Sundstrand-Sauer Company or any successor of Sauer-Sundstrand
Company) or any subsidiary or other entity which, together with
Sauer-Sundstrand Company, would constitute a single employer under Code
Section 414, as amended.
(b) "Company Retirement Plans" means any or all of the Internal
Revenue Code tax qualified defined benefit and defined contribution
retirement plans established by the
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<PAGE> 4
Company, under the terms of which the Executive is eligible to receive a
retirement benefit.
(c) "Earnings" means an Executive's "Considered Compensation" as
defined in the Company Retirement Plans.
(d) "Executive" means an employee who is selected by the Company to
receive a Supplemental Retirement Benefit under this Plan.
(e) "Retires" means when an Executive ceases to be an active regular
employee of the Company and is eligible to begin receiving payment of a
retirement benefit from the Company Retirement Plans.
(f) "Service" means the Executive's number of years of continuous
service as an employee of the Company as defined in the Company Retirement
Plans.
3. SUPPLEMENTAL RETIREMENT BENEFIT
Any Supplemental Retirement Benefit which is to be paid shall be
determined using the following guidelines:
FIRST, the benefit(s) to which the Executive is entitled under the Company
Plans shall be determined.
SECOND, such benefit shall be determined as if the limitations of Code
Sections 415 and 401(a) (17), and any provisions of such Plan incorporating such
limitations, were inapplicable to those Company Retirement Plans which are
defined benefit plans.
THIRD, the amount of the Supplemental Retirement Benefit shall be
determined by subtracting the amounts determined under the SECOND paragraph
above from the amount determined under the FIRST paragraph above. See Exhibit A
for examples of this calculation.
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<PAGE> 5
For purposes of the foregoing, the following assumptions and rules shall
apply:
(a) The same benefit payment commencement date shall be used to
determine (i) the amount of Executive's accrued benefit under the Company
Retirement Plans, and (ii) the amount of Executive's Supplemental
Retirement benefit.
(b) Each of the calculations of a benefit shall be made based upon
payment in the form of a single-life annuity.
(c) In the event one or more of the Company Retirement Plans from
which Executive is entitled to receive a retirement benefit is other than
a defined benefit plan (as defined in Paragraph (35) of Section 3 of the
Employee Retirement Income Security Act of 1974, as amended) for purposes
of determining the Supplemental Retirement Benefit, Executive's benefit
from such Company Retirement Plans shall be converted to the actuarial
equivalent of a single-life annuity. For such purpose, the Pension
Benefit Guaranty Corporation (PBGC) interest rate and mortality tables in
effect at the time payment of the Supplemental Retirement Benefit is to
commence shall be used.
(d) When calculating the amount of any benefit payable under the
Company Retirement Plans, all provisions applicable to such benefit shall
be applied, such as early retirement benefit reduction factors with
respect to early retirement benefits payable prior to normal retirement
age.
In the event any of the Company Retirement Plans is amended, the Company
will review each such amendment and, in its sole discretion, make such changes
as it determines to be appropriate in
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<PAGE> 6
the Supplemental Retirement Benefit Plan and any calculation to be made in
connection therewith.
4. PAYMENT
Any Supplemental Retirement Benefit which the Company determines to be
payable pursuant to Section 3 hereof shall be paid on the same date that
payments commence to such Executive under the defined benefit Company Retirement
Plan in which such Executive is a participant. The form of such payment shall be
the same as any one of the forms of benefit elected by and payable to such
Executive under such defined benefit Company Retirement Plan. Notwithstanding
the foregoing, however, the Supplemental Retirement Benefit payable to the
Executive shall be paid in the form of a lump sum if its actuarial value,
calculated according to the actuarial assumptions in such defined benefit
Company Retirement Plan, does not exceed $3,500.
5. NO FUNDING OBLIGATION
Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to set aside funds to provide a Supplemental Retirement
Benefit to Executive. Any Supplemental Retirement Benefit which the Company
determines to be payable shall be provided only out of the Company's general
assets and shall be an unsecured, unfunded obligation of the Company.
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<PAGE> 7
6. EXAMPLES ARE NOT BINDING
The examples attached hereto as Exhibit A are for illustrative purposes
only and shall not in any way be construed to create any obligation on the part
of the Company.
7. MISCELLANEOUS
Participation under this Plan shall not give any employee the right to be
retained in the employ of the Company. The headings are inserted for the
convenience of reference only and are to be ignored in any construction of the
Plan. In the construction of this Plan the masculine shall include the feminine
and the singular the plural in all cases where such meanings would be
appropriate.
Executed this 11th day of May 1992.
SAUER-SUNDSTRAND COMPANY
By: /s/ Michael J. Draper
-------------------------------------
Michael J. Draper, President
ATTEST:
By: /s/ Kenneth D. McCuskey
----------------------------------
Kenneth D. McCuskey, Secretary
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<PAGE> 8
EXHIBIT A
EXAMPLE #1
ASSUMPTIONS:
- - Executive participates only in the Sauer-Sundstrand Employees' Retirement
Plan, and no other Company Retirement Plan.
- - Executive has attained the normal retirement age of 65.
- - Executive's average monthly pay for the highest sixty (60) consecutive
months of his employment with the Company prior to his retirement is
$20,000.00.
- - Executive's Covered Compensation is $1,414.00.
- - Executive has 30 Years of Participation.
DETERMINATION OF SUPPLEMENTAL RETIREMENT BENEFIT:
1. Benefit to which Executive is entitled under the Company Retirement Plan:
a. Maximum monthly compensation taken into account
under Code Section 401(a)(17) for 1991 ...................$18,518.33
b. Thirty Years of Participation times
two percent .............................................. 60%
c. 60% of $18,518.33 ........................................$11,111.00
CALCULATION OF OFFSET:
d. Thirty Years of Participation times
0.6% ..................................................... 18%
e. Monthly Covered Compensation .............................$ 1,414.00
f. 18% of $1,414.00 .........................................$ 254.52
g. Total monthly benefit
($11,111.00-$254.52) .....................................$10,856.48
h. Code Section 415 monthly limit for 1991 ..................$ 9,080.25
1. Actual benefit (lesser of g or h) ........................$ 9,080.25
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<PAGE> 9
EXHIBIT A - Page 2
2. Benefit to which Executive would be entitled under Company Retirement
Plan, ignoring Code Sections 401(a)(17) and 415:
a. Thirty Years of Participation times
two percent .............................................. 60%
b. 60% of $20,000.00 ........................................$12,000.00
CALCULATION OF OFFSET:
c. Thirty Years of Participation times
0.6% ..................................................... 18%
d. Monthly Covered Compensation .............................$ 1,414.00
e. 18% of $1,414.00 .........................................$ 254.52
f. Total monthly benefit
($12,000.00 - $254.52) ...................................$11,745.48
3. Supplemental Retirement Benefit:
$11,745.48 (from 2 above) - 9,080.25 (from 1 above) = ..........$ 2,665.23
EXAMPLE #2
ASSUMPTIONS:
- - The same as for Example #1 except Executive has attained age 63 and elects
to begin receiving an early retirement benefit.
DETERMINATION OF SUPPLEMENTAL RETIREMENT BENEFIT:
1. Retirement benefit provided under the Company Retirement Plan:
Determined the same as in Example #1 except reduced to reflect early
retirement and early benefit commencement:
a. $10,856.48 - $1,302.78 (24 months @
.5%/mo. = 12% reduction) = ...............................$ 9,553.70
b. The monthly benefit limitation under Code
Section 415 for benefits commencing after
age 62 but two years prior to Social
Security Retirement Age: $9,080.25 -
$1,207.67 (24 months @ 5/9%/mo. =
13.3% reduction) = .......................................$ 7,872.58
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<PAGE> 10
EXHIBIT A - Page 3
c. Total benefit (lesser of a or b) = .......................$ 7,872.58
2. Retirement benefit provided under the Company Retirement Plan, ignoring
Code Sections 401(a)(17) and 415:
Determined the same as in Example #1 except reduced to reflect early
retirement and early benefit commencement:
$11,745.48 - $1,409.46 (24 months @ .5%/mo. =
12% reduction) = $10,336.02.
3. Supplemental Retirement Benefit:
$l0,336.02 (from 2 above) - $7,872.58 (from 1 above) = ..........$2,463.44
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<PAGE> 1
Exhibit 10.1(u)
SAUER-SUNDSTRAND COMPANY
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
FOR CERTAIN KEY EXECUTIVES
PREVIOUSLY EMPLOYED BY THE SUNDSTRAND CORPORATION
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. PURPOSE .............................................................. 1
2. DEFINITIONS .......................................................... 1
3. SUPPLEMENTAL RETIREMENT BENEFIT ...................................... 3
4. PAYMENT .............................................................. 5
5. NO FUNDING OBLIGATION ................................................ 6
6. EXAMPLES ARE NOT BINDING ............................................. 6
7. MISCELLANEOUS ........................................................ 6
EXHIBIT A ............................................................ 8
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<PAGE> 3
1. PURPOSE
It is Company's present intention to provide Executive with an additional
retirement benefit (the "Supplemental Retirement Benefit"). The objective of the
Company is for the Supplemental Retirement Benefit to be equal to what the
Executive would have received from the larger of the Company Retirement Plans or
the Sundstrand Plan if the limitations contained in Sections 415 and 401(a)(17)
of the Internal Revenue Code of 1986 (the "Code") were inapplicable to the
Sundstrand Plan and those of the Company Retirement Plans that are defined
benefit plans, minus the retirement benefits the Executive is entitled to
receive under the Company Retirement Plans.
The payment of any Supplemental Retirement Benefit shall be made solely at
the discretion of the Company, which also has the exclusive right to determine
the amount of such benefit, if any.
2. DEFINITIONS
For the purpose of this Plan, the following terms shall have the following
meanings:
(a) "Company" shall mean Sauer-Sundstrand Company (including the
predecessor Sundstrand--Sauer Company or any successor of Sauer-Sundstrand
Company) or any subsidiary or other entity which, together with
Sauer-Sundstrand Company,
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<PAGE> 4
would constitute a single employer under Section 414 of the Code, as
amended.
(b) "Company Retirement Plans" means all of the Internal Revenue
Code tax qualified defined benefit and defined contribution retirement
plans established by the Company on or after the effective date, under the
terms of which the Executive is eligible to receive a retirement benefit.
(c) "Earnings" means an Executive's "Considered Compensation" as
defined in the Company Retirement Plans with respect to periods after
December 31, 1986. For purposes hereof, compensation paid by Sundstrand
with respect to periods prior to January 1, 1987, shall be taken into
account to the extent it would be "Considered Compensation" under the
Company Retirement Plans.
(d) "Effective Date" means January 1, 1987.
(e) "Executive" means an employee who is selected by the Company to
receive a Supplemental Retirement Benefit under this Plan.
(f) "Retires" means when an Executive ceases to be an active regular
employee of the Company and is eligible to begin receiving payment of a
retirement benefit from the Company Retirement Plans.
(g) "Service" means the Executive's "Years of Participation" under
the Sundstrand Plan as of December 31, 1986, plus the number of his years
of continuous service as an
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<PAGE> 5
employee of the Company after December 31, 1986, as defined in the Company
Retirement Plans, for that Executive.
(h) "Sundstrand" means the predecessor of the Company, Sundstrand
Corporation, a Delaware corporation.
(i) "Sundstrand Plan" means the Sundstrand Corporation Retirement
Plan as in effect on December 31, 1986.
3. SUPPLEMENTAL RETIREMENT BENEFIT
Any Supplemental Retirement Benefit which is to be paid shall be
determined using the following guidelines:
FIRST, the benefit to which the Executive is entitled under the
Company Retirement Plans shall be determined.
SECOND, there shall be determined the benefit to which the Executive
would have been entitled under the Sundstrand Plan if, for purposes of
calculating such benefit, there had been taken into account the
Executive's Service and Earnings with the Company after January 1, 1987.
For this purpose, such benefit shall be determined as if the limitations
of Code Sections 415 and 401(a)(17), and any provisions of such Plan
incorporating such limitation, were inapplicable.
THIRD, the amount of the Supplemental Retirement Benefit shall be
determined by deducting the amount determined under the FIRST paragraph
above from the amount determined under the SECOND paragraph above. See
Exhibit A for examples of this calculation. If greater, the amount of the
Supplemental
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<PAGE> 6
Retirement Benefit shall be the total benefits that would be payable to
the Executive under the Company Retirement Plans, assuming the limitations
of Sections 415 and 401(a)(17) of the Code, and any provisions of such
Plans incorporating such limitations, were inapplicable to those of the
Company Retirement Plans that are defined benefit plans.
For purposes of the foregoing, the following assumptions and rules shall
apply:
(a) The same benefit payment commencement date shall be used to
determine (i) the amount of Executive's accrued benefit under the Company
Retirement Plans, (ii) the amount of the benefit which would have been
paid under the Sundstrand Plan in effect on December 31, 1986, assuming
Executive's Service and Earnings were used to calculate such benefit, and
(iii) the amount of Executive's Supplemental Retirement benefit.
(b) Each of the calculations of a benefit shall be made based upon
payment in the form of a single-life annuity.
(c) In the event one or more of the Company Retirement Plans from
which Executive is entitled to receive a retirement benefit is other than
a defined benefit plan (as defined in Paragraph (35) of Section 3 of the
Employee Retirement Income Security Act of 1974, as amended) for purposes
of determining the Supplemental Retirement Benefit, Executive's benefit
from such Company Retirement Plans shall be converted to the actuarial
equivalent of a single-life annuity. For such
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<PAGE> 7
purpose, the Pension Benefit Guaranty Corporation (PBGC) interest rate and
mortality tables in effect at the time payment of the Supplemental
Retirement Benefit is to commence shall be used.
(d) When calculating the amount of any benefit payable under the
Company Retirement Plans, all provisions applicable to such benefit shall
be applied, such as early retirement benefit reduction factors with
respect to early retirement benefits payable prior to normal retirement
age.
In the event either the Sundstrand Plan or any of the Company Retirement
Plans is amended, the Company will review each such amendment and, in its sole
discretion, make such changes as it determines to be appropriate in the
Supplemental Retirement Benefit Plan and any calculation to be made in
connection therewith.
4. PAYMENT
Any Supplemental Retirement Benefit which the Company determines to be
payable pursuant to Section 3 hereof shall be paid on the same date that
payments commence to such Executive under the defined benefit Company Retirement
Plan in which such Executive is a participant. The form of such payment shall be
the same as any one of the forms of benefit elected by and payable to such
Executive under such defined benefit Company Retirement Plan. Notwithstanding
the foregoing, however, the Supplemental Retirement Benefit payable to the
Executive shall be paid in the form of a
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<PAGE> 8
lump sum if its actuarial value, calculated according to the actuarial
assumptions in such defined benefit Company Retirement Plan, does not exceed
$3,500.
5. NO FUNDING OBLIGATION
Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to set aside funds to provide a Supplemental Retirement
Benefit to Executive. Any Supplemental Retirement Benefit which the Company
determines to be payable shall be provided only out of the Company's general
assets and shall be an unsecured, unfunded obligation of the Company.
6. EXAMPLES ARE NOT BINDING
The examples attached hereto as Exhibit A are for illustrative purposes
only and shall not in any way be construed to create any obligation on the part
of the Company.
7. MISCELLANEOUS
Participation under this Plan shall not give any employee the right to be
retained in the employ of the Company. The headings are inserted for the
convenience of reference only and are to be ignored in any construction of the
Plan. In the construction of
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<PAGE> 9
this Plan the masculine shall include the feminine and the singular the plural
in all cases where such meanings would be appropriate.
Executed this 11th day of May, 1992
SAUER-SUNDSTRAND COMPANY
By: /s/ Michael J. Draper
-------------------------------------
Michael J. Draper, President
ATTEST:
By: /s/ Kenneth D. McCuskey
------------------------------
Kenneth D. McCuskey, Secretary
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<PAGE> 10
EXHIBIT A
EXAMPLE #1
ASSUMPTIONS:
- - Executive participates only in the Sauer-Sundstrand Employees' Retirement
Plan, and no other Company Retirement Plan.
- - Executive has attained the normal retirement age of 65.
- - Executive's average monthly pay for the highest 60 consecutive months of
his employment with the Company prior to his retirement is $20,000.
- - Executive's Covered Compensation is $1,414.00.
- - The amount of the Primary Social Security Benefit used to determine the
offset under the Sundstrand Plan is $800 per month.
- - Executive has 30 Years of Participation.
- - Executive's "Frozen Part B Benefit" under the Company Retirement Plan is
$500.00 per month.
DETERMINATION OF SUPPLEMENTAL RETIREMENT BENEFIT:
1. Retirement benefit provided under the Company Retirement Plan:
a. Maximum monthly compensation taken into account under
Code Section 401(a)(17) for 1991 .........................$18,518.33
b. Thirty Years of Participation times
two percent .............................................. 60%
c. 60% of $18,518.33 ........................................$11,111.00
CALCULATION OF OFFSET:
d. Thirty Years of Participation times
0.6% ..................................................... 18%
e. Monthly Covered Compensation .............................$ 1,414.00
f. 18% of $1,414.00 .........................................$ 254.52
g. Total monthly benefit
($11,11l.00-$254.52) .....................................$10,856.48
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<PAGE> 11
EXHIBIT A - Page 2
h. Code Section 415 monthly limit for 1991 ..................$ 9,080.25
i. Actual benefit (lesser of g or h) ........................$ 9,080.25
2. Retirement Benefit that would have been provided under the Sundstrand
Plan based on Executive's Service and Earnings:
$20,000 x 66-2/3% ........................................$13,333.33
Less Primary Social Security Benefit ($400) ..............$12,933.33
Times Years of Participation over 30 (30/30) .............$12,933.33
3. Supplemental Retirement Benefit:
$12,933.33 (from 2 above) - $9,080.25 (from 1 above) = .........$ 3,853.08
EXAMPLE #2
ASSUMPTIONS:
- - The same as for Example #1 except Executive has attained age 61 and elects
to begin receiving an early retirement benefit.
DETERMINATION OF SUPPLEMENTAL RETIREMENT BENEFIT:
1. Retirement benefit provided under the Company Retirement Plan:
Determined the same as in Example #1 except reduced to reflect early
retirement and early benefit commencement:
(a) Reduction of Part A Benefit for commencement prior to age 65:
Total Company Retirement Plan Benefit ....................$9,080.25
Frozen Part B Benefit ....................................$ 500.00
Part A Benefit ($9,080.25 - $500.00) .....................$8,580.25
.5% x 48 months .......................................... 24%
Reduction (24% x $8,580.25) ..............................$2,059.26
Reduced Part A Benefit
($8,580.25 - $2,059.26) ..................................$6,520.99
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<PAGE> 12
EXHIBIT A - Page 3
(b) Reduction of Frozen Part B Benefit for commencement prior to age 62:
Frozen Part B Benefit ...................................$ 500.00
Reduction (3% x $500.00) ................................$ 15.00
Reduced Frozen Part B Benefit
($500.00- $15.00) .......................................$ 485.00
(c) Total Reduced Benefit:
$6,520.99 + $485.00 = $7,005.99
2. Retirement Benefit that would have been provided under the Sundstrand Plan
based on Executive's total Service and Earnings:
Determined the same as for Example #1, except reduced for one year's
early retirement:
$12,933.33 - $388.00(3% x $12,933.33) = ..........$12,545.33*
3. Supplemental Retirement Benefit:
$12,545.33(from 2 above) - $7,005.99(from 1 above) = ..........$ 5,539.34*
*The effect is that the Supplemental Retirement Benefit covers the early
retirement reduction which is applicable under the Company Retirement Plan
with respect to the period between Executive's age 62 and 65.
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<PAGE> 1
Exhibit 10.1(v)
SAUER-SUNDSTRAND
EMPLOYEES' SAVINGS AND RETIREMENT PLAN
(Restated as of October 1, 1995)
<PAGE> 2
SAUER-SUNDSTRAND EMPLOYEES'
SAVINGS AND RETIREMENT PLAN
(October 1, 1995 Amendment and Restatement)
Page:
-----
ARTICLE I DEFINITIONS ............................................... 3
1.1 Account ................................................... 3
1.2 Act ....................................................... 3
1.3 Active Participant ........................................ 3
1.4 Authorized Leave of Absence ............................... 4
1.5 Beneficiary ............................................... 4
1.6 Break in Service .......................................... 4
1.7 Code ...................................................... 6
1.8 Compensation .............................................. 6
1.9 Disability ................................................ 7
1.10 Early Retirement Date ..................................... 8
1.11 Effective Date ............................................ 8
1.12 Eligible Employee ......................................... 8
1.13 Employee .................................................. 8
1.14 Employer .................................................. 9
1.15 Employer Contribution ..................................... 9
1.16 Employment Year ........................................... 9
1.17 Enrollment Date ........................................... 9
1.18 Fund ...................................................... 9
1.19 Highly Compensated Employee ............................... 10
1.20 Highly Compensated Employee Group ......................... 10
1.21 Hour of Service ........................................... 10
1.22 Matching Contribution ..................................... 11
1.23 Nonhighly Compensated Employee ............................ 11
1.24 Nonhighly Compensated Employee Group ...................... 11
1.25 Normal Retirement Date .................................... 12
1.26 Participant ............................................... 12
1.27 Participant Contribution .................................. 12
1.28 Plan ...................................................... 12
1.29 Plan Administrator ........................................ 12
1.30 Plan Year ................................................. 12
1.31 Related Employer .......................................... 12
1.32 Related Plan .............................................. 13
1.33 Revaluation Date .......................................... 13
1.34 Service ................................................... 13
1.35 Settlement Date ........................................... 13
1.36 Trust Agreement ........................................... 13
1.37 Trust Fund ................................................ 13
1.38 Trustee ................................................... 13
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Page:
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ARTICLE II EMPLOYEE ELIGIBILITY .......................................14
2.1 Eligibility ................................................14
2.2 Changes in Employment Status ...............................14
ARTICLE III PARTICIPATION ..............................................15
3.1 Participation in Employer and Matching Contributions .......15
3.2 Participation in Participant Contributions .................15
3.3 Notification of Enrollment Date ............................15
3.4 Authorized Leaves of Absence and Layoff of One Year
or Less ....................................................16
3.5 Authorized Leaves of Absence in Excess of One Year .........16
3.6 Reemployment Following Termination .........................16
ARTICLE IV BENEFICIARIES ..............................................18
4.1 Designation of Beneficiary .................................18
4.2 Beneficiary in the Absence of Designation ..................19
4.3 Identification of Distributees .............................19
ARTICLE V CONTRIBUTIONS ..............................................20
5.1 Employer and Matching Contributions ........................20
5.2 Participant Contributions ..................................20
5.3 Rollover Contributions and Elective Transfers ..............21
5.4 Elective Transfers From Retirement Plan ....................22
5.5 Administration .............................................22
5.6 Form of Contributions ......................................23
5.7 Changes in Payroll Deduction Authorization .................23
5.8 Suspension of Contributions ................................24
ARTICLE VI LIMITATIONS ON CONTRIBUTIONS ...............................25
6.1 Deductibility of Contributions .............................25
6.2 Mistake of Fact ............................................26
6.3 Limitation on Annual Additions .............................26
6.4 Dollar Limitation on Participant Contributions .............31
6.5 Limitation on Participant Contributions ....................33
6.6 Limitation on Matching Contributions .......................35
6.7 Multiple Use Limitation ....................................36
ARTICLE VII DEPOSIT AND INVESTMENT OF CONTRIBUTIONS;
INVESTMENT ELECTIONS .......................................38
7.1 Deposit of Employer and Matching Contributions .............38
7.2 Deposit of Participant Contributions .......................38
7.3 Investment Election for Participant Contributions
at Time of Initial Participation ...........................38
7.4 Changes in Investment Election .............................38
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<PAGE> 4
Page:
-----
ARTICLE VIII ESTABLISHMENT OF FUNDS AND PARTICIPANTS' ACCOUNTS ......... 40
8.1 Establishment of Accounts ................................. 40
8.2 Establishment of Funds .................................... 41
8.3 Income on Funds ........................................... 41
8.4 Record of Information ..................................... 41
8.5 Account Balances .......................................... 41
ARTICLE VIIIA LIFE INSURANCE ............................................ 42
8A.1 Purchase of Policies ...................................... 42
8A.2 Policy Terms .............................................. 42
8A.3 Payment of Premiums ....................................... 42
8A.4 Overriding Conditions and Limitations . ................... 43
8A.5 Designation of Beneficiary; Death Benefits ................ 43
8A.6 Other Distributions; Vesting .............................. 45
ARTICLE IX LOANS ..................................................... 46
9.1 Loans to Participants ..................................... 46
9.2 Limitations ............................................... 46
9.3 Interest Rate ............................................. 47
9.4 Repayment ................................................. 47
9.5 Documentation ............................................. 47
9.6 Security; Collection ...................................... 48
9.7 Additional Information .................................... 49
9.8 Accounting ................................................ 49
ARTICLE X VALUATION OF ACCOUNTS ..................................... 51
10.1 Revaluation of Participant's Interest ..................... 51
10.2 Investment Fund Accounting ................................ 52
10.3 Finality of Determinations ................................ 52
10.4 Notification .............................................. 53
ARTICLE XI WITHDRAWALS WHILE EMPLOYED ................................ 54
11.1 Employer and Matching Contribution Accounts ............... 54
11.2 Participant Contribution Account .......................... 54
11.3 Rollover, After-Tax, and Thrift and Investment
Plan Accounts ............................................. 56
11.4 Attainment of Age 59 1/2 or Disability .................... 57
11.5 Form of Payment ........................................... 57
ARTICLE XII DISTRIBUTION ON TERMINATION OF EMPLOYMENT ................. 58
12.1 Termination of Participation .............................. 58
12.2 Vesting ................................................... 58
12.3 Forfeitures ............................................... 59
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<PAGE> 5
Page:
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12.4 Distribution on Termination of Employment ................. 60
12.5 Distribution of Small Amounts ............................. 62
12.6 Commencement of Retirement, Disability and
Termination Benefit Distributions ......................... 63
12.7 Distribution Under Qualified Domestic Relations Order ..... 64
12.8 Special Distribution Limitations .......................... 65
12.9 Effect of Plan Administrator's Determination .............. 67
12.10 Distribution After Early Retirement ....................... 67
ARTICLE XIIA DIRECT ROLLOVERS .......................................... 69
12A.1 Direct Rollovers .......................................... 69
12A.2 Definitions ............................................... 69
ARTICLE XIII ADMINISTRATION ............................................ 71
13.1 Plan Administrator ........................................ 71
13.2 Rights and Duties of the Board ............................ 71
13.3 Right and Duties of the Trustee ........................... 71
13.4 Rights and Duties of the Committee ........................ 72
13.5 Rights and Duties of the Plan Benefit Committee ........... 73
13.6 Rights and Duties of the Appeal Review Committee .......... 74
13.7 Investment Manager ........................................ 74
13.8 Recordkeeper .............................................. 75
13.9 Indemnification ........................................... 75
13.10 Reliance Upon Others ...................................... 75
13.11 Claims Procedures ......................................... 76
ARTICLE XIV AMENDMENT AND TERMINATION ................................. 78
14.1 Amendment ................................................. 78
14.2 Limitation on Amendment ................................... 78
14.3 Termination ............................................... 79
ARTICLE XV TOP-HEAVY PROVISIONS ...................................... 81
15.1 Top-Heavy Status .......................................... 81
15.2 Definitions ............................................... 81
15.3 Determining Top-Heavy Status .............................. 84
15.4 Minimum Contribution ...................................... 85
15.5 Safe Harbor Rule .......................................... 86
ARTICLE XVI MISCELLANEOUS ............................................. 87
16.1 Plan Non-Contractual ...................................... 87
16.2 Claims of Other Person .................................... 87
16.3 Benefits .................................................. 87
16.4 No Guarantees ............................................. 87
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Page:
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16.5 Merger or Consolidation of Plan ........................... 88
16.6 Limitations on Ability .................................... 88
16.7 Restrictions on Alienation . .............................. 88
16.8 Payment to Incompetent Persons ............................ 89
16.9 Prudent Man Rule .......................................... 90
16.10 Corrective Contributions .................................. 90
16.11 Duty to Furnish Information and Documents ................. 90
16.12 Precedent ................................................. 91
16.13 Litigation ................................................ 91
16.14 Exclusive Benefit of Participants ......................... 92
16.15 Service of Process ........................................ 92
16.16 Governing Law ............................................. 92
16.17 Trust Agreement ........................................... 93
16.18 Plurals; Masculine to Include Feminine .................... 93
16.19 Titles .................................................... 93
16.20 References ................................................ 93
ARTICLE XVII EXTENSION TO NON-COVERED UNITS; ADOPTION
OF PLAN BY RELATED EMPLOYERS .............................. 94
17.1 Extension to Non-Covered Units ............................ 94
17.2 Special Provisions Regarding Eligibility and Benefits ..... 94
17.3 Adoption by Related Employers ............................. 94
ARTICLE XVIII RESTATEMENT EFFECTIVE DATES ............................... 95
18.1 In general ................................................ 95
18.2 Exceptions ................................................ 95
18.3 Repeal of First Amendment ................................. 95
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<PAGE> 7
SAUER-SUNDSTRAND
EMPLOYEES' SAVINGS AND RETIREMENT PLAN
(OCTOBER 1,1995 AMENDMENT AND RESTATEMENT)
WHEREAS, a subsidiary of Sundstrand Corporation, a Delaware corporation,
and a subsidiary of Sauer Getriebe AG, an Aktiengesellschaft organized under the
laws of the Federal Republic of Germany, formed, effective January 1, 1987, and
in accordance with applicable Delaware law, a partnership known as
Sundstrand-Sauer Company, which company thereupon formed a Delaware general
partnership known as Sundstrand-Sauer; and
WHEREAS, Sundstrand Corporation established, effective October 1, 1985,
and administered the Sundstrand Hydro-Transmission Selmer, Tennessee, Employees'
Savings and Retirement Plan, a profit sharing plan which included a qualified
deferred compensation arrangement under which eligible employees at Sundstrand
Corporation's Selmer, Tennessee, facility could elect to make payments as
contributions to a trust maintained under such plan; and
WHEREAS, effective January 1, 1987, Sundstrand Corporation transferred to
Sundstrand-Sauer, inter alia, its employees employed on said date at Selmer,
Tennessee, and to a trust constituted under the Sundstrand-Sauer Employees'
Savings and Retirement Plan the assets and liabilities of the profit sharing and
savings plan named in the preceding paragraph; and
WHEREAS, Sundstrand Corporation transferred to Sundstrand-Sauer employees
at certain other locations ("Other Employees"), which Other Employees had been
participants in qualified plans sponsored and administered by Sundstrand
Corporation; and
<PAGE> 8
WHEREAS, Sundstrand Corporation transferred the assets and liabilities
attributable to said Other Employees from a trust constituted under the
Sundstrand Corporation Employee Savings Plan to a trust constituted under the
Sundstrand-Sauer Employees' Savings and Retirement Plan; and
WHEREAS, Sauer-Sundstrand Company, a Delaware corporation and Plan
Administrator herein, is the successor to Sundstrand-Sauer; and
WHEREAS, Sauer-Sundstrand Company desires to continue the Sundstrand-Sauer
Employees' Savings and Retirement Plan, as hereby amended and restated as the
Sauer-Sundstrand Employees' Savings and Retirement Plan (the "Plan"), to provide
profit sharing and matching contributions on behalf of its eligible Selmer,
Tennessee, employees and elective contributions on behalf of these and other
eligible employees; and
WHEREAS, Sauer-Sundstrand Company intends that the Plan shall continue to
comply with the Employee Retirement Income Security Act of 1974, the Internal
Revenue Code of 1986 (specifically including Section 401(k) thereof), and all
other applicable governmental laws and regulations;
NOW, THEREFORE, in compliance with the foregoing and effective as of
October 1, 1995 (and the other dates specified in Section 18.2 of the Plan),
Sauer-Sundstrand Company hereby amends and restates the Plan to provide as
follows:
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<PAGE> 9
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context:
1.1 An "Account" shall mean any of the following accounts established on
behalf of a Participant or Employee, all as described in Section 8.1:
(a) Employer Contribution Account;
(b) Matching Contribution Account;
(c) Participant Contribution Account;
(d) Rollover Account;
(e) After-Tax Contribution Account; and
(f) Thrift and Investment Plan Account.
1.2 The "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Reference to a section of the Act shall
include such section and any comparable section or sections of any future
legislation that amends, supplements or supersedes such section.
1.3 An "Active Participant" shall mean any Participant who is actively
employed by the Employer, and any other Participant (i) who is a "party in
interest" with respect to the Plan within the meaning of the Act, and (ii) whose
accounts have not yet been distributed. In addition, if it is determined by the
Plan Administrator that federal law (including the Code) or regulatory
interpretations thereof require that loans be available, under Article IX of the
Plan,
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<PAGE> 10
to other beneficiaries or former employees whose accounts have not yet been
distributed, the term Active Participant shall also include any such individual.
1.4 An "Authorized Leave of Absence" with respect to an Employee shall
mean a leave of absence which is authorized by the Employer for a specific
purpose and a specified period of time and during which such Employee is not on
the Employer's payroll and is not otherwise entitled, directly or indirectly, to
payment from the Employer with respect to such leave of absence. The
authorization of leaves of absence shall be determined by the Employer on the
basis of nondiscriminatory policies which shall be uniformly and consistently
applied. If an Employee does not return to employment as soon as reasonably
practicable upon expiration of his Authorized Leave of Absence his employment
with the Employer will be deemed terminated.
1.5 The "Beneficiary" of a Participant or former Participant shall mean
the person or persons who, under the provisions of Article IV, shall be entitled
to receive a distribution hereunder in the event such Participant or former
Participant dies before his interest shall have been distributed to him in full.
1.6 (a) A "Break in Service" shall mean the termination of employment
of an Employee, followed by the expiration of an Employment
Year in which he accumulates fewer than 501 Hours of Service.
A Break in Service shall not be deemed to have occurred if:
(i) The employment of a terminated Employee is resumed prior
to the expiration of an Employment Year in which he
accumulates fewer than 501 Hours of Service;
(ii) The Employee is absent with the prior consent of the
Employer for a period not exceeding twelve months (which
consent shall be granted under uniform rules applied to
all Employees on a nondiscriminatory basis) and he
returns to active employment with
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<PAGE> 11
the Employer upon the expiration of the period of
authorized absence; or
(iii) The Employee leaves the Employer to serve in the armed
forces of the United States for a period during which
his reemployment rights are guaranteed by law and he
returns or offers to return to work for the Employer
prior to the expiration of his reemployment rights.
(b) For purposes of vesting under Article XII, 1 Hour of Service
shall replace 501 Hours of Service in subsection 1.6(a).
(c) An Employee who is absent from work with the Employer because
of:
(i) The Employee's pregnancy,
(ii) The birth of the Employee's child,
(iii) The placement of a child with the Employee in connection
with the Employee's adoption of the child, or
(iv) The Employee's caring for such child immediately
following such birth or placement,
shall receive credit, solely for purposes of subsection
1.6(a), for the Hours of Service provided in subsection
1.6(d); provided that the total number of hours credited as
Hours of Service under this subsection shall not exceed 501.
(d) If an Employee is absent from work for any of the reasons set
forth in subsection 1.6(c), the Hours of Service that the
Employee will be credited with under subsection 1.6(c) are:
(i) The Hours of Service that otherwise would normally have
been credited to the Employee but for such absence, or
(ii) Eight Hours of Service per day of such absence, if the
Employer is unable to determine the Hours of Service
described in paragraph (i) of subsection 1.6(d).
(e) An Employee who is absent from work for any of the reasons set
forth in subsection 1.6(c) shall be credited with Hours of
Service under subsection 1.6(c):
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<PAGE> 12
(i) Only in the Employment Year in which the absence begins,
if the Employee would be prevented from incurring a
Break in Service in that Employment Year solely because
the period of absence is treated as credited Hours of
Service, as provided in subsections 1.6(c) and 1.6(d),
or
(ii) In any other case, in the immediately following
Employment Year.
(f) No credit for Hours of Service will be given pursuant to
subsections 1.6(c), 1.6(d), and 1.6(e) unless the Employee
furnishes to the Employer such timely information as the
Employer may reasonably require to establish:
(i) That the absence from work was for one of the reasons
specified in subsection 1.6(e), and
(ii) The number of days for which there was such an absence.
(g) No credit for Hours of Service will be given pursuant to
subsections 1.6(c), 1.6(d), and 1.6(e) for any purpose of the
Plan other than the determination of whether an Employee has
incurred a Break in Service pursuant to subsection 1.6(a).
1.7 The "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a section of the Code shall include such section
and any comparable section or sections of any future legislation that amends,
supplements or supersedes such section.
1.8 (a) The "Compensation" of a Participant for any Plan Year shall
mean the dollar value of specific payments made by the
Employer to an Employee with respect to such Plan Year for
services rendered (including any amounts that are excluded
from the Participant's taxable income pursuant to Sections 125
and 402(e)(3) of the Code), and is limited to the following:
(i) base salary and/or wages paid; (ii) commissions paid under
sales incentive plans; (iii) overtime pay; (iv) lump-sum
payments made in place of an increase in the base wage rate;
and (v) payments for time not worked pursuant to Employer
policies related to the following: vacations, holidays, sick
leave, bereavement, military reserve training, jury duty and
educational leave under provisions of the Employer's
Engineering Master of Science program.
(b) Compensation for any period shall not include the following:
(i) except as otherwise provided in this Section 1.8, pay
under any incentive pay plan;
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<PAGE> 13
(ii) shift differential pay; (iii) severance payments; (iv)
payments under any plan or arrangement which is not generally
open to participation by all Employees; (v) bonus plan
payments; (vi) incentive awards other than commissions paid to
an Employee under sales incentive plans; (vii) matching
payments by the Employer; (viii) salary or wages and earnings
credited to Employees or Employee accounts under any savings,
investment, deferred compensation or salary reduction plan or
arrangement, including distributions from any such plan or
arrangement (other than the Plan); (ix) payments under any
workers' compensation program or under any unemployment
compensation program; (x) payments made under any employee
benefit program or arrangement not otherwise specifically
included as compensation; (xi) foreign-earned income; and
(xii) gain sharing payments.
(c) For Plan Years beginning on or after January 1, 1989 but
before January 1, 1994, the annual Compensation of any
Employee for all purposes of the Plan shall not exceed
$200,000, as adjusted by the Secretary of the Treasury under
Section 401(a)(17) of the Code. For Plan Years beginning on
or after January 1, 1994, only the first $150,000 (or such
other amount as may be prescribed by the Secretary of the
Treasury or his delegate) of an Employee's Compensation shall
be taken into account for any purpose under the Plan. In
determining the Compensation of an Employee for purposes of
this limitation, the rules of Section 414(q)(6) of the Code
shall apply, except in applying such rules, the term "family"
shall include only the spouse of the Employee and any lineal
descendants of the Employee who have not attained age 19
before the close of the year. If, as a result of the
application of such rules, any dollar limitation specified in
this subsection is exceeded, then such limitation shall be
prorated among the affected individuals in proportion to each
such individual's compensation as determined under this
Section before the application of this limitation.
1.9 A "Disability" shall mean a physical or mental condition which, in the
judgment of the Employer, will prevent the Participant from performing any work
assigned by the Employer. A determination that a Disability exists and the date
thereof shall be made by the Employer in consultation with a physician,
psychiatrist or dentist selected by the Employer. The determination by the
Employer of the existence of a Disability shall be made with reference to the
nature of the injury without regard to the period the Participant is absent from
work.
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<PAGE> 14
1.10 A Participant's "Early Retirement Date" shall mean the last day of
the month in which the Participant has both attained age 55 and completed 10
years of Service.
1.11 The "Effective Date" of the Plan shall mean October 1, 1985. Any
amendment or restatement of the Plan shall be effective as of the date appearing
on such amendment or restatement.
1.12 An "Eligible Employee" shall mean any Employee who is eligible to
participate in the Plan in accordance with the provisions of Article II.
1.13 An "Employee" shall mean any person who is employed on a regular and
full-time or part-time basis by:
(a) Any of Sauer-Sundstrand Company's Ames, Iowa; Freeport,
Illinois; Minneapolis, Minnesota; Selmer, Tennessee; West
Branch, Iowa; or (in the office only) LaSalle, Illinois,
locations; or
(b) Sauer, Inc., primarily at its Ames, Iowa, location,
and whose customary employment is for 1,000 Hours of Service or more per year;
provided, however, that the term shall not include any person who renders
service to the Employer solely as an independent contractor or leased employee
(as defined in Code Section 414(n)), nor shall it include any person covered by
a collective bargaining agreement between employee representatives and the
Employer if retirement benefits were the subject of good faith bargaining
between such employee representatives and the Employer (unless the resulting
bargaining agreement provides for such employee's coverage under this Plan).
The foregoing notwithstanding, any person who is customarily employed by
the Employer on a part-time, temporary or irregular basis for fewer than 1,000
Hours of Service per year shall become an Employee as of the first day of any
Employment Year in which he completes at least 1,000 Hours of Service.
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<PAGE> 15
1.14 The "Employer" shall mean Sauer-Sundstrand Company, a Delaware
corporation, and any Related Employer that adopts the Plan in accordance with
Article XVII.
1.15 An "Employer Contribution" shall mean an amount contributed by the
Employer on behalf of a Participant, determined under subsection 5.1(a) and
without regard to any amount by which that Participant elects to reduce his
Compensation under Section 5.2.
1.16 An "Employment Year" shall mean a twelve-consecutive-month period
commencing with an employee's initial date of hire (or last date of rehire if he
has incurred a Break in Service) or with any anniversary thereof.
1.17 An "Enrollment Date" shall mean the first day of the first payroll
period after an Employee becomes an Eligible Employee if the Eligible Employee
elects, pursuant to Section 3.2, to participate in Participant Contributions on
that day. "Enrollment Date" shall also mean the first day of the first payroll
period commencing on or after April 1 and October 1 of each year.
1.18 A "Fund" shall mean any of the funds in which Plan assets may be
invested, as described in Section 8.2. Such Funds shall include:
(a) The Norwest Stable Return Fund;
(b) The Vanguard/Wellington Fund;
(c) The Fidelity Equity-Income Fund;
(d) The Fidelity Growth Company Fund;
(e) The Vanguard International Growth Portfolio; and
(f) The Transamerica Life Insurance Fund.
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<PAGE> 16
1.19 A "Highly Compensated Employee" shall mean any Employee who:
(a) was, at any time during the look-back year or the
determination year, a 5-percent owner;
(b) received compensation during the look-back year in excess of
$75,000 (or such higher amount as may be established by the
Secretary of the Treasury for the look-back year) from the
Employer;
(c) receives compensation during the determination year in excess
of $75,000 (or such higher amount as may be established by the
Secretary of the Treasury for the determination year) and is
one of the 100 Employees who receive the most compensation
from the Employer during the determination year;
(d) received compensation during the look-back year in excess of
$50,000 (or such higher amount as may be established by the
Secretary of the Treasury for the look-back year) and is a
member of the Top-Paid Group for the look-back year;
(e) receives compensation during the determination year in excess
of $50,000 (or such higher amount as may be established by the
Secretary of the Treasury for the determination year), is a
member of the Top-Paid Group for the determination year, and
is one of the 100 Employees who receive the most compensation
from the Employer during the determination year;
(f) was at any time during the look-back year, an officer and
received compensation in excess of 50% of the amount in effect
under Section 415(b)(1)(A) of the Code for the look-back year;
or
(g) is at any time during the determination year, an officer,
receives compensation in excess of 50% of the amount in effect
under Section 415(b)(1)(A) of the Code for the determination
year, and is one of the 100 employees who receive the most
compensation from the Employer during the determination year.
There shall also be included in the term Highly Compensated Employee
a former Employee who was a Highly Compensated Employee during the year in
which such Employee separated from service or any year after such Employee
attained age 55.
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<PAGE> 17
For purposes of this definition, (i) a 5-percent owner who is an
active or former employee and (ii) a Highly Compensated Employee
(determined prior to the application of this Section) who is one of the 10
most highly compensated employees ranked on the basis of compensation
received from the Employer and a family member shall be aggregated and
treated as a single Employee.
For purposes of subsections 1.19(f) and 1.19(g), the maximum number
of officers taken into account shall not exceed the lesser of (i) 50 or
(ii) the greater of (A) three or (B) ten percent of the Employees.
For purposes of determining the number of Employees in the Top-Paid
Group under subsections 1.19(d) and 1.19(e) and the number of officers
under subsections 1.19(f) and 1.19(g), the following employees shall be
excluded:
(i) Employees who have not completed 6 months of service;
(ii) Employees who work fewer than 17 1/2 hours per week; and
(iii) Employees who normally work during not more than 6 months in
any year.
For purposes of this definition, the following terms shall have the
following meanings:
(i) "Determination year" shall mean the Plan Year for which the
determination of which employees are Highly Compensated
Employees is being made;
(ii) "Family member" shall mean any Employee who is the spouse,
lineal ascendant or descendant or spouse of a lineal ascendant
or descendant with respect to any Employee or former Employee.
(iii) "5-percent owner" means any Employee or former Employee of the
Employer who owns (or is considered as owning within the
meaning of
-10A-
<PAGE> 18
Section 318 of the Code) more than 5 percent of (i) the value
of the outstanding stock of the corporation or stock
possessing more than five percent of the total combined voting
power of all stock of the corporation, if the Employer is a
corporation, or (ii) the capital or profits interest in an
Employer.
(iv) "Look-back year" shall mean the Plan Year immediately
preceding the determination year.
(v) "Top-Paid Group" shall mean the group consisting of the top 20
percent of the Employees of the Employer when ranked on the
basis of compensation received by the Employer during the Plan
Year.
The determination of who is a Highly Compensated Employee is
intended to conform with Section 414(q) of the Code. To the extent
permitted by Section 414(q), the Committee may make the determination in a
manner different than that prescribed above, including, but not limited
to, a determination made under the calendar year calculation election or a
simplified method election prescribed in Section 414(q).
For purposes of this section 1.19, "compensation" shall mean
compensation as defined in Section 414(q)(7) of the Code.
1.20 The "Highly Compensated Employee Group" shall mean:
(a) With respect to Participant Contributions, all Eligible
Employees who are Highly Compensated Employees; and
(b) With respect to Matching Contributions, all Eligible Employees
employed at the Employer's Selmer, Tennessee, or West Branch,
Iowa, locations who are Highly Compensated Employees.
1.21 An "Hour of Service" shall mean:
(a) Each hour for which an Employee is paid or entitled to payment
for the performance of duties for the Employer; and
(b) Each hour for which an Employee is directly or indirectly paid
by the Employer, or entitled to payment from the Employer,
during which no
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<PAGE> 19
duties are performed by reason of vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty or leave of absence (but not in excess of 501 hours in
any continuous period during which no duties are performed).
Each Hour of Service for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer shall be included under either
(a) or (b), as may be appropriate. Hours of Service shall be credited:
(c) In the case of Hours referred to in subsection 1.21(a), for
the computation period in which the duties are performed;
(d) In the case of Hours referred to in subsection 1.21(b), for
the computation period or periods in which the period during
which no duties are performed occurs; and
(e) In the case of Hours for which back pay is awarded or agreed
to by the Employer, for the computation period or periods to
which the award or agreement pertains, rather than to the
computation period in which the award, agreement or payment is
made.
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<PAGE> 20
In determining Hours of Service, an Employee who is employed by the Employer on
other than an hourly-rated basis shall be credited with eight (8) Hours of
Service per day for each day the Employee would, if hourly-rated, be credited
with service pursuant to subsection 1.21(a). If an Employee is paid for reasons
other than the performance of duties, pursuant to subsection 1.21(b):
(f) In the case of a payment made or due which is calculated on
the basis of units of time, an Employee shall be credited with
the number of regularly scheduled working hours included in
the units of time on the basis of which the payment is
calculated; and
(g) An Employee without a regular work schedule shall be credited
with eight (8) Hours of Service per day (to a maximum of forty
(40) Hours of Service per week) for each day that the Employee
is so paid.
Hours of Service shall be calculated in accordance with Department of Labor
Regulations Section 2530.200b-2 or any future legislation or regulation that
amends, supplements or supersedes said Section.
1.22 A "Matching Contribution" shall mean an amount contributed by the
Employer on behalf of a Participant, determined under subsection 5.1(b) and
based on the amount by which that Participant elects to reduce his Compensation
under Section 5.2.
1.23 A "Nonhighly Compensated Employee" shall mean any Employee who is not
a Highly Compensated Employee.
1.24 The "Nonhighly Compensated Employee Group" shall mean:
(a) With respect to Participant Contributions, all Eligible
Employees who are Nonhighly Compensated Employees; and
(b) With respect to Matching Contributions, all Eligible Employees
employed at the Employer's Selmer, Tennessee, or West Branch,
Iowa, locations who are Nonhighly Compensated Employees.
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<PAGE> 21
1.25 A Participant's "Normal Retirement Date" shall mean the last day of
the month in which the Participant attains age 65.
1.26 A "Participant" shall mean any Eligible Employee who becomes a
Participant in the Plan in accordance with the provisions of Article III;
moreover, such term shall also include a Participant who ceases to be an
Eligible Employee but who continues to participate in the Plan in accordance
with the provisions of Section 2.2. Unless otherwise stated, the Plan's
provisions for Participants shall apply both to Participants in Employer
Contributions and Participants in Participant Contributions.
1.27 A "Participant Contribution" shall mean the amount of money by which
a Participant has elected to have his compensation reduced in accordance with
the provisions of Section 5.2.
1.28 The "Plan" shall mean this Sauer-Sundstrand Employees' Savings and
Retirement Plan, with all amendments and supplements hereafter made. For
purposes of Code Section 401(a)(27)(B), the Plan is a profit sharing plan.
1.29 The "Plan Administrator," which is the administrator for purposes of
the Act and the plan administrator for purposes of the Code, shall mean the
Employer.
1.30 A "Plan Year" shall mean the fiscal year of the Employer, which ends
on December 31 of each year; provided, however, that the term shall not include
any fiscal year that ended prior to the Effective Date.
1.31 A "Related Employer" shall mean any employer that is a member of:
(a) A controlled group of corporations (as defined in Section
414(b) of the Code) of which the Employer is a member;
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<PAGE> 22
(b) Any trade or business (whether or not incorporated) which is
under common control (as defined in Section 414(c) of the
Code) with the Employer; or
(c) An affiliated service group (as defined in Section 414(m) of
the Code) which includes the Employer.
1.32 A "Related Plan" shall mean any other defined contribution plan (as
defined in Section 415(k) of the Code) maintained by the Employer or by any
Related Employer.
1.33 A "Revaluation Date" shall mean each business day of each calendar
year.
1.34 (a) "Service" shall mean a period of time, measured in whole and
partial Employment Years, commencing with the Employment Year
in which an Employee is initially employed and ending with the
Employment Year in which a Break in Service occurs.
(b) Without regard to subsection 1.34(a), a Participant's years of
Service after he incurs five consecutive one-year Breaks in
Service shall be disregarded for purposes of determining
whether he had a nonforfeitable interest in his Employer and
Matching Contribution Accounts as of the Revaluation Date
coincident with the date he incurred the first of such five
consecutive one-year Breaks in Service.
1.35 The "Settlement Date" shall mean the date upon which a Participant
ceases to be a Participant in the Plan, as provided in Section 12.1.
1.36 The "Trust Agreement" shall mean the Sauer-Sundstrand Employees'
Savings and Retirement Plan Trust Agreement, including any amendments hereafter
made.
1.37 The "Trust Fund" shall mean the trust fund established under the
Trust Agreement.
1.38 The "Trustee" shall mean Investors Fiduciary Trust Company, any
successor trustee, and any co-trustee which at the time shall be designated,
qualified and acting under the Trust Agreement.
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<PAGE> 23
ARTICLE II
EMPLOYEE ELIGIBILITY
2.1 Eligibility. Any Employee shall become an Eligible Employee
immediately upon the commencement of his employment with the Employer, unless
such Employee falls within one of the following categories, in which case he
shall become an Eligible Employee on the date stated in the applicable
paragraph:
(a) An Employee on October 1, 1995, who had become an "Eligible
Employee" under the terms of the Plan in effect as of
September 30, 1995, shall become an Eligible Employee for
purposes of this restatement of the Plan as of October 1,
1995.
(b) An Employee who is customarily employed by the Employer on a
part-time, temporary or irregular basis for fewer than 1,000
Hours of Service per year shall become an Eligible Employee on
the date on which he completes at least 1,000 Hours of
Service in an Employment Year.
(c) An Employee who had been an Eligible Employee under this Plan
and who is reinstated to active employment from a period
during which he was not an Employee actively employed shall
become an Eligible Employee on his date of reinstatement.
2.2 Changes in Employment Status. If an Eligible Employee ceases to be an
Employee but continues in the employment of (a) the Employer in some other
capacity or (b) a Related Employer, he shall nevertheless continue as an
Eligible Employee and as a Participant until his status as a Participant is
otherwise terminated in accordance with the provisions of the Plan; provided,
however, that such Participant shall not be permitted to make Participant
Contributions at any time during which he is employed in any capacity other than
as an Employee.
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ARTICLE III
PARTICIPATION
3.1 Participation in Employer and Matching Contributions. Eligible
Employees employed at the Employer's Selmer, Tennessee, and West Branch, Iowa,
locations (and only such Eligible Employees) shall become Participants in
Employer and Matching Contributions under Section 5.1, retroactively as of the
date they became Employees.
3.2 Participation in Participant Contributions. Any Eligible Employee may
become a Participant in Participant Contributions under Section 5.2 as of the
first Enrollment Date following the date on which he meets the eligibility
requirements set forth in Article II, or as of any subsequent April 1 or October
1 Enrollment Date. Any such Participant who wishes to have the Employer make
Participant Contributions to the Plan on his behalf must first file with the
Employer a written election, on the form prescribed by the Employer, containing:
(a) His authorization for the Employer to make Participant
Contributions on his behalf to the Plan, in accordance with
the provisions of Section 5.2; and
(b) His election as to the investment of his Participant
Contributions, in accordance with the provisions of Article
VII.
3.3 Notification of Enrollment Date. On or before the thirtieth (30th) day
preceding each Enrollment Date, the Employer shall cause notice of such
Enrollment Date to be given to the Employees. For purposes of providing the
notice required under this Section 3.3, the Employer shall give such notice in
such manner as it shall determine to be appropriate, which method may include
and be limited to Employee bulletin board posting.
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3.4 Authorized Leaves of Absence and Layoff of One Year or Less. A
Participant who, for a period of one year or less, is on an Authorized Leave of
Absence, or on layoff, shall continue as a Participant during such Authorized
Leave of Absence or layoff, notwithstanding the provisions of Section 12.1;
provided, however, that no Participant Contributions shall be made by such
Participant during such Authorized Leave of Absence or layoff; and provided
further, that his election to become a Participant under Section 3.2 shall be
deemed suspended with respect to the authorization and election required,
respectively, by subsections 3.2(a) and (b). Upon his return to active
employment as an Employee, the suspension of his election to become a
Participant shall terminate and his Participant Contributions shall be
automatically resumed in accordance with the terms of such election.
3.5 Authorized Leaves of Absence in Excess of One Year. A Participant who,
for a period in excess of one year, is on an Authorized Leave of Absence shall
continue as a Participant during such Authorized Leave of Absence,
notwithstanding the provisions of Section 12.1, provided, however, that no
Participant contributions shall be made by such Participant during such leave;
and provided, further, that his election to become a Participant under Section
3.2 shall be deemed rescinded with respect to the payroll deduction
authorization and investment election required, respectively, by subsections
3.2(a) and (b). Upon his return to active employment as an Employee, such
Participant may elect to resume making contributions by again filing with the
Employer the written election described in Section 3.2.
3.6 Reemployment Following Termination. If (a) the active employment of a
Participant is terminated for any reason, (b) the Participant ceases to be a
Participant as provided in Section 12.1, and (c) such former Participant is
thereafter reemployed by the Employer, he
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shall upon return to active employment be treated as an Eligible Employee for
all purposes of the Plan. Such former Participant may elect to become a
Participant on any subsequent Enrollment Date by again filing with the Employer
the written election described in Section 3.2.
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ARTICLE IV
BENEFICIARIES
4.1 Designation of Beneficiary.
(a) Each Participant or former Participant may designate a person
or persons or an entity as Beneficiary to whom or to which a
distribution shall be made hereunder in the event such
Participant or former Participant dies before his interest
shall have been distributed to him in full. Successive
designations may be made, and the last designation received by
the Plan Administrator prior to the death of the Participant
or former Participant shall be effective and shall revoke all
prior designations. Any such designation or successive
designation shall be made in writing on the form prescribed by
the Plan Administrator. If a designated Beneficiary shall die
before the Participant or former Participant, such
Beneficiary's interest shall terminate, and, unless otherwise
provided in the Participant's or former Participant's
designation if the designation included more than one
Beneficiary, such interest shall be paid in equal shares to
those Beneficiaries, if any, who survive the Participant or
former Participant. A Participant or former Participant shall
have the right to revoke the designation of any Beneficiary
without the consent of the Beneficiary. The number of such
revocations shall not be limited.
(b) The provisions of subsection 4.1(a) and any designation of a
Beneficiary thereunder notwithstanding, the Beneficiary of
each Participant who is married on the date of his death shall
be his spouse, unless, with respect to a designation of
Beneficiary other than his spouse, such spouse has consented
to such designation by the Participant, prior to the
Participant's death, or the Participant establishes to the
satisfaction of the Plan Administrator that such consent may
not be obtained because there is no spouse, the spouse cannot
be located, or because of such other circumstances as the
Secretary of the Treasury may by regulations prescribe. Any
such consent shall be in writing, shall acknowledge the effect
of such consent, and shall be witnessed by a representative of
the Plan or a notary public. Moreover, the consent shall be
effective only if the Participant's written designation names
a specific alternate Beneficiary, including any class of
Beneficiaries, or any contingent Beneficiary, which may not be
changed without spousal consent. Any consent by a spouse, or
establishment that the consent of a spouse may not be obtained
under this subsection 4.1(b), shall be effective only with
respect to such spouse.
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(c) Any amounts under the Plan arising from the payment of
benefits under a life insurance contract or contracts as the
result of the death of a Participant, a Participant's spouse
or a Participant's child(ren) shall be paid as provided in
Section 8A.6.
4.2 Beneficiary in the Absence of Designation. If a Participant shall fail
to designate a Beneficiary, or if such designation shall for any reason be
illegal or ineffective, or if no designated Beneficiary shall survive the
Participant, the Participant's interest in the Plan shall be distributed:
(a) To his surviving spouse;
(b) If there is no surviving spouse, to his descendants (including
legally adopted children or their descendants), per stirpes;
(c) If there is neither a surviving spouse nor surviving
descendants, to the duly appointed and qualified executor or
other personal representative of the Participant, to be
distributed in accordance with the Participant's will or
applicable intestacy law; or
(d) In the event that there shall be no such representative duly
appointed and qualified within six (6) months after the date
of death of such deceased Participant, then to such persons
as, at the date of his death, would be entitled to share in
the distribution of such deceased Participant's personal
estate under the provisions of the applicable statute then in
force governing the descent of intestate property, in the
proportions specified in such statute.
4.3 Identification of Distributees. The Plan Administrator may determine
the identity of the distributees and in so doing may act and rely upon any
information it may deem reliable upon reasonable inquiry, and upon any
affidavit, certificate, or other paper believed by it to be genuine, and upon
any evidence believed by it sufficient.
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ARTICLE V
CONTRIBUTIONS
5.1 Employer and Matching Contributions. With respect to each Participant
eligible under Section 3.1 to participate in Employer and Matching
Contributions, the Employer shall contribute to the Trust Fund for each payroll
period during the Plan Year:
(a) An amount equal to two percent (2%) of the Compensation earned
by such Participant (while a Participant) during such period
(herein referred to as an "Employer Contribution"); plus
(b) An amount equal to fifty percent (50%) of the Participant
Contribution of each such Participant under Section 5.2,
provided that in no event will the amount contributed with
respect to any such Participant under this subsection 5.1(b)
(herein referred to as a "Matching Contribution") exceed two
percent (2%) of such Participant's Compensation for such
period.
Employer and Matching Contributions shall be subject to the limitations
described in Article VI.
5.2 Participant Contributions. Each Participant may elect to have his
Compensation reduced in the manner described in this Section 5.2, in which event
the Employer shall contribute the amount of that reduction to the Trust Fund as
a Participant Contribution. In addition to the limitations described in Article
VI, Participant Contributions shall be subject to the following restrictions:
(a) Minimum Reduction. The minimum reduction for any Participant
for any payroll period shall be one percent (1%) of the
Participant's Compensation for such payroll period.
(b) Maximum Reduction. The maximum reduction for any Participant
for any payroll period shall be as follows:
(i) For any Participant who is a Highly Compensated
Employee, ten percent (10%) of such Participant's
Compensation for such payroll period, and
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(ii) For any Participant who is a Non-Highly Compensated
Employee, seventeen percent (17%) of such Participant's
Compensation for such payroll period if the Participant
is entitled to an Employer Contribution under subsection
5.1(a), or twenty percent (20%) of such Participant's
Compensation for such payroll period if such Participant
is not entitled to an Employer Contribution.
(c) Minimum Increments. All Compensation reductions under the Plan
shall be in multiples of one percent (1%) of a Participant's
Compensation, unless the Participant has elected to reduce his
Compensation by the maximum amount permitted under Section
402(g) of the Code, in which event a reduction equal to that
amount will be permitted.
5.3 Rollover Contributions and Elective Transfers.
(a) Rollover Contributions. Any Employee who is or may become a
Participant and who has received or is entitled to receive a
distribution from a qualified retirement plan of a former
employer under circumstances meeting the requirements of Code
Section 402(c)(4) may contribute all or any portion of such
distribution to the Plan as a "Rollover Contribution." The
Plan shall accept a Rollover Contribution only if the
acceptance of such Contribution would not threaten the Plan's
qualified status under Section 401(a) of the Code.
(b) Elective Transfers. In its discretion, the Plan Administrator
may direct the Trustee to accept a direct transfer of assets
from the trustee of a qualified plan sponsored by the former
employer of an Employee. Such transfer must satisfy all of the
requirements set forth for an "Elective Transfer" under
Question and Answer 3(b) of Treasury Regulation Section
1.411(d)-4, including the requirement that such transfer
represent the Employee's entire nonforfeitable accrued benefit
under the transferring plan. No such trustee-to-trustee
transfer shall be accepted if the amount transferred would
remain subject to any of the transferring plan's "section
411(d)(6) protected benefits" (as that term is used in said
Regulation).
(c) Rollover Account. The Plan Administrator shall establish a
fully vested "Rollover Account" for each Employee electing to
make a Rollover Contribution under subsection 5.3(a) or as to
whom an Elective Transfer is accepted under subsection 5.3(b).
All such Rollover Contributions and Elective Transfers shall
be credited to that Rollover Account, to which investment
gains or losses shall then be credited or debited. If a
Rollover Account is established for an Employee who is not
otherwise a Plan Participant, that Employee shall be
considered a Participant with respect
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to his Rollover Account, but for no other Plan purpose until
he becomes a Participant pursuant to Article III.
(d) Investments. Upon receipt of an Employee's Rollover
Contribution or Elective Transfer, the Trustee shall
immediately deposit such contribution or transfer into the
Investment Fund or Funds designated by the Employee in a
written election filed with the Plan Administrator; provided
that if such contribution or transfer is in a form other than
cash, the Trustee, in accordance with instructions from the
Plan Administrator, shall first take such action as it
determines to be appropriate to convert such contribution or
transfer to cash. The initial investment of an Employee's
Rollover Account shall remain in effect unless changed in
accordance with the provisions of Section 7.4. Notwithstanding
anything to the contrary contained herein, an Employee shall
not be permitted to direct that any portion of his Rollover
Account be used to purchase life insurance.
(e) Withdrawals. An Employee with respect to whom a Rollover
Account is maintained may withdraw all or any portion of that
Account as soon as administratively feasible after the
Employee's delivery to the Plan Administrator of a written
request for such withdrawal, on a form acceptable to the Plan
Administrator.
(f) Distributions. The provisions of the Plan relating to
distributions upon a Participant's termination of
participation in the Plan, or upon the Plan's termination,
shall apply to an Employee's Rollover Account.
(g) Rules and Procedures. The Plan Administrator shall establish
rules and procedures to implement the provisions of this
Section 5.3, including, without limitation, such procedures as
may be appropriate to permit the Plan Administrator to verify
the qualified status of the plan of the Employee's former
employer and compliance with any applicable provisions of the
Code and regulations issued thereunder relating to Rollover
Contributions and Elective Transfers.
5.4 Elective Transfers From Retirement Plan. In all respects, the
provisions of Section 5.3 shall apply to any Elective Transfer to the Trustee of
this Plan from the trustee of the Sauer-Sundstrand Employees' Retirement Plan
(the "Retirement Plan").
5.5 Administration. It is the intention of the Employer to pay to the
Trustee its Employer and Matching Contributions with respect to a particular
payroll period within thirty
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(30) days after the last day of such period. The Employer shall pay to the
Trustee all Participant Contributions as soon as such amounts can reasonably be
segregated from the Employer's general assets, but in no event later than ninety
(90) days after the date any such Contribution would otherwise have been payable
as wages. In no event will the Employer pay to the Trustee any of its Employer,
Matching or Participant Contributions for any calendar year later than the
period of time prescribed by law for the filing of the Employer's federal income
tax return for such year, including any duly granted extensions thereof.
5.6 Form of Contributions. Employer, Matching, and Participant
Contributions shall be paid to the Trustee in cash or in other property, as the
Employer, in its discretion, shall determine.
5.7 Changes in Payroll Deduction Authorization. A Participant, not more
often than once per calendar quarter, may change the percentage of his
Compensation which is to be contributed to the Plan as a Participant
Contribution by filing an amended payroll deduction authorization with the
Employer; provided, that any such change shall be effective as of the first day
of the payroll period following the end of the payroll period in which such
deduction authorization is received by the Employer. Participant Contributions
shall be deducted from the Participant's Compensation in accordance with the
Participant's amended payroll deduction authorization, and such deductions shall
continue until otherwise changed, suspended or terminated in accordance with
applicable provisions of the Plan. The foregoing limit on the allowable number
of changes notwithstanding, if a Participant at any time elects to borrow money
from the Plan, as provided in Article IX, he shall in connection with such
borrowing be
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allowed to change the percentage of his Compensation which is to be deducted and
paid to the Trustee as his Participant Contribution.
5.8 Suspension of Contributions. A Participant who is making Participant
Contributions may suspend all of such Participant Contributions at any time by
filing with the Employer an amended payroll deduction authorization providing
for such suspension. Such suspension shall be effective as of the first day of
the payroll period following the end of the payroll period in which such
deduction authorization is received by the Employer and shall remain in effect
until Participant Contributions are resumed as hereinafter set forth. A
Participant who has suspended all of his Participant Contributions in accordance
with the foregoing provisions of this Section 5.8 may resume such Contributions
only as of an April 1 or October 1 Enrollment Date which is after the effective
date of such suspension and only by filing a new payroll deduction authorization
with the Employer not later than the Enrollment Date as of which Participant
Contributions are to be resumed. Any new payroll deduction authorization filed
by a Participant pursuant to the provisions of this Section 5.8 shall meet the
requirements of Section 5.2.
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ARTICLE VI
LIMITATIONS ON CONTRIBUTIONS
Notwithstanding any contrary provisions of this Plan, the following
limitations shall apply to the specified types of Contributions.
6.1 Deductibility of Contributions. In no event shall the sum of the
Employer, Matching, and Participant Contributions for a Plan Year exceed the
maximum amount allowable as a deduction to the Employer for federal income tax
purposes under Section 404 of the Code and the regulations promulgated
thereunder. All such Contributions are expressly conditioned on their
deductibility. The Trustee shall immediately return to the Employer all such
Contributions as are later determined by the Internal Revenue Service not to be
deductible for the Plan Year for which contributed; provided, however, that no
such Contribution shall be returned to the Employer more than one year after the
disallowance of the deduction, unless permitted under the Act and the Code at
that time. The amount returned under this Section 6.1 shall be equal to the
amount of the disallowed deduction, decreased for any investment losses but not
increased for any investment gains subsequent to the time of the Contribution.
Any Contribution returned to the Employer under this Section 6.1 shall,
unless otherwise directed by the Internal Revenue Service, be withdrawn from the
following Accounts, in the following order:
(a) First, from the Participant and Matching Contribution
Accounts, up to an amount equal to the Participant
Contributions (and any Matching Contributions attributable to
such Participant Contributions) made for the Plan Year; and
(b) Second, from the Employer Contribution Account, in the amount
of any remaining nondeductible Contributions.
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Any Participant Contribution returned to the Employer shall immediately be paid
to the affected Participant in cash.
6.2 Mistake of Fact. In the case of any Employer, Matching, or Participant
Contribution that is made by the Employer due to a good faith mistake of fact,
the Trustee shall return the erroneous portion of the Contribution to the
Employer within one year after the Employer's payment of the Contribution to the
Trust Fund. The amount returned under this Section 6.2 shall be equal to the
amount of the erroneous Contribution, decreased for any investment losses but
not increased for any investment gains subsequent to the time of the
Contribution. Any such Contribution returned to the Employer under this Section
6.2 shall be withdrawn from the Account(s) as to which the mistake related. Any
Participant Contribution returned to the Employer shall immediately be paid to
the affected Participant in cash.
6.3 Limitation on Annual Additions. In no event shall the sum of the
Annual Additions to a Participant's Accounts for any Limitation Year exceed the
Maximum Permissible Amount. If, but for the provisions of this Section 6.3, the
Annual Additions to a Participant's Accounts for any Limitation Year would
exceed the Maximum Permissible Amount, such Annual Additions shall be reduced to
the extent necessary to comply with the requirements of this Section 6.3. Any
such reduction shall be made in accordance with the applicable regulations
issued under Section 415 of the Code (hereafter, the "415 Regulations") and the
remainder of this Section 6.3.
(a) Order of Reductions. Should it become necessary to reduce the
Annual Additions to a Participant's Accounts, such reduction
shall be accomplished in the following order:
(i) To the extent permitted under the 415 Regulations, any
Participant Contributions that would otherwise be
allocated to that
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Participant's Participant Contribution Account shall be
returned the Employer and immediately paid by the
Employer to the Participant in cash.
(ii) If any further reduction in Annual Additions is
necessary, any Contributions or forfeitures that would
otherwise be allocated to the Participant's Accounts
shall be reduced.
(b) Reallocation of Contributions or Forfeitures. Any portion of
the Contributions or forfeitures that are reduced under
Paragraph 6.3(a)(ii) shall be reallocated to the Accounts of
the other Participants in the same manner as the initial
allocation was made. Such reallocation shall be made as many
times as is necessary to reallocate the amount reduced under
Paragraph 6.3(a)(ii), but only until the level of Annual
Additions to each Participant's Accounts reaches the Maximum
Permissible Amount.
(c) Suspense Account. If the sum of the Annual Additions for all
Participants for the Limitation Year exceeds the sum of the
Maximum Permissible Amounts for all Participants, the excess
shall be held unallocated in a suspense account. If a suspense
account is in existence at any time during a Limitation Year,
other than the Limitation Year referred to in to the preceding
sentence, all amounts in the suspense account shall be
allocated and reallocated to Participants' Accounts, subject
to the limitations of this Section 6.3, before any
contributions that would constitute Annual Additions may be
made to the Plan for that Limitation Year. For this purpose,
such allocations and reallocations shall be made in the same
manner as forfeitures would be allocated for that Limitation
Year.
(d) Annual Additions to Other Defined Contribution Plans. If a
Participant is a participant under any other Defined
Contribution Plan maintained by the Employer, the total of the
Annual Additions to such Participant's accounts under all such
Defined Contribution Plans shall not exceed the Maximum
Permissible Amount. If it is determined that, as a result of
the limitation set forth in the preceding sentence, the Annual
Additions to a Participant's Accounts under this Plan must be
reduced, such reduction shall be accomplished in accordance
with the provisions of subsection 6.3(a).
(e) Combined Limitation. If a Participant is a participant under a
Defined Benefit Plan maintained by the Employer, the sum of
the Defined Benefit Plan Fraction for a Limitation Year and
the Defined Contribution Plan Fraction for that year shall be
no greater than one (1.0). If it is determined that, as a
result of the limitation set forth in the preceding sentence,
the Annual Additions to a Participant's Accounts under this
Plan
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must be reduced, such reduction shall be accomplished in
accordance with the provisions of subsection 6.3(a).
(f) Definitions. For purposes of this Section 6.3, each of the
following words or phrases shall have the meaning ascribed to
it below:
(i) "Annual Additions" shall mean the total of the following
amounts that are allocated to a Participant's Accounts
(including any similar amounts allocated under a Related
Plan) during any Limitation Year:
(A) Employer Contributions;
(B) Participant Contributions; and
(C) Forfeitures.
For this purpose, any excess amounts applied under
subsection 6.3(c) to reduce future contributions will be
considered Annual Additions for the Limitation Year in
which so applied.
(ii) A Participant's "Compensation" shall include that
Participant's wages, salaries, fees for professional
services, and other amounts received for personal
services actually rendered in the course of employment
with the Employer (including, but not limited to,
commissions paid salesman, compensation for services on
the basis of a percentage of profits, tips, and
bonuses); shall include all Compensation actually paid
or made available to the Participant for an entire
Limitation Year (other than amounts by which a
Participant elects to reduce his Compensation pursuant
to Section 5.2); and shall not include any other items
or amounts paid to or for the benefit of the
Participant.
(iii) A "Defined Benefit Plan" shall mean any Retirement Plan
which is not a Defined Contribution Plan.
(iv) The "Defined Benefit Plan Fraction" shall mean, for any
Limitation Year, a fraction:
(A) The numerator of which is the projected annual
benefit of the Participant, that is, the annual
benefit to which he would be entitled under the
terms of the Defined Benefit Plan on the
assumptions that he continues employment until his
normal retirement date as determined under the
terms
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of the Defined Benefit Plan, that his compensation
continues at the same rate as in effect in the
calendar year under consideration until his normal
retirement date, and that all other relevant
factors used to determine benefits under such
Defined Benefit Plan remain constant as of the
current calendar year for future calendar years,
under all Defined Benefit Plans maintained by the
Employer, determined as of the close of the
Limitation Year, and
(B) The denominator of which is the lesser of
(1) One and one-fourth (1.25) [one (1.0), in the
case of a Key Employee in either a Top-Heavy
Plan failing to provide the minimum benefit
required under Section 416(h)(2)(A) of the
Code or a Super Top-Heavy Plan] times the
projected annual benefit of such Participant
under the Defined Benefit Plans, determined
as of the close of the Limitation Year and
as though the Defined Benefit Plans provided
benefits in the amount of the maximum dollar
limitation allowable under Section
415(b)(1)(A) of the Code, after taking into
account all applicable modifications of that
dollar limitation found in the Code, and
(2) One and four-tenths (1.4) times the
projected annual benefit of such Participant
under the Defined Benefit Plans, determined
as of the close of the Limitation Year and
as though the Defined Benefit Plans provided
benefits in the amount of the maximum
percentage-of-compensation limitation
allowable under Section 415(b)(1)(B) of the
Code, after taking into account all
applicable modifications of that
percentage-of-compensation limitation found
in the Code.
(v) A "Defined Contribution Plan" shall mean a Retirement
Plan which provides for an individual account for each
Participant and for benefits based solely on the amount
contributed to the Participant's accounts and any
income, expenses, gains and losses, and any forfeitures
of accounts of other Participants that may be allocated
to such Participant's accounts.
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(vi) The "Defined Contribution Plan Fraction" shall mean, for
any Limitation Year, a fraction:
(A) The numerator of which is the sum of the Annual
Additions to the Participant's accounts for all
years under all Defined Contribution Plans
maintained by the Employer in that Limitation
Year, and
(B) The denominator of which is the sum for the
Limitation Year and all prior years of the lesser
of:
(1) One and one-fourth (1.25) [one (1.0), in the
case of a Key Employee in either a Top-Heavy
Plan failing to provide the minimum benefit
required under Section 416(h)(2)(A) of the
Code or a Super Top-Heavy Plan] times the
maximum amount of Annual Additions to such
Participant's accounts under the Defined
Contribution Plans which could have been
made in accordance with the dollar
limitation set forth in Section 415(c)(1)(A)
of the Code, after taking into account all
applicable modifications of that dollar
limitation found in the Code, and
(2) One and four-tenths (1.4) times the maximum
amount of Annual Additions to such
Participant's accounts under the Defined
Contribution Plans which could have been
made in accordance with the
percentage-of-compensation limitation set
forth in Section 415(c)(1)(B) of the Code,
after taking into account all applicable
modifications of that percentage-of-
compensation limitation found in the Code.
(vii) The "Limitation Year" shall mean the twelve-consecutive-
month period to be used in determining the Plan's
compliance with Code Section 415 and the regulations
thereunder, which shall be identical to the Plan Year.
(viii) The "Maximum Permissible Amount" shall mean the lesser
of:
(A) $30,000 (or, if greater, 25% of the defined
benefit dollar limitation in effect under Section
415(b)(1)(A) of the Code); or
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(B) 25% of a Participant's Compensation (as defined in
Paragraph 6.3(f)(ii)).
(ix) A "Retirement Plan" shall mean:
(A) Any profit sharing, pension or stock bonus plan
described in Section 401(a) and 501(a) of the
Code;
(B) Any annuity plan or annuity contract described in
Section 403(a) or 403(b) of the Code; and
(C) Any individual retirement account or individual
retirement annuity described in Section 408(a) or
408(b) of the Code.
6.4 Dollar Limitation on Participant Contributions. The Participant
Contributions made on behalf of a Participant (in combination with all similar
contributions made on behalf of that Participant under all other plans,
contracts, or arrangements of the Employer) during a single calendar year (or
other taxable year of the Participant) shall not exceed $7,000, or such higher
amount as may be specified by the Secretary of the Treasury under Section 402(g)
of the Code. Any such Participant Contributions in excess of this limitation
(hereafter referred to as "Excess Deferrals") shall be corrected during either
the same calendar year for which those deferrals were made (as described in
subsection 6.4(a)) or the calendar year following the calendar year for which
those deferrals were made (as described in subsection 6.4(b)).
(a) Correction of Excess Deferrals During Same Calendar Year. A
Participant who has Excess Deferrals during a calendar year
may receive a corrective distribution of such Excess Deferrals
during that same year. Such a corrective distribution may be
made only if each of the following conditions is satisfied:
(i) The Participant must designate the distribution as an
Excess Deferral. The Participant's designation must be
in writing, and the Participant must certify or
otherwise establish to the satisfaction of the Plan
Administrator that the designated amount is an Excess
Deferral. To the extent an Excess Deferral is
attributable solely to Participant Contributions under
this Plan (and similar
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contributions under other plans of the Employer), the
Participant will be deemed to have made such
designation.
(ii) The distribution must be made after the date on which
the Plan receives the Excess Deferral.
(iii) The Plan Administrator must designate the distribution
as a distribution of Excess Deferrals.
The Plan Administrator shall not be obligated to make a
corrective distribution during the same calendar year. Any
Matching Contributions (and the income allocable thereto) that
are attributable to distributed Excess Deferrals shall be
forfeited (even if otherwise nonforfeitable) and reallocated
among the Matching Contribution Accounts of all Participants
in Employer Contributions, in the same manner as forfeitures
would be allocated to such Accounts for that Plan Year.
(b) Correction of Excess Deferrals During Following Calendar Year.
A Participant who has Excess Deferrals during a taxable year,
and who has not received a complete corrective distribution of
such Excess Deferrals under subsection 6.4(a) during that
year, may receive a distribution of any remaining Excess
Deferrals during the following calendar year. Such a
corrective distribution may be made only if the Participant
notifies the Plan Administrator of this Plan (and the plan
administrators of all other plans to which the Excess
Deferrals relate) by the March 1 following the close of the
calendar year for which the Excess Deferrals were made. Any
such notification must be in writing, and the Participant must
certify or otherwise establish to the satisfaction of the Plan
Administrator that the designated amount is an Excess
Deferral. To the extent the Excess Deferrals are attributable
solely to Participant Contributions under this Plan (and
similar contributions under other plans of the Employer) the
Participant shall be deemed to have notified the Plan
Administrator of such Excess Deferrals. Upon receiving such
timely notice, the Plan Administrator shall distribute, not
later than the immediately following April 15, the amount of
the Excess Deferrals allocated to this Plan by the
Participant, together with any income allocable to that
Amount. The Plan Administrator shall allocate income to such
distributed Excess Deferrals in the same manner as other
income is allocated among Participant Accounts under Article X
of the Plan. Income allocable to the period between the close
of the calendar year for which the Excess Deferrals were made
and the date of the corrective distribution (the "Gap Period")
shall be disregarded for this purpose. Any Matching
Contributions (and any income allocable thereto) that are
attributable to distributed Excess Deferrals shall be
forfeited (even if otherwise nonforfeitable) and
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reallocated among the Matching Contribution Accounts of all
Participants in Employer Contributions, in the same manner as
forfeitures would be allocated to such Accounts for that Plan
Year.
6.5 Limitation on Participant Contributions. The Plan's provisions for
Participant Contributions constitute a cash or deferred arrangement intended to
be qualified under Code Section 401(k). Accordingly, these Participant
Contributions must satisfy the Actual Deferral Percentage Test (the "ADP Test")
under Code Section 401(k)(3) for each Plan Year. The ADP Test shall be conducted
in accordance with the following rules:
(a) Actual Deferral Percentage Test. For any Plan Year, the ADP
Test will be satisfied if the Actual Deferral Percentage
("ADP") for the Highly Compensated Employee Group does not
exceed the greater of:
(i) 1.25 times the ADP for the Nonhighly Compensated
Employee Group; or
(ii) The lesser of:
(A) Two times the ADP for the Nonhighly Compensated
Employee Group; and
(B) The ADP for the Nonhighly Compensated Employee
Group plus two percentage points.
(b) Determination of ADP Test. For purposes of determining the
precise manner in which the ADP Test is to be conducted,
including the definition of "Actual Deferral Percentage," the
provisions of Code Section 401(k)(3) and the regulations
promulgated thereunder are incorporated herein by reference
(sometimes referred to as the "401(k) Regulations"). For
purposes of conducting the ADP Test, a Participant's
compensation shall be the Participant's compensation, as
defined in Treasury Regulation Section l.401(k)-1(g)(2)(i),
over the course of the Plan Year. The Plan Administrator shall
maintain records sufficient to demonstrate satisfaction of the
ADP Test for each Plan Year.
(c) Preliminary ADP Test. The Plan Administrator may, from time to
time during the course of a Plan Year, make its best estimate
as to whether the ADP Test will be satisfied for the year. In
doing so, the Plan Administrator may conduct one or more
preliminary ADP Tests based on
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the projected compensation and contribution level of
Participants. If it appears there will be "Excess
Contributions" (as defined in the 401(k) Regulations), the
Plan Administrator may, in its discretion, limit Participant
Contributions in a manner designed to prevent Excess
Contributions from being made, or use a combination of methods
acceptable under the 401(k) Regulations, in order to provide
reasonable assurance that Excess Contributions will be avoided
or corrected during the Plan Year.
(d) Correction of Excess Contributions. Notwithstanding any other
provision of this Plan, if it is determined that Excess
Contributions exist for a Plan Year, such Excess Contributions
shall be corrected within 2 1/2 months after the end of such
Plan Year in order to avoid the imposition of an excise tax
that might otherwise apply under Code Section 4979, and in any
event within 12 months after the close of the Plan Year for
which the contributions were made. The Plan Administrator may,
in its discretion, use either or both of the following
correction methods, as described in the 401(k) Regulations:
(i) Allocation to the Participant Contribution Accounts of
the Non-highly Compensated Employee Group of any
"Qualified Nonelective Contributions" (as defined in the
401(k) Regulations) made by the Employer, in the
Employer's sole discretion; or
(ii) Distribution of Excess Contributions (and any income
allocable thereto) to the appropriate Highly Compensated
Employees.
(e) Treatment of Matching Contributions. If a Matching
Contribution has been made to the Plan with respect to an
amount that constitutes an Excess Contribution, then such
Matching Contribution (and any income allocable thereto) shall
be forfeited (even if otherwise nonforfeitable) and
reallocated to the Matching Contribution Accounts of the
Nonhighly Compensated Employee Group, in the same manner that
forfeitures would be allocated to such Accounts for that Plan
Year.
(f) Allocation of Income. If Excess Contributions are distributed,
any income allocable to the distributed Excess Contributions
shall also be distributed. The Plan Administrator shall
allocate income to such distributed Excess Contributions in
the same manner as other income is allocated among Participant
Accounts under Article X of the Plan. Income allocable to the
period between the close of the Plan Year for which the Excess
Contributions were made and the date of the corrective
distribution (the "Gap Period") shall be disregarded for this
purpose.
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6.6 Limitation on Matching Contributions. The Plan's provisions for
Matching Contributions are subject to the provisions of Code Section 401(m).
Accordingly, these Matching Contributions must satisfy the Actual Contribution
Percentage Test (the "ACP Test") under Code Section 401(m)(2) for each Plan
Year. The ACP Test shall be conducted in accordance with the following rules:
(a) Actual Contribution Percentage Test. For any Plan Year, the
ACP Test will be satisfied if the Actual Contribution
Percentage ("ACP") for the Highly Compensated Employee Group
does not exceed the greater of:
(i) 1.25 times the ACP for the Nonhighly Compensated
Employee Group; or
(ii) The lesser of:
(A) Two times the ACP for the Nonhighly Compensated
Employee Group; and
(B) The ACP for the Nonhighly Compensated Employee
Group plus two percentage points.
(b) Determination of ACP Test. For purposes of determining the
precise manner in which the ACP Test is to be conducted,
including the definition of "Actual Contribution Percentage,"
the provisions of Code Section 401(m) and the regulations
promulgated thereunder are incorporated herein by reference
(sometimes referred to as the "401(m) Regulations"). For
purposes of conducting the ACP Test, a Participant's
compensation shall be the Participant's compensation, as
defined in Treasury Regulation Section 1.401(m)-1(f)(2), over
the course of the Plan Year. The Plan Administrator shall
maintain records sufficient to demonstrate satisfaction of the
ACP Test for each Plan Year.
(c) Preliminary ACP Test. The Plan Administrator may, from time to
time during the course of a Plan Year, make its best estimate
as to whether the ACP Test will be satisfied for the year. In
doing so, the Plan Administrator may conduct one or more
preliminary ACP Tests based on the projected compensation and
contribution level of Participants. If it appears there will
be "Excess Aggregate Contributions" (as defined in the 401(m)
Regulations), the Plan Administrator may, in its discretion,
limit Matching Contributions in a manner designed to prevent
Excess Aggregate
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Contributions from being made, or use a combination of methods
acceptable under the 401(m) Regulations, in order to provide
reasonable assurance that Excess Aggregate Contributions will
be avoided or be corrected during the Plan Year.
(d) Correction of Excess Aggregate Contributions. Notwithstanding
any other provision of this Plan, if it is determined that
Excess Aggregate Contributions exist for a Plan Year, such
Excess Aggregate Contributions shall be corrected within 2
1/2 months after the end of such Plan Year in order to avoid
the imposition of an excise tax that might otherwise apply
under Code Section 4979, and in any event within 12 months
after the close of the Plan Year for which the contributions
were made. The Plan Administrator may, in its discretion, use
any one or more of the following correction methods, as
described in the 401(m) Regulations:
(i) Allocation to the Matching Contribution Accounts of the
Nonhighly Compensated Employee Group of any "Qualified
Nonelective Contributions" (as defined in the 401(m)
Regulations) made by the Employer, in the Employer's
sole discretion;
(ii) Distribution of any vested Excess Aggregate
Contributions (and any income allocable thereto) to the
appropriate Highly Compensated Employees; or
(iii) Forfeiture of any non-vested Excess Aggregate
Contributions (and any income allocable thereto) made
during the Plan Year on behalf of the Highly Compensated
Employee Group.
(e) Allocation of Income. If Excess Aggregate Contributions are
distributed, any income allocable to the distributed Excess
Aggregate Contributions shall also be distributed. The Plan
Administrator shall allocate income to such distributed Excess
Contributions in the same manner that other income is
allocated among Matching Contribution Accounts under Article X
of the Plan. Income allocable to the period between the close
of the Plan Year for which the Excess Aggregate Contributions
were made and the date of the corrective distribution (the
"Gap Period") shall be disregarded for this purpose.
6.7 Multiple Use Limitation. The Plan Administrator shall ensure that
multiple use of the "Alternative Limitation" does not occur, and if it does,
that it is corrected in accordance with Treasury Regulation Section 1.401(m)-2.
The term "Alternative Limitation" has the
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meaning ascribed to such term under Regulation Section 1.401(m)-2(b)(2) and
refers to the alternatives for satisfying the ADP and ACP Tests provided in
Paragraphs 6.5(a)(ii) and 6.6(a)(ii), respectively. If multiple use of the
Alternative Limitation occurs, it shall be corrected by reducing the ACP of the
Highly Compensated Employee Group in the manner described in Regulation Section
1.401(m)-1(e)(2), so that there is no multiple use of the Alternative
Limitation. Instead of making this reduction, the Plan Administrator may
eliminate multiple use of the Alternative Limitation by allocating Qualified
Nonelective Contributions, if any, in accordance with Regulation Section
1.401(m)-1(b)(5).
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ARTICLE VII
DEPOSIT AND INVESTMENT OF CONTRIBUTIONS;
INVESTMENT ELECTIONS
7.1 Deposit of Employer and Matching Contributions. Upon receipt of
Employer or Matching Contributions, the Trustee shall immediately deposit such
Contributions in the Norwest Stable Return Fund.
7.2 Deposit of Participant Contributions. Upon receipt of Participant
Contributions, the Trustee shall immediately deposit such contributions in one
or more of the Funds specified in Section 8.2, as directed by the Employer;
provided that the Employer's directions to the Trustee shall be based on the
investment election of each Participant, made in accordance with the provisions
of Section 7.3.
7.3 Investment Election for Participant Contributions at Time of Initial
Participation. Each Participant in Participant Contributions shall, upon
electing to become a Participant under the Plan pursuant to Section 3.2 and on a
form suitable to the Plan Administrator, make an election as to the manner in
which Participant Contributions made by the Employer on his behalf are to be
invested by the Trustee. A Participant's investment election shall specify the
percentage of his Participant Contributions to be invested in one or more of the
Funds described in Section 8.2. Except as provided in Section 7.4, the
investment election initially made by a Participant shall remain in effect until
he ceases to be a Participant under the Plan.
7.4 Changes in Investment Election. A Participant in Participant
Contributions may change his investment election for Participant Contributions
by filing with the Plan Administrator a written election directing a change in
his investment election or by utilizing any other
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administrative procedures established by the Plan Administrator. Any such change
shall apply to:
(a) Participant Contributions made by the Employer on the
Participant's behalf after the date the election becomes
effective;
(b) All amounts in the Participant's Participant Contribution
Account on the date the election becomes effective; and
(c) All amounts in the Participant's Rollover Account, if any.
Amounts already invested in the Transamerica Life Insurance Fund may be invested
in another Fund only in connection with a Participant's termination of life
insurance coverage under the Plan. In no event may a Participant have any
portion of his Rollover Contribution Account or any amount already in his
Participant Contribution Account on the date the election becomes effective (to
the extent not previously used to purchase life insurance) used to purchase life
insurance.
In no event may a Participant change his investment election more often
than once in any calendar quarter. A change in an investment election will be
implemented as soon as administratively practicable after it is received by the
Plan Administrator.
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ARTICLE VIII
ESTABLISHMENT OF FUNDS AND PARTICIPANTS' ACCOUNTS
8.1 Establishment of Accounts. Under the circumstances described below,
the Plan Administrator shall establish one or more of the following Accounts in
the name of each Participant:
(a) In the case of a Participant on whose behalf the Employer
makes an Employer Contribution under subsection 5.1(a), an
"Employer Contribution Account." This Account shall reflect
the amount attributable to such Employer Contributions made on
such Participant's behalf.
(b) In the case of a Participant on whose behalf the Employer
makes a Matching Contribution under subsection 5.1(b), a
"Matching Contribution Account." This Account shall reflect
the amount attributable to such Matching Contributions made on
such Participant's behalf.
(c) In the case of a Participant who elects any Compensation
reduction under Section 5.2, a "Participant Contribution
Account." This Account shall reflect the amount attributable
to Participant Contributions made on such Participant's
behalf.
(d) In the case of a Participant who makes a Rollover Contribution
or an Elective Transfer under Section 5.3, a "Rollover
Contribution Account." This Account shall reflect the amount
attributable to such Rollover Contributions and Elective
Transfers made by such Participant.
(e) In the case of a Participant who made after-tax contributions
to this Plan prior to the Plan's January 1, 1987, restatement,
an "After-Tax Contribution Account." This Account shall
reflect the amount attributable to such after-tax
contributions made by such Participant.
(f) In the case of a Participant who was a participant in the
former Sundstrand Corporation Thrift and Investment Plan
("TIP") on September 30, 1983, a "Thrift and Investment Plan
Account." This Account shall reflect the amount transferred to
this Plan from the TIP, to the extent not yet withdrawn by the
Participant.
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8.2 Establishment of Funds. The Trustee, at the direction of the Plan
Administrator, shall establish the following Funds under the Trust Agreement:
(a) The Norwest Stable Return Fund;
(b) The Vanguard/Wellington Fund;
(c) The Fidelity Equity-Income Fund;
(d) The Fidelity Growth Company Fund;
(e) The Vanguard International Growth Portfolio; and
(f) The Transamerica Life Insurance Fund.
8.3 Income on Funds. Any dividends, interest, distributions, or other
income received by the Trustee with respect to any of the Funds listed in
Section 8.2 shall be reinvested by the Trustee in the Fund in respect of which
such income was received.
8.4 Record of Information. With respect to each payroll period in which
the Employer delivers contributions to the Trustee, the Employer shall also
prepare and deliver the following information with respect to each Participant:
(a) The amount of such contribution which represents an Employer
Contribution;
(b) The amount of such contribution which represents a Matching
Contribution;
(c) The amount of such contribution which represents a Participant
Contribution; and
(d) The manner in which such contribution is to be deposited and
invested by the Trustee in accordance with the provisions of
Article VII.
8.5 Account Balances. For all purposes of the Plan, the balance of each
Account of a Participant as of any date shall be the balance of such Account
after all credits and charges thereto for and as of such date have been made, as
provided in the Plan and the Trust Agreement.
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ARTICLE VIIIA
LIFE INSURANCE
8A.1 Purchase of Policies. Upon written instructions from the Plan
Administrator, the Trustee shall apply any Participant Contributions designated
by a Participant for investment in the Transamerica Life Insurance Fund toward
the purchase, from a legal reserve life insurance company or companies
authorized to do business in any one of the jurisdictions in which the Employer
employs Participants, of a life insurance policy or policies on the life of such
Participant, on the life of such Participant's spouse, and/or on the life of
such Participant's child(ren), as designated by the Participant. Any such policy
or policies shall be subject to the provisions of this Article VIIIA.
8A.2 Policy Terms. Limitations as to coverage, insurability, premium
rates, convertability and other matters shall be subject to the provisions of
the policy issued by, or the underwriting guidelines of, the insurance company
or companies from which such insurance coverage is purchased. All such policies
shall designate the Trustee as the sole owner, with exclusive power to exercise
all rights, privileges, options and elections granted or permitted thereunder;
provided, however, that the exercise of such power by the Trustee shall be
subject to the right of the Plan Administrator to direct the Trustee with
respect thereto or to require the Trustee to obtain its approval before
exercising any such power. All such directions by the Plan Administrator shall
be made on a uniform, nondiscriminatory basis.
8A.3 Payment of Premiums. The Trustee, upon written instructions from the
Plan Administrator, shall pay each premium on any policy or policies held for
the benefit of a Participant and shall charge such premium payment to the
Transamerica Life Insurance Fund.
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The Trustee shall be under no obligation to pay any premium, however, unless the
Plan Administrator acknowledges in writing that there are funds available from
the interest of such Participant in the Transamerica Life Insurance Fund to make
such payment.
8A.4 Overriding Conditions and Limitations. Notwithstanding any other
provision of the Plan, at no time shall the aggregate of the premiums paid under
the Trust for any ordinary life insurance policy or policies (within the meaning
of Internal Revenue Service Revenue Rulings 54-51 and 61-164) on the life of any
Participant, such Participant's spouse, and such Participant's child(ren) equal
or exceed one-half of the Participant's Participant Contributions, nor at any
time shall the aggregate of the premiums paid under the Trust for any policy or
policies on the life of any Participant, such Participant's spouse, and such
Participant's child(ren) that provide pure life insurance protection equal or
exceed one-fourth of the Participant's Participant Contributions. In order to
comply with this limitation, the Plan Administrator shall in writing direct the
Trustee to take such action with respect to any such policy or policies held by
it as the Plan Administrator shall deem advisable, including, but not limited
to, conversion to paid-up basis or partial or total surrender of such policy or
policies or any part or parts thereof. At all times, each such policy on the
life of any Participant, such Participant's spouse, and/or such Participant's
child(ren) shall be owned by the Trustee as part of the Transamerica Life
Insurance Fund.
8A.5 Designation of Beneficiary; Death Benefits.
(a) Receipt of Policy Proceeds. Subject to the provisions of
Section 4.2, the Beneficiary shall receive from any life
insurance policy purchased under the Plan any and all proceeds
paid, excluding any cash value, and the Trustee shall be the
beneficiary designated to receive any cash value payable from
any life insurance policy or policies purchased under the
Plan.
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(b) Death of Participant. In the event of the death of a
Participant on whose life an insurance policy is held under
the Trust, the Trustee shall receive the cash value of such
policy and shall as soon as practical thereafter pay such
amount in accordance with the terms of the Beneficiary
designation form filed by such Participant with the Plan
Administrator pursuant to Section 4.1 or, failing any
effective Beneficiary designation, to the Beneficiary
determined under Section 4.2.
The ownership of any policy held by the Trust on the life of a
Participant's spouse and/or child(ren) at the time of the
Participant's death shall be assigned by the Trustee to the
Beneficiary or Beneficiaries designated pursuant to Section
4.1 to receive the Participant's interest in the Plan or,
failing any effective Beneficiary designation, to the
Beneficiary determined under Section 4.2.
(c) Death of Participant's Spouse or Child. In the event of the
death of a Participant's spouse or child on whose life an
insurance policy is held under the Trust, the Trustee shall
receive the proceeds of such policy and shall, at the
Participant's direction, either (i) invest all of such
proceeds, including any cash value and interest accruing since
the death of the spouse or child (hereafter, "post-death
interest"), in one or more of the Funds specified in Section
8.2, or (ii) pay all or part of such proceeds, except any cash
value and post-death interest, to the Participant and invest
such cash value and post-death interest in one or more of the
Funds specified in Section 8.2. In the event the Participant
has not provided the Trustee with such direction, the Trustee
shall invest all of such proceeds, including any cash value
and post-death interest, in the Norwest Stable Return Fund.
By filing a written election with the Plan Administrator, in
accordance with the provisions of Section 7.4, a Participant
may direct the investment of all or any portion of the policy
proceeds retained in the Plan, including any cash value and
post-death interest, in one or more of the Funds specified in
Section 8.2. Notwithstanding anything herein to the contrary,
in no event may a Participant elect to have such proceeds, or
any gains arising therefrom, used to purchase life insurance
under the Plan.
The provisions of the Plan relating to distributions upon a
Participant's termination of participation in the Plan, or
upon the Plan's termination, shall apply (to the extent
retained in the Plan) to the proceeds from a policy on the
life of a Participant's spouse or child(ren) and to all gains
and losses arising therefrom.
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8A.6 Other Distributions; Vesting.
(a) On the termination of a Participant's employment by the
Employer for any reason other than death, the former
Participant shall have a vested interest in the cash surrender
value, if any, of each policy on his life, the life of his
spouse, and/or the life of his child(ren), then held under the
Trust Agreement.
(b) Distribution of the vested interest of a former Participant
determined under subsection 8A.6(a) shall be made in the form
of an insurance policy or policies delivered to such former
Participant as soon as reasonably practicable; provided, that,
at the election of the Participant and upon the Plan
Administrator's written instructions to the Trustee, such
interest shall be distributed to the former Participant in
cash.
(c) To implement the provisions of this Article VIIIA, the Plan
Administrator, shall in writing direct the Trustee to take
such action with respect to any policy or policies held
hereunder as the Plan Administrator shall deem advisable,
including, but not limited to, conversion to a paid-up basis
or surrender of the policy or policies or any part or parts
thereof. In no event may any policy or policies, or any
portion of the value thereof, be retained in the Trust after a
former Participant's Settlement Date, or after any termination
of the Plan, for the purpose of continuing the life insurance
protection for such former Participant.
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ARTICLE IX
LOANS
9.1 Loans to Participants. Subject to the provisions of this Article IX,
an Active Participant may, by filing a written loan application with the Plan
Administrator, borrow money from the Plan which is attributable to (a) his
Participant Contributions, and (b) his Rollover Contributions and Elective
Transfers. The Plan Administrator shall approve the loan application of an
Active Participant if the loan satisfies the requirements of this Article IX and
if the loan complies with such administrative rules and procedures as the Plan
Administrator may adopt in writing.
9.2 Limitations. The following restrictions, limitations and requirements
shall be observed by the Plan Administrator in approving or denying any loan
application:
(a) No more than two loans may be approved with respect to any
Active Participant in any Plan Year;
(b) No additional loan may be made if at the time such loan is to
be made the Active Participant applying for such loan has two
loans under the Plan outstanding (a loan which is in default
shall be considered an outstanding loan);
(c) The amount that an Active Participant may borrow is limited to
the amount determined under paragraph (i) or (ii) of this
subsection 9.1(c), whichever amount is least:
(i) Fifty percent (50%) of the total vested value of the
Active Participant's Participant Contribution and
Rollover Accounts, or
(ii) $50,000, reduced by the excess (if any) of:
(A) The highest outstanding balance of loans from the
Plan to the Active Participant during the one-year
period ending on the day before the date a new
loan is made, over
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(B) The outstanding balance of loans from the Plan to
the Active Participant on the date a new loan is
made;
(d) Loans may be made only for a period of months, not to exceed
60 months, as elected by the Participant; provided that no
loan may be made for a period which would extend beyond the
date on which the recipient of the loan ceases to be an Active
Participant; and
(e) No loan may be made for less than $500.
For purposes of subsection 9.2(c), the value of an Active Participant's Accounts
shall be determined as of the Revaluation Date coincident with the date on which
the Active Participant files his loan application. In determining the value of
an Active Participant's Accounts, amounts invested in the Transamerica Life
Insurance Fund shall not be taken into consideration.
9.3 Interest Rate. The interest rate to be paid by an Active Participant
on a new loan shall be the prime lending rate published by the Wall Street
Journal on the business day next preceding the day on which the application for
the loan is received by the Plan Administrator, plus 1-1/2 percentage points.
9.4 Repayment. Interest and principal on a loan shall be repaid by an
Active Participant in equal installments through payroll deductions over the
period of the loan. The foregoing notwithstanding, an Active Participant may at
any time, by a single lump sum, repay in full any loan outstanding to him
(including any interest accrued but unpaid as of such date).
9.5 Documentation. Each loan must be evidenced by a written loan
agreement, signed by the Active Participant, in which he personally guarantees
the repayment of the loan and secures the loan with fifty percent (50%) of his
vested interest in the Plan. The Active Participant must execute a payroll
deduction authorization on such form as is prescribed by the Plan Administrator,
which authorization shall be irrevocable for the period of the loan.
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9.6 Security; Collection. Each loan from the Plan to an Active Participant
shall be secured by fifty percent (50%) of the Active Participant's vested
interest in the Plan. Any of the following events shall constitute a default of
a loan granted pursuant to this Article IX:
(a) The loan recipient's ceasing to be an Active Participant;
(b) The termination of the Plan;
(c) The failure by the recipient of the loan to make any payment
required under this Article IX within 30 days of the date such
payment is due;
(d) The filing for relief, by or against the recipient of the
loan, under the United States Bankruptcy Code, which
proceeding is not dismissed within 30 days of filing; or
(e) The past or future making of a false representation or
warranty by the recipient of the loan in connection with any
loan or loans to him under the Plan.
If an event of default described in subsection (a) or (b) of this Section 9.6
occurs with respect to an Active Participant's loan, the loan shall become
immediately due and payable and shall be repaid out of the Active Participant's
interest in the Plan by reducing his Account balances accordingly. The foregoing
right of set-off shall not be construed as authorizing the Plan Administrator to
defer collection of a loan until the termination of an Active Participant's
employment, but merely provides a method of ensuring payment by such time.
If an event of default described in subsection (d) or (e) of this Section
9.6 occurs with respect to an Active Participant's loan, the loan shall be
immediately due and payable, but shall not be satisfied out of the Active
Participant's interest in the Plan prior to his attainment of age 59 1/2 or
entitlement to a distribution under the terms of the Plan. If an event of
default described in subsection (c) of this Section 9.6 occurs with respect to
an Active Participant's loan, the loan shall be immediately due and payable, and
pursuant to Section 72(p) of the Code, a deemed
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distribution equal to any unpaid principal and interest shall be reported to the
Internal Revenue Service; provided, however, that the loan shall not be
satisfied out of the Active Participant's interest in the Plan prior to his
attainment of age 59 1/2 or entitlement to a distribution under the terms of the
Plan. Nothing in this Section 9.6 shall be construed to relieve a borrower from
his obligation to make timely payments as required by Section 9.4, Section 9.5,
and the written loan agreement.
9.7 Additional Information. In addition to the limitations contained in
Section 9.2, the Plan Administrator may further limit the amount lent to any
Active Participant in order to maintain a reserve chargeable against such
Participant's interest in the Plan for income taxes which would have to be
withheld by the Trustee if the loan were to become a deemed distribution to such
Participant under Code Section 72(p). In the event the loan becomes a deemed
distribution to the Active Participant, any such taxes required to be withheld
by the Trustee (whether or not such a reserve has been created) shall be charged
to and shall reduce such Participant's interest in the Plan, to the extent
possible, and any excess shall be treated as an administrative expense of the
Plan which shall be reimbursed by such Participant.
9.8 Accounting. Upon approving a loan to an Active Participant, the Plan
Administrator shall direct the Trustee to draw the amount of the loan from the
Funds in which the Participant's Participant Contribution and Rollover Accounts
are invested, on a pro rata basis; provided, however, that no amount shall be
drawn from the Participant's investment in the Transamerica Life Insurance Fund,
if any.
An Active Participant's payments of principal and interest on a loan made
under this Article IX shall be reinvested by the Trustee in accordance with the
Active Participant's
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investment election for his Participant Contribution and Rollover Accounts then
currently in effect; provided, however, that no payments under this provision
shall be invested in the Transamerica Life Insurance Fund. The Trustee shall
make the appropriate credits and charges to the Funds involved in such payments
of principal and interest.
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ARTICLE X
VALUATION OF ACCOUNTS
10.1 Revaluation of Participant's Interest. As of each Revaluation Date,
the Plan Administrator shall adjust each separate Account of each Participant,
each former Participant, and each Beneficiary to reflect any increase or
decrease in net worth of the Funds since the immediately preceding Revaluation
Date. Such adjustment shall be done in the following manner:
(a) The Trustee shall revalue all of the assets of the Funds at
fair market value, provided that the Transamerica Life
Insurance Fund shall be valued at the cash value of the life
insurance contract(s). In determining the fair market value,
the following rules shall apply:
(i) All transactions involving the purchase or sale of
investments, which have been executed but for which
settlement has not been made, on or before the
Revaluation Date, shall be treated as through settlement
had been made.
(ii) Assets which are regularly traded on established markets
shall be valued at the last sale price on the
Revaluation Date, or, if no sale price is quoted on such
Revaluation Date, then at the bid price last quoted on
or prior to the close of business on such date.
(iii) All other assets of the Trust Fund shall be valued in
accordance with usual valuation practices.
(b) The Plan Administrator shall then, on the basis of the
valuation provided under subsection 10.1(a) and after making
appropriate adjustments for the amount of any contributions,
distributions, or withdrawals since the immediately preceding
Revaluation Date, ascertain the net increase or decrease in
net worth of the Funds attributable to net earnings and all
gains and losses, both realized and unrealized, since the
immediately preceding Revaluation Date.
(c) The Plan Administrator shall then allocate the net increase or
decrease in the net worth of the Funds as thus determined
among all Participants,
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former Participants, and Beneficiaries who have an interest in
such Funds, separately with respect to each of such Funds, in
the ratio that the balance of each separate Account of each
such Participant, and of the distribution account of each such
former Participant or Beneficiary, on such Revaluation Date
bears to the aggregate of the balances of all such Accounts on
such Revaluation Date, and shall credit or charge, as the case
may be, each such Account with the amount of its allocated
share; provided that the interest of each Participant, former
Participant, and Beneficiary in the Transamerica Life
Insurance Fund shall be equal to the cash value of the life
insurance contract(s) held under such Fund for the benefit of
such Participant, former Participant, or Beneficiary.
(d) Finally, the Plan Administrator shall credit to each Account
of each Participant, in accordance with the provisions of
Article V, his contributions since the preceding Revaluation
Date, shall debit each account of each Participant with the
amount of distributions made therefrom since the preceding
Revaluation Date, and shall make such other adjustments to
each Account of each Participant as are necessary to reflect a
Participant's change in investment election with respect to
contributions previously credited to the Participant's
Accounts, as provided in Section 7.4.
10.2 Investment Fund Accounting. The Employer or Recordkeeper shall
maintain records for each Participant's Participant Contribution Account,
Rollover Contribution Account, After-Tax Contribution Account, and Thrift and
Investment Plan Account, if any, that reflect the value of each Participant's
share in the Funds.
10.3 Finality of Determinations. The Trustee shall have exclusive
responsibility for determining the net income, liabilities and value of the
assets of the Funds. The Plan Administrator shall have exclusive responsibility
for determining the balance of each Account maintained under the Plan. The
Trustee's and the Plan Administrator's determinations shall be conclusive upon
the Employer and all Participants, former Participants, and Beneficiaries under
the Plan.
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10.4 Notification. As soon as reasonably possible after the end of each
calendar quarter, the Plan Administrator shall notify each Participant, former
Participant, or Beneficiary of the balance of his separate Accounts as of the
last day of such calendar quarter.
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ARTICLE XI
WITHDRAWALS WHILE EMPLOYED
11.1 Employer and Matching Contribution Accounts. Except as provided in
Section 11.4, a Participant who remains employed by the Employer may not
withdraw any portion of his Employer or Matching Contribution Account.
11.2 Participant Contribution Account. Except as provided in Section 11.4,
a Participant who remains employed by the Employer may withdraw amounts from his
Participant Contribution Account only for reasons of financial hardship
(hereafter referred to as a "Hardship Withdrawal"), as described in this Section
11.2.
(a) Financial Hardship. A withdrawal shall be for financial
hardship only if it is made on account of an immediate and
heavy financial need of the Participant and is necessary to
satisfy that financial need.
(b) Immediate and Heavy Financial Need. A withdrawal will be
considered to be made on account of a Participant's immediate
and heavy financial need only if the distribution is for:
(i) Expenses for medical care described in Code Section
213(d) either previously incurred by the Participant or
his spouse or dependents (as defined in Code Section
152) or necessary for these persons to obtain such
medical care;
(ii) Costs directly related to the purchase of a principal
residence for the Participant (but not to pay mortgage
payments);
(iii) Payment of tuition and related educational fees,
including room and board, for the next 12 months of
post-secondary education for the Participant or his
spouse, children, or dependents (as defined in Code
Section 152); or
(iv) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure
on the mortgage on that principal residence.
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(c) Distribution Necessary to Satisfy Hardship. A distribution
will be treated as necessary to satisfy a Participant's
financial need only if:
(i) The distribution is not in excess of the amount required
to relieve the immediate and heavy financial need,
including any amounts necessary to pay any federal,
state, or local income taxes or penalties reasonably
anticipated to result from the distribution; and
(ii) The Participant cannot relieve that need from other
resources reasonably available to him, including any
assets of the Participant's spouse and minor children
that are reasonably available to him (but excluding
property held for the Participant's child under an
irrevocable trust or the Uniform Gifts to Minors Act).
(d) Representations by Participant. Absent actual knowledge to the
contrary, the Plan Administrator shall treat a Participant as
satisfying the requirements of subsection 11.2(c) if the
Participant represents, in writing, that his financial need
cannot reasonably be relieved through any of the following:
(i) Reimbursement or compensation by insurance or otherwise;
(ii) Liquidation of the Participant's assets;
(iii) Cessation of Participant Contributions;
(iv) Other distributions or nontaxable (at the time of the
loan) loans from plans maintained by the Employer or by
any other employer; or
(v) Borrowing from commercial sources on reasonable
commercial terms in an amount sufficient to satisfy the
need.
For purposes of this subsection 11.2(d), a need cannot
reasonably be relieved by one of the actions listed above if
the effect would be to increase the amount of the need.
(e) Source of Hardship Withdrawal. In no event shall a Hardship
Withdrawal be permitted with respect to amounts other than the
portion of a Participant's Participant Contribution Account
consisting of:
(i) Participant Contributions, regardless of when made,
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(ii) Qualified Nonelective Contributions, regardless of when
made, and
(iii) Income allocable to both Participant and Qualified
Nonelective Contributions, to the extent such income was
credited to the Participant's Participant Contribution
Account as of December 31, 1988.
(f) Application for Hardship Withdrawal. A Participant who wishes
to receive a Hardship Withdrawal shall submit a written
request therefor to the Plan Administrator, on a form
acceptable to the Plan Administrator, and in accordance with
any rules and procedures established by the Plan
Administrator. The Plan Administrator, acting in a uniform
nondiscriminatory manner, shall approve any Hardship
Withdrawal request which meets the requirements described in
this Section 11.2, and shall deny all other Hardship
Withdrawal requests. Hardship withdrawals so approved shall be
made as soon as administratively practicable.
Notwithstanding anything to the contrary in this Section 11.2, an "alternate
payee," as defined in Section 12.7, shall be eligible to make hardship
withdrawals in accordance with the provisions of this Section 11.2; provided,
however, that the amount available for withdrawal shall be the amount payable to
such alternate payee under Section 12.7.
11.3 Rollover, After-Tax, and Thrift and Investment Plan Accounts. A
Participant who remains employed by the Employer may withdraw all or any portion
of his Rollover, After-Tax, or Thrift and Investment Plan Account by submitting
a written request therefor to the Plan Administrator, on a form acceptable to
the Plan Administrator. Any such form shall specify the Account or Accounts from
which the withdrawal is to be made. The withdrawal shall be drawn pro rata from
each of the Funds in which that Account or those Accounts are invested, in
accordance with the Participant's investment election then in effect under
Article VII. The withdrawal shall be effected as soon as administratively
feasible after the Plan Administrator's receipt of the request form.
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11.4 Attainment of Age 59 1/2 or Disability. Notwithstanding any other
provision of this Article XI, a Participant who remains employed by the Employer
may withdraw all or any portion of his vested Plan benefit upon attaining age 59
1/2 or becoming disabled. For this purpose, a Participant shall be "Disabled"
if, in the opinion of the Plan Administrator, his condition is described in
Section 401(k)(2)(B)(i)(I) of the Code. A Participant may make a withdrawal
under this Section 11.4 by submitting a written request therefor to the Plan
Administrator, on a form acceptable to the Plan Administrator, and in accordance
with any rules and procedures established by the Plan Administrator. Any such
form shall specify the Account or Accounts from which the withdrawal is to be
made. The withdrawal shall be drawn pro rata from each of the Funds in which
that Account or those Accounts are invested, in accordance with the
Participant's investment election then in effect under Article VII.
11.5 Form of Payment. All amounts withdrawn under this Article XI shall be
paid to the Participant in cash by check.
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ARTICLE XII
DISTRIBUTION ON TERMINATION OF EMPLOYMENT
12.1 Termination of Participation. Each Participant shall cease to be a
Participant under the Plan on the date such Participant's employment with the
Employer is terminated for any reason, including layoff (in excess of one year),
Disability, or death.
12.2 Vesting
(a) The interest of a Participant in his Employer and Matching
Contribution Accounts shall vest as follows:
(i) Upon his termination of employment at or after his
Normal Retirement Date, one hundred percent (100%),
(ii) Upon his death or Disability, one hundred percent
(100%), or
(iii) Upon any other termination of employment, in accordance
with the following schedule:
<TABLE>
<CAPTION>
Years of Service* Non forfeitable Percentage
----------------- --------------------------
<S> <C>
Date Employee is hired 20
1 40
2 60
3 80
4 or more 100
</TABLE>
(b) The interest of a Participant in any Account other than his
Employer or Matching Contribution Account shall at all times
be one hundred percent (100%) vested and not subject to
forfeiture.
(c) On the Plan's termination or the Employer's complete
discontinuance of contributions, each Participant shall become
one hundred percent (100%) vested in his Employer and Matching
Contribution Accounts.
- ---------------------
* A Participant's nonforfeitable percentage shall be calculated to the
nearest one thousandth of one percent, based on the number of completed years
and days of Service.
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12.3 Forfeitures. On the termination of a Participant's employment with
the Employer for any reason other than retirement on or after his 65th birthday,
death, or Disability, the Plan Administrator shall notify the Trustee in writing
of the termination and shall direct the Trustee to make payment of the
Participant's Participant Contribution Account, Rollover Account, After-Tax
Contribution Account, and Thrift and Investment Plan Account, if any, and the
vested portion of his Employer and Matching Contribution Accounts, as of the
Revaluation Date coincident with his date of termination of employment, in a
method provided under Section 12.4. The vested portion of a Participant's
Employer and Matching Contribution Accounts shall be determined in accordance
with Section 12.2. The nonvested portion, if any, of his Employer and Matching
Contribution Accounts shall be retained in such Accounts until a sufficient
period has elapsed to determine whether he will be reemployed before incurring a
one-year Break in Service. If he is reemployed before incurring a one-year Break
in Service, his Employer and Matching Contribution Accounts will continue to
vest. If he incurs a one-year Break in Service, the non-vested portion of such
Accounts shall be deemed a forfeiture and used to reduce the Employer and
Matching Contributions of the Employer for the Plan Year in which the
Participant incurs such one-year Break in Service. If a Participant is rehired
by the Employer after incurring a one-year Break in Service but before incurring
five consecutive one-year Breaks in Service, any portion of his Employer and
Matching Contribution Accounts that was forfeited on his earlier termination of
employment shall be restored to him. Such restoration shall be effected through
forfeitures arising during the year of the Participant's reemployment and, if
such forfeitures are insufficient, additional Employer Contributions. On such
Participant's subsequent termination of employment before becoming fully vested
in his Employer and
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Matching Contribution Accounts, the portion of his Employer and Matching
Contribution Accounts distributable on such subsequent termination of employment
shall be calculated as follows:
(a) The amount distributed to the Participant from his Employer
and Matching Contribution Accounts on his earlier termination
of employment shall be added to his Employer and Matching
Contribution Accounts at such time;
(b) The amount determined under subsection 12.3(a) shall be
multiplied by the Participant's vested percentage as of the
date of his subsequent termination of employment, as
determined under Section 12.2; and
(c) The amount distributed to the Participant on his earlier
termination of employment shall be deducted from the product
calculated under subsection 12.3(b) to determine the amount
distributable on his subsequent termination of employment.
12.4 Distribution on Termination of Employment. On a Participant's
termination of employment with the Employer for any reason described in Code
Section 401(k)(2)(B)(i)(I), the Plan Administrator shall direct the Trustee to
distribute to that Participant or his Beneficiary the vested portion of the
Participant's Accounts (as determined under Section 12.2), in accordance with
the provisions of this Section 12.4.
(a) Distribution to Participants. On a Participant's termination
of employment with the Employer for any reason other than the
Participant's death, the Participant may elect to receive the
vested portion of his Accounts in either of the following
forms:
(i) A single lump sum, payable within a reasonable time
after the 120th day following the Plan Administrator's
receipt of the Participant's election, or
(ii) A series of installment payments over a fixed period of
time that is not less than two (2) years nor more than
the joint life expectancy of the Participant and his
Beneficiary. For this purpose, life expectancies shall
be determined under Tables V and VI of Treasury
Regulation Section 1.72-9 (or such other sources as may
be required for use under Code Section 401(a)(9) and the
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regulations promulgated thereunder) and shall not be
recalculated in years following the initial
determination. The amount of the first installment
payment shall be determined by multiplying the value of
the total vested portion of the Participant's Accounts
as of the Revaluation Date coincident with the date as
of which the installment is payable by a fraction, the
numerator of which is one (1) and the denominator of
which is the total number of installment payments. The
amount of each subsequent installment payment shall be
determined by multiplying the value of the total vested
portion of the Participant's Accounts as of the date as
of which the installment is payable by a fraction, the
numerator of which is one (1) and the denominator of
which is the remaining number of installment payments.
Such installment payments shall be made on a quarterly,
semi-annual, or annual basis, as elected by the
Participant. The first installment payment shall be made
within a reasonable time after the 120th day following
the Plan Administrator's receipt of the Participant's
election.
(b) Distribution to Beneficiaries. On a Participant's termination
of employment with the Employer by reason of the Participant's
death, the Participant's designated Beneficiary(ies) may elect
to receive a distribution of the vested portion of the
Participant's Accounts in either of the following forms:
(i) A single lump sum, payable within a reasonable time
after the Participant's death, or
(ii) A series of installment payments over a fixed period of
time that is not less than two (2) years nor more than
five (5) years; provided, however, the period of time
over which the series of installment payments is paid
shall not exceed the Beneficiary's life expectancy. For
this purpose, life expectancy shall be determined under
Table V of the Treasury Regulation Section 1.72-9 (or
such other sources as may be required for use under Code
Section 401(a)(9) and the regulations promulgated
thereunder) and shall not be recalculated in years
following the initial determination. The amount of the
first installment payment shall be determined by
multiplying the value of the total vested portion of the
Participant's Accounts as of the Revaluation Date
coincident with the date as of which the installment is
payable by a fraction, the numerator of which is one (1)
and the denominator of which is the total number of
installment payments. The amount of each subsequent
installment payment shall be determined by multiplying
the value of the total vested portion of the
Participant's Accounts as of the
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date as of which the installment is payable by a
fraction, the numerator of which is one (1) and the
denominator of which is the remaining number of
installment payments. Such installment payments shall be
made on a quarterly, semi-annual, or annual basis, as
elected by the Beneficiary. The first such installment
payment shall be made within a reasonable time after the
Participant's death.
(c) Lump Sum Distributions. Any lump sum distribution shall be
made in cash by check.
(d) Installment Distributions. All installment distributions shall
be made in cash by check. Any Participant (or, in the case of
a distribution under Paragraph 12.4(b)(ii), any Participant's
Beneficiary) electing to receive an installment distribution
may elect to have the vested portion of the Participant's
Accounts invested in any one or more of the Funds (other than
the Transamerica Life Insurance Fund) after the Participant's
Settlement Date; provided, however, that only one such
election may be made after such Settlement Date, which
election must be made prior to the payment of the first
installment. Installment payments will be drawn pro-rata from
the Participant's balances in the Funds. In the event a
Participant or Beneficiary dies before receiving all
installment payments to which he would otherwise be entitled,
the remaining portion of the Participant's vested Accounts
shall be paid in a single lump sum to the Participant's
designated Beneficiary(ies) (or, in the case of a distribution
being made under Paragraph 12.4(b)(ii), as provided in Section
4.2).
(e) Life Insurance Fund. Notwithstanding the preceding provisions
of this Section 12.4, any interest in the Transamerica Life
Insurance Fund shall be distributed to a Participant or
Beneficiary in accordance with the provisions of Sections 8A.5
and 8A.6.
12.5 Distribution of Small Amounts. Notwithstanding any other provision of
this Plan to the contrary, if the vested portion of a Participant's Accounts as
of the Participant's Settlement Date does not exceed $3,500 (and did not exceed
$3,500 at the time of any prior distribution from such Accounts) that amount
shall be distributed to the Participant or Beneficiary in a single lump sum, as
soon as administratively practicable following that
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Settlement Date. If the vested portion of a Participant's Accounts does exceed
$3,500 (or did exceed $3,500 at the time of any prior distribution from such
Accounts) that amount shall not be distributed prior to the Participant's (or,
in the case of a distribution under subsection 12.4(b), the Participant's
Beneficiary's) attainment of age 70 1/2, unless the Participant or Beneficiary
(as the case may be) shall have consented in writing to an earlier distribution.
12.6 Commencement of Retirement, Disability and Termination Benefit
Distributions. Notwithstanding anything in this Article XII to the contrary
(except the last paragraph of this Section 12.6), if the vested portion of the
Participant's Accounts exceeds $3,500 (or exceeded $3,500 at the time of any
prior distribution), distribution of benefits under Section 12.4(a) shall not
commence within 30 days after the date the Plan Administrator issues to the
Participant the notice required by Treasury Regulation Section 1.411(a)-11(c)
(the "Tax Notice"). The Tax Notice shall be distributed no less than 30 days and
no more than 90 days before any distribution would be made.
The Tax Notice shall explain the tax rules that apply to Plan
distributions and shall notify the Participant of his right to (1) have benefit
payments deferred to a later date, (2) have benefits paid to the Participant,
(3) have benefits paid in a direct rollover described in Article XIIA, or (4)
have benefits split between payment to the Participant and payment in a direct
rollover.
The Participant shall elect in writing, on a form to be provided by the
Plan Administrator, whether and/or how benefits are to be distributed. No
distribution shall be made unless the Participant consents to such distribution.
Such consent may not be given before the Participant receives the Tax Notice nor
more than 90 days before the distribution would be made. If the Participant
refuses to consent to such distribution, his Accounts shall be retained
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in the Trust Fund. In that case, distribution shall commence as soon as
administratively feasible after the first to occur of the Participant's (1)
attainment of age 65 and request for a lump-sum distribution of his entire
vested Account balance, (2) election to receive a distribution in accordance
with Section 12.10, (3) attainment of age 70 1/2, or (4) death (provided the
Plan Administrator has received notice of the Participant's death).
A distribution that is subject to the Participant's consent may commence
less than 30 days after the Tax Notice is given to the Participant, provided
that:
(a) The Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after
receiving the Tax Notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option); and
(b) The Participant, after receiving the Tax Notice, affirmatively
elects a distribution.
12.7 Distribution Under Qualified Domestic Relations Order.
Notwithstanding anything in this Article XII or Section 16.8 to the contrary,
the Plan Administrator may direct the Trustee to make distribution to an
"alternate payee" under a "qualified domestic relations order" at any time
specified in such order, whether before, at, or after a Participant's "earliest
retirement age" (as all of such terms are defined in Code Section 414(p)),
provided that any such distribution before a Participant's earliest retirement
age shall be subject to the following conditions:
(a) The order must either provide for, or permit the Plan
Administrator and alternate payee to agree to, such an early
distribution;
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(b) The distribution must constitute a single-sum payment of all
Plan benefits to which the alternate payee may become entitled
under the terms of the order; and
(c) If the order so provides, any such distribution that exceeds
$3,500 shall be made only with the alternate payee's written
consent.
Unless the context clearly requires a contrary interpretation, any order
providing for a single-sum distribution to an alternate payee as of a
Participant's "earliest retirement age" shall be construed as providing for such
payment to be made on the date which is as soon as administratively practicable
after the Plan Administrator has determined that the order constitutes a
qualified domestic relations order.
12.8 Special Distribution Limitations. This Section sets forth rules
concerning when distributions may or must begin, and over what period of time
they may or must be made. Any rules concerning the timing and duration of
benefits found in other provisions of the Plan shall be altered only to the
extent necessary to avoid violating the rules of this Section. In no event shall
these rules be read to provide any option as to the time, manner, or duration of
benefits in addition to those found in other provisions of the Plan.
(a) Unless a Participant (or, in the case of a distribution under
subsection 12.4(b), a Participant's Beneficiary) elects
otherwise, distribution of the vested portion of a
Participant's Accounts shall commence within sixty (60) days
after the close of the Plan Year in which occurs the latest
of:
(i) The Participant's attainment of age 65,
(ii) The tenth anniversary of the Participant's commencement
of participation in the Plan, or
(iii) The Participant's termination of employment with the
Employer.
(b) Anything herein to the contrary notwithstanding, no
distribution may be made under this Plan, other than to a
Participant's spouse, that would result in the actuarial
equivalent of a Beneficiary's interest equalling or
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exceeding 50 percent of the actuarial equivalent of the
Participant's full benefit, both equivalents being determined
as of the Participant's actual retirement date. All
distribution made under this subsection shall be made in
accordance with Code Section 401(a)(9) and the regulations
promulgated thereunder, including the minimum distribution
incidental benefit rules of Proposed Regulation Section
1.401(a)(9)-2. Any Plan provisions reflecting Section
401(a)(9) shall override any distribution options in the Plan
that are inconsistent with Section 401(a)(9).
(c) In no event shall distribution with respect to a Participant
commence later than April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
Notwithstanding the preceding sentence, in the event a
Participant who is not a 5 percent owner attained age 70 1/2
prior to January 1, 1989, the Participant's benefit shall
commence no later than April 1 of the calendar year following
the calendar year in which such Participant attains age 70 1/2
or retires, whichever occurs later. For this purpose, a
Participant who attained 70 1/2 in 1988 and had not retired as
of January 1, 1989, shall be treated as having retired on
January 1, 1989. In the event a Participant accrues additional
benefits under the Plan after payment of such Participant's
benefit commences pursuant to this subsection, such additional
benefits shall be paid in the same form in which the
Participant's benefit was paid or is currently being paid, and
shall be reflected in the amount payable to the Participant
commencing with the first payment made in the calendar year
following the calendar year such additional benefits are
accrued.
(d) In no event shall distribution with respect to a Participant
be made over a period extending beyond the later of:
(i) The life of the Participant or the joint lives of the
Participant and the Beneficiary designated by him (if
any), or
(ii) The life expectancy of the Participant or the joint life
expectancy of the Participant and the Beneficiary
designated by him (if any).
(e) If a Participant dies after a distribution of his interest in
the Plan has begun but before his complete interest has been
distributed, the remaining portion shall be distributed at
least as rapidly as under the method of distribution
(consistent with (d), above) being used at the time of his
death.
(f) If a Participant dies before distribution of his interest has
begun, distribution of his entire interest shall be completed
within five (5) years after his death. However, if a portion
of the Participant's interest is to be
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paid to a Beneficiary designated by him, that portion may, if
the other provisions of this Plan so provide, be distributed
over the life or life expectancy of the Beneficiary. In that
case, distribution must begin not later than one year after
the date of the Participant's death or such later date as the
Secretary of the Treasury may by regulations prescribe. If the
Beneficiary is the Participant's surviving spouse, and other
provisions of the Plan so provide, distribution need not begin
until the date on which the Participant would have attained
age 70 1/2. If the surviving Spouse dies before distribution
to her begins, then for purposes of the requirements of this
and the preceding subsections (concerning the latest date a
distribution may begin and the longest period of time over
which payments may be made), the surviving spouse shall be
treated as if she were a Participant.
12.9 Effect of Plan Administrator's Determination. In exercising its
authority under this Article XII, the Plan Administrator shall act in such
manner as it shall in good faith determine will most adequately and fairly meet
the needs of each Participant or Beneficiary, as the case may be. No authority
shall be exercised in such manner as to discriminate between any class or group
of Participants. The Plan Administrator's determination of all questions that
may arise under this Article XII (if made in accordance with the standards
prescribed herein) shall be conclusive upon all persons claiming to have any
interest under the Plan. In making any determinations hereunder, the Plan
Administrator may rely upon any signed statement that a Participant or
Beneficiary files with it.
12.10 Distribution After Early Retirement. A Participant who retires on or
after his Early Retirement Date and who does not immediately receive the vested
portion of his Accounts in a single lump sum may thereafter elect to receive all
or a portion of his vested Accounts under any of the forms of distribution
specified in subsection 12.4(a). The number of such elections shall not be
limited; provided, however, that any such election:
(a) Shall be made in accordance with Section 12.6;
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(b) Shall result in either a minimum lump-sum distribution of $500
or an installment distribution of the Participant's entire
vested Account balance; and
(c) Shall not apply to any portion of the Participant's Accounts
held in the Transamerica Life Insurance Fund.
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ARTICLE XIIA
DIRECT ROLLOVERS
12A.1 Direct Rollovers. This Article applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this Article, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover. An eligible rollover distribution may not be paid to more than one
eligible retirement plan.
12A.2 Definitions. For purposes of this Article, the following terms shall
have the meaning ascribed to them below:
(a) An "eligible rollover distribution" is any distribution of all
or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary,
or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(b) An "eligible retirement plan" is an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(c) A "distributee" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse
and the
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Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations
order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or
former spouse.
(d) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
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ARTICLE XIII
ADMINISTRATION
13.1 Plan Administrator. Sauer-Sundstrand Company is the Plan
Administrator and has sole responsibility for the administration of the Plan,
including but not limited to the rights to interpret and construe the Plan, and
to determine any disputes arising thereunder. In exercising such powers and
authorities, and in fulfilling such responsibilities, the Plan Administrator
shall exercise good faith, apply standards of uniform application, and refrain
from arbitrary action. The Plan Administrator hereby designates to those named
in Sections 13.2 through 13.5 certain rights and duties for the general
administration of the Plan, and from time to time may further designate or
change responsibilities under the Plan.
13.2 Rights and Duties of the Board. The Board of Directors of
Sauer-Sundstrand Company ("the Board"), shall:
(a) Adopt the Plan and such amendments thereto as the Board has
not delegated to the Committee under Section 13.4; and
(b) Appoint the Committee.
The Board shall act through a majority of its members, either by vote at a
meeting or in writing without a meeting.
13.3 Right and Duties of the Trustee. The Trustee shall have such rights
and duties as are set forth in this Section 13.3.
(a) Hold Assets. The Trustee shall hold the assets of this Plan.
(b) Trust Agreement. The Plan Administrator will enter into a
Trust Agreement with one or more Trustees, and the Trustee
will receive contributions made by the Employer pursuant to
the Plan and will hold, invest, and distribute the same in
accordance with the terms and
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provisions of each Trust Agreement. The Plan Administrator
will determine the form and terms of such Trust Agreement and
may modify such Trust Agreement from time to time to
accomplish the purposes of this Plan.
(c) Records. The Trustee will keep full books of account and will,
at least once during each calendar year, submit to the
Committee a report, which shall include a list of the
investments comprising the trust fund at the end of the period
covered by the report, showing the valuation placed on each
item on such list by the Trustee at the end of such period and
the total of such valuations, and shall include a statement of
purchases, sales and any other investment changes and of
income and disbursements since the last report. Copies of such
reports shall be available for inspection at the principal
office of the Employer and at such other places as the
Committee shall specify.
(d) Removal/Resignation of Trustee. The Board may remove the
Trustee at any time upon the notice required by the terms of
the Trust Agreement. Upon such removal, or upon the
resignation of the Trustee, the Board will designate a
successor Trustee.
13.4 Rights and Duties of the Committee. The Sauer-Sundstrand Employee
Benefit Committee (the "Committee") shall have such rights and duties as are set
forth in this Section 13.4.
(a) The Committee members shall be appointed by, and shall serve
at the pleasure of, the Board. Vacancies will be filled in the
same manner as original appointments.
(b) The Committee will hold meetings upon such notice, at such
place or places, and at such time or times as it may from time
to time determine. A majority of the members of the Committee
at the time in office will constitute a quorum for the
transaction of business.
(c) The Committee may act at a meeting or in writing without a
meeting. The Committee may adopt such regulations and rules as
it deems desirable for the conduct of its affairs, which will
be uniformly and consistently applied. All decisions of the
Committee will be made by the vote of the majority, including
actions in writing taken without a meeting.
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(d) No member of the Committee will have any right to vote or
decide upon any matter relating solely to himself or solely to
any of his rights and benefits under the Plan.
(e) The Committee shall have the right to appoint, remove and
replace a Trustee or Trustees, investment manager,
Recordkeeper, insurance company or companies, or any qualified
institution or institutions to act as funding agent with
respect to the Plan.
(f) The Committee shall set funding and investment policies for
the assets of the Plan.
(g) The Committee shall appoint the Appeal Review Committee and
the Plan Benefit Committee, and shall have the right to
appoint others or to employ individuals to assist in the
administration of the Plan.
(h) The Committee shall take such steps as are considered
necessary and appropriate to remedy any inequity that results
from incorrect information received or communicated in good
faith or as the consequence of an administrative error. It
shall endeavor to act, whether by general rules or by
particular decisions, so as not to discriminate in favor of,
or against, any person and so as to treat all persons in
similar circumstances uniformly. The Committee shall correct
any defect, reconcile any inconsistency, or supply any
omission with respect to this Plan. All such corrections,
reconciliations, and completions of Plan provisions shall be
final and binding upon the parties.
(i) The Employer specifically intends that the Committee have the
greatest permissible discretion to construe the terms of the
Plan and to determine all questions concerning eligibility,
participation and benefits. Any such decision made by the
Committee shall be binding on the Employer and all Employees,
Participants, and Beneficiaries, and is intended to be subject
to the most deferential standard of judicial review. Such
standard of review is not to be affected by any real or
alleged conflict of interest on the part of the Committee
members.
(j) The Committee shall adopt all Plan amendments.
13.5 Rights and Duties of the Plan Benefit Committee. The Plan Benefit
Committee shall have such rights and duties as are set forth in this Section
13.5.
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(a) The Plan Benefit Committee shall receive and reply to
applications or claims for benefits filed with it by
Participants or Beneficiaries in accordance with subsection
13.11(a).
(b) The Plan Benefit Committee shall issue directions to the
Trustee concerning all benefits that are to be paid pursuant
to the provisions of the Plan.
(c) The Plan Benefit Committee shall receive from the Employer and
Participants such information as is necessary for proper
administration of the Plan.
(d) The Plan Benefit Committee shall prepare and distribute, in
such form as it determines appropriate, information explaining
the Plan.
(e) The Plan Benefit Committee shall furnish to the Employer, upon
request, such reports with respect to the Plan's
administration as are necessary or appropriate.
13.6 Rights and Duties of the Appeal Review Committee. The Appeal Review
Committee shall have such rights and duties as are stated in subsection
13.11(b).
13.7 Investment Manager. In the event that the Committee appoints an
investment manager to invest all or any of the assets of the Trust, the
investment manager shall have all the powers granted to the Trustee with respect
to the assets of the Trust Fund, and the Committee and the Trustee shall be
relieved of all liability with respect to the management and investment of such
assets so long as any such investment manager is retained. For purposes of this
Article 13, the term "investment manager" shall mean any party that:
(a) Is registered as an investment broker under the Investment
Advisors Act of 1940, is a bank, or is an insurance company
qualified to manage, acquire, and dispose of plan assets under
the laws of more than one state;
(b) Acknowledges in writing that it is a fiduciary with respect to
the Plan; and
(c) Is granted the power to manage, acquire or dispose of any
asset of the Trust Fund pursuant to this Article 13.
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13.8 Recordkeeper. The Committee may in its sole discretion, appoint a
person to keep records for the Plan (the "Recordkeeper"). The Recordkeeper shall
maintain the Accounts (including Rollover Accounts), allocate earnings, receive
and monitor Participants' investment directions, communicate necessary
information to the Trustee (or, if applicable, the investment manager) to
facilitate investment of the Trust Fund in accordance with Participants'
directions, and keep accurate and detailed accounts of all investments,
receipts, disbursements, and other transactions hereunder. In the event a
Recordkeeper is appointed, the Trustee shall be relieved of its responsibility
for these recordkeeping duties imposed on the Recordkeeper, and shall be
relieved of liability for those recordkeeping duties to the extent permitted
under Part 4, Subtitle B, Title I of ERISA.
13.9 Indemnification. Each member of the Board and the forenamed
Committees, and each of the Employer's officers, directors and employees
associated with administration of the Plan, shall be indemnified by
Sauer-Sundstrand Company against all costs, expenses and liabilities (other than
amounts paid in a settlement to which Sauer-Sundstrand Company does not consent)
reasonably incurred by him or them in connection with any action to which he or
they may be a party by reason of performance of designated duties, except in
relation to matters as to which he or they shall be adjudged in such performance
to be personally guilty of gross negligence or willful misconduct. The foregoing
right to indemnification shall be in addition to such other rights as these
individuals may enjoy as a matter of law or by reason of insurance coverage of
any kind.
13.10 Reliance Upon Others. The Board members, the Trustee, and the
respective Committee members may rely upon the direction, information or actions
of each other as being
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proper under the Plan, and they are not required to inquire into the propriety
of such direction, information or action. They may also rely upon all tables,
valuations, certificates and reports made by an accountant, attorney, actuary,
consultant or other person selected or approved by any one of them. Except as
prohibited by the Act, they will be indemnified in accordance with Section 13.9
with respect to their reliance upon others as stated herein.
13.11 Claims Procedures.
(a) Application for Benefits. At least 60 days before intended
commencement of a Plan benefit, each Participant and/or
Beneficiary believing himself eligible shall apply for such
benefit by completing and filing with the Plan Benefit
Committee an application for benefits on a form supplied by
the Plan Benefit Committee. Before the date on which benefit
payments are to commence, each such application must be
supported by such information and data as the Plan Benefit
Committee deems relevant and appropriate. Evidence of age,
marital status (and, in the appropriate instances, health,
death, or disability), and location of residence shall be
required of all applicants for benefits.
(b) Appeals of Denied Claims for Benefits. In the event that any
claim for benefits is denied, in whole or in part, the
Participant or Beneficiary whose claim has been so denied
shall be notified of such denial in writing by the Plan
Benefit Committee. The notice advising of the denial shall
specify the reason or reasons for denial, make specific
reference to pertinent Plan provisions, describe any
additional material or information necessary for the claimant
to perfect the claim (explaining why such material or
information is needed), and advise the Participant or
Beneficiary, as the case may be, of the procedure for the
appeal of such denial. All appeals shall be made under the
following procedure:
(i) The Participant or beneficiary whose claim has been
denied shall file with the Appeal Review Committee a
notice of desire to appeal from the denial. Such notice
shall be filed within ninety (90) days from his receipt
of notification by the Plan Benefit Committee of the
claim's denial, shall be made in writing, and shall set
forth all of the facts upon which the appeal is based.
Appeals not timely filed shall be barred.
(ii) The Appeal Review Committee shall, within thirty (30)
days of receipt of the Participant's or Beneficiary's
notice of appeal,
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establish a hearing date on which the Participant or
Beneficiary may make an oral presentation to the Appeal
Review Committee in support of his appeal. The
Participant or Beneficiary shall be given not less than
ten (10) days' notice of the date set for the hearing.
(iii) The Appeal Review Committee shall consider the merits of
the claimant's written and oral presentations, the
merits of any facts or evidence in support of the denial
of benefits, and such other facts and circumstances as
the Appeal Review Committee shall deem relevant. If the
claimant elects not to make an oral presentation, such
election shall not be deemed adverse to his interest,
and the Appeal Review Committee shall proceed as set
forth below as though an oral presentation of the
contents of the claimant's written presentation had been
made.
(iv) The Appeal Review Committee shall render a determination
upon the appealed claim, which determination shall be
accompanied by a written statement as to the reasons
therefor. The determination so rendered shall be binding
upon all parties.
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ARTICLE XIV
AMENDMENT AND TERMINATION
14.1 Amendment. Subject to the provisions of Section 14.2, the Board of
Directors of Sauer-Sundstrand Company (or its designee) may at any time and from
time to time amend the Plan, and all Employees, Participants, former
Participants, Beneficiaries, and persons claiming any interest under the Plan
shall be bound thereby.
14.2 Limitation on Amendment. No amendment shall be made to the Plan which
would have the effect of:
(a) Directly or indirectly divesting the interest of any
Participant or former Participant in any amount that he would
have received had he terminated his employment with the
Employer immediately prior to the effective date of such
amendment, or the interest of any Beneficiary as such interest
existed immediately prior to the effective date of such
amendment;
(b) Directly or indirectly affecting the vested interest of a
Participant under the Plan, unless the conditions of Section
203(c) of the Act are satisfied; or
(c) Causing or effecting impermissible discrimination in favor of
Highly Compensated Employees;
provided, however, that nothing herein contained shall restrict the right to
amend the provisions hereof relating to the administration of the Plan.
Moreover, no amendment shall be made hereunder which would permit any portion of
the Trust Fund to be returned to the Employer or to be used for or diverted to
purposes other than the exclusive benefit of Participants, former Participants,
and Beneficiaries. Furthermore, no amendment shall be made which would decrease
the amount of any Participant's Accounts.
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14.3 Termination. The Plan Administrator reserves the right to terminate
the Plan, in whole or in part, at any time or to completely discontinue
contributions to the Plan, which termination or discontinuance of contributions
shall become effective at the time specified in such action (the effective date
of such termination or discontinuance shall hereafter be referred to as the
"termination date").
The Plan shall terminate automatically in the event of the bankruptcy or
insolvency of the Employer; if the Employer makes a general assignment for the
benefit of creditors; or if the Employer is dissolved or liquidated (unless
there is a successor to the business of the Employer which adopts the Plan
within ninety (90) days after becoming such successor). In the event of the
merger or consolidation of the Employer with or into any other corporation, or
in the event that substantially all of the assets of the Employer are
transferred to another corporation, the successor corporation resulting from the
consolidation, merger, or transfer of such assets, as the case may be, shall
have the right to adopt and continue the Plan and to succeed to the position of
the Employer hereunder. If, however, the Plan is not so adopted within ninety
(90) days after the effective date of such consolidation, merger, or transfer of
assets, the Plan shall automatically be deemed terminated as of the effective
date of such transaction. Nothing in this Plan shall prevent the dissolution,
liquidation, consolidation, or merger of the Employer, nor the sale or transfer
of all or substantially all of its assets.
In the event of the termination of the Plan, written notice thereof shall
be given to Employees covered hereunder and to the Trustee. Upon any such
termination of the Plan, the Trustee and the Plan Administrator shall take the
following actions for the benefit of Participants, former Participants, and
Beneficiaries; provided that in the event of a partial
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termination it shall be followed only with respect to those Participants, former
Participants and Beneficiaries directly affected:
(a) As of the termination date, the Trustee shall revalue the
Trust Fund, and the Plan Administrator, taking into account
such revaluation, shall adjust all Participant Accounts in the
manner provided in Section 10.1. In determining the net worth
of the Trust Fund hereunder, the Trustee shall, unless payment
is otherwise provided for by the Plan Administrator, include
as a liability such amounts as in its judgment shall be
necessary to pay all expenses in connection with the
termination of the Trust and the liquidation and distribution
of the Trust property, as well as other expenses, whether or
not accrued, and shall include as an asset all accrued income.
(b) The Trustee, after first being advised by the Plan
Administrator in writing as to the value of all of the
Participant Accounts, shall thereafter dispose of such
Accounts to or for the benefit of such Participants, former
Participants, or Beneficiaries, at such times and by such
methods as are provided in Article XII.
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ARTICLE XV
TOP-HEAVY PROVISIONS
15.1 Top-Heavy Status. The provisions of this Article XV shall apply only
with respect to any Plan Year for which the Plan is Top-Heavy. If the Plan is or
becomes Top-Heavy in any Plan Year, the provisions of this Article XV shall
supersede any conflicting provisions elsewhere in the Plan.
15.2 Definitions. For purposes of this Article XV, the following words and
phrases shall have the meanings stated below, unless a different meaning is
plainly required by the context:
(a) An "Affiliate" of the Employer shall mean a Related Employer.
(b) The term "Aggregation Group," with respect to the plans of the
Employer, shall mean the plan or group of plans which includes
all plans maintained by the Employer or its Affiliates:
(i) In which a Key Employee is a participant,
(ii) Which enable any plan maintained by the Employer or its
Affiliates in which a Key Employee is a participant to
meet the requirements of Section 401(a)(4) or Section
410 of the Code, or
(iii) Which are selected by the Employer for permissive
aggregation, the inclusion of which would not prevent
the group of plans from continuing to meet the
requirements of Sections 401(a)(4) and 410 of the Code.
(c) Except as provided in subsection 15.2(f), "Compensation" shall
have the meaning given such term under Paragraph 6.3(f)(ii).
(d) The "Cumulative Account" and "Cumulative Accrued Benefit" of
an Employee or former Employee shall be determined as follows:
(i) An Employee's or former Employee's "Cumulative Account,"
as of a Determination Date, shall be the sum of the
balances to his
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accounts under a defined contributions plan, determined
as of the most recent plan valuation date occurring
within the 12-month period ending on the Determination
date. That amount shall be increased by any
contributions due after such valuation date and on or
before the Determination Date. If the valuation date
falls within the first plan year of the plan, the
Employee's or former Employee's Cumulative Account shall
include any contributions made after the Determination
Date, but allocated as of a date in the first plan year.
If the Plan is being considered in an Aggregation Group,
the Employee's or former Employee's Cumulative Account
shall be the sum of the balances to his accounts under
all defined contribution plans included in the
Aggregation Group under consideration (as determined
under the rules above).
(ii) An Employee's or former Employee's "Cumulative Accrued
Benefit," as of a Determination Date, shall be the
present value of his accrued benefit under a defined
benefit plan, determined under the actuarial assumptions
set forth in such plan, as of the most recent plan
valuation date occurring within the 12-month period
ending on the Determination Date. For purposes of
computing the Employee's or former Employee's Cumulative
Accrued Benefit, he shall be treated as if he
voluntarily terminated his service as of such valuation
date (as of the Determination date, in the case of the
plan's first year). The accrued benefit of an Non-Key
Employee shall be determined under (A) the method, if
any, that uniformly applies for accrual purposes under
all defined benefit plans maintained by the Employer, or
(B) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of Section
411(b)(1)(C) of the Code. If the Plan is being
considered in an Aggregation Group, the Employee's or
former Employee's Cumulative Accrued Benefit shall be
the sum of the present values of his accrued benefits
under all defined benefit plans included in the
Aggregation Group under consideration (as determined
under the rules above).
(iii) The balance to an Employee's or former Employee's
accounts and the value of his benefits shall not include
amounts attributable to deductible employee
contributions.
(iv) The balance to an Employee's or former Employee's
accounts and the value of his benefits shall be
increased by the aggregate amount of any distributions
made on his account under the Plan or
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plans during the five-year period ending on the
Determination Date.
(v) Rollovers and direct plan-to-plan transfers shall be
treated as follows:
(1) If the transfer is initiated by the Employee or
former Employee and made from a plan maintained by
the Employer to a plan maintained by another
employer, the transferor plan shall continue to
include the amount transferred as an amount in the
Employee's or former Employee's account under the
transferor plan or as an accrued benefit under the
transferor plan. The transferee plan shall not
consider the amount if it is accepted by the plan
after December 31, 1983, but shall include it as
an amount under the plan if it is accepted prior
to December 31, 1983.
(2) If the transfer is not initiated by the Employee
or former Employee, or is made between plans
maintained by the Employer, the transferor plan
shall not include the amount transferred as an
amount under the plan and the transferee plan
shall consider the amount transferred as an amount
under the transferee plan.
(3) For purposes of this Paragraph 15.2(d)(v), the
Employer and all its Affiliates shall be
considered a single employer.
(vi) For purposes of determining the Cumulative Account under
this Plan of an Employee or former Employee, the
valuation date shall be the Determination Date.
(e) "Determination Date" shall mean, for purposes of determining
whether a plan is Top-Heavy for a particular plan year, the
last day of the preceding plan year (or, in the case of the
first plan year of a plan, the last day of that first year).
(f) The words "Key Employee" shall mean an Employee or former
Employee (including the beneficiary of such Employee or former
Employee) who, at any time during the Plan Year or any of the
four preceding Plan Years, was:
(i) An officer of the Employer or an Affiliate having an
aggregate annual Compensation from the Employer and its
Affiliates of more
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than 50 percent of the amount in effect under Section
415(b)(1)(A) of the Code for the Plan Year, but in no
event shall more than 50 employees or, if less, the
greater of (A) 3 employees, or (B) 10 percent of the
aggregate number of employees of the Employer and its
Affiliates, be taken into account under this Paragraph
15.2(f)(i) as officers of the Employer or Affiliate;
(ii) One of the ten employees of the Employer having an
aggregate annual Compensation from the Employer or an
Affiliate of more than the limitation in effect under
Section 415(c)(1)(A) of the Code for the Plan Year and
owning (or considered as owning, within the meaning of
Section 318 of the Code) both (A) more than a one-half
percent interest, and (B) the largest interests, in the
Employer;
(iii) A person owning more than 5 percent of the Employer
(within the meaning of Section 416(i)(1)(13)(i) of the
Code); or
(iv) A person having an aggregate annual Compensation from
the Employer and its Affiliates of more than $150,000
and owning more than 1 percent of the Employer (within
the meaning of Section 416(i)(1)(B)(i) of the Code).
For purposes of applying Section 318 of the Code to the
provisions of this subsection 15.2(f), subparagraph (C) of
Code Section 318(a)(2) shall be applied by substituting "5
percent" for "50 percent." For purposes of Paragraph
15.2(e)(ii), if two employees have the same interest in the
Employer, the employee having the greater aggregate annual
Compensation from the Employer and its Affiliates shall be
treated as having the larger interest. For purposes of this
subsection 15.2(f), "Compensation" shall be defined under
Paragraph 414(q)(7) of the Code.
(g) The words "Non-Key Employee" shall mean any Employee who is
not a Key Employee.
15.3 Determining Top-Heavy Status. The determination of whether the Plan
is "Top- Heavy" shall be made as follows:
(a) If the Plan is not required to be included in an Aggregation
Group with other plans of the Employer or its Affiliates, then
it shall be Top-Heavy only if, when considered by itself, it
is a Top-Heavy Plan and it is not included in a permissive
Aggregation Group that is not a Top-Heavy Group.
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(b) If the Plan is required to be included in an Aggregation Group
with other plans of the Employer or its Affiliates, it shall
be Top-Heavy only if the Aggregation Group, including any
permissively aggregated plans, is Top-Heavy.
(c) If the Plan is not a Top-Heavy Plan and it is not required to
be included in an Aggregation Group with other plans of the
Employer or its Affiliates, then it shall not be Top-Heavy
even if it is permissively aggregated in an Aggregation Group
which is a Top-Heavy Group.
A plan shall be Top-Heavy and an Aggregation Group shall be a Top-Heavy
Group with respect to any plan year if the sum, as of the Determination date, of
the Cumulative Accrued Benefits and the Cumulative Accounts of Key Employees for
the plan year exceeds 60 percent of a similar sum determined for all Employees.
A plan is a "Super Top-Heavy Plan" if it would be a Top-Heavy Plan under the
provisions of this Section 15.3 after substituting "90 percent" for "60 percent"
in the preceding sentence. For purposes of this Section 15.3, the Cumulative
Accrued Benefits and Cumulative Accounts of an individual shall be disregarded
it he has not, at any time during the five-year period ending on the
Determination Date, performed any services for the Employer.
15.4 Minimum Contribution. For each Plan Year that the Plan is Top-Heavy,
the Employer will contribute and allocate to an Account maintained for each
Non-Key Employee who is eligible to participate in the Plan and who is employed
by the Employer on the last day of such Plan Year an amount equal to the lesser
of:
(a) Three percent (3%) of such Non-Key Employee's Compensation for
such Plan Year; and
(b) The largest percentage of contributions and forfeitures, if
any, as a percentage of the Key Employee's Compensation,
allocated to the Accounts maintained under the Plan for any
Key Employee for such Year.
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The minimum contribution allocable pursuant to this Section 15.4 will be
determined without regard to any contributions made by the Employer for any
Employee under the Federal Social Security Act and will be made with respect to
any Non-Key Employee who is eligible to participate in the Plan, even if he did
not elect to have Participant Contributions made on his behalf under the Plan
for that Plan Year. Participant Contributions shall be disregarded for all
purposes under this Section 15.4, except in determining the percentage described
in subsection 15.4(b).
15.5 Safe Harbor Rule. If, in any Plan Year in which the Plan is a
Top-Heavy Plan, a Participant in the Plan is also participating in a defined
benefit plan, within the meaning of Section 3(35) of the Act, which is
maintained by the Employer or any Affiliate and which is also a Top-Heavy Plan,
the minimum contribution specified in Section 15.4 will not apply to him; he
will instead be subject to the minimum benefit accrual provisions of such
defined benefit plan, as required to comply with Section 416(c)(1) of the Code.
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ARTICLE XVI
MISCELLANEOUS
16.1 Plan Non-Contractual. Nothing herein contained shall be construed as
a commitment or agreement on the part of any Employee to continue his employment
with the Employer, and nothing herein contained shall be construed as a
commitment on the part of the Employer to continue the employment or the rate of
compensation of any Employee for any period. All Employees herein shall remain
subject to discharge, layoff, or disciplinary action to the same extent as if
the Plan had never been put into effect.
16.2 Claims of Other Person. The provisions of the Plan shall in no event
be construed as giving any Employee or any other person, firm or corporation,
any legal or equitable right as against the Employer, its officers, employees or
directors, or as against the Trustee, except any such rights as are specifically
provided for in the Plan or are hereafter created in accordance with the terms
and provisions of the Plan.
16.3 Benefits. Nothing in the Plan shall be construed to confer any right
or claim upon any person other than the parties hereto, Participants, former
Participants and Beneficiaries.
16.4 No Guarantees. Neither the Plan Administrator nor the Trustee
guarantees the Trust from loss or depreciation, nor the payment of any amount
which may be or become due to any person from the Trust Fund. No Participant or
other person shall have any recourse against the Plan Administrator or the
Trustee if the Trust Fund is insufficient to provide Plan benefits in full.
Nothing herein contained shall be deemed to give any Participant, former
Participant, or Beneficiary any interest in a specific part of the Trust Fund,
nor any other
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interest, except the right to receive benefits out of the Trust Fund in
accordance with the provisions of the Plan and Trust Agreement.
16.5 Merger or Consolidation of Plan. Any merger or consolidation of the
Plan with another plan, or any transfer of Plan assets or liabilities to another
plan, shall be effected in accordance with such regulations, if any, as may be
issued pursuant to Section 208 of the Act, in such a manner that each
Participant in the Plan would receive, if the merged, consolidated or transferee
plan were terminated immediately following such event, a benefit which is equal
to or greater than the benefit he would have been entitled to receive if the
Plan had terminated immediately before such event.
16.6 Limitations on Ability. Notwithstanding any of the preceding
provisions of the Plan, none of the Plan Administrator, the Trustee, and each
individual acting as an employee or agent of any of them shall be liable to any
Participant, former Participant or Beneficiary for any claim, loss, liability or
expense incurred in connection with the Plan, except when the same shall have
been judicially determined to be due to the gross negligence or willful
misconduct of such person.
16.7 Restrictions on Alienation.
(a) The rights and interest of any Participant, former Participant
or Beneficiary hereunder shall not be subject in any manner to
sale, transfer, encumbrance, assignment, pledge or alienation
of any kind; nor may such rights or interest be resorted to,
voluntarily or involuntarily, for the satisfaction of the debt
of, or other obligations or claims against, such person,
including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings. No such person shall
have power in any manner to sell, transfer, encumber, assign,
pledge, or alienate his right to receive any distribution
hereunder, and any attempt to do so shall be void.
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(b) Notwithstanding the provisions of subsection 16.8(a), if any
Participant borrows money from the Plan pursuant to Article
IX, the Plan Administrator shall have all rights to collect
upon such indebtedness as are granted pursuant to said Article
and any agreements or documents executed in connection with
such loan.
(c) Notwithstanding the provisions of subsection 16.8(a), all or
any portion of any Account maintained under the Plan for a
Participant, former Participant or Beneficiary shall be
subject to and payable in accordance with the applicable
requirements of any "qualified domestic relations order," as
that term is defined in Section 206(d)(3) of the Act, and the
Plan Administrator shall direct the Trustee to provide for
payment from a Participant's, former Participant's, or
Beneficiary's Accounts in accordance with such order, the Act,
and any regulations promulgated thereunder. All such payments
pursuant to a qualified domestic relations order shall be
subject to reasonable rules and regulations promulgated by the
Plan Administrator respecting the time of payment and the
valuation of the Participant's, former Participant's, or
Beneficiary's Account or Accounts from which payment is made,
including rules and regulations necessary to implement the
provisions of Section 12.7 hereof. The balance of any Account
that is subject to a qualified domestic relations order shall
be reduced by the amount of any payment made pursuant to such
order.
16.8 Payment to Incompetent Persons. Every person receiving or claiming a
benefit under this Plan shall be presumed to be mentally competent and of age
until the Plan Administrator receives reliable, written notice that such person
is incompetent or a minor. Upon receiving such notice, the Plan Administrator
shall direct the Trustee to make payments in accordance with the remainder of
this Section 16.8. Payments otherwise due a minor shall be paid to any custodial
parent of such minor. Payments otherwise due any other incompetent person shall
be paid to the guardian, conservator, or other legal representative of such
person. In the event that the Plan Administrator is unable to locate a parent,
guardian, conservator, or other legal representative of an incompetent person
who is otherwise entitled to payment under the Plan, such payment shall be made
to the individual determined by the Plan Administrator
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to have assumed financial responsibility for the care of such person. Before the
initial payment is made to an individual designated in this Section 16.8, the
minor or other legally incompetent person shall be notified of the Plan
Administrator's intent to make such payment to that other individual. Any
payment of a benefit in accordance with the provisions of this Section 16.8
shall be in complete discharge of any further liability to make such payment.
16.9 Prudent Man Rule. Notwithstanding any other provision of this Plan or
the Trust Agreement, the Plan Administrator and the Trustee shall exercise their
powers and discharge their duties under this Plan and the Trust Agreement for
the exclusive purpose of providing benefits to Participants, former
Participants, and Beneficiaries, and they shall act with the care, skill,
prudence and diligence under the circumstances that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
16.10 Corrective Contributions. The Employer, in its sole discretion (but
subject to the applicable limitations described in Article VI), may elect to
make special contributions to the Plan in order to correct mistakes made in
distributing or crediting amounts to Participant Accounts. Any such contribution
shall be credited to Participant Accounts in the fashion specified by the
Employer and not as otherwise provided in the Plan.
16.11 Duty to Furnish Information and Documents.
(a) Every person with an interest in the Plan or claiming benefits
under the Plan shall furnish the Plan Administrator and the
Trustee with such documents, evidence, data, or information as
the Plan Administrator considers necessary or desirable for
the purpose of administering the Plan, and the provisions of
the Plan for each person are upon the condition that he will
furnish promptly full, true and complete documents, evidence,
data and information requested by the Plan Administrator. The
Plan
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Administrator may postpone payment of benefits until such
information and such documents have been furnished.
(b) Every person claiming a benefit under the Plan shall give
written notice to the Plan Administrator of his or her post
office address and each change of post office address. Any
communication, statement or notice addressed to such a person
at his or her latest post office address, as filed with the
Plan Administrator, will, on deposit in the United States mail
with postage prepaid, be binding upon such person for all
purposes of the Plan. If a person fails to give notice of his
or her correct address, the Plan Administrator and Plan
fiduciaries shall not be obliged to search for, or to
ascertain, his or her whereabouts. If the location of a
Participant is not made known to the Plan Administrator within
three (3) years after the date as of which distribution of the
Participant's Accounts may first be made, distribution may be
made as though the Participant had died at the end of the
three-year period. If, within one (1) additional year after
such three-year period has elapsed, or within three (3) years
after the actual death of a Participant, the Plan
Administrator is unable to locate any individual who would
receive a distribution under the Plan upon the death of the
Participant pursuant to Section 4.2 of Article IV, the balance
in the Participant's Accounts shall be deemed a forfeiture and
shall be used to reduce the Employer's contributions to the
Plan for the Plan Year next following the year in which the
forfeiture occurs; provided, however, that in the event the
Participant or a Beneficiary makes a valid claim for any
amount which has been forfeited, the amounts which have been
forfeited shall be reinstated.
16.12 Precedent. Except as otherwise specifically provided, no action
taken in accordance with the Plan by the Plan Administrator or the Trustee shall
be construed or relied upon as a precedent for similar action under similar
circumstances.
16.13 Litigation. In order to protect the Trust Fund against depletion as
a result of litigation, costs incurred by the Trustee in defending any action
arising out of or based on the Plan by a Participant, or any person claiming any
interest through a Participant, shall be charged as far as possible directly
against the Accounts of such Participant, but only if the result of the action
is adverse to such Participant or claimant.
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16.14 Exclusive Benefit of Participants. All contributions made pursuant
to the Plan shall be held by the Trustee in accordance with the terms of the
Trust Agreement for the exclusive benefit of Participants under the Plan,
including former Participants and Beneficiaries, and shall be applied to provide
benefits under the Plan and to pay expenses of administration of the Plan and
the Trust, to the extent that such expenses are not otherwise paid. At no time
prior to the satisfaction of all liabilities with respect to such Participants,
former Participants and Beneficiaries shall any part of the Trust Fund (other
than such part as may be required to pay administrative expenses and taxes) be
used for, or diverted to, purposes other than for the exclusive benefit of such
Participants, former Participants and Beneficiaries. Notwithstanding the
preceding sentence, however, a contribution to the Trust Fund shall be returned
to the Employer (and, if a Participant Contribution, immediately paid to the
Participant) under the following circumstances:
(a) If the Plan fails to qualify under Section 401(a) of the Code;
(b) If the contribution is not deductible to the Employer, as
provided in Section 6.1; or
(c) If the contribution is made under a mistake of fact, as
provided in Section 6.2.
16.15 Service of Process. The Vice-President, Administration, of Sauer-
Sundstrand Company is hereby designated as agent for the service of legal
process on the Plan.
16.16 Governing Law. The Plan and the Trust Agreement shall be
interpreted, administered and enforced in accordance with the Code and the Act,
and the rights of Participants, former Participants, Beneficiaries, and all
other persons shall be determined in
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accordance therewith; provided however, that to the extent any state law is
applicable, the laws of the State of Iowa shall apply.
16.17 Trust Agreement. The Trust Agreement and the Trust Fund shall be
deemed to be a part of the Plan, and the provisions of the Trust Agreement are
hereby incorporated by reference into the Plan.
16.18 Plurals; Masculine to Include Feminine. Where the context so
indicates, the singular shall include the plural and vice-versa, and the
masculine pronoun shall include the feminine.
16.19 Titles. Titles of articles, sections, and the like are provided
herein for convenience of reference only and are not to serve as a basis for
interpretation or construction of the Plan.
16.20 References. Unless the context clearly indicates to the contrary, a
reference to a Plan or Trust provision, statute, regulation, or document shall
be construed as referring to any subsequently enacted, adopted, or executed
counterpart.
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ARTICLE XVII
EXTENSION TO NON-COVERED UNITS; ADOPTION
OF PLAN BY RELATED EMPLOYERS
17.1 Extension to Non-Covered Units. The Employer may extend the Plan to
cover any division or other segment of its business not theretofore covered
under the Plan by resolution of its Board of Directors. Such resolution shall
specify the effective date of the extension of coverage to such division or
segment. Any new division or other segment of business which is established by
the Employer shall not become covered under the Plan solely by virtue of the
fact that it is a part of such Employer or a part of a division or other segment
of its business which at the time is covered under the Plan. Any such new
division or other segment of business shall become covered only if Plan coverage
is expressly extended thereto in accordance with the procedures specified in the
foregoing provisions of this Section 17.1.
17.2 Special Provisions Regarding Eligibility and Benefits. In the event
it becomes necessary to accommodate the transition from benefit arrangements
that were in effect for the benefit of the employees of a division or other
segment of business prior to the extension of the Plan to such division or
segment of business, an Appendix setting forth special overriding provisions
applicable to the extension of the Plan to such division or segment of business
may be added to the Plan. Each such Appendix shall for all purposes constitute a
part of the Plan.
17.3 Adoption by Related Employers. Any Related Employer that is not an
Employer hereunder, with the consent of the Board of Directors of
Sauer-Sundstrand Company, may adopt the Plan and become an Employer hereunder by
resolution of its Board of Directors. Such resolution shall specify the covered
unit(s) of the Related Employer to which the Plan is being extended, and shall
specify the effective date of such adoption.
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ARTICLE XVIII
RESTATEMENT EFFECTIVE DATES
18.1 In general. Except as provided in Section 18.2, the changes made by
this October 1, 1995 Amendment and Restatement of the Plan shall be effective as
of October 1, 1995.
18.2 Exceptions. The changes made to Section 11.2 of the Plan, which
permit hardship withdrawals by alternate payees, shall be effective as of August
15, 1995. The changes made to Section 1.8 of the Plan, which modify the Plan's
definition of Compensation, and the changes made to Section 9.6 of the Plan,
which clarify the Plan's treatment of loans in default, shall be effective as of
April 1, 1996.
18.3 Repeal of First Amendment. The First Amendment to the
Sauer-Sundstrand Employees' Savings and Retirement Plan January 1, 1994
Restatement, dated October 5, 1995, is retroactively repealed as of its
effective date.
SAUER-SUNDSTRAND COMPANY
By: /s/ Gregory Wuhs
------------------------------
Its: Vice President, Administration
------------------------------
Executed at Ames, Iowa
this 29th day of February, 1996.
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<PAGE> 105
FIRST AMENDMENT
to the
SAUER-SUNDSTRAND EMPLOYEES'
SAVINGS AND RETIREMENT PLAN
(October 1, 1995, Restatement)
Pursuant to Section 14.1 of the Sauer-Sundstrand Employees' Savings and
Retirement Plan (the "Plan"), the Plan is hereby amended by substituting the
attached revisions of pages 8, 10, 11, and 15 for the versions of those pages
currently in effect. This Amendment extends coverage to Employees at Sauer-
Sundstrand's West Branch, Iowa, location. The changes made by this Amendment
shall be effective as of September 13, 1996.
IN WITNESS WHEREOF, the Board of Directors of Sauer-Sundstrand Company has
authorized the execution of this Amendment on the Company's behalf this 13th day
of September, 1996.
SAUER-SUNDSTRAND COMPANY
By: /s/ Gregory Wuhs
------------------------------
Gregory Wuhs
Its: Vice President, Administration
Executed at Ames, Iowa
this 13th day of September, 1996.
<PAGE> 106
SECOND AMENDMENT
to the
SAUER-SUNDSTRAND EMPLOYEES'
SAVINGS AND RETIREMENT PLAN
(October 1, 1995, Restatement)
Pursuant to Section 14.1 of the Sauer-Sundstrand Employees' Savings and
Retirement Plan (the "Plan"), the Plan is hereby amended by substituting the
attached revision of page 10 for the version of that page currently in effect,
and adding the attached new pages 10A, 10B and 10C. This Amendment clarifies the
definition of a highly compensated employee under Section 414(q) of the Internal
Revenue Code. The changes made by this Amendment merely clarify existing plan
provisions and, as such, need no effective date.
IN WITNESS WHEREOF, the Board of Directors of Sauer-Sundstrand Company has
authorized the execution of this Amendment on the Company's behalf this 14th day
of February, 1997.
SAUER-SUNDSTRAND COMPANY
By: /s/ Gregory Wuhs
------------------------------
Gregory Wuhs
Its: Vice President, Administration
Executed at Ames, Iowa
this 14th day of February, 1997.
<PAGE> 1
Exhibit 10.1(w)
Post-retirement care agreement
A pension arrangement was granted in ss. 7 of the employment contract of 18
December 1981 between Sauer Getriebe AG and Dr. Klaus Murmann. In a letter of 30
December 1986, which was countersigned by Dr. Murmann, the transfer of this
arrangement to Sauer-Sundstrand GmbH & Co was agreed to.
The supervising authority of the sole shareholder of Sauer-Sundstrand GmbH & Co,
Sauer Inc., with seat in Ames, Iowa, which is responsible, is the Compensation
Committee, which is a subcommittee of the Board of Directors of Sauer Inc. On
the recommendation of the Compensation Committee, the Board of Directors, in a
meeting of 12 December 1995, agreed to a change in the pension arrangement. In
this change Dr. Murmann relinquished claim for index-linking of his pension in
exchange for the cancellation of the previous limitation of the monthly payment
to an amount of DM 26.500 and its replacement with an agreement to "60% of the
final salary".
The post-retirement agreement is hereby as part of the contract extension of the
employment contract of Dr. Murmann for Sauer Inc., adapted and clarified as
follows:
----------------------
Sauer-Sundstrand GmbH & Co hereby pledges itself to accord to Dr. Klaus Murmann,
born on 3 January 1932, from the time at which the employment contract between
Sauer Inc. and Dr. Murmann, dated 19 September 1996, terminates, the following
pension:
1. The pension amounts to 60% of the pensionable salary. The pensionable
salary is deemed to be the final annual salary received from Sauer Inc. at
the time of retirement.
2. The wife or Dr. Murmann, Dr. Mrs. Hannelore Murmann, born Zollner, will
receive from the time of your death until her death a pension of 60% of
the pension which Dr. Murmann had claim to or held a qualifying status in
at the time of his death.
3. -repealed-
4. -repealed-
<PAGE> 2
5. Pension and survivor's pension are to be paid monthly (1/12) in advance.
6. Claims to pension or survivor's pension are neither capable of being
assigned nor pledged. Any such assignments or pledges are non-operative
against the company.
There is unanimous agreement that this agreement is subject to the laws of the
Federal Republic of Germany.
Dr. Murmann has been informed that this agreement has no security from the
possibility of insolvency as the emphasis of the employment of relationship,
upon which this agreement is based, does not lie in the German Federal Republic.
In addition the employer of Dr. Murmann has its seat of business abroad.
19 September 1996
Sauer-Sundstrand GmbH & Co
(signed Dr. Barlage)
I assent to the contents of this agreement.
(signed Dr. Klaus Murmann)
<PAGE> 1
Exhibit 10.1(x)
Post-retirement care agreement
In the employment contract of 24 April 1986 between Sauer Getriebe AG and Dr.
Tonio Barlage it was anticipated in ss. 6.3 of the contract that Dr. Barlage
would receive post-retirement support. Accordingly, the operator of the business
of Sauer Getriebe AG, Sauer-Sundstrand GmbH & Co. did, on 11 June 1987, make
such an agreement.
The supervisory authority of the sole shareholder of Sauer-Sundstrand GmbH & Co,
Sauer Inc. with seat in Ames, Iowa, which is responsible, is the Compensation
Committee which is a sub-committee of the Board of Directors of Sauer Inc. On
the recommendation of the Compensation Committee, the Board of Directors, in a
meeting on 19 April 1989, re-confirmed the validity of the previous agreement
and authorized the responsible officers of Sauer Inc. to undertake all steps
necessary to put this post-retirement agreement into effect.
The post-retirement agreement is hereby, as part of the contract extension of
the employment contract of Dr. Barlage for Sauer Inc., adapted and clarified.
- --------------
Sauer-Sundstrand GmbH & Co hereby pledges itself to accord the attached
agreement for support of Dr. Tonio Barlage, born 2 August 1951.
There is unanimous agreement that this agreement is subject to the laws of the
Federal Republic of Germany.
Dr. Barlage has been informed that this agreement has no security from the
possibility of insolvency as the emphasis of the employment of relationship,
upon which this agreement is based, does not lie in the German Federal Republic.
In addition the employer of Dr. Barlage has its seat of business abroad.
19 September 1996
Sauer-Sundstrand GmbH & Co
(signed Dr. Klaus Murmann)
I assent to the contents of this agreement
(signed Dr. Tonio Barlage)
<PAGE> 2
Sauer Sundstrand GmbH & Co
Post-retirement Agreement
List of contents
I Modes of execution
II Fixed retirement limit
III Prerequisites for pension payment
IV Prerequisites for survivor pension
V Amount of the pension payment
VI Amount of the survivor pension
VII Payment of the occupational pension
VIII Security of the occupational pension
IX Duties of claimants
X Non-Forfeitability
XI Allowance for alternative pension systems
XII Reservation clause
<PAGE> 3
Dr. Tonio Barlage
Am Hirschpark 14
22587 Hamburg
On behalf of Sauer Inc., Ames, Iowa/USA, Sauer-Sundstrand GmbH & Co., hereby
makes with you the following
Post-retirement Agreement
I. Modes of execution
1. The awarded modes of execution of the business pension scheme (in the
following referred to as "occupational pension") include
Pension as old age pension or disability pension
as well as
Survivors pension as widows pension or orphans pension
2. The occupational pension, is earned with the fulfillment of the
requirements (III, IV).
II. Fixed retirement limit
You will have reached the fixed retirement limit on the completion of the
60th year (of your life).
III. Prerequisites for pension payments
1. You earn a claim to old-age pension when your service relationship with
Sauer Inc. or another group company reaches or surpasses the fixed
retirement limit.
2a. You earn a claim for disability pension when your service relationship
with Sauer Inc. or another group company ends and you are at this time
disabled. In the context of this post-retirement agreement, disabled means
either incapable of gainful employment or vocational disability. This must
be proved by reference to a registered doctor's certificate.
2b. The claim to disability pension will not be earned if the disability is
self-inflicted.
<PAGE> 4
IV. Prerequisites for survivors pension
1a. The claim for widow's pension is gained by your surviving spouse (on your
death as heir in expectancy) whilst your service relationship with Sauer
Inc. or another group company exists. An additional prerequisite is that
you have entered into the marriage before completion of your 60th year and
that a provable marriage has existed for at least one year.
1b. The claim for orphan's pension is gained by your surviving child (as heir
in expectancy) on your death.
2a. The claim to widow's pension is gained by your surviving spouse (on your
death as pension recipient) when you yourself have claim to old age
pension at the time of your death. Additional prerequisites are you have
entered into the marriage before completion of your 60th year and that
this was before gaining your claim to old age pension (II).
2b. The claim to orphan's pension is also gained (on your death as pension
recipient) by your surviving child.
3 No claim to widow's pension is gained on death by suicide.
4a. Claimants to orphan pension are your legitimate, legitimated, adopted and
illegitimate children. An illegitimate child is only recognized as a
claimant if your paternity has been recognized by yourself or by court
process (ss.ss. 1600 et seq. of the German Civil Code).
4b. A further prerequisite for claimants to orphan pension is that the child
has not yet completed its 18th year. A claimant is still recognized,
however, after completion of its 18th year when it can be proven that
School or professional education is being pursued, or for National Service
or alternative Civil Service periods. These periods are acceptable until
completion of the 27th year.
V Amount of the pension payments
1. The old age pension amounts to 60% of your last years fixed annual salary
(gross salary) in accordance with 3a. of your contract of 19 September
1996 with Sauer Inc., Ames, Iowa/USA.
<PAGE> 5
2. The disability pension is calculated with reference to the old-age pension
of paragraph 1 above in which for each year lying between the point of
your claim to disability pension (III. 2) and the completion of your 60th
year is reduced by 3 1/3% (of the pension) (that is 2 percentage points of
the percentage rate mentioned under 1 (i.e. the gross salary)).
In this the missing years will be rounded; a period of 6 months or less
will not be recognized, whilst a period of more than 6 months will be
counted as a full year.
3a. Against the pension the following will be offset:
(1) Payments made from the statutory or possibly the additional voluntary
accident insurance scheme, to the extent that the company has participated
through its contributions; by one-off payments of the insurer, the pension
contribution will be the basis of this payment.
(2) Payments from the statutory pension scheme for employees, to the extent
that this is based on contributions which the company has made.
(3) To the extent that you have entered into a life insurance contract through
exemption from the statutory employee insurance scheme, and the company
has given supplementary payments to these insurance premiums, the amount
which will be offset is the amount which would have been offset in
accordance with V. 3a (2) when this supplement would have been made as
employer contribution to the statutory pension scheme.
(4) Possibly payments which, in the opinion of the company, relate to a duty
before the attainment of the fixed retirement limit.
In the case of (2) and (3) the amount offset in the first pension
calculation will not be amended by later amendments to the statutory
old-age pension as a result of index-linking.
3b. Limitation of the amount of the pension payment
If the monthly total of the pension payments from accident or pension
insurance (excluding any child supplements) together with the pension
granted by this contract exceeds 65% of the last (relevant) fixed monthly
salary, then the excess amount will be offset from the pension.
<PAGE> 6
VI Amount of the survivor pension
1. The measurement base for survivors pension is the pension according to V.
2. The widow's pension amounts to 60% of the measurement base in 1. However,
should your widow be more than 15 years younger than you, then the widow's
pension will be curtailed by 1/15 of its amount for each full year of age
difference in excess of the 15 years.
3. The orphan's pension amounts to
- 10% for each fatherless child and
- 20% for each orphan
of the measurement base according to 1. The total of all survivor
pensions, however, may not exceed 100%, that is the orphan's pension
additional to the widow's pension, may not exceed 40% of the measurement
base. In the case of an excess, the orphan's pensions will each be
appropriately curtailed.
VII Payment of the occupational pension
1. The occupational pension will be paid in equal monthly installments, after
deduction of all taxes, at the end of the month. The first payment will
follow in the month in which the claim is due (III, IV).
2. The claim to occupational pension is suspended until the end of the month
for which payments from your service relationship with Sauer Inc. or
another group company are earned.
3. All occupational pensions will be paid for the rest of your life, however
they end
- the claim to disability pension - with the cessation of the disability
- the claim for widow's pension - with the remarriage of your surviving
spouse
- the claim for orphan's pension - with the cessation of the prerequisites
(for qualification) as orphan (IV.4)
<PAGE> 7
4. The occupational pension will be paid for the last time for the month in
which the claim ceases. The revival of claims to pensions (with the
exception of the regulation in III. 3) or widow's pension is not
permitted.
VIII Security of the occupational pension
1. The continuity of the occupational pension and the statutory
non-forfeitability and preservation of the qualifying status should be
secured against the consequences of a possible insolvency of the company
through the pledge of reinsurance.
Only the company is allowed and obliged to conclude a reinsurance of the
occupational pension by means of a contract with an insurance company.
2. You are obliged to give the necessary agreement to the conclusion of an
insurance contract. You must give the information requested by the
insurance company and to undertake the necessary medical examinations. The
failure to participate in the conclusion of the insurance contract will
result in the loss of the corresponding guarantee.
IX Duties of the claimants
1a. Whomsoever obtains a claim of the occupational pension (claimant) is
obliged to make known to the company, in a timely manner and without
receiving a request to do so the following information
changes in the personal and family situation
changes of name, address and postal address
1b. On request of the company a claimant must deliver a birth certificate (or
other evidence).
1c. The claimant is obliged to inform the company in a timely manner and
without receiving a request to do so, and, if requested prove, the
following
- the cessation of old age pension from the statutory pension scheme
- the cessation of disability
- the cessation of orphan's rights (IV.4)
- the payment and amount of income and service which could lead to a
curtailment or suspension of the occupational pension
<PAGE> 8
1d. The claimant must, each year, give the company a tax deduction certificate
(Lohnsteuerkarte).
2. The claim to occupational pension may not be assigned, pledged or loaned
on security. Agreements with third parties of this nature are
non-operative against the company.
3. Compensation claims against persons whose actions have resulted in an
occupational pension being claimed are obliged to be assigned to the
company to the extent of the occupational pension.
4. By contravention of these duties the claim on the occupational pension is
suspended.
X Non-Forfeitability
1. This pension agreement does not restrict the right to termination of the
service contract.
2a. If the service relationship with Sauer Inc. or another group company has
ended without a claim under the pension agreement being granted, the
qualifying status for occupational pensions (Gesetz zur Verbeserung der
betrieblichen Altersversorgung) is preserved in the prescribed extent.
2b. However, should the service relationship not be continued until the
completion of your 60th year for reasons which you are not responsible
for, the qualifying status for occupational pension is preserved in full.
2c. The payment amount for the qualifying scheme as set in (b) will be
curtailed by all amounts of pension earnings gained after the termination
of the service relationship with the company. For this purpose all other
modes of execution (for example capital payments) will be converted into
their pension equivalent. Capital amounts will be actuarially re-based
using calculation bases and interest rates as used for the last evaluation
of the pension obligations in the tax accounts (of the company).
3. As owner of the preserved qualifying status you will be informed of the
amount which you are entitled to receive as old-age pension.
<PAGE> 9
4. The registration and preservation of proof obligations in accordance with
IX. 1a and b should continue to be fulfilled during the period after the
termination of the service relationship. A claim to occupational pension
must be registered on a timely basis.
XI Allowance for alternative pension systems
Should the company, through law, industry-wide employment agreement or from
other source, be obliged to make pension arrangements or other payments for
similar purposes, so will these other payments be curtailed against the
occupational pension. The curtailment arrangements will then be appropriately
regulated.
XII Reservation Clause
The company reserves the right to change the pension arrangements or to curtail
or to terminate the occupational pension if you undertake actions of gross
misconduct or which would allow for an instant dismissal.
Neumunster 19 September 1996
(signed Dr. Klaus Murmann)
<PAGE> 1
Exhibit 10.1(y)
Company Pension Scheme
of
Sauer Sundstrand GmbH & Co.
SUPPORT AND PENSIONS REGULATIONS
<PAGE> 2
Table of Contents Page
I. Support benefits
II. Employer's pension commitment
III. Expectancy and entitlement
IV. Qualifying period
V. Conditions for entitlement to retirement benefit
VI. Conditions for entitlement to surviving dependants' benefit
VII. Amount of retirement benefit
VIII. Amount of surviving dependants' benefit
IX. Years of service counting for pension rights, credited period
X. Remuneration on which the pension is based
XI. Crediting of other support
XII. Non-forfeitability
XIII. Insolvency insurance
XIV. Reinsurance
XV. Due date, payment and suspension
XVI. Obligations of persons drawing company-provided pensions
XVII. Settlement and transfer
XVIII. Reserved powers of revocation
XIX. Liability and limitation
XX. Data protection
XXI. Effective date
<PAGE> 3
I. Support benefits
1. Sauer Sundstrand GmbH & Co.,
Neumunster
(hereinafter referred to as the "company" pays the following support
benefits in accordance with these Support and Pensions Regulations:
- Retirement benefit as
- Retirement pension
- Early retirement pension
- Disability pension
- Surviving dependants' benefit as
- Widow's pension
- Widower's pension
- Orphans' pension
2. Employees and their surviving dependants have a legal claim to the support
benefits (hereinafter referred to as "company-provided pensions").
II. Employer's pension commitment
1. a) The company commits itself to granting company-provided pensions in
accordance with Section I (employer's pension commitment) to
employees in employment on the effective date of these Support and
Pensions Regulations (XXI) or to those who enter the company's
employ thereafter, in accordance with the conditions specified in
Figure 2.
b.) The employer's pension commitment shall be deemed to be given at the
point in time in which all conditions for said commitment have been
met (Figure 2). The company shall not be required to give a separate
commitment declaration to each employee.
2. Conditions for the employer's giving of a pension commitment:
- the employee is not employed in a minor occupation and is not exempt
from social insurance for any other reason (Sections 1228 RVO
(German National Insurance Code), 4 AVG (Salaried Employees
Insurance Act), 30 RKG (German National Miners' Social Insurance
Act) in conjunction with Section 8 Social
<PAGE> 4
Security Code IV (SGB IV) and is not employed in a temporary
capacity, and
- the years of service (IX 1) counting for pension rights begin before
the employee's reaching the age of 55 (maximum age for commitment)
2. Persons whose legal relationship to the company is not an employment
relationship, i.e. members of executive bodies, homeworkers and commercial
representatives, for example, shall not receive a pension commitment in
accordance with these Support and Pensions Regulations. Vocational
training within the company, however, shall be regarded as an employment
relationship.
III. Expectancy and entitlement
1. An expectant right to company-provided pensions is acquired upon the
employer's giving of a pension commitment (II 1). Persons who have
acquired an expectant right shall be referred to in the following as
"persons with future pension rights".
2. Following expiry of the qualifying period (IV), persons shall acquire an
entitlement to a company-provided pension if the relevant entitlement
conditions (V, VI) are met. Persons who have acquired an entitlement shall
be referred to in the following as "persons drawing company pensions".
This term covers both recipients of retirement benefit ("retirement
benefit recipients") as well as recipients of surviving dependants'
benefit.
IV. Qualifying period
The qualifying period shall expire when the person with future pension
rights has completed a period of service counting for pension rights (IX
1) of five years and has reached the age of 30 (in the event of
occupational disability, Section V, Figure 3 b shall apply).
V. Conditions for entitlement to retirement benefit
1. A precondition for entitlement to a retirement pension is that the person
with future pension rights terminates his employment relationship with the
company upon or after
<PAGE> 5
reaching the fixed retirement age. The fixed retirement age is the age of
65.
2. A precondition for entitlement to an early retirement pension is that the
person with future pension rights terminates his employment relationship
with the company prior to reaching the fixed retirement age (Figure 1),
and that he claims an old-age pension or a miners' social insurance
pension from the national pension insurance scheme (Sections 1248 RVO, 25
AVG, 48 RKG) following termination of this employment relationship.
Evidence of this is to be submitted in the form of official notification
from a German pension insurance institution.
3. a) A precondition for entitlement to a disability pension is that the
person with future pension rights terminates his employment
relationship with the company prior to reaching the fixed retirement
age (Figure 1) and that he is disabled, at the latest, upon
termination of the employment relationship. In cases where notice of
dismissal has not been given and a termination agreement has not
been concluded, the following shall apply in so far as no regulation
to the contrary exists: the employment relationship shall be deemed
to have been terminated at the point in time in which the person
with future pension rights claims a disability pension from the
company.
b) Disablement within the meaning of these Support and Pensions
Regulations is as follows:
- invalidity (Sections 1247 RVO, 24 AVG, 47 RKG) or
- occupational disability (Sections 1246 RVO, 23 AVG, 46 RKG),
however, occupational disability only if
- the person with future pension rights has already reached the age of
50 upon termination of his employment relationship with the company,
or
- the person's occupational disability is due to an occupational
accident that occurred whilst the person was in the service of the
company (Sections 548, 549 RVO) or an occupational disease that was
contracted whilst the person was in the service of the company
(Section 551 RVO).
Evidence of invalidity or occupational disability is to be furnished
in the form of official notification from a German pension insurance
institution. Persons who are exempt from
<PAGE> 6
social insurance in the national pension insurance scheme and are
thus unable to furnish notification from a German pension insurance
institution must provide evidence of invalidity or occupational
disability through certification of same by a German medical officer
of health.
c) No entitlement to a disability pension is acquired if the person
with future pension rights has intentionally caused his disability
or if he was already occupationally disabled or unable to work upon
commencement of the last employment relationship with the company.
VI. Conditions for entitlement to surviving dependants' benefit
1. A precondition for entitlement to a widow's or widower's pension is that
the person with future pension rights or the recipient of retirement
benefit is survived by a spouse upon his death, to whom he
- was married for at least two years
- and whom he married before he turned 60, and - in the case of a
recipient of retirement benefit - before he acquired his entitlement to
retirement benefit.
2. a) A precondition for entitlement to an orphans' pension is that the
person with future pension rights or the recipient of retirement
benefit is survived by a legitimate child under the age of 21. If
the child has already turned eighteen, an additional condition for
entitlement is that the child can prove that
- he is still attending school or performing vocational
training, or
- that he is performing basic military service or non-military
service for conscientious objectors.
b) Legitimatized children, adopted children and illegitimate children
shall be treated as legitimate children. However, the illegitimate
children of a man are only declared legitimate if his paternity is
established by acknowledgement or by a court decision (Sections
1600a ff. of the Civil Code (BGB).
<PAGE> 7
VII. Amount of retirement benefit
1. The retirement benefit is made up of
- if applicable, the basic pension amount in accordance with Figure 2,
Paragraphs a and b for the years of service counting for pension
rights up to 30.09.1988 (IX 1) and
- the sum of the partial pension amounts (Figure 3) for the assessment
months (Figure 2, Paragraph c) after 30.09.1988.
2. a) The basic pension amount is only received by persons with future
pension rights who have already amassed at least one full year of
service counting for pension rights before 30.09.1988.
The basic pension amount corresponds to the amount of the retirement
pension attainable under the previous Support and Pensions
Regulations earned on 30.09.1988. This earned amount is calculated
in accordance with the provisions of Section 2 BetrAVG (Law
concerning Company Pension Schemes) as if the employment
relationship had ended on 30.09.1988. Every person with future
pension rights is notified in writing of the basic pension amount
calculated in this manner and said amount is binding in accordance
with Figure 4.
b) The basic pension amount changes upon expiry of every assessment
month (Figure 2, Paragraph c) in the same proportion as the
remuneration on which the pension is based changes in the assessment
month with respect to the level in the assessment month of the year
1988 at the same level of employment.
c) The assessment month is each full calendar month of October within
the period of service counting for pension rights (IX 1). The
earliest possible assessment month is October 1988.
3. a) Every partial pension amount amounts to
- 0.3% of the remuneration for work on which the pension is
based (X) in the assessment month in question (figure 2c)
plus, in so far as the remuneration on which the pension is
based exceeds the upper income limit (Paragraph b),
- 0.3% of the portion of the remuneration on which the pension
is based that exceeds this upper income limit.
b) The upper income limit within the meaning of Paragraph a is the
upper income limit for monthly earnings in the national pension
insurance scheme for salaried employees and wage-earners
<PAGE> 8
(Section 112 Paragraph 2 AVG, Section 1385 Paragraph 2 RVO) in the
assessment month in question (Figure 2c).
4. Interim notification from the company concerning the level of the
expectancy is binding for the amount of a later company-provided pension
unless the person with future pension rights objects to the contents of
the notification within three months of receipt of same. Objection must be
made in writing or in the form of a statement that is recorded.
5. Earnings of the recipient of retirement benefit, that said person receives
before the age of 65 from an employment relationship or other regular
remunerative employment shall be deducted from the retirement benefit in
the months in which said earnings are received.
VIII. Amount of surviving dependants' benefit
1. The evaluation basis for the surviving dependants' benefit is as follows:
- following the death of the person with future pension rights, the
amount of retirement benefit to which he would have been entitled,
taking due account of the credited period (IX 2), if his employment
relationship had been terminated directly before his death as a
result of invalidity (V 3, VII), and
- following the death of the recipient of retirement benefit, the
retirement benefit to which he was entitled at the time of his
death, however without deduction of income in accordance with
Paragraph VII, Figure 5.
2. The widow's and widower's pension is 60% of the evaluation basis in
accordance with Figure 1. However, if the surviving spouse is more than 15
years younger than the deceased, the widow's and widower's pension is
reduced by 1/15 of the full amount for every further year's age
difference.
3. The orphans' pension is
- 10% for every half orphan, and
- 20% for every full orphan
of the evaluation basis in accordance with Figure 1. The total surviving
dependants' benefit (widow's and widower's pension and orphans' pensions)
may not exceed the evaluation basis, otherwise each orphan's pension shall
be reduced proportionately.
<PAGE> 9
IX. Years of service counting for pension rights, credited period
1. a) The years of service counting for pension rights are the years
during which the person was employed by the company or performed
vocational training in the company without a break up to attainment
of an entitlement to a company-provided pension.
Legal provisions and the provisions of collective wage agreements
concerning the crediting of years of service in the area of company
pension schemes remain unaffected by this.
b) The following periods do not count as years of service counting for
pension rights:
- periods during which the person was employed in a minor
occupation, or was exempt from social insurance for any other
reason (Sections 1228 RVO, 4 AVG, 30 RKG in conjunction with
Section 8 Social Security Code IV (SGB IV), or was employed in
a temporary capacity, in so far as these periods elapsed prior
to the employer's giving of a pension commitment (II), and
- periods prior to the age of 20 and after the age of 65.
c) Further periods (periods prior to service) can be added to the years
of service counting for pension rights in order to determine the
expiry of the qualifying period (IV) and/or in order to calculate
the amount of the company-provided pensions (VII, VIII). However,
this must be agreed in writing between the company and the person
with future pension rights.
2. If an employee becomes entitled to a company-provided pension before the
age of 55, the gap between his present age and the age of 55 is to be
added (credited period) to the number of years of service counting for
pension rights (Figure 1) in order to calculate the amount of the
company-provided pension (VII, VIII).
X. Remuneration on which the pension is based
1. The remuneration on which the pension is based is calculated in each case
in accordance with the situation at the end of each assessment month (VII
2 c). Backdated changes in wages or salaries shall not affect remuneration
on which the pension is based that has already been calculated.
2. a) In the case of a person with future pension rights who receives a
monthly salary or a monthly wage, the remuneration on which the
pension is based is the basic monthly salary or basic monthly wage.
<PAGE> 10
b) In the case of a person with future pension rights who receives an
hourly wage, the remuneration on which the pension is based is
calculated by multiplying the collectively-agreed monthly working
hours by the basic hourly wage. If weekly working hours have been
established in a collective agreement, four and one thirds of this
figure is taken as the collectively-agreed monthly working hours.
c) In the case of an apprentice, the remuneration on which the pension
is based is the monthly vocational training pay.
3. If the person with future pension rights was employed part-time either
permanently or temporarily during the period covering the assessment month
(VII 2 c) and the period of service counting for pension rights (IX 1)
within the preceding eleven calendar months, the remuneration on which the
pension is based that was calculated in accordance with Figures 1 and 2
must be recalculated in accordance with the average level of employment
during this period. The level of employment is the ratio of the
individually agreed working hours to the collectively-agreed working hours
per calendar month, maximum 100%.
4. If individual, regular working hours (that are not part-time hours) have
been fixed, in accordance with an individual works agreement or in
accordance with an individual agreement permitted by an individual works
agreement, for a person with future pension rights, and if these working
hours deviate from the collectively-agreed working hours, said hours shall
count as the collectively-agreed working hours during the calculation of
the remuneration on which the pension is based.
5. a) In order to calculate the remuneration on which the pension is based
for an assessment month (VII 2 c) within a period which, according
to legal provisions or the provisions of collective agreements, is
to be taken into consideration as a period of service counting for
pension rights (IX 1 a), the amount is taken that is ascertainable
in accordance with Figures 1-4 for the first assessment month
following this period. This amount is then recalculated in
accordance with the change in the gross wage or salary (Paragraph
b).
b) Gross wages or salaries within the meaning of Paragraph a are the
average gross wages or salaries of all persons insured in the
pension insurance scheme for salaried employees and wage-earners,
not including apprentices and trainees (Section 32 Paragraph 1 AVG,
Section 1255 Paragraph 1 RVO) in the years in question.
<PAGE> 11
c) Paragraphs a and b are to be applied accordingly in comparable
cases, in particular in the case of agreed crediting of periods of
time prior to service (IX 1 c), in so far as no written agreement to
the contrary was concluded between the company and the person with
future pension rights.
6. In the case of an assessment month (VII 2 c) within a credited period (IX
2), the remuneration on which the pension is based is the amount that was
calculated in accordance with Figures 1 to 4 for the last assessment month
prior to acquisition of the entitlement (VI).
XI. Crediting of other support
Should the company be obliged by law, collective agreement or other
stipulations at any time in the future, to provide additional support
benefits above and beyond the scope existing on the effective date of
these Support and Pensions Regulations (XXI), or to provide contributions
for such support benefits, said benefits shall be added to the
company-provided pensions laid down in these Support and Pensions
Regulations. The method of crediting shall then be regulated separately.
XII. Non-forfeitability
1. These Support and Pensions Regulations shall not restrict the rights of
both sides to terminate the employment relationship.
2. a) If the employment relationship with the company is terminated
without the employee having acquired an entitlement to a
company-provided pension in accordance with these Support and
Pensions Regulations, the question of whether and to what extent the
expectancy regarding company-provided pensions is preserved shall be
governed by the Law concerning the Improvement of Company Pension
Schemes (Company Pensions Act).
b) Periods prior to service, that are added to the years of service
counting for pension rights in accordance with Section IX, Figure 1,
Paragraph c shall not be taken into consideration during the
examination of whether an expectancy is to be preserved and during
the determination of the portion of same that is to be preserved,
where appropriate.
3. The owner of a preserved expectancy is informed of the amount that he can
claim upon reaching the fixed retirement age (V 1).
4. The notification obligations contained in Section XVI, Figure 1, Paragraph
c must also be met by the owner of a preserved
<PAGE> 12
expectancy. Claims to a company-provided pension must be asserted
immediately following compliance with the requirements.
5. If the owner of an expectancy preserved by the company re-enters the
company, the company-provided pension arising from the newly acquired
expectancy will be curtailed if it exceeds the maximum permissible amount
when added to the pension from the preserved expectancy. The maximum
permissible amount is the company-provided pension that would have to be
paid in accordance with these Support and Pensions Regulations if the
partial pension amounts attributable to the previous period of service
were taken into account in addition to the partial amounts determined
following the employee's re-entering the company. An indemnified
expectancy is on a par with a preserved expectancy.
XIII. Insolvency insurance
Entitlements as well as legally non-forfeitable and preserved pension
expectancies are protected against the consequences of company insolvency
in accordance with the Company Pensions Act. In this context, the company
pays premiums to the Pensions-Sicherungs-Verein Versicherungsverein auf
Gegenseitigkeit (PSVaG) (German obligatory pensions guarantee corporation)
as the organisation responsible for the statutory insolvency insurance of
company pension schemes.
XIV. Reinsurance
1. The company can take out a policy to reinsure company pensions with an
insurance company, according to which policy the company alone is the
party entitled and obligated (reinsurance).
2. The person to be insured must give his consent to the taking out of a
reinsurance policy. In the case of a person with future pension rights
(III 1), this consent shall be considered given if he does not expressly
object immediately at the time of receiving the employer's pension
commitment (II 1). For the rest, the person to be insured must provide the
information required by the insurance company and go for any medical
check-ups required. Refusal to cooperate during the taking out of the
reinsurance shall result in the loss of the pension expectancy.
3. The person drawing a company-provided pension (III 2) must provide the
information required by the insurance company without delay and must
furnish the necessary proof for the assessment and winding up of the
insurance case. Refusal to cooperate during the assessment and winding up
of the insurance case shall result in suspension of the entitlement to a
company-provided pension.
<PAGE> 13
XV. Due date, payment and suspension
1. a) The company-provided pension is payable at the end of every calendar
month. The first payment shall be made for the month following the
month in which the entitlement was obtained (III 2).
b) The company-provided pension that is owing shall be paid out
following the deduction of any taxes, health insurance premiums and
other statutory duties. Payment is made cashlessly in German marks
to an account specified by the person drawing the company pension
(XVI 1 b).
2. a) The entitlement to a company-provided pension is suspended until
expiry of the last calendar month in which the employee received
other remuneration from his employment with the company, up to the
amount of this remuneration. Surviving dependants' earnings do not
count in this regard.
b) The entitlement to a company-provided pension is suspended entirely
until expiry of the last calendar month in which the employee
received money from an early retirement scheme or other payments
from the company.
c) The entitlement to an early retirement pension (V 2) is suspended in
so far as and for as long as the old-age pension or miners' old-age
pension from the national pension insurance scheme ceases to be
paid, at the most, however, until the end of the calendar month in
which the fixed retirement age (V 1) is reached.
3. a) The entitlement to a company-provided pension lapses upon the death
of the person drawing the company-provided pension; it lapses
prematurely, however, in the following cases:
- the entitlement to a disability pension lapses upon cessation of
the disability prior to reaching the fixed retirement age (V 1),
- the entitlement to a widow's or widower's pension lapses upon the
widow's or widower's remarrying, and
- the entitlement to an orphans' pension lapses upon cessation of
entitlement to the claim (VI 2 a).
A lapsed entitlement to retirement benefit or to a widow's or
widower's pension shall not be reinstated under any circumstances.
b) The final instalment of the company-provided pension shall be paid
for the month in which the entitlement lapses.
<PAGE> 14
XVI. Obligations of persons drawing company-provided pensions
1. a) Upon assertion of the claim, persons drawing company-provided
pensions must provide the proofs specified in the conditions for
entitlement (V, VI) and, at the company's request, must provide the
information necessary for the emergence or continuation of the
entitlement, procure the necessary documents and, if necessary,
provide proof that they are still alive.
b) The company must be given details of a German bank or post-office
current account for payment of the company-provided pension (XV 1
b). Details of a domestic account with a foreign bank can also be
given to the company by a beneficiary living abroad. The person
drawing the company-provided pension must submit a wage tax card to
the company every year in so far as this is required in accordance
with fiscal provisions.
c) The company must be notified immediately of changes of name, marital
status, residence and postal address, without having to request the
pensioner to do so.
d)
- In the case of an existing entitlement to an early retirement
pension, the person drawing the company-provided pension must inform
the company - immediately and without being requested to do so - of
the cessation of payments of an old-age pension or a miners' social
insurance pension from the national pension insurance scheme prior
to reaching the fixed retirement age (V 1),
- in the case of an existing entitlement to an early retirement
pension or a disability pension, the person drawing the
company-provided pension must inform the company - immediately and
without being requested to do so - of the collection of income and
the amount of same to be deducted by the company when paying out the
retirement benefit (VII 5),
- in the case of an existing entitlement to a disability pension (V
3), the person drawing the company-provided pension must inform the
company of the cessation of invalidity immediately and without being
requested to do so,
- in the case of an existing entitlement to a widow's or widower's
pension (VI 1), the person drawing the company-provided pension must
inform the company of the remarriage immediately and without being
requested to do so,
- in the case of an existing entitlement to an orphans' pension (VI
2), the person drawing the company-provided pension must inform
<PAGE> 15
the company of the cessation of the entitlement to the claim
immediately and without being requested to do so.
In each of the above cases, the person must furnish the necessary
proof at the request of the company.
2. Subject to obligatory, statutory regulations, the entitlement to a
company-provided pension may not be assigned or pledged. Agreements to the
contrary with third parties shall not be recognised by the company.
3. Damage claims against persons whose actions caused the person's
entitlement to a company-provided pension, or against their liability
insurer, must be assigned to the company up to the amount of the
company-provided pension, in so far as this is permissible under law.
4. Company-provided pensions that would not have been paid out had the
company been notified that the person drawing the pension was no longer
entitled to same, must be paid back in the full gross amounts. For the
rest, a breach of the above-mentioned obligations shall result in
suspension of the entitlement to a company-provided pension.
XVII. Settlement and transfer
1. The company may settle the entitlement to a company-provided pension in
whole or in part by means of an actuarially equivalent capital payment.
This also applies to the settlement of a company-pension expectancy in so
far as no statutory settlement prohibition exists. The amount of the
settlement shall be paid in full or in instalments to the person with
future pension rights or to the person drawing a company-provided pension,
following deduction of any taxes, health insurance premiums and other
statutory duties.
2. The company may transfer its obligation in accordance with its commitment
to provide support to an insurance company either in whole or in part, in
accordance with the statutory provisions, and thus procure a direct legal
claim against the insurance company for the person with future pension
rights or for the person drawing a company-provided pension. Taxes, health
insurance premiums and other statutory duties arising during the transfer
shall be paid by the person with future pension rights or by the person
drawing the company-provided pension.
<PAGE> 16
XVIII. Reserved powers of revocation
The company reserves the right to amend these Support and Pensions
Regulations, or to curtail or stop payment of the company-provided
pensions when
- the company's financial situation has deteriorated to such an
extent, with lasting effect, that payment of the company-provided
pensions for which a commitment has been given can no longer be
reasonably expected, or
- there is a major change in the category of people, the
contributions, the benefits or the retirement age as defined by the
national pension insurance scheme or other official statutory
pension schemes, or
- if the legal, and in particular the fiscal, treatment of the
expenditure that is incurred, or has been incurred by the company
for the planned financing of the company-provided pensions changes
to such an extent that the company can no longer be expected to
adhere to its commitment to its company pensions, or
- if the person with future pension rights or the person drawing a
company-provided pension acts in gross breach of good faith, or
commits acts that would lead to instant dismissal.
2. For the rest, the company reserves the right to amend these Support and
Pensions Regulations or to curtail or stop payment of the company-provided
pensions if, on the effective date of these Support and Pensions
Regulations (XXI), the relevant circumstances have changed so
significantly, with lasting effect, that the company can no longer be
expected to adhere to its commitment to provide company pensions, despite
objective consideration of the concerns of the persons with future pension
rights and the persons drawing company-provided pensions.
XIX. Liability and limitation
1. a) A present, former or future shareholder of the company shall be held
liable for the obligations that company has entered into with these
Support and Pensions Regulations vis-a-vis the persons with future
pension rights and persons drawing company-provided pensions, in
accordance with the general statutory provisions including statutory
limitation rules.
b) However, a shareholder that has withdrawn from the company shall not
be liable for those entitlements to company-provided pensions that -
regardless of when they were acquired - did not become due
<PAGE> 17
until five years following the entry of its withdrawal from the
company in the commercial register. This shall apply accordingly
- when an unlimitedly personally liable shareholder changes its
legal status to that of a limitedly liable shareholder, and
- upon change of the corporate form of the company to a
corporate enterprise.
2. Statutory provisions that lead to earlier cessation of liability and the
statutory regulation of liability in the case of a transfer of the
business (Section 613 a of the Civil Code) remain unaffected.
XX. Data Protection
The company receives advice and support from an expert in questions
concerning the company pension scheme. This expert stores the personal
data of the persons with future pension rights and the persons drawing
company-provided pensions that it requires in order to execute its
commission. It is obliged to treat these data confidentially and is bound
by the provisions of the Federal Data Protection Act (BDSG).
2. The expert is the company Herbert E.G. Hofer, Bismarckstrasse 47, 4330
Mulheim an der Ruhr.
XXI. Effective date
These Support and Pensions Regulations are part of the individual works
agreement of 4.11 and shall take effect upon conclusion of said agreement.
<PAGE> 1
Exhibit 21.1
Sauer Inc.
Legal Entity Listing
December 1997
<TABLE>
<S> <C> <C>
Sauer Inc. U.S. Corporation Holding Company
Sauer-Sundstrand Company U.S. Corporation Manufacturing
SUSA Holding Of LaSalle County, Inc. U.S. Corporation Real Property Holding
SUSA Holding Of Story County, Inc. U.S. Corporation Real Property Holding
SUSA Holding Of Stephenson County, Inc. U.S. Corporation Real Property Holding
Control Concepts, Inc. U.S. Corporation Manufacturing
Hydro-Gear Inc. U.S. Corporation Holding Company/
General Partner
Hydro-Gear
Limited Partnership U.S. Partnership Manufacturing
Sauer-Sundstrand SpA Italy Corporation Manufacturing
Sauer-Sundstrand Ltd. U.K. Corporation Manufacturing
Sauer-Sundstrand GB Ltd. U.K. Corporation Inactive
Sauer-Sundstrand GmhH & Co. Germany Partnership Manufacturing
Sauer-Sundstrand Benelux BV Netherlands Corporation Sales Company
Sauer-Sundstrand Benelux NV Belgium Corporation Sales Company
Sauer-Sundstrand Iberica SA Spain Corporation Sales Company
Sauer-Sundstrand Hydraulique SA France Corporation Sales Company
Sauer-Sundstrand Svenska AB Sweden Corporation Sales Company
Sauer-Sundstrand Gesellschaft mbH Austria Corporation Sales Company-Inactive
Sauer-Sundstrand Slowakel s.r.o Slovakia Corporation Sales Company
Sauer Informatik GmbH Germany Corporation Information Services
Sauer Bibus GmbH Germany Corporation Sales Company
Sauer-Sundstrand GmbH Germany Corporation Holding Company/
Management
Sauer Mechanika a.s. Slovakia Corporation Manufacturing
Sauer Hydraulika a.s. Slovakia Corporation Manufacturing
Sauer-Sundstrand Hydratec GmbH Germany Corporation Sales Company-Inactive
Sauer ZTS Slovakia Corporation Manufacturing
Sauer Shanghai Hydrostatic
Transmission Co. Ltd. China Corporation Manufacturing
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this registration statement on Form S-1 of our reports on our audit of the
consolidated financial statements of SAUER INC. AND SUBSIDIARIES and on the
financial statement schedule and to all references to our firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
April 22, 1998
<PAGE> 1
EXHIBIT 24.1(B)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Tonio P. Barlage and Kenneth D. McCuskey
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing), to sign any and all
amendments, including post-effective amendments, and supplements to this
Registration Statement, and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) and the Securities Act of 1933, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or his or their
substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Power of
Attorney has been signed below by the following persons in the capacities
indicated below, on this 20th day of March, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ AGUSTIN A. RAMIREZ Director
- -----------------------------------------------------
Agustin A. Ramirez
/s/ RICHARD M. SCHILLING Director
- -----------------------------------------------------
Richard M. Schilling
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,363,000
<SECURITIES> 0
<RECEIVABLES> 77,170,000
<ALLOWANCES> 3,195,000
<INVENTORY> 89,031,000
<CURRENT-ASSETS> 183,121,000
<PP&E> 382,785
<DEPRECIATION> 191,095
<TOTAL-ASSETS> 390,903
<CURRENT-LIABILITIES> 139,302
<BONDS> 0
0
0
<COMMON> 249
<OTHER-SE> 85,052
<TOTAL-LIABILITY-AND-EQUITY> 390,903
<SALES> 535,173,000
<TOTAL-REVENUES> 535,173,000
<CGS> 404,065
<TOTAL-COSTS> 477,295
<OTHER-EXPENSES> 6,313
<LOSS-PROVISION> 1,110,000
<INTEREST-EXPENSE> 8,305
<INCOME-PRETAX> 43,073
<INCOME-TAX> 15,944
<INCOME-CONTINUING> 27,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,129
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
