<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 333-48299
SAUER-DANFOSS INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3482074
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2800 East 13th Street, Ames, Iowa 50010-8600
- -------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (515) 239-6000
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of May 3, 2000, 45,309,118 shares of Sauer-Danfoss Inc. common stock, $.01
par value, were outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income:
Thirteen Weeks Ended April 2, 2000 and April 4, 1999 ................... 3
Consolidated Balance Sheets:
As of April 2, 2000 and December 31, 1999 .............................. 4
Consolidated Statements of Cash Flows:
Thirteen Weeks Ended April 2, 2000 and April 4, 1999 ................... 5
Notes to Consolidated Financial Statements ............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............. 11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds .............................. 12
Item 4. Submission of Matters to a Vote of Security Holders .................... 12
Item 6. Exhibits and Reports on Form 8-K ....................................... 12
SIGNATURES ...................................................................... 15
</TABLE>
<PAGE>
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------------------
April 2, 2000 April 4, 1999
-------------------------- ----------------------
<S> <C> <C>
NET SALES $163,479 $153,097
-------------------------- ----------------------
COSTS AND EXPENSES:
Cost of sales 120,573 114,082
Selling, general and administrative 17,113 14,684
Research and development 7,199 6,102
-------------------------- ----------------------
Total costs and expenses 144,885 134,868
-------------------------- ----------------------
Operating income 18,594 18,229
-------------------------- ----------------------
NONOPERATING INCOME (EXPENSES):
Interest expense, net (2,156) (2,487)
Royalty income 179 175
Other, net (200) (117)
-------------------------- ----------------------
Nonoperating expenses, net (2,177) (2,429)
-------------------------- ----------------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 16,417 15,800
PROVISION FOR INCOME TAXES (5,333) (4,642)
-------------------------- ----------------------
INCOME BEFORE MINORITY INTEREST 11,084 11,158
MINORITY INTEREST IN INCOME OF
CONSOLIDATED COMPANIES (2,917) (3,094)
-------------------------- ----------------------
Net income $ 8,167 $ 8,064
========================== ======================
Basic and diluted net income per
common share outstanding $ 0.30 $ 0.30
========================== ======================
Dividends declared per common share $ 0.07 $ 0.07
========================== ======================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited)
April 2, December 31,
2000 1999
----------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,169 $ 5,061
Accounts receivable, less allowances 100,449 73,305
Inventories 76,710 73,977
Other current assets 11,175 9,242
----------------- ------------------
Total current assets 197,503 161,585
----------------- ------------------
PROPERTY, PLANT AND EQUIPMENT, NET 265,038 269,485
----------------- ------------------
OTHER ASSETS:
Intangible assets, net 5,936 2,663
Deferred income taxes 3,785 4,273
Other 5,723 4,509
----------------- ------------------
Total other assets 15,444 11,445
----------------- ------------------
$ 477,985 $ 442,515
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and bank overdrafts $ 30,704 $ 19,312
Long-term debt due within one year 1,565 1,609
Accounts payable 40,731 39,064
Accrued salaries and wages 11,689 8,901
Accrued warranty 7,471 7,640
Other accrued liabilities 25,947 13,744
----------------- ------------------
Total current liabilities 118,107 90,270
----------------- ------------------
LONG-TERM DEBT 111,081 110,934
----------------- ------------------
OTHER LIABILITIES:
Long-term pension liability 32,671 31,342
Postretirement benefits other than pensions 14,361 14,361
Deferred income taxes 5,881 5,448
Other 3,493 5,647
----------------- ------------------
Total other liabilities 56,406 56,798
----------------- ------------------
MINORITY INTEREST IN NET ASSETS OF CONSOLIDATED COMPANIES 36,651 33,761
----------------- ------------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, authorized
45,000,000 shares in 2000 and 1999; issued
28,074,050 in 2000 and 1999; outstanding 27,502,306
in 2000 and 27,399,050 in 1999 281 281
Additional paid-in capital 120,821 120,053
Retained earnings 48,105 41,863
Accumulated other comprehensive income (9,549) (7,038)
Unamortized restricted stock compensation (1,631) (1,707)
Common stock in treasury (at cost),
571,744 shares in 2000 and 675,000
shares in 1999 (2,287) (2,700)
----------------- ------------------
Total stockholders' equity 155,740 150,752
----------------- ------------------
$ 477,985 $ 442,515
================= ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
SAUER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------
April 2, April 4,
2000 1999
------------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,167 $ 8,064
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 10,453 9,595
Minority interest in income of
consolidated companies 2,917 3,094
(Increase) decrease in working capital -
Accounts receivable, net (28,629) (26,136)
Inventories (3,696) 3,177
Accounts payable 2,349 3,136
Accrued liabilities 14,596 10,825
Other (775) (1,660)
------------------ ---------------
Net cash provided by operating activities 5,382 10,095
------------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (8,485) (15,415)
Payments for acquisitions, net of cash acquired (3,645) -
------------------ ---------------
Net cash used in investing activities (12,130) (15,415)
------------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable and bank overdrafts 12,205 1,123
Net borrowings of long-term debt 1,618 5,561
Cash dividends (1,925) (1,918)
Distributions to minority interest partners (28) (1,394)
------------------ ---------------
Net cash provided by financing activities 11,870 3,372
------------------ ---------------
EFFECT OF EXCHANGE RATE CHANGES (1,014) (135)
------------------ ---------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period 4,108 (2,083)
Beginning balance 5,061 8,891
------------------ ---------------
Ending balance $ 9,169 $ 6,808
================== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 854 $ 1,497
Income taxes paid $ 15 $ 148
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
103,256 shares of common stock were issued on January 24, 2000
in connection with the acquisition of NOB Electronik AB. $ 1,180
</TABLE>
<PAGE>
SAUER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1) BASIS OF PRESENTATION AND USE OF ESTIMATES -
The consolidated financial statements of Sauer Inc. and subsidiaries
(the "Company") included herein have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements, prepared in accordance
with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. 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, liabilities, revenues and expenses. Actual results
could differ from those estimates. In the opinion of management, the
statements reflect all adjustments, which are of a normal recurring
nature, necessary to present fairly the Company's financial position as
of April 2, 2000 and April 4, 1999, and results of operations for the
thirteen weeks ended April 2, 2000, and April 4, 1999, and cash flows
for the thirteen weeks ended April 2, 2000 and April 4, 1999. These
financial statements and notes are to be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K as filed with the Securities and Exchange
Commission dated March 30, 2000.
2) COMPREHENSIVE INCOME -
Total comprehensive income, consisting of net income adjusted for
foreign currency translation, is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
<S> <C> <C>
April 2, April 4,
2000 1999
------------------------ ----------------------
Net income $ 8,167 $ 8,064
Translation adjustment (2,511) (6,124)
------------------------ ----------------------
Comprehensive income $ 5,656 $ 1,940
======================== ======================
</TABLE>
3) BASIC AND DILUTED PER SHARE DATA -
Basic net income per common share data has been computed by dividing
net income by the weighted average number of shares of common stock
outstanding for the period less those restricted stock shares issued
in connection with the Company's long-term incentive plan and
subject to risk of forfeiture. The dilutive effect of the restricted
stock shares is calculated using the treasury stock method which
applies the unamortized compensation expense to repurchase shares of
common stock. The reconciliation of basic net income per common
share to diluted net income per common share is shown in the
following table for the thirteen week periods ending April 2, 2000,
and April 4, 1999:
<PAGE>
<TABLE>
<CAPTION>
April 2, 2000 April 4, 1999
------------------------------------- --------------------------------------
Net Income Shares EPS Net Income Shares EPS
---------- ------ --- ---------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Thirteen Weeks:
- ---------------
Basic net income $8,167 27,304,370 $.30 $8,064 27,225,000 $.30
Effect of dilutive
securities:
Restricted stock - 1,971 - - -
---------- ---------- ---- ---------- ---------- ----
Diluted net income $8,167 27,306,341 $.30 $8,064 27,225,000 $.30
========== ========== ==== ========== ========== ====
</TABLE>
4) SEGMENT AND GEOGRAPHIC INFORMATION -
The Company's two reportable segments are defined by geographic
region due to the difference in economic characteristics in which
these segments operate. The activities of each reportable segment
consist of the design, manufacture and sale of hydraulic systems and
other related components.
The following table presents the significant items by segment for
the results of operations for the thirteen week periods ending April
2, 2000, and April 4, 1999, and balance sheet data as of April 2,
2000 and December 31, 1999, respectively:
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED:
NORTH ALL
APRIL 2, 2000 AMERICA EUROPE OTHER ELIMINATIONS TOTAL
------------- --------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Trade sales $107,382 $ 54,976 $ 1,121 $ - $163,479
Intersegment sales 11,637 9,251 380 (21,268) (1) -
Net income (loss) 7,121 2,198 (43) (1,109) (2) 8,167
Total assets 263,199 210,904 195,446 (191,564) (3) 477,985
APRIL 4, 1999
-------------
Trade sales $ 98,102 $ 53,704 $ 1,291 $ - $153,097
Intersegment sales 10,589 8,858 46 (19,493) (1) -
Net income (loss) 7,799 1,065 244 (1,044) (2) 8,064
Total assets 239,895 200,927 189,185 (187,492) (3) 442,515
</TABLE>
Reconciliations:
(1) Elimination of intersegment sales.
(2) Net income eliminations - minority interest in German Operating Company.
(3) Total assets eliminations:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Investment in subsidiaries $(163,178) $(158,150)
Intersegment receivables (28,470) (27,757)
Intersegment profit in inventory and other 84 (1,585)
--------- ---------
Total assets eliminations $(191,564) $(187,492)
========== ==========
</TABLE>
A summary of the Company's net sales by product line is presented below:
<TABLE>
<CAPTION>
Net Sales
--------------------------
Thirteen Weeks Ended
--------------------------
2000 1999
-------- ---------
<S> <C> <C>
Hydrostatic transmissions $131,566 $125,450
Open circuit gear pumps and motors and piston pumps 19,758 17,938
Electrohydraulics and controls 12,155 9,709
-------- --------
Total $163,479 $153,097
======== ========
</TABLE>
<PAGE>
A summary of the Company's net sales and long-lived assets by geographic area is
presented below:
<TABLE>
<CAPTION>
Net Sales (1)
Thirteen Weeks Ended Long-Lived Assets(2)
------------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States $ 99,090 $91,026 $154,793 $147,999
Germany 13,257 13,927 41,917 46,166
United Kingdom 8,303 7,791 24,472 24,202
Slovakia 116 189 34,535 33,868
Other countries 42,713 40,164 20,980 16,653
-------- -------- -------- --------
Total $163,479 $153,097 $276,697 $268,888
======== ======== ======== ========
</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 period presented.
5) SUBSEQUENT EVENTS -
On May 3, 2000 the Company completed its acquisition of the Danfoss
Fluid Power Companies and the Company has been renamed Sauer-Danfoss
Inc. Sauer-Danfoss Inc. will continue to be listed under SHS on the New
York Stock Exchange and under SAR on the Frankfurt Stock Exchange. The
Danfoss Fluid Power Companies, with headquarters in Nordborg, Denmark,
design and manufacture orbital motors, hydrostatic steering units,
proportional load-sensing valves, gear pumps and electrohydraulics for
use by OEMs of off-highway mobile equipment. The purchase price
consisted of 16,149,812 shares of the Company's common stock in
exchange for all of the outstanding shares of the Danfoss Fluid Power
Companies and will be accounted for by the purchase method of
accounting for business combinations. In addition, the company will
assume debt at a ratio consistent with the Company's December 31, 1999
debt to debt plus equity ratio as defined in the definitive stock
exchange agreement.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT - THE INFORMATION DISCUSSED BELOW IN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTAINS "FORWARD-LOOKING STATEMENTS," STATEMENTS REGARDING MATTERS THAT ARE NOT
HISTORICAL FACTS, BUT RATHER ARE SUBJECT TO RISKS AND UNCERTAINTIES. THESE
STATEMENTS ARE BASED ON CURRENT FINANCIAL AND ECONOMIC CONDITIONS AND RELY
HEAVILY ON THE COMPANY'S INTERPRETATIONS OF WHAT IT CONSIDERS KEY ECONOMIC
ASSUMPTIONS. ACTUAL FUTURE RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY
OF FACTORS. THESE FACTORS, SOME OF WHICH ARE IDENTIFIED IN THE DISCUSSION
ACCOMPANYING SUCH FORWARD-LOOKING STATEMENTS, INCLUDE, BUT ARE NOT LIMITED TO,
GENERAL ECONOMIC CONDITIONS, FOREIGN CURRENCY MOVEMENTS, PRICING AND PRODUCT
INITIATIVES AND OTHER ACTIONS TAKEN BY COMPETITORS, ABILITY OF SUPPLIERS TO
PROVIDE MATERIALS AS NEEDED, LABOR RELATIONS, THE COMPANY'S EXECUTION OF
INTERNAL PERFORMANCE PLANS, AND OTHER CHANGES TO BUSINESS CONDITIONS.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 2, 2000 COMPARED TO THIRTEEN WEEKS ENDED
APRIL 4, 1999
NET SALES - Net sales for first quarter 2000 of a record $163.5 million
increased by $10.4 million, or 6.8% from first quarter 1999 net sales of
$153.1 million. Net sales increased by 10.0% excluding the impact of currency
fluctuation. All of the Company's markets except road-building experienced
increases in the first quarter 2000 over first quarter 1999. Turf care sales
increased 13.6%, construction was up 9.8%, agriculture up 5.3%, while the
specialty market increased 1.2% and distribution/aftermarket was up 8.5% over
first quarter 1999. Road-building declined by 6.0% from first quarter 1999.
North American net sales for first quarter 2000 of $107.4 million increased
by $9.3 million, or 9.5% from first quarter 1999 net sales of $98.1 million.
The Company's Sullivan, Illinois, operations experienced an increase of $4.7
million in sales over first quarter 1999 driven by the strong increase in
activity in the turf care market mentioned above. Additionally, the North
American hydrostatics business unit had increased sales of $2.0 million over
first quarter 1999 due primarily to two new products for the construction and
specialty markets. The Company's electrohydraulics operations in Minneapolis,
Minnesota, accounted for increased sales of $1.6 million over first quarter
1999. European net sales for first quarter 2000 of $55.0 million increased by
$1.3 million, or 2.4% from first quarter 1999 net sales of $53.7 million.
European net sales increased by 9.1% excluding the impact of currency
fluctuation. Net sales in Europe were aided by an increase in the agriculture
market of 3% or $0.5 million over first quarter 1999. In addition, Europe's
net sales include $1.0 million of sales from NOB Electronik AB acquired in
January 2000. East Asia net sales for first quarter 2000 decreased by $0.2
million, or 13.0% from first quarter 1999 sales driven primarily by lower
sales in the Chinese market.
The following table sets forth the Company's net sales by market, in dollars
(000's) and as a percentage of total net sales, for the thirteen weeks ended
April 2, 2000, and April 4, 1999:
<TABLE>
<CAPTION>
April 2, 2000 % of Total April 4, 1999 % of Total
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Agriculture $ 26,246 16.0 $ 24,928 16.3
Construction 25,340 15.5 23,077 15.1
Turf Care 41,610 25.5 36,625 23.9
Road-building 19,884 12.2 21,164 13.8
Specialty 12,552 7.7 12,408 8.1
Distribution and aftermarket 37,847 23.1 34,895 22.8
-------------- ---------- ------------ ----------
Total $163,479 100.0 $153,097 100.0
============== ========== ============= ==========
</TABLE>
COST OF SALES - Cost of sales for first quarter 2000 of $120.6 million was
73.8% of net sales, compared to 74.5% of net sales for first quarter 1999.
Cost of sales for first quarter 2000 as a percentage of sales decreased due
to the higher volumes running through the Company's plants thereby increasing
the absorption rate of overhead costs. In addition, the Company is continuing
to emphasize controlling costs, particularly in Europe. The Company expects
this trend to continue for the second quarter of 2000 but leveling off during
the balance of the year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses for first quarter 2000 of $17.1 million increased by
$2.4 million, or 16.3% from first quarter 1999 expenses of $14.7 million. The
increase reflects $1.1 million of employee severance costs and integration
costs related to the Danfoss acquisition of $0.5 million. The remaining
increase reflects staffing increases in the marketing area in addition to
higher depreciation levels from information technology equipment. The
employee severance costs were not related to the Danfoss acquisition,
however, the Company anticipates higher costs in this area to continue due to
integration activities and higher employment levels.
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses for
first quarter 2000 of $7.2 million increased $1.1 million, or 18.0% from
first quarter 1999 expenses of $6.1 million. The increase reflects the
addition of engineering staff and prototype hardware in support of the
Company's commitment to on-going product development.
NONOPERATING EXPENSES, NET - Net nonoperating expenses for first quarter 2000
of $2.2 million were $0.2 million less than first quarter 1999 net expenses
of $2.4 million. Net interest expense for first quarter 2000 of $2.2 million
decreased by $0.3 million from first quarter 1999 net expense of $2.5 million
due to lower overall borrowings in the first quarter of 2000. Net borrowings
have declined due to reduced capital expenditures in 2000 compared to 1999.
PROVISION FOR INCOME TAXES - Provision for income taxes for first quarter
2000 of $5.3 million increased by $0.7 million from first quarter 1999
provision for income taxes of $4.6 million. The increase comes from the
increase in net income before income taxes of $0.8 million and the increase
in the effective tax rate for first quarter 2000 of 39.5% from the first
quarter 1999 rate of 36.5%.
NET INCOME - Net income for first quarter 2000 of $8.2 million increased by
$0.1 million, or 1.2% from first quarter 1999 net income of $8.1 million. Net
income was impacted by the increase in sales for the quarter and the lower
cost of sales level as a percentage of net sales as discussed above. North
American first quarter 2000 net income of $7.1 million decreased by $0.7
million, or 9.0%, from first quarter 1999 net income of $7.8 million. North
American net income was unfavorably impacted by the increase in selling,
general and administrative expenses, higher research and development costs
and the higher fixed costs from capital investments. European first quarter
2000 net income of $2.2 million increased by $1.1 million, or 100.0%, from
first quarter 1999 net income of $1.1 million. The increase in European net
income results directly from the increased sales volumes and throughput in
the Company's European plants coupled with the efforts to improve operating
efficiencies in those plants.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have been from internally
generated funds and from borrowings under its credit facilities.
Net cash provided by operating activities for the thirteen week period ended
April 2, 2000 of $4.7 million decreased by $5.4 million from the thirteen
week period ended April 4, 1999 of $10.1 million. The decrease in operating
cash flow resulted from the need to increase working capital to meet the
higher sales demand in the first quarter, specifically in the areas of
receivables, and to fund inventories to support increased sales demands in
the second quarter of 2000.
Net borrowings under short and long term credit facilities for the thirteen
week period ended April 2, 2000 were $13.8 million compared to the net
borrowings in the thirteen week period ended April 4, 1999 of $6.7 million.
Net borrowings were higher for the first quarter of 2000 due primarily to
lower operating cash flow resulting in the need for additional borrowings to
fund capital expenditures and the acquisition of NOB Electronik AB.
The cash provided by operating activities of $4.7 along with the net
borrowings during the quarter of $13.8 million have funded 2000 capital
expenditures during the first quarter of $7.8 million, dividends of $1.9
million, and payments for acquisitions of $3.6 million.
Capital expenditures for the first quarter of 2000 of $8.5 million decreased
by $6.9 million from the first quarter of 1999 capital expenditures of $15.4
million. This reflects the Company's intent to reduce the level of capital
expenditures from prior levels. The Company has made significant capital
expenditures in recent years to increase manufacturing capacity, improve
quality and increase flexibility. The Company now feels that it is
well-positioned to handle near-term sales increases and seasonal
fluctuations. The Company anticipates 2000 capital expenditures to be
slightly lower than the 1999 levels. The primary emphasis will be on adding
capacity for new programs, to continue to improve efficiency and for quality
improvements. The Company intends to fund its capital expenditures from
internally generated funds and increased borrowings under its credit
facilities. These sources of funds are expected to be sufficient to support
the planned capital expenditures and the Company's working capital
requirements.
<PAGE>
OTHER MATTERS
YEAR 2000 COMPLIANCE - As of the time of this report, the Company has not
encountered any infrastructure or facilities related problems from the
rollover to the Year 2000. Extensive system verification and testing of the
Company's systems indicate that all systems are operating normally. In
addition, the Company did not experience any unusual buying patterns by its
customers which would have indicated a shift in reported results between 1999
and 2000. Likewise, the Company itself did not shift any purchases into 1999
as a means of mitigating Year 2000 risk. The Company is not aware of any
significant issues related to the Year 2000 problem and continues to monitor
the status of its operations, suppliers and distribution channels to ensure
there are no significant business interruptions.
EURO CURRENCY CONVERSION - The Company has been handling transactions in the
Euro currency since the beginning of 1999. The Company's business systems are
multi-currency functional and the Company's European operations transact
business today in various European currencies, including the Euro. The
Company does not have an estimate of the cost it incurred to implement the
Euro currency, but does not believe the costs have had a material effect on
the Company's financial condition or results of operations.
BUSINESS COMBINATIONS - On May 3, 2000, the Company completed its acquisition
of the Danfoss Fluid Power Companies and the Company has been renamed
Sauer-Danfoss Inc. Sauer-Danfoss Inc. will continue to be listed under SHS on
the New York Stock Exchange and under SAR on the Frankfurt Stock Exchange.
The Danfoss Fluid Power Companies, with headquarters in Nordborg, Denmark,
design and manufacture orbital motors, hydrostatic steering units,
proportional load-sensing valves, gear pumps and electrohydraulics for use by
OEMs of off-highway mobile equipment. The purchase price consisted of
16,149,812 shares of the Company's common stock in exchange for all of the
outstanding shares of the Danfoss Fluid Power Companies and will be accounted
for by the purchase method of accounting for business combinations. In
addition, the Company will assume debt at a ratio consistent with the
Company's December 31, 1999 debt to debt plus equity ratio as defined in the
definitive stock exchange agreement.
On January 24, 2000, the Company completed its acquisition of Custom Design
Electronics of Sweden AB ("CDE") and its subsidiary company NOB Electronik AB
("NOB"). NOB, the operating company of CDE, designs and manufactures
electronic control systems both in mobile hydraulics and other areas. The
purchase price consisted of 103,256 shares of the Company's common stock and
$3.6 million in cash. The acquisition was accounted for under the purchase
method of accounting for business combinations.
OUTLOOK - The Company began 2000 with a cautious outlook for the year with
respect to higher sales and profitability levels over 1999. The first quarter
of 2000 resulted in record sales levels, due in large part to the turf care
and construction market increases in North America as discussed above. The
agriculture market in Europe is beginning to show signs of improvement even
though it is relatively stagnant in North America. The Company's major
agriculture OEM's that shut down production operations during the third and
fourth quarters of 1999 have started production again as of the first of the
year. The road-building market has not yet improved as the Company had
anticipated, indicating that the previously approved U.S. government funding
for road construction has not begun flowing at the state levels. The European
economies are expected to be stronger than 1999. In all, the Company feels
that its planned 2000 sales levels can be achieved and that profits will be
higher in 2000 than the lower 1999 levels.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Company's most recent annual report filed on Form 10-K (Item 7A). There
has been no material change in this information.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company issued 103,256 shares of its common stock and paid $3.6 million
on January 24, 2000 to acquire all of the shares of Custom Design Electronics
of Sweden AB ("CDE") and its subsidiary NOB Electronik AB, which manufactures
and sells electronic control panels and related software. The shares of the
Company's common stock were issued to three shareholders of CDE as follows:
Sture Bernhardsson - 41,220 shares; Goran Nilson - 41,220 shares; and Krister
Lindkvist - 20,816 shares. No underwriter was involved and the shares of the
Company's common stock were not registered under the Securities Act of 1933
("1933 Act") for the reasons that the persons acquiring the shares are
accredited investors under the 1933 Act and the shares were issued in a
private offering exempt from registration pursuant to Section 4(2) of the
1933 Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the security holders for vote during the quarter
ended April 2, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
No. Description of Document
- ------- ------------------------
3.1 The Restated Certificate of Incorporation of the Company dated March
13, 1998, is attached as Exhibit 3.1 to the Company's Form S-1
Registration Statement filed on March 20, 1998, and is incorporated
herein by reference.
3.2 The Restated Bylaws of the Company dated March 13, 1998, are attached
as Exhibit 3.2 to the Company's Form S-1 Registration Statement filed
on March 20, 1998, and is incorporated herein by reference.
4 The form of Certificate of the Company's Common Stock, $.01 Par Value,
is attached as Exhibit 4.1 to Amendment No. 1 to the Company's Form S-1
Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(a) The Amended and Restated Agreement Regarding the Establishment of a
Silent Partnership Agreement is attached as Exhibit 10.1(a) to
Amendment No. 1 to the Company's Form S-1 Registration Statement filed
on April 23, 1998, and is incorporated herein by reference.
10.1(b) The Registration Rights Agreement is attached as Exhibit 10.1(b) to
Amendment No. 1 to the Company's Form S-1 Registration Statement filed
on April 23, 1998, and is incorporated herein by reference.
10.1(c) The form of Indemnification Agreement entered into between the Company
and each of its directors and certain officers is attached as Exhibit
10.1(c) to Amendment No. 1 to the Company's Form S-1 Registration
Statement filed on April 23, 1998, and is incorporated herein by
reference.
10.1(d) The Lease Agreement for the Company's Dubnica, Slovakia facility is
attached as Exhibit 10.1(f) to Amendment No. 1 to the Company's Form
S-1 Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(e) The Lease Agreement for the Company's Swindon, England facility is
attached as Exhibit 10.1(g) to Amendment No. 1 to the Company's Form
S-1 Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(f) The Lease Agreement for the Company's Minneapolis, Minnesota facility
is attached as Exhibit 10.1(h) to Amendment No. 1 to the Company's Form
S-1 Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(g) The Lease Agreement for the Company's Newtown, Pennsylvania facility is
attached as Exhibit 10.1(i) to Amendment No. 1 to the Company's Form
S-1 Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
<PAGE>
10.1(h) The Lease Agreement for the Company's Shanghai/Pudong, China facility
is attached as Exhibit 10.1(j) to Amendment No. 1 to the Company's Form
S-1 Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(i) The Employment Contract with Klaus Murmann is attached as Exhibit
10.1(k) to Amendment No. 1 to the Company's Form S-1 Registration
Statement filed on April 23, 1998, and is incorporated herein by
reference.
10.1(j) The Employment Contract with Tonio Barlage is attached as Exhibit
10.1(l) to Amendment No. 1 to the Company's Form S-1 Registration
Statement filed on April 23, 1998, and is incorporated herein by
reference.
10.1(k) The Employment Contract with Thomas Kittel is attached as Exhibit
10.1(m) to Amendment No. 1 to the Company's Form S-1 Registration
Statement filed on April 23, 1998, and is incorporated herein by
reference.
10.1(l) The Sauer Inc. Management Incentive Plan is attached as Exhibit 10.1(r)
to Amendment No. 1 to the Company's Form S-1 Registration Statement
filed on April 23, 1998, and is incorporated herein by reference.
10.1(m) The Sauer-Sundstrand Employees' Retirement Plan is attached as Exhibit
10.1(s) to Amendment No. 1 to the Company's Form S-1 Registration
Statement filed on April 23, 1998, and is incorporated herein by
reference.
10.1(n) The Sauer-Sundstrand Company Supplemental Retirement Benefit Plan for
Certain Key Executives is attached as Exhibit 10.1(t) to Amendment No.
1 to the Company's Form S-1 Registration Statement filed on April 23,
1998, and is incorporated herein by reference.
10.1(o) The Sauer-Sundstrand Company Supplemental Retirement Benefit Plan for
Certain Key Executives Previously Employed by the Sundstrand
Corporation is attached as Exhibit 10.1(u) to Amendment No. 1 to the
Company's Form S-1 Registration Statement filed on April 23, 1998, and
is incorporated herein by reference.
10.1(p) The Sauer-Sundstrand Employees' Savings & Retirement Plan is attached
as Exhibit 10.1(v) to Amendment No. 1 to the Company's Form S-1
Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(q) The Retirement Benefits Agreement for Klaus Murmann is attached as
Exhibit 10.1(w) to Amendment No. 1 to the Company's Form S-1
Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(r) The Retirement Benefits Agreement for Tonio Barlage is attached as
Exhibit 10.1(x) to Amendment No. 1 to the Company's Form S-1
Registration Statement filed on April 23, 1998, and is incorporated
herein by reference.
10.1(s) The European Employees' Pension Plan is attached as Exhibit 10.1(y) to
Amendment No. 1 to the Company's Form S-1 Registration Statement filed
on April 23, 1998, and is incorporated herein by reference.
10.1(t) The Sauer Inc. 1998 Long-Term Incentive Plan is attached as Exhibit
10.1(p) to Amendment No.1 to the Company's Form S-1 Registration
Statement filed on April 23, 1998, and is incorporated herein by
reference.
10.1(u) The Sauer Inc. Non-employee Director Stock Option and Restricted Stock
Plan is attached as Exhibit 10.1(q) to Amendment No. 1 to the Company's
Form S-1 Registration Statement filed on April 23, 1998, and is
incorporated herein by reference.
10.1(v) The 1999 Sauer Inc. Bonus Plan is attached as Exhibit 10.1 (a) to the
Company's Form 10-Q filed on August 13, 1999, and is incorporated
herein by reference.
10.1(w) The Stock Purchase and Transfer Agreement dated January 24, 2000
relating to the acquisition of all the stock of Custom Design
Electronics of Sweden AB is attached hereto.
<PAGE>
10.1(x) The Employment Contract with David L. Pfeifle dated February 24, 2000
is attached hereto.
10.1(y) The Termination Agreement with Tonio P. Barlage dated march 31, 2000
is attached hereto.
10.1(z) The Stock Exchange Agreement dated January 22, 2000, by and among the
Registrant, Danfoss A/S, Danfoss Murmann Holding A/S, and
K. Murmann Verwaltungsgesellschaft mbH is attached as Annex A to the
Registrant's proxy Statement filed on March 28, 2000, and is
incorporated herein by reference.
10.1(aa) The Stock Purchase Agreement with Tonio P. Barlage and Maria Barlage
dated March 31, 2000 is attached hereto.
27.1 Financial data schedule.
(b) REPORTS ON FORM 8-K
1. On January 27, 2000, the Company filed a Current Report on
From 8-K for the purpose of disclosing three press releases
dated January 20, 2000, January 22, 2000, and January 25,
2000 related to the resignation of a Company officer, the
signing of a definitive stock exchange agreement and the
acquisition of Custom Design Electronics of Sweden AB.
2. On March 1, 2000, the Company filed a Current Report on
Form 8-K regarding a press release disclosing the Company's
year end earnings.
3. On March 10, 2000, the Company filed a Current Report on
Form 8-K regarding the settlement of the Unipat lawsuit.
4. On March 30, 2000, the Company filed a Current Report on
Form 8-K regarding the filing of the definitive proxy
statement for the acquisition of the Danfoss Fluid Power
Companies and the receipt of all regulatory approvals
related to the transaction.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sauer-Danfoss Inc.
By /s/ Kenneth D. McCuskey
-------------------------------
Kenneth D. McCuskey, Vice President - Finance,
Secretary/Treasurer, and Chief Accounting Officer
Sauer-Danfoss Inc.
May 17, 2000
<PAGE>
SHARE PURCHASE AND TRANSFER AGREEMENT
MADE BETWEEN
1. Krister Lindkvist, Angshult, 341 77 AGUNNARYD
2. Sture Bernhardsson, Ostarod 1222, 28064 GLIMAKRA
3. Goran Nilsson, Buhult 1269, 343 73 VIRESTAD
- - HEREINAFTER COLLECTIVELY REFERRED TO AS "SELLERS" AND INDIVIDUALLY AS
"SELLER" -
AND
Sauer Inc., 2800 E. 13th Street, Ames, IA 50010, Iowa, USA,
- HEREINAFTER REFERRED TO AS "BUYER" -
PREAMBLE
- --------
The Sellers are the sole shareholders of the company
CUSTOM DESIGN ELECTRONICS OF SWEDEN AB
registered in the Swedish Companies' Register under the registration no.
556496-9177 and having its registered seat at Stalgatan 1, Almhult, Sweden
(hereinafter referred to as "CDE").
The fully paid in share capital of CDE amounts to SEK 100.200 divided into
1002 shares with a par value of SEK 100 each. The Sellers hold the following
shares in CDE:
<PAGE>
- 2 -
Sture Bernhardsson 400 shares
Goran Nilsson 400 shares
Krister Lindkvist 202 shares
CDE is the sole shareholder of the company
NOB ELECTRONIK AB
registered in the Swedish Companies' register under Registration no.
556263-5705 having its registered seat at Stalgatan 1, Almhult, Sweden
(hereinafter referred to as "NOB"; CDE and NOB hereinafter collectively
referred to as "the Companies"). NOB has a fully paid in share capital of SEK
200.400 divided into 501 shares with a par value of 400 SEK each. NOB is a
consulting and manufacturing firm within the electronic business area having
developed a set of electronic products mainly designed for working vehicles
and partly subject of patents and patent applications.
The Buyer is predominantly interested in purchasing the business of NOB and
therefore intends to acquire from the Sellers the shares of CDE and thereby
indirectly of NOB.
In consideration of the premises and the mutual covenants and conditions set
forth in this Agreement (hereinafter referred to as "the Agreement"), Sellers
and Buyer agree as follows:
SECTION 1
OBJECT OF PURCHASE, TRANSFER
1. With economic effect as of January 1, 2000 (hereinafter referred to as
the "Economic Effective Date") Sellers sell and assign their Shares in
CDE in the aggregate par amount of SEK 100.200 as set forth in subset. 1
of the preamble hereto (hereinafter referred to as the "Shares") to Buyer.
<PAGE>
- 3 -
Such sale and assignment shall include all dividend rights for the past
years to the extent that dividends have not yet been distributed as well
as all other ancillary rights.
2. The Buyer accept such sale and assignment.
3. The legal transfer of title shall be subject to the condition precedent
that the consideration shall have been fully effected as more precisely
described in Section 2 below.
SECTION 2
CONSIDERATION
As consideration for the transfer of the Shares, Buyer shall
a) pay by wire transfer the following amounts to Sellers on bank
accounts to be specified by the Sellers:
to Krister Lindkvist DM 1.376.257,--
to Sture Bernhardsson DM 2.752.513,--
to Goran Nilsson DM 2.752.513,--
---------------
IN TOTAL DM 6.881.283,--
===============
b) deliver to the Escrow Account specified in Section 4.13 below
103.256 duly endorsed shares of SAUER Inc. common stock (hereinafter
referred to as "Purchase Shares"), which shall be allocated to the
Sellers as follows:
Krister Lindkvist 20.816 Purchase Shares
Sture Bernhardsson 41.220 Purchase Shares
Goran Nilsson 41.220 Purchase Shares
<PAGE>
- 4 -
The Sellers shall deliver duly endorsed certificates representing the Shares
and all thereto ancillary rights on the date hereof.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF SELLER
The Sellers guarantee by way of an independent guarantee that the following
statements as of the date hereof, and as of the Economic Effective Date are
complete and correct, except if another reference date is specifically
mentioned herein.
1. The companies are duly established, organised, validly existing and in
good standing under the laws of Sweden. The information contained in
subset. 1 of the Preamble is true and correct in every respect.
2. The Shares in the Companies are fully paid in and are neither repaid
entirely nor partially including by way of not permitted profit
distribution, are non-assessable and free or secondary of other
obligations or restrictions. They are neither subject to a charge nor a
lien, encumbrance or other security interest and give Buyer all rights
rested in an owner of shares pursuant to Swedish law.
3. Sellers are the sole and unrestricted owners of the Shares and Sellers
can transfer such Shares to Buyer. There are no restrictions to sell and
transfer the Shares. No third party is entitled to exercise rights
relating to the Shares in case of a direct or indirect change of control
over CDE. This Agreement and its implementation do not constitute a
breach of any agreement by which the Sellers or CDE are bound. No third
parties have any right to acquire any of the Shares.
The same applies with respect to the Shares of CDE in NOB.
<PAGE>
- 5 -
4. Except for the real estate owned by NOB located at Hackan 1, Almhult as
set forth in Schedule 3.4 the Companies do not own any other real estate.
The excerpts from the land register attached in Schedule 3.4 are still up
to date and reflect properly the legal and actual status of the real
estate. There are no other mortgages, encumbrances, liens, charges, any
other securities rested on the land or rights of third parties,
regardless whether they are registered or not registered than those set
forth in Schedule 3.4
5. The Companies do not hold, directly or indirectly, shares or
participations in any other companies, partnerships, foundations or
enterprises.
6. The presently valid versions of the Articles of Association of the
Companies are enclosed as Schedule 3.6. There are no supplementary or
side agreements with respect to the Articles of Association of the
Companies; especially, there are no voting or trust agreements,
sub-participation agreements, silent partnership agreements,
intercompany agreements, shareholder agreements, control agreements or
similar agreements.
7. Attached hereto as Schedule 3.7 are the audited Companies' annual reports
as per December 31, 1998 and as per December 31, 1999 (hereinafter
referred to as the "Financial Statements"). The Financial Statements have
been prepared in accordance with the statutory provisions concerning
annual accounts and the Swedish General Accepted Bookkeeping and
Accounting Principles (Swedish GAAP) and present a true and fair view of
the financial situation of the Companies as well as of their business
results.
All legal provisions and all general accepted principles for the
evaluation and depreciation (including, but not limited to, the
application of the principles of completeness, balance sheet continuity
and continuity of evaluation) have been applied.
8. The Companies do not have any obligations or liabilities accrued or
contingent which exist on the Economic Effective Date or may arise from
acts, omissions or circumstances prior to the Economic Effective Date,
which are not reflected in or reserved for in the
<PAGE>
- 6 -
Financial Statements or which have been incurred thereafter outside the
ordinary course of business.
9. Apart from the reservations made in the Financial Statements, no product
warranty claim or product liability claim relating to products sold by
the Companies prior to the Economic Effective Date have been raised nor,
to the best of Seller's knowledge, is there any threat of a product
warranty or product liability claim.
The Buyer is however informed of a claim of goodwill nature that has been
raised in January 2000 and which is accounted for in Schedule 3.9
10. With the exception of the floating charges and the mortgages, the
Companies have good and marketable title to all of their assets, whether
tangible or intangible, free and clear of all claims, liens, charges,
encumbrances, restrictions on transfer and defects from any nature,
whatsoever.
The machinery, equipment, motor vehicles, furniture and other tangible
personal property reflected on the balance sheet as per December 31, 1999
were, as of the date hereof, maintained in accordance with standard
industrial practises.
11. There are no loan agreements or other agreements related to loans except
as enclosed in Schedule 3.11.
12. Schedule 3.12 contains the insurance contract maintained by NOB with
respect to its business.
There is nothing indicating that the insurance contract attached in
Schedule 3.12 might be terminated or that premiums might be increased.
All premiums under the insurance contract set forth in Schedule 3.12
hereto until the Economic Effective Date have been or will be paid in a
timely manner.
13. Schedule 3.13 is a true and complete list of each contract, to which the
Companies are bound, for example, but not limited to, corporation
contracts, joint ventures, supply
<PAGE>
- 7 -
contracts, license agreements, lease agreements, manufacturing contracts,
agency agreements, agreements with advisors and consultants, agreements
with managing directors, as well as other important agreements, which the
Companies are a party to, which either
- involves payments by the Companies or by Sellers in relation to
the Companies of more than SEK 500.000 p.a. as provided as
consideration in such contract; or
- extends (without right of termination by Seller or the Companies)
more than 1 year from the date hereof.
Schedule 3.13 also contains copies of the unanimous termination of the
lease agreement between NOB and EMC Center Smaland AB with effect as of
December 31, 1999 and of the purchase contract between NOB and EMC Center
Smaland AB regarding the fixed assets of EMC Center Smaland AB as well as
a consulting- and lease agreement with Storningskonsult AB.
14. The Companies' Standard Terms for Sale provide an exclusion of liability
for consequential damages; except as disclosed in Schedule 3.14 the
Companies have confirmed all orders for their products with reference to
the Standard Terms for Sales Contracts within the last 18 months. True
and complete copies of the documents referred to above have been
delivered to Buyer or its representatives; all of the rights, contracts,
agreements, licenses, plans and leases set forth therein are, to the best
of Sellers' knowledge, valid and enforceable in accordance with their
respective terms for the period stated therein; neither Sellers nor the
Companies being a party thereto or bound thereby are in default or have
been given any notice of any default in the performance of its respective
obligations thereunder.
15. The Companies are neither bound nor obliged by a performance, surety or
other bond and have never issued and is not obliged by any letter of
credit.
16. Except as disclosed in the list attached as Schedule 3.16, the change of
ownership and the execution and consummation of this Agreement do not
give rise to an independent right to change or terminate any of the
agreements as listed in Schedule 3.13, in any repayment
<PAGE>
- 8 -
of any grants, tax advantages or comparable benefits granted to the
Companies or the acceleration of any material obligation of the Companies
or the reduction or termination of any supply or delivery relationship
with suppliers or customers of the Companies.
17. Except as disclosed in Schedule 3.17 there are no claims, actions, suits,
proceedings or investigations pending or, to the best of Sellers'
knowledge, threatened against or relating to the Companies or their
assets or in any way affecting this Agreement or the transactions
contemplated hereby, nor, is there, to the best of Sellers' knowledge, a
basis for such claims, action, suit, proceeding or investigation. There
is no order, decree or judgement of any kind in existence with respect to
the business of the Companies enjoining or restraining the Companies, or
any officer or employee of the Companies from taking any action of any
kind and with respect to the Companies business.
The Companies and the Sellers are not in default with respect to any
order, judgment, writ, injunction or decree of any governmental agency or
instrumentality or any other public authority.
18. Schedule 3.18 is a true and correct list of the patents, patent
applications, trademarks and other Industrial Property Rights
(hereinafter referred to as "Industrial Property Rights") owned or
controlled by Sellers or the Companies and used in the business presently
performed by the Companies or intended to be used by the Companies in
future. The validity of such Industrial Property Rights and the title
thereto has not been questioned in any litigation or, to the best of
Sellers' knowledge, in any threatened litigation.
None of the claims of Industrial Property Rights set forth in Schedule
3.18 have been reduced or withdrawn. No other Industrial Property Rights
than set forth in Schedule 3.18 are necessary for the continuation of the
Companies business.
The Companies are not, to the best of Sellers' knowledge, infringing upon
or otherwise violating the rights of any third party with respect to any
industrial property rights, copyright, know how or trade secret, or,
where applicable, applications hereto; no proceedings have been
instituted or threatened, nor has any claim been made against the
<PAGE>
- 9 -
Sellers or the Companies alleging any infringements or violation of any
of the rights mentioned above.
So far not owned by them the Companies own or possess adequate licenses
or other rights to use all Industrial Property Rights, patents,
proprietary information, copyrights, formulae, production outlines and
development records used in the business. The Companies have made an
extensive check-up and evaluation of their need and coverage as to
computer program licenses and possess, as of the date hereof, enough
licenses with regard to the number of work stations. Except as disclosed
in Schedule 3.18 A) the Companies are not required and, to the best of
Sellers' knowledge, will not be required to pay any royalty, license fee
or a similar compensation fee in connection with industrial property
rights. There are no rights or claims of any officer, director or
employee of the Companies or any other third party related to the
Industrial Property Rights, know how and the business trade secrets.
19. The Companies have filed all tax returns when due, and has paid all due
taxes, public dues, social security charges and other charges, and has
paid all related delayed charges and penalties and has made sufficient
reserves for all taxes and/or charges resulting from circumstances before
the Economic Effective Date, respectively shown such tax liabilities in
the Financial Statements.
The Buyer is informed of a possible re-taxation during 2000 as to value
added tax for the personal computers leased by the personnel from the
Companies according to contracts from 1996 and 1998 as a result of a new
tax law from 1999 as specified in Schedule 3.19. The financial
obligations of the Companies related hereto will not exceed SEK 50.000.
20. The Companies have all requisite licenses, permits, certifications and
other approvals from all federal, state, local and foreign authorities to
the extent necessary and material to the conduct of the business
performed by the Companies and to the ownership of the assets of the
business (collectively referred to as the "Operating Permits"). The
Companies on the date hereof, are not, to the best of Sellers' knowledge,
in violation of any federal, state, local or foreign laws, regulations or
orders (including, but not limited
<PAGE>
- 10 -
to, any of the regulations to employment discrimination, occupational
safety, government contract or corrupt practises) and has not been in any
such violation within the past 5 years. The Companies have not had notice
or communication from any federal, state, local or foreign governmental
or regulatory authority or otherwise of any such violation during the
last 6 years. The Buyer is informed that an inspection made by the public
authority as to the employment environment protection has taken place;
the results of this inspection will not lead to any financial
obligations of the Companies or the Buyer, as specified in Schedule 20.
None of the Operating Permits will be invalidated, terminated or become
subject to a modification solely as a result of the consummation of the
transaction, contemplated by this Agreement.
21. Schedule 3.21 includes the individual labour contracts with employees of
the Companies as well as a list properly reflecting the 43 employees of
NOB with their year of birth, date of employment, present position and
present income and benefits. Except for the Companies' policy as
described in Schedule 3.21 A) the labour contracts between the Companies
and the employees do not grant any specific rights as to, e.g., profit
sharing, boni, period of termination etc.
There are no pension commitments, benefit plans, shop agreements or
collective bargaining agreements by which the Companies are bound other
than those listed in Schedule 3.21 B).
The Companies are, to the best of Sellers' knowledge, in compliance with
all laws regarding employment and employment practises, terms and
conditions of employment, wages and hours and are not engaged in any
unfair labour practices. There are no claims of former employees against
the Companies nor, to the best of Sellers' knowledge, are such claims
threatened.
22. In Schedule 3.22 the 10 major customers of the Companies are listed
and the according agreements with such customers are attached. To the
best of the Seller's knowledge, there is no indication that the business
with such customers will be reduced or terminated
<PAGE>
- 11 -
except for effects resulting from the general economic environment or the
development of the market situation.
23. There are no activities, actions or releases (including continuing
releases) of the Companies' business prior to the Economic Effective
Date, including without limitation any arrangement for the disposal of
any hazardous material of whatever nature (substance, material, fluid,
waste or chemical), which are a violation of environmental law, in each
case with respect to the property owned, controlled or operated by the
Companies or its business prior to the Economic Effective Date or which
relate to or arise in connection with events or releases occurring before
the Economic Effective Date at or upon any property not owned, controlled
or operated by the Companies.
24. Except as set forth in Schedule 3.24 or any other Schedule to this
Agreement, since December 31, 1999, there have not been, without the
written consent of the Buyer, any events, which might result in the
guarantees in this Section 3 no longer being true, complete or complied
with or transactions, which are not within the ordinary course of
business of the Companies.
25. The Companies have not entered into any competitive or trust agreement
and have never received any communication from any national, European or
international antitrust or merger task forces. The Companies have never
violated any national, European or international antitrust, merger or
competition act.
26. All facts known to any Seller, which are relevant for purposes of
assessing the Companies as well as the business and which might be
relevant for the Buyer's decision concerning the acquisition have been
disclosed to the Buyer in writing.
27. As the Companies are planned to be integrated in the Buyer's business,
the Sellers and the Buyer agree that circumstances related to the
transition and the concentration of business focus may affect the
business with existing customers.
As of the date hereof, there is, to the best of Sellers' knowledge, no
indication of a
<PAGE>
- 12 -
material adverse change in the performance of the Companies business
except for effects resulting from general economic environment and the
market situation.
28. The Sellers have not negotiated any sale of the Companies or their
business with any third party within the last 4 years.
SECTION 4
INDEMNIFICATION
1. If a guarantee in Section 3 above is untrue, incomplete or not complied
with, the Sellers shall, subject to the limitations set out in this
Section 4, indemnify Buyer, or at its a choice, the Companies, for any
damage including reasonable expenses, which would not exist, if such
guarantee were true, complete and complied with. This obligation exists
regardless of whether or not the misrepresentation or misstatement is
attributable to the negligence of the Sellers.
The same shall apply with respect to any damage and reasonable expenses
arising from the failure of the Sellers to perform any agreement,
covenant or undertaking required by this Agreement to be performed with
respect to the Companies' business.
2. The liability of the Sellers under Section 4 section 1 above shall be
joint and several. However the joint and several liability shall be
limited for each Seller up to an amount equal to the value of his Pro
rata Ownership.
3. The Sellers shall not be liable for any claim in respect of the
guarantees unless the amount for any individual claims exceeds SEK 75.000
and the aggregate amount of liability of the Sellers for claims in
respect of the guarantees exceeds SEK 750.000, in which event the Buyer
shall be entitled to claim the full amount of the damage including the
first SEK
<PAGE>
- 13 -
750.000. The total liability of the Sellers under this Section 4 shall
be restricted to DM 5 million.
4. The Sellers shall not be liable for a breach of any of the guarantees to
the extent that the Buyer's claim against the Sellers is otherwise
compensated for without cost to the Buyer. If in respect of any matter
which would give rise to a breach of the guarantees, the Buyer receives
full compensation of its claim against the Sellers under any policy of
insurance, then no such matter shall be subject of a claim under the
guarantees.
5. No claim shall lie against the Sellers under the guarantees to the extent
that it is shown that such claim is attributable to any voluntary act,
omission, transaction or arrangement which has been wilfully or gross
negligently caused by the Buyer, or on its behalf, by persons deriving
their title from the Buyer.
6. No liability shall arise in respect of any breach of the guarantees if
and to the extent that liability for such breach occurs or is increased
as a result of any tax legislation not in force as of the date of the
signing of this Agreement which takes effect retrospectively.
7. The Buyer shall give the Sellers the opportunity to repair the breach of
the guarantee, under Section 3 within a reasonable time period, at the
latest within 30 days.
8. Upon the Buyer becoming aware of any claim, action or demand in respect
of the guarantees, the Buyer shall
a) as soon as practicable notify the Sellers as soon as it appears to
the Buyer that the Sellers or any of them are or may become liable
under the guarantees;
<PAGE>
- 14 -
b) subject to the Sellers indemnifying the Buyer to its reasonable
satisfaction against any liability, cost, damages or expenses which
may be incurred thereby, take such action, give such information and
access to personnel, premises, documents and records to the Sellers
and their professional advisors as the Sellers may reasonably
require; and the Sellers shall be entitled to require the Buyer to
take such reasonable action and give such information and assistance
in order to avoid, dispute, resist, mitigate, settle, compromise,
defend or appeal any claim in respect thereto;
d) make no admission of liability, agreement, settlement or compromise
with any third parties in relation to such claim without the prior
written approval of the Sellers which is not to be unreasonably
withheld.
9. If a tax audit of the Companies for the time period until the Economic
Effective Date takes place, the Buyer shall allow representatives of the
Sellers to participate at the Sellers' expense in such tax audit.
Furthermore, the Buyer shall enable the Sellers to file, with respect to
taxes relating to time periods until the Economic Effective Date, all
proceedings before the competent authorities and/or courts and make
available to the Sellers all information and documents (including a power
of attorney) reasonably required to safeguard the interests of Sellers.
10. The Buyer shall not be entitled to exercise its rights under or in
connection with this Agreement, if the Buyer, its accountants, legal
advisors or any of its directors or employees were aware by written
documentation provided to Buyer of the fact that a guarantee is untrue,
incomplete or not complied with or a failure of the Sellers or the
Companies to perform any agreement, covenant or undertaking required by
this Agreement is existing.
11. The claims of the Buyer under this Section 4 above shall be time-barred
18 months after the date hereof, provided, however, that claims directly
or indirectly relating to taxes shall be time-barred 3 months after they
have finally and completely been assessed.
<PAGE>
- 15 -
12. The Buyer shall be entitled to no indemnification of whatever kind other
than those mentioned in this Section 4 except for damages and losses
based on wilful acts or gross negligence.
13. For purposes of securing the Buyer's claims regarding the violation of
guarantees given by the Sellers in Section 3 hereof, an escrow account
shall be opened by the parties hereto for a time period of 18 months upon
the signing of this Agreement ("Escrow Period"), to which Buyer shall
deliver and pledge the Purchase Shares. The conditions of such escrow
account are set forth in Schedule 4.13.
SECTION 5
HANDING OVER OF BUSINESS DOCUMENTS; SECRECY
1. On the date hereof, Sellers shall hand over all documents and information,
whether written, stored on data storage medias or otherwise related to the
business of the Companies to the Companies or, at Buyer's sole
discretion, to Buyer.
2. Sellers shall not at any time disclose to any party other than the Buyer
any secret or confidential information, knowledge or data - including
all copies - (including, without limitation, customer lists, pricing
lists, service manuals, trade secrets, processes, formulae, plans and
proposals) of the Companies' business as of the Economic Effective Date.
Nothing herein is intended to preclude Sellers from submitting such data
or information in connection with tax returns or other lawful
requirements of governmental agencies or authorities.
<PAGE>
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SECTION 6
COVENANT NOT TO COMPETE
Until December 31, 2002 the Sellers shall not compete, neither directly nor
indirectly, in any manner with the Companies' or the Buyer's business in
particular, but not limited to establish, participate in or support any
enterprise or other legal entity engaged in such business. Buyer and Sellers
will conclude employment agreements in the form attached hereto as Schedule 6.
The consideration agreed upon in Section 2 hereof also covers this covenant
not to compete.
SECTION 7
MISCELLANEOUS
1. All notices and all other communciation given or made pursuant hereto
shall be in writing and shall be deemed to have been given or made if in
writing and delivered personally or send by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the
following addresses:
a) IF TO BUYER, TO:
SAUER Inc.
attn. Mr. John Langrick
Krokamp 35
D-24539 Neumunster
Germany
b) IF TO SELLERS, TO:
1. Krister Lindkvist, Angshult, 341 77, Agunnaryd
2. Sture Bernhardsson, Ostarod 1222, 28064 Glimakra
3. Goran Nilsson, Buhult 1269, 343 73 Virestad.
or at such other addresses as either of the parties hereto shall have
specified.
2. Sellers shall, at any time after the Economic Effective Date, upon
request of Buyer, execute, acknowledge and deliver, or will cause to
be executed, acknowledged and
<PAGE>
- 17 -
delivered, all such further acts and legal declarations as maybe
reasonably required for the consummation of this Agreement.
3. This Agreement shall not be assignable by any of the parties hereto
without the prior written consent of the other party for a period of 18
months after the date hereof. Afterwards, the rights of the Buyer under
this Agreement are freely assignable.
4. This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their successors and assigns; nothing in this Agreement
expressed or implied is intended to confer on any other person, other
than the parties hereto, any rights, remedies, agreements, undertakings,
obligations or liabilities under or by the reason of this Agreement.
5. This Agreement (including all documents referred to herein) constitutes
the entire agreement between the parties and supersedes all other prior
agreements and understandings, both oral and written, between the
parties, with respect to the subject matter thereof. This Agreement has
21 numbered Schedules, which shall be deemed to be part of this
Agreement.
6. The Buyer and the Sellers shall consult with one other before issuing any
press release or public announcement about the transactions contemplated
by this Agreement. Except as maybe required by applicable law, no party
shall issue any press release or other public announcement without the
consent of the other party, which consent shall not be unreasonably
withheld.
SECTION 8
WRITTEN FORM AND SEVERABILITY
1. This Agreement including this provision cannot be altered or otherwise
amended except pursuant to an instrument in writing signed by the parties
hereto.
<PAGE>
- 18 -
2. Should any provision of this Agreement or any part of any provision of
this Agreement be or become invalid, the validity of the remaining
provision or the remaining provision shall remain unaffected thereby. The
parties hereto shall in such cases agree on a valid provision or a valid
part of a provision, which most closely reflects the economic objective
pursued by the parties. The same principle applies, if this Agreement
proves to be incomplete.
SECTION 9
GOVERNING LAW AND ARBITRATION
1. This Agreement shall be governed, construed and enforced in accordance
with the substantive laws of Sweden as applicable between domestic
parties.
2. All disputes arising out of or in connection with this Agreement shall be
finally settled according to the Rules of Arbitration of the
International Chamber of Commerce, Paris (ICC) by three Arbitrators to be
appointed in accordance with said rules. The language of arbitration
shall be English. The place of arbitration shall be Copenhagen. Except
for reliefs as preliminary injunction and the like the recourse to the
state courts shall be excluded.
SECTION 10
COSTS AND EXPENSES
All legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
<PAGE>
- 19 -
Almhult, January 24, 2000
SAUER Inc.
/s/ Krister Lindkvist /s/ Albert Zahalka
- ---------------------------- ----------------------
(Krister Lindkvist)
/s/ Sture Bernhardsson
- ----------------------------
(Sture Bernhardsson)
/s/ Goran Nilsson
- ----------------------------
(Goran Nilsson)
<PAGE>
SAUER INC.
EXECUTIVE EMPLOYMENT AGREEMENT
David L. Pfeifle
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1. Employment ................................................................ 1
Section 2. Employment Period ......................................................... 1
Section 3. Compensation .............................................................. 2
Section 4. Expenses .................................................................. 3
Section 5. Employment Terminations ................................................... 3
Section 6. Change in Control ......................................................... 6
Section 7. Covenant Not to Compete ................................................... 8
Section 8. Disclosure of Confidential Information .................................... 9
Section 9. Nonsolicitation ........................................................... 10
Section 10. Injunctive Relief and Additional Remedy;
Essential and Independent Covenants ....................................... 11
Section 11. Arbitration ............................................................... 11
Section 12. Notices ................................................................... 12
Section 13. Successors ................................................................ 12
Section 14. Entire Agreement; Modification, Waiver, and Interpretation ................ 12
Section 15. Severability .............................................................. 12
Section 16. Counterparts .............................................................. 12
Section 17. Headings .................................................................. 12
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT has been entered into this 24th day of
February, 2000, between Sauer Inc., a Delaware corporation (the "Company"),
and DAVID L. PFEIFLE (the "Executive"). The Executive is employed as EXECUTIVE
VICE PRESIDENT AND CHIEF OPERATING OFFICER and will become PRESIDENT AND CHIEF
EXECUTIVE OFFICER upon the combination of the Company and the Fluid Power
Business of Danfoss A/S. The Company desires to assure the benefit of the
Executive's future services, and the 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 the Executive in an
executive capacity, and the 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 the Executive and the Company, the Company shall neither
demote the Executive nor assign to the Executive any duties or
responsibilities that are inconsistent with his present position, duties,
responsibilities, and status. Executive may serve from time to time as a
director of the Company and/or as a director and/or officer of one or more
subsidiaries of the Company. Executive agrees to fulfill his duties as such
director or officer without additional compensation other than the
compensation provided for in this Agreement.
The Executive agrees, that during the Employment Period (as
hereinafter defined) he will devote substantially all of his business time,
attention, skill, and energy to the business of the Company, will use his
best efforts to promote the success of the Company's business and will
cooperate fully with the Board of Directors in the advancement of the best
interests of the Company.
2. EMPLOYMENT PERIOD. The Initial Term of the Executive's
employment under this Agreement shall commence as of 1 January 2000 (the
"Effective Date"), and shall expire, subject to the earlier termination of
the Executive's employment as hereinafter provided, on 31 December 2001 (the
"Initial Term"). The Initial Term of employment automatically shall be
extended for one (1) additional year at the end of the Initial Term, and then
again after each successive year thereafter (a "Successive Term"). The
Initial Term and any Successive Term are sometimes referred to in this
Agreement as the "Employment Period." However, either party may terminate
this Agreement at the end of the Initial Term or at the end of any Successive
Term thereafter, by giving the other party written notice of intent not to
renew, delivered at least ninety (90) calendar days prior to the end of such
Initial Term or Successive Term.
In the event such notice of intent not to renew is properly
delivered by either party, this Agreement, along with all corresponding
rights, duties, and covenants, shall automatically expire
<PAGE>
at the end of the Initial Term or Successive Term then in progress, with the
exception of the covenants provided in Sections 7, 8, and 9 herein (which
shall survive such expiration).
However, regardless of the above, if at any time during the term of
this Agreement, a Change in Control of the Company occurs, then this
Agreement shall become immediately irrevocable for the greater of two (2)
years from the date of the Change in Control or for the amount of time
remaining in the term of this Agreement.
3. COMPENSATION. Throughout the Employment Period, the Company
shall pay or provide the Executive with the following, and the 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 base salary at a rate of not less than 300,000
US-Dollar per year payable not less often than in monthly
installments. The annual rate of base salary shall be
reviewed at least annually while this Agreement is in
force, to ascertain whether, in the judgment of the Board
of Directors of the Company (the "Board") or the Board's
designee (currently the Compensation Committee), such base
salary should be increased. Such judgment shall be based on
such criteria as the Board may determine in its sole
discretion, which criteria may include, without limitation,
the performance of the Executive during the year, survey
data representing average base pay for executives employed
in similar positions in comparable industries, and the rate
of inflation. If so increased, the annual base salary as
stated above shall, likewise, be increased for all purposes
of this Agreement.
(b) Participation in the Company's Bonus Plan as long as such
plan remains in effect, and participation in any future
incentive compensation or other bonus plan (including
annual and long-term incentive plans) covering the
Company's executive officers.
(c) Participation in the Company's employee benefit plans,
policies, practices, and arrangements in which the
Executive is presently eligible to participate or plans and
arrangements substituted therefore or in addition thereto,
including the savings plan, retirement plan, supplemental
retirement plans, health and dental plan, disability plan,
survivor income and life insurance plan or other
arrangement (collectively, the "Benefit 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.
2
<PAGE>
(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 the Executive for all reasonable expenses incurred by the
Executive in the performance of duties hereunder.
5. EMPLOYMENT TERMINATIONS.
(a) TERMINATION DUE TO RETIREMENT. In the event the Executive's
employment is terminated during the Employment Period by reason of Retirement
(as defined in the retirement benefit plan provided for in Section 3(c)), the
Executive's benefits shall be determined in accordance with the Company's
Benefit Plans then in effect as of the date of Retirement.
Upon the effective date of such termination, the Company's
obligation to pay and provide to the Executive annual base salary, bonuses,
and benefits (as provided in Section 3 herein, respectively), shall
immediately expire, except to the extent such rights and benefits are vested
pursuant to, and in accordance with, the Benefit Plans.
In the event of termination of employment as provided for in this
Section 5(a), the provisions of Sections 7, 8, 9, 10, and 11 herein shall
survive such termination.
(b) TERMINATION DUE TO DEATH. In the event of the death of the
Executive during the Employment Period, or during any period of Disability
during which he is receiving compensation pursuant to Section 5(c) herein,
the Executive's estate, heirs, and beneficiaries shall be entitled to receive
the full amount of his base salary for the month in which death occurs, and
all other benefits available to them under the Company's Benefit Plans
(including, but not limited to, the Executive Life Insurance Program covering
the Executive) then in effect as of the date of death of the Executive.
(c) TERMINATION DUE TO DISABILITY. In the event that during the
Employment Period the Executive becomes Disabled (as defined in the Company's
governing long-term disability plan then in effect) and is, therefore, unable
to perform his duties herein, the Company shall have the right to terminate
the Executive's active employment as provided in this Agreement by delivering
written notice to the Executive at least thirty (30) calendar days prior to
the effective date of such termination.
A termination for Disability shall become effective upon the end
of the thirty (30) calendar day notice period. Upon such effective date, the
Company's obligation to pay and provide to the Executive annual base salary,
bonuses, and benefits (as provided in Section 3 herein), shall immediately
expire except to the extent such rights and benefits are vested pursuant
3
<PAGE>
to, and in accordance with, the Benefit Plans. Further, the Executive shall
receive all rights and benefits that he is vested in, pursuant to other plans
and programs of the Company, including, but not limited to, short- and
long-term disability benefits and retirement benefits as described in Section
3(c).
(d) VOLUNTARY TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON.
The Executive may terminate this Agreement at any time by giving the Board of
Directors of the Company written notice of intent to terminate, delivered at
least ninety (90) calendar days prior to the effective date of such
termination (such period not to include vacation). The termination
automatically shall become effective upon the expiration of the ninety (90)
calendar days notice period.
Upon the effective date of such termination, the Company shall
pay to the Executive his base salary through the effective date of
termination, plus all other rights and benefits to which the Executive has a
vested right to at that time including, but not limited to, accrued vacation
pay. The Company also shall provide to the Executive the retirement benefits,
if any, set forth in the Benefit Plans described in Section 3(c) herein.
Further, in the event of termination of employment as provided for in this
Section 5(d), the provisions of Sections 7, 8, 9, 10, and 11 herein shall
survive such termination.
(e) TERMINATION FOR GOOD REASON. The Executive may terminate this
Agreement for Good Reason by giving the Board thirty (30) calendar days' written
notice of such intent to terminate which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for such termination. Good
Reason shall mean, without the Executive's prior written consent, the occurrence
of any one or more of the following:
(i) The assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including
status, offices, titles, and reporting requirements),
authorities, duties, or other responsibilities as
contemplated by Section 1 of this Agreement, or any other
action of the Company which results in a diminishment in
such position, authority, duties, or responsibilities,
other than (A) an insubstantial and inadvertent action
which is remedied by the Company within 30 days after
receipt of notice thereof given by the Executive, or (B)
Executive being removed as a director of the Company and/or
as a director or officer of any subsidiary of the Company.
(ii) The Company's requiring the Executive, without the
Executive's consent, to relocate his principal residence at
that time;
(iii) A material reduction or elimination of any component of the
Executive's compensation as provided for in Section 3
herein; or
4
<PAGE>
(iv) A breach by the Company of any provision of this Agreement
which is not remedied by the Company within 30 days after
receipt of notice thereof given by the Executive.
Upon the lapse of the thirty (30) calendar days' notice period, the
Good Reason termination shall take effect and the Executive's obligation to
serve the Company, and the Company's obligation to employ the Executive,
under the terms of this Agreement, shall terminate simultaneously, and, (a)
if such termination is prior to a Change in Control (as such term is defined
in Section 6(b) herein), then the Executive shall receive those benefits
similar to those had the Executive been terminated involuntarily by the
Company Without Cause, as provided in Section 5(f) herein, and (b) if such
termination is after a Change in Control, then the Executive shall receive
those benefits as provided in Section 6(a) herein.
The parties agree that, in such event, such payments and benefits
shall be deemed to constitute liquidated damages for the Company's breach of
this Agreement, and the Company agrees that the Executive shall not be
required to mitigate his damages (with the exception for participation in
Benefit Plans) by seeking other employment or otherwise.
In the event of termination of employment as provided for in this
Section 5(e), the provisions of Sections 7, 8, 9, 10, and 11 herein shall
survive such termination.
(f) INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company
may terminate the Executive's employment, as provided under this Agreement,
at any time, for any reason other than Death, Disability, Retirement, or for
Cause, by notifying the Executive in writing of the Company's intent to
terminate, at least thirty (30) calendar days prior to the effective date of
such termination. The termination automatically shall become effective upon
the expiration of the thirty (30) calendar day notice period; provided,
however, that the provisions of Sections 7, 8, 9, 10, and 11 herein shall
survive such termination.
For the greater of two (2) years or the remainder of the Employment
Period, the Company shall continue to make monthly payments to the Executive
equal to the Executive's then current annual base salary plus target annual
bonus divided by twelve (12). Further, during such period the Executive shall
continue to participate in all Benefit Plans (except retirement plans) of the
Company; provided, however, that such continued participation shall cease
upon the Executive becoming eligible for similar benefits from a subsequent
employer. Further, in the event the Executive violates any of the provisions
of Sections 7, 8, or 9, any such payments and benefits shall immediately
cease.
The parties agree that, in such event, such payments and benefits
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 (with the exception for participation in Benefit
Plans) by seeking other employment or otherwise.
5
<PAGE>
(g) TERMINATION FOR CAUSE. Nothing in this Agreement shall be
construed to prevent the Board from terminating the Executive's employment
under this Agreement for "Cause". In the event the Board determines that
Cause exists, the Board shall deliver written notice to the Executive of the
facts and circumstances leading to the Board's determination. Upon receipt of
this written notification, all provisions of this Agreement shall terminate,
except for the provisions of Sections 7, 8, 9, 10, and 11 herein (which shall
survive such termination). The Company shall pay the Executive his base
salary and accrued vacation time through the date notice of a for Cause
termination is delivered to the Executive, plus all other benefits to which
the Executive has a vested right to at that time. The Company and the
Executive thereafter shall have no further obligations under this Agreement.
"Cause" shall be determined by the Board in the exercise of good
faith and reasonable judgment, and shall mean (i) willful misconduct or
fraud; (ii) conviction of a felony; (iii) consistent gross neglect of duties
or wanton negligence by the Executive in the performance of his duties
hereunder; (iv) the material breach by the Executive of the terms of this
Agreement; or (v) other misconduct of such magnitude that the continued
employment of the Executive may reasonably be expected to adversely affect
the business or properties of the Company.
6. CHANGE IN CONTROL.
(a) EMPLOYMENT TERMINATIONS AFTER A CHANGE IN CONTROL. During
the term of this Agreement, in the event the Executive's employment with the
Company is terminated within two years following a Change in Control (as such
term is defined in Section 6(b) herein), unless such termination is (i) by
the Company for Cause (as provided in Section 5(g) herein), (ii) by reason of
Death, Disability, or Retirement, or (iii) by the Executive without Good
Reason (as such term is defined in Section 5(e) herein), then in lieu of all
other benefits provided to the Executive under the provisions of this
Agreement, the Company shall pay to the Executive and provide him with the
following:
(i) A lump-sum cash amount equal to the Executive's unpaid
base salary, accrued vacation pay, unreimbursed
business expenses, and all other items earned by and
owed to the Executive through and including the date of
termination (in full satisfaction for these amounts
owed to the Executive).
(ii) A lump-sum cash amount equal to the Executive's then
current annual target bonus opportunity, established
under the annual incentive plan for the bonus plan year
in which the Executive's termination occurs, multiplied
by a fraction, the numerator of which is the number of
full completed days in the bonus plan year through the
effective date of termination, and the denominator of
which is 365 or, if greater, the full bonus earned at
that time based on the level of goal achievement. This
payment will be in lieu of
6
<PAGE>
any other payment to be made to the Executive under the
annual bonus plan for the respective plan year.
(iii) A lump-sum cash amount equal to the Executive's then
current annual base salary and target annual bonus
opportunity multiplied by three (3).
(iv) A lump-sum cash amount equal to 15 percent of the
Executive's then current base salary in lieu of health,
dental, long-term disability, and life insurance
continuation. The Executive's participation in these
and all other such benefits including bonus, savings
and retirement plans shall cease upon the termination
of Executive's employment with the Company.
The parties agree that, in the event of such termination, such
payment and benefits (including an Excise Tax Payment provided in Section
6(c) herein) shall be deemed to constitute liquidated damages for the
Company's breach of this Agreement, and the Company agrees that the Executive
shall not be required to mitigate his damages by seeking other employment or
otherwise.
The parties also agree that, in the event of a termination of
employment that obligates the Company to make the payments set forth in this
Section 6(a), the provisions of Sections 7, 8, 9, 10 and 11 herein shall
survive such termination.
(b) DEFINITION OF "CHANGE IN CONTROL." "Change in Control" of the
Company means, and shall be deemed to have occurred upon any of the following
events taking place after the combination of the Company and the fluid power
business of Danfoss A/S:
(i) Any person (other than those persons in control
of the Company as of the date immediately
following the date upon which the combination of
the Company and the Fluid Power Business of
Danfoss A/S is completed, 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 of the combination of the Company and the
Fluid Power Business of Danfoss A/S), individuals
who at the beginning of such period constitute
the
7
<PAGE>
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: (A) a
plan of complete liquidation of the Company; or
(B) an agreement for the sale or disposition of
all or substantially all the Company's assets; or
(C) a merger, consolidation, or reorganization of
the Company with or involving any other
corporation, other than a merger, consolidation,
or reorganization that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at
least fifty percent (50%) of the combined voting
power of the voting securities of the Company (or
such surviving entity) outstanding immediately
after such merger, consolidation, or
reorganization.
However, in no event shall a "Change in Control" be deemed to
have occurred, with respect to the Executive, if the Executive
is part of a purchasing group which consummates the Change in
Control transaction. The Executive shall be deemed "part of a
purchasing group" for purposes of the preceding sentence if
the Executive is an equity participant in the purchasing
company or group (except for (i) passive ownership of less
than one percent (1%) of the stock of the purchasing company;
or (ii) ownership of equity participation in the purchasing
company or group which is otherwise not significant as
determined prior to the Change in Control by a majority of the
nonemployee continuing Directors).
(c) EXCISE TAX PAYMENT. In the event that any portion of the severance
benefits or any other payment under this Agreement or under any other
agreement with or plan of the Company (in the aggregate "Total Payments")
would constitute an "Excess Parachute Payment," such that an "Excise Tax" is
due, the Company shall provide to the Employee, in cash, an additional
payment in an amount equal to the excise tax divided by 0.329 to offset the
excise tax and the Employee's state and federal income and employment taxes
on this excise tax payment. This payment shall be made as soon as possible
following the date of the Employee's qualifying termination, but in no event
later than thirty (30) calendar days of such date.
For purposes of this Agreement, the terms "Excise Tax" and "Excess
Parachute Payment" shall have the meanings assigned to such terms in Sections
280G and 4999 of the Internal Revenue Code of 1986, as amended.
8
<PAGE>
(d) SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service subsequently adjusts the excise tax computation herein described, the
Company shall reimburse the Executive for the full amount of any underpaid
excise tax, and any related interest and/or penalties due to the Internal
Revenue Service.
7. COVENANT NOT TO COMPETE. Without the consent of the Company,
the Executive shall not, directly or indirectly, anywhere in the world, at
any time during the Employment Period and for a period of two (2) years
following the termination of Executive's employment with the Company for any
reason, be associated or in any way connected as an owner, investor, partner,
director, officer, employee, agent, or consultant with any business entity
directly engaged in the manufacture and/or sale of products competitive with
any material product or product lines of the Company or any of its
subsidiaries; provided, however, that the Executive shall not be deemed to
have breached this undertaking if his sole relation with such entity consists
of his holding, directly or indirectly, an equity interest in such entity not
greater than two percent (2%) of such entity's outstanding equity interest,
and the class of equity in which the Executive holds an interest is listed
and traded on a broadly recognized national or regional securities exchange.
For purposes hereof, the term "material product or product line of the
Company" shall mean any product or product line of the Company 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.
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary,
and intellectual character; (b) the business of the Company and its
subsidiaries is worldwide in scope and its products are marketed throughout
the world; (c) the Company and its subsidiaries compete with other businesses
that are or could be located in any part of the world; and (d) the provisions
of this Section 7 are reasonable and necessary to protect the Company's
business.
If any covenant in this Section 7 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 7 will
be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenants under this Section 7 are in
effect, give notice to the Company, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Company may
notify such employer that the Executive is bound by this Agreement and, at
the Company's election, furnish such employer with a copy of this Agreement
or relevant portions thereof.
9
<PAGE>
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. Without the consent of
the Company, the Executive shall not disclose to any other person
Confidential Information (as defined below) concerning the Company or any of
its subsidiaries or the Company's or any of its subsidiaries' trade secrets
of which the Executive has gained knowledge during his employment with the
Company. Any trade secrets of the Company or any of its subsidiaries will be
entitled to all of the protections and benefits under the Iowa Code Annotated
Section 550.1 through 550.8 and any other applicable law. If any information
that the Company deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that
the Company submit proof of the economic value of any trade secret or post a
bond or other security. None of the foregoing obligations and restrictions
apply to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than as a
result of a disclosure by the Executive.
The Executive will not remove from the premises of the Company or
any of its subsidiaries (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while traveling, or
except as otherwise specifically authorized by the Company), any document,
record, notebook, plan, model, component, device, or computer software or
code, whether embodied in a disk or in any other form, that contains
Confidential Information (collectively, the "Proprietary Items"). The
Executive recognizes that, as between the Company and the Executive, all of
the Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Company or its subsidiaries, as the case may be.
Upon termination of this Agreement by either party, or upon the request of
the Company during the Employment Period, the Executive will return to the
Company all of the Proprietary Items in the Executive's possession or subject
to the Executive's control, and the Executive shall not retain any copies,
abstracts, sketches, or other physical embodiment of any of the Proprietary
Items.
For purposes of this Agreement, Confidential Information shall
include any and all information concerning the business and affairs of the
employer, including, without limitation, product specifications, data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current, and planned
research and development, current and planned distribution methods and
processes, customer lists, current and anticipated customer requirements,
price lists, market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures (and related formulae,
compositions, processes, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information), historical
financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and plans, the names and
backgrounds of key personnel, agents, personnel training and techniques and
materials, insurance products, premium structures, information relating to
suppliers and supplies, sales and marketing information and strategy, notes,
analysis, compilations, studies, summaries, and other material prepared by or
for the Company or any of its subsidiaries containing or based, in whole or
in
10
<PAGE>
part, on any information included in the foregoing, and any information,
however documented, that is a trade secret within the meaning of the Iowa
Code Annotated Section 550.1 through 550.8.
9. NONSOLICITATION. Without the written consent of the Company,
the Executive shall not at any time during the Employment Period and for a
period of two (2) years following the termination of Executive's employment
with the Company for any reason (a) employ or retain or arrange to have any
other person, firm, or other entity employ or retain or otherwise participate
in the employment or retention of any person who is an employee or consultant
of the Company or its subsidiaries; or (b) solicit orders as a customer or
arrange to have any other person, firm, or other entity (where such entity is
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) solicit orders as a customer or otherwise participate in such
solicitation of any entity that was a customer of the Company or any of its
subsidiaries during the time of the Executive's employment, whether or not
the Executive had personal contact with such person.
10. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY; ESSENTIAL AND
INDEPENDENT COVENANTS.
(a) The Executive acknowledges that the injury that would
be suffered by the Company as a result of a breach of the provisions
of this Agreement (including any provision of Sections 7, 8, and 9)
would be irreparable and that an award of monetary damages to the
Company for such a breach would be an inadequate remedy.
Consequently, the Company will have the right, in addition to any
other rights it may have, to obtain injunctive relief to restrain
any breach or threatened breach or otherwise to specifically enforce
any provision of this Agreement, and the employer will not be
obligated to post bond or other security in seeking such relief.
Without limiting the Company's rights under this Section 10 or any
other remedies of the Company, if the Executive breaches any of the
provisions of Sections 7, 8, or 9, the Company will have the right
to cease making any payments otherwise due to the Executive under
this Agreement.
(b) The covenants by the Executive in Sections 7, 8, and 9
are essential elements of this Agreement, and without the
Executive's agreement to comply with such covenants, the Company
would not have entered into this Agreement with the Executive. The
Company and the Executive have independently consulted their
respective counsel and have been advised in all respects concerning
the reasonableness and propriety of such covenants (including,
without limitation, the time period of restriction and the
geographical area of restriction set forth in Section 7), with
specific regard to the nature of the business conducted by the
Company and its subsidiaries. The Executive's covenants in Sections
7, 8, and 9 are independent covenants and the existence of any claim
by the Executive against the Company under this Agreement or
therwise, will not excuse the Executive's breach of any covenant in
Sections 7, 8, or 9.
11
<PAGE>
If the Executive's employment hereunder expires or is terminated,
this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in
Sections 7, 8, 9, 10, and 11.
11. ARBITRATION. All disputes, including, without limitation,
discrimination claims of all types and claims of sexual harassment, arising
under this Agreement between the Company and Executive, other than those
disputes relating to Executive's alleged violations of Sections 7, 8, and 9
herein, which cannot otherwise be resolved amicably, shall be submitted to
binding arbitration by the American Arbitration Association ("AAA") in Des
Moines, Iowa, pursuant to the rules and procedures of the AAA. The fee and
expense of the arbitrators shall be split equally between the Company and
Executive. The decision of the arbitrator shall be final and binding and
there shall be no appeal from any award rendered. In any judicial enforcement
proceeding, the losing party shall reimburse the prevailing party for its
reasonable costs and attorney's fees for enforcing its rights under this
Agreement, in addition to any damages or other relief granted. This Section
11 does not apply to any action by the Company to enforce Section 7, 8, or 9
of this Agreement and does not in any way restrict the Company's rights under
Section 10(a) of this Agreement.
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, 2800 East 13th Street, Ames, Iowa 50010,
U.S.A., or if to the Executive, at 1071 E. Michener Way, Highlands Ranch,
Colorado 80126 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
the 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. ENTIRE AGREEMENT; MODIFICATION, WAIVER, AND INTERPRETATION.
This Agreement contains the entire agreement between the parties with respect
to the subject matter of this Agreement and supersedes all prior agreements
and understandings, oral or written, between the parties hereto with respect
to the subject matter of this Agreement. 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 the 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.
This Agreement shall be deemed to have been executed in Ames, Iowa and the
validity, interpretation, construction, and
12
<PAGE>
performance of this Agreement shall be governed by the laws of the State of
Iowa without regard to conflicts of laws principles.
15. SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
17. 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 WHEREOF, the parties hereto have executed this
Agreement on the day and year first written above.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
SAUER INC.
By: /s/ Klaus H. Murmann
----------------------------------------
Chairman and Chief Executive Officer
----------------------------------------
(print name and title of Officer)
/s/ David L. Pfeifle
----------------------------------------
Executive
13
[caad 234]a<PAGE>
Exhibit 10.1(y)
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT has been entered into as of the 31st day of
March, 2000, between SAUER INC., a Delaware corporation (the "Company"),
SAUER-SUNDSTRAND GmbH & CO. KG, a German partnership (the "German
Subsidiary") and TONIO P. BARLAGE (the "Executive").
Executive is employed as President and Chief Operating Officer of the
Company. Executive and the Company are parties to the Employment Agreement
dated September 19, 1996 (the "Employment Agreement") and Executive and the
German Subsidiary are parties to the Post-Retirement Care Agreement dated
September 19, 1996 and amended as of August 20, 1998 (the "PRC Agreement").
Executive and the Company mutually desire to terminate Executive's employment
with the Company and the Employment Agreement and PRC Agreement upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, do hereby unconditionally agree as
follows:
1. RESIGNATION AND EMPLOYMENT PERIOD. Executive resigned as Chief
Operating Officer of the Company effective as of January 20, 2000. Executive
shall continue to serve as President of the Company until March 31, 2000, at
which time Executive's employment under the Employment Agreement shall
terminate. The Company shall pay Executive the bonus to which he is due
under the 1990 Sauer Inc. Bonus Plan for the year ended December 31, 1999, by
no later than May 1, 2000.
2. ASSIGNMENT. The German Subsidiary herewith assigns, with the
express consent of the Executive, all rights and obligations under the PRC
Agreement to the Company, which accepts such assignment.
3. TERMINATION PAYMENTS. In recognition for the services rendered to
the Company and in consideration of the covenants and agreements of Executive
as set forth herein, the Company hereby agrees to pay, and Executive agrees
to accept as full compensation therefor, the following:
(a) The Company will make a lump sum payment to Executive on
March 31, 2000, in the amount of $1,200,000 in U.S. dollars, which
payment shall constitute full consideration for the covenant not to
compete agreed to in Section 8 below.
(b) As compensation for any and all future pension claims based
on the PRC Agreement, including, but not limited to, any future claims
for retirement pension and disability pension, the Company will make a
lump sum payment to Executive on March 31,
<PAGE>
2000, in the amount $1,500,000 in U.S. dollars, which payment shall
constitute full settlement of any rights and claims of the Executive
based on the German Statutory Law (including, but not limited to, any
rights and claims based on the Gesetz zur Verbesserung der betrieblichen
Altersversorgung BetrAVG).
The above payments shall be in full satisfaction of all obligations of
the Company and its subsidiaries under the Employment Agreement and the PRC
Agreement. Executive authorizes and directs the Company to withhold in
accordance with applicable law from any payments made to Executive under this
Agreement, all payroll taxes and other payments required to be withheld by
the Company under federal, state or local laws. The determination of the
amount of any such withholding shall be made by the Company in its sole
discretion.
4. STOCK PURCHASE AGREEMENT. In further consideration of the
covenants and agreements of Barlage set forth in this Agreement, the Company,
or any subsidiary of the Company, and Executive and his spouse, Maria Barlage
("Spouse") shall enter into a Stock Purchase Agreement providing that the
Company shall purchase from Executive and Spouse a total of 600,000 shares of
the Company's common stock at a price per share ("Purchase Price") computed
as follows:
The sum of the closing stock price for the Company's common stock as set
forth in THE WALL STREET JOURNAL for each trading day during the period
January 1, 2000, through March 31, 2000, divided by the number of trading
days used to arrive at this sum. For example, if there are 61 trading days
during said first quarter and the sum of the closing prices for such trading
days as set forth in THE WALL STREET JOURNAL was $793, the Purchase Price
would be $13 and the total payment to Executive and Spouse under the Stock
Purchase Agreement would be $7,800,000. The Stock Purchase Price shall
contain a customary representation and warranty from Executive and Spouse
that they own 600,000 shares of the common stock of the Company free and
clear of all liens and encumbrances and that they will deliver to the Company
good and marketable title to such stock, free and clear of all liens and
encumbrances. The closing for the stock purchase, which shall consist of
delivery of the total purchase price in exchange for stock certificates
representing the 600,000 shares, duly endorsed or with properly executed
stock powers attached, shall take place no later than April 10, 2000.
5. ADDITIONAL RESIGNATIONS. Executive shall deliver to the Company
on March 31, 2000, his written resignation as an officer and director of the
Company and any and all subsidiaries of the Company, and as a member of all
committees, including administrative and similar committees for retirement,
bonus, profit sharing, health care and other fringe benefit plans of the
Company and any and all of its subsidiaries, said resignations to be in such
form as the Company shall reasonably request.
6. TERMINATION OF AGREEMENTS. The Employment Agreement and the PRC
Agreement shall terminate on March 31, 2000, and be of no further force or
effect from such date, without further action of the parties to this
Agreement.
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<PAGE>
7. MUTUAL RELEASES. The Company, the German Subsidiary and Executive
shall execute and deliver to each other on March 31, 2000, the Mutual Release
substantially in the form attached hereto as Exhibit A.
8. COVENANT NOT TO COMPETE. Without the consent of the Company, the
Executive shall not, directly or indirectly, anywhere in the world, for the
period commencing on the date hereof and ending on December 31, 2001, be
associated or in any way connected as an owner, investor, partner, director,
officer, employee, agent, or consultant with any business entity directly
engaged in the manufacture and/or sale of products competitive with any
material product or product lines of the Company or any of its subsidiaries;
provided, however, that (i) the Executive shall not be deemed to have
breached this undertaking if his sole relation with such entity consists of
his holding, directly or indirectly, an equity interest in such entity not
greater than two percent (2%) of such entity's outstanding equity interest,
and the class of equity in which the Executive holds an interest is listed
and traded on a broadly recognized national or regional securities exchange,
and (ii) the Executive shall not be deemed to have breached this undertaking
if he is exclusively employed by a business unit which does not manufacture
and/or sell products competitive with any material product or product lines of
the Company or any of its subsidiaries. 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 consolidated
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.
Executive shall not at any time after the date of this Agreement,
disparage the Company or any of its stockholders, directors, officers,
employees, or agents.
Executive acknowledges that: (a) the services performed by him under the
Employment Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the business of the Company and its subsidiaries
is worldwide in scope and its products are marketed throughout the world; (c)
the Company and its subsidiaries compete with other businesses that are or
could be located in any part of the world; and (d) the provisions of this
Section 8 are reasonable and necessary to protect the Company's business.
If any covenant in this Section 8 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible
with respect to scope, time, and geographic area, and such lesser scope,
time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8 will be
extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenants under this Section 8 are in
effect, give notice to the Company, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Company may
notify such employer that the Executive is bound by this Agreement
-3-
<PAGE>
and, at the Company's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. DISCLOSURE OF CONFIDENTIAL INFORMATION. Without the consent of the
Company, the Executive shall not disclose to any other person Confidential
Information (as defined below) concerning the Company or any of its
subsidiaries or the Company's or any of its subsidiaries' trade secrets of
which the Executive has gained knowledge during his employment with the
Company. Any trade secrets of the Company or any of its subsidiaries will be
entitled to all of the protections and benefits under the Iowa Code Annotated
Section 550.1 through 550.8 and any other applicable law. If any information
that the Company deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement
that the Company submit proof of the economic value of any trade secret or
post a bond or other security. None of the foregoing obligations and
restrictions apply to any part of the Confidential Information that the
Executive demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
The Executive will not remove from the premises of the Company or any of
its subsidiaries (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or except
as otherwise specifically authorized by the Company), any document, record,
notebook, plan, model, component, device, or computer software or code,
whether embodied in a disk or in any other form, that contains Confidential
Information (collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Company and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Company or its subsidiaries, as the case may be.
Upon termination of Executive's employment with the Company, the Executive
will return to the Company all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive shall not
retain any copies, abstracts, sketches, or other physical embodiment of any
of the Proprietary Items.
For purposes of this Agreement, Confidential Information shall include
any and all information concerning the business and affairs of the Company,
including, without limitation, product specifications, data, know-how,
formulae, compositions, processes, designs, sketches, photographs, graphs,
drawings, samples, inventions and ideas, past, current, and planned research
and development, current and planned distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries, concepts,
ideas, designs, methods and information), historical financial statements,
financial projections and budgets, historical and projected sales, capital
spending budgets and plans, the names and backgrounds of key personnel,
agents, personnel training and techniques and materials, insurance products,
premium structures, information relating to suppliers and supplies, sales and
marketing information and strategy, notes, analysis, compilations, studies,
summaries, and other material prepared by or for the Company or any of its
subsidiaries containing
-4-
<PAGE>
or based, in whole or in part, on any information included in the foregoing,
and any information, however documented, that is a trade secret within the
meaning of the Iowa Code Annotated Section 550.1 through 550.8.
10. NONSOLICITATION. Without the written consent of the Company,the
Executive shall not, for a period of two (2) years following the termination
of Executive's employment with the Company: (a) employ or retain or arrange
to have any other person, firm, or other entity employ or retain or otherwise
participate in the employment or retention of any person who is an employee
or consultant of the Company or its subsidiaries; or (b) solicit or arrange
to have any other person, firm, or other entity solicit or otherwise
participate in the solicitation of business from any entity that was a
customer of the Company or any of its subsidiaries during the time of the
Executive's employment, whether or not the Executive had personal contact
with such person.
11. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY; ESSENTIAL AND INDEPENDENT
COVENANTS
(a) The Executive acknowledges that the injury that would be
suffered by the Company as a result of a breach of the provisions of
this Agreement (including any provision of Sections 8, 9 and 10) would
be irreparable and that an award of monetary damages to the Company for
such a breach would be an inadequate remedy. Consequently, the Company
will have the right, in addition to any other rights it may have, to
obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and
the Company will not be obligated to post bond or other security in
seeking such relief. Without limiting the Company's rights under this
Section 11 or any other remedies of the Company, if the Executive
breaches any of the provisions of Sections 8, 9 or 10, the Company will
have the right to cease making any payments otherwise due to the
Executive under this Agreement.
(b) The covenants by the Executive in Sections 8, 9, and 10 are
essential elements of this Agreement, and without the Executive's
agreement to comply with such covenants, the Company would not have
entered into this Agreement with the Executive, agreed to purchase
Company stock from Executive or Spouse, or agreed to make the payments
to Executive set forth in Section 2. The Company and the Executive have
independently consulted their respective counsel and have been advised
in all respects concerning the reasonableness and propriety of such
covenants (including, without limitation, the time period of restriction
and the geographical area of restriction set forth in Section 8), with
specific regard to the nature of the business conducted by the Company
and its subsidiaries. The Executive's covenants in Sections 8, 9 and 10
are independent covenants and the existence of any claim by the
Executive against the Company under this Agreement or otherwise, will
not excuse the Executive's breach of any covenant in Sections 8, 9, or
10.
12. LITIGATION EXPENSES. 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
-5-
<PAGE>
Company, the nonprevailing party shall pay the other party's out-of-pocket
expenses, including attorneys' fees, incurred by such party in such claim or
legal action.
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
the 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. ENTIRE AGREEMENT; MODIFICATION, WAIVER, AND INTERPRETATION. This
Agreement contains the entire agreement between the parties with respect to
the subject matter of this Agreement and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with respect to
the subject matter of this Agreement. 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 the Executive and an
appropriate officer of the Company empowered to sign same by the Board of
Directors of the Company. 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. This Agreement shall be deemed to have been
executed in Ames, Iowa and the validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Iowa without regard to conflicts of laws principles.
15. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
17. 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 WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
SAUER INC.
By: /s/ DAVID L. PFEIFLE
------------------------------------------
David L. Pfeifle, Executive Vice President
SAUER-SUNDSTRAND GmbH & CO. KG
By: _________________________________________
/s/ TONIO P. BARLAGE
-----------------------------------------
Tonio P. Barlage, Executive
-6-
<PAGE>
EXHIBIT A
MUTUAL RELEASE AND COVENANT NOT TO SUE
THIS MUTUAL RELEASE AND COVENANT NOT TO SUE has been entered into as of
the 31st day of March, 2000, between SAUER INC., a Delaware corporation (the
"Company"), SAUER-SUNDSTRAND GmbH & CO. KG, a German partnership (the "German
Subsidiary"), and TONIO P. BARLAGE (the "Executive"). The Company, the
German Subsidiary and Executive are parties to that certain Termination
Agreement dated as March 31, 2000 (the "Termination Agreement"), providing,
among other things, for a lump sum payment of $2,700,000 from the Company to
Executive, and for the purchase by the Company of 600,000 shares of its
common stock from Executive and his spouse, and for certain covenants and
agreements from Executive. The aforesaid payments, covenants and agreements
are in full satisfaction of each party's rights and obligations under the
Employment Agreement dated September 19, 1996, between the Company and
Executive (the "Employment Agreement") and the Post-Retirement Care Agreement
dated September 19, 1996 and amended as of August 20, 1998, between Executive
and Sauer-Sundstrand GmbH & Co., a subsidiary of the Company (the "PRC
Agreement").
NOW, THEREFORE, in consideration of the payments, covenants and
agreements provided for in the Termination Agreement, the mutual covenants
and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto, intending to be legally bound hereby, do hereby
unconditionally agree as follows:
1. EXECUTIVE RELEASE. Executive, on behalf of himself, his agents,
legal representatives, heirs and assigns and any and all other parties
claiming or who might hereafter claim any right through Executive
(collectively whether one or more the "Executive Releasing Party") does
forever release and discharge the Company and the German Subsidiary, their
subsidiaries and affiliates and their past and present officers, directors,
employees, agents, representatives, stockholders, advisors, counsel, joint
venturers, partners, predecessors, successors and assigns, and all other
related persons, corporations and other entities who are or might be liable
(all of the foregoing collectively referred to as the "Released Parties"),
from all claims, rights of action, causes of action, liabilities and demands
of every kind and character whatsoever, known or unknown, developed or
undeveloped, including, without limitation, age discrimination claims under
the Age Discrimination in Employment Act, which Executive or any Executive
Releasing Party, individually or in any and all other capacities, now has or
under any circumstances could or might have against any or all of the
Released Parties in connection with, arising out of, or regarding in any way
the Employment Agreement or PRC Agreement or any other matter relating to
Executive's employment by the Company, its subsidiaries and their
predecessors.
2. EXECUTIVE COVENANT NOT TO SUE. Executive, on behalf of himself and
any and all Executive Releasing Parties, covenants and agrees that Executive
will not sue, institute, cause to be instituted, assist in instituting or
permit to be instituted, on behalf of Executive or any Executive Releasing
Party, any proceeding before any court, tribunal or other body, or otherwise
bring any
<PAGE>
challenge or assist in any challenge, with respect to any claim or matter of
any and every nature whatsoever that has been, could have been, or could ever
be asserted against any or all of the Released Parties in connection with,
arising out of, or regarding in any way the Employment Agreement or PRC
Agreement or any other matter relating to Executive's employment by the
Company, its subsidiaries and their predecessors.
3. COMPANY AND GERMAN SUBSIDIARY RELEASE. The Company and the German
Subsidiary, on their own behalf and all of their subsidiaries and any and all
other parties claiming or who might hereafter claim any right through the
Company (collectively whether one or more the "Company Releasing Party") do
forever release and discharge Executive from all claims, rights of action,
causes of action, liabilities and demands of every kind and character
whatsoever, known or unknown, developed or undeveloped, which the Company,
the German Subsidiary or any Company Releasing Party now has or under any
circumstances might have against Executive in connection with, arising out
of, or regarding in any way the Employment Agreement or PRC Agreement or any
other matter relating to Executive's employment by the Company, its
subsidiaries and their predecessors.
4. COMPANY AND GERMAN SUBSIDIARY COVENANT NOT TO SUE. The Company and
the German Subsidiary, on their own behalf and any and all Company Releasing
Parties, covenant and agrees that they will not sue, institute, cause to be
instituted, assist in instituting or permit to be instituted, on behalf of
the Company or any Company Releasing Party, any proceeding before any court,
tribunal or other body, or otherwise bring any challenge or assist in any
challenge, with respect to any claim or matter of any and every nature
whatsoever that has been, could have been, or could ever be asserted against
Executive in connection with, arising out of, or regarding in any way the
Employment Agreement or PRC Agreement or any other matter relating to
Executive's employment by the Company, its subsidiaries and their
predecessors.
5. COMPLETE DEFENSE. This Agreement may be pleaded as a full and
complete defense to, or an abatement of, and may be used as the basis for an
injunction against any action, suit or other proceeding of any kind
whatsoever which may be instituted, prosecuted, maintained or attempted in
breach of this Agreement.
6. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for any breach of the provisions of this
Agreement and agree that the obligations of the parties hereunder shall be
specifically enforceable.
7. TERMINATION AGREEMENT. Notwithstanding anything in this Agreement
to the contrary, this Agreement shall not limit or affect the rights or
remedies in any way whatsoever of any party under the Termination Agreement.
8. ENTIRE AGREEMENT; MODIFICATION AND INTERPRETATION. This Agreement
contains the entire agreement between the parties with respect to the subject
matter of this Agreement and supercedes all prior agreements and
understandings, oral or written, between the parties hereto with respect to
the subject matter of this Agreement. This Agreement shall be deemed to have
been
-2-
<PAGE>
executed in Ames, Iowa and the validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Iowa applicable to agreements made and to be entirely performed therein,
without regard to conflicts of laws principles.
9. COUNTERPARTS. This Agreement may be executed in counterparts with
the same force and effect as if each of the signatories had executed the same
document.
10. 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 WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SAUER INC.
By: /s/ DAVID L. PFEIFLE
--------------------------------------------
David Pfeifle, Executive Vice President
SAUER-SUNDSTRAND GmbH & CO. KG
By: --------------------------------------------
/s/ TONI P. BARLAGE
--------------------------------------------
Toni P. Barlage, Executive
-3-
<PAGE>
Exhibit 10.1(aa)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of the 31st day of March, 2000,
by and among SAUER, INC., a Delaware corporation (the "Company"), and TONIO
P. BARLAGE AND MARIA BARLAGE, husband and wife ("Sellers").
Sellers own 600,000 shares (the "Shares") of capital stock of the
Company. Tonio P. Barlage and the Company are parties to that certain
Termination Agreement dated of even date herewith, pursuant to which they
have agreed that Sellers will sell, and the Company will purchase, the Shares
upon the terms set forth in this Agreement.
The parties, intending to be legally bound, agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
of this Agreement, no later than April 10, 2000 (the "Effective Date"),
Sellers shall sell the Shares to the Company, and the Company shall purchase
the Shares from Sellers for a purchase price per share (the "Purchase Price")
equal to the sum of the closing stock price for the Company's common stock as
set forth in THE WALL STREET JOURNAL for each trading day during the period
January 1, 2000, through March 31, 2000, divided by the number of trading
days used to arrive at this sum. For example, if there are 61 trading days
during said first quarter and the sum of the closing prices for such trading
days as set forth in THE WALL STREET JOURNAL was $793, the Purchase Price
would be $13 and the total payment to Sellers would be $7,800,000. Sellers
authorize and direct the Company to withhold in accordance with applicable
law from any payments made to Sellers under this Agreement all payroll taxes
and other payments required to be withheld by the Company under federal,
state, or local laws. The determination of the amount of any such withholding
shall be made by the Company in its sole discretion. Based on the published
closing stock prices, the Purchase Price is $9.5367.
2. RELEASE. As part of the consideration for the Company's payment of
the Purchase Price, Sellers hereby forever release and discharge the Company
and its subsidiaries and affiliates and their past and present officers,
directors, employees, agents, representatives, stockholders, advisors,
counsel, joint venturers, partners, predecessors, successors and assigns, and
all other related persons, corporations and other entities who are or might
be liable (all of the foregoing collectively referred to as the "Released
Parties"), from all claims, rights of action, causes of action, liabilities
and demands of every kind and character whatsoever, known or unknown,
developed or undeveloped, which Sellers individually or in any and all other
capacities, now have or under any circumstances could or might have against
any or all of the Released Parties in connection with, arising out of, or
regarding in any way Sellers' acquisition, ownership, or disposition of the
Shares.
3. DELIVERIES. On or before the Effective Date, Sellers shall deliver
to the Company certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers) for transfer to the Company, and
the Company shall deliver to Sellers the Purchase Price.
4. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers jointly and
severally represent and warrant to the Company that Sellers are the record
and beneficial owners and holders of the Shares, free and clear of all liens,
pledges, encumbrances, charges, assessments, or claims of any kind
-1-
<PAGE>
whatsoever ("Encumbrances") and that Sellers shall deliver to the Company
good and marketable title to the Shares, free and clear of all Encumbrances.
Sellers will indemnify and hold harmless the Company for, and will pay to the
Company the amount of, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value arising from or in connection with the breach of the foregoing
representations and warranties.
5. FURTHER ASSURANCES. The parties agree to furnish upon request to
each other such further information, to execute and deliver to each other
such other documents, and to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of
this Agreement and the documents referred to in this Agreement.
6. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may
not be amended except by a written agreement executed by the party to be
charged with the amendment.
7. GOVERNING LAW. This Agreement shall be deemed to have been
executed in Ames, Iowa, and the validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Iowa applicable to agreements made and to be entirely performed therein,
without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SAUER INC.
/s/ TONIO P. BARLAGE By: /s/ DAVID L. PFEIFLE
- ----------------------------- ------------------------------------------
TONIO P. BARLAGE David L. Pfeifle, Executive Vice President
- -----------------------------
MARIA BARLAGE
-2-
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<CASH> 9,169
<SECURITIES> 0
<RECEIVABLES> 100,449
<ALLOWANCES> 3,195
<INVENTORY> 76,710
<CURRENT-ASSETS> 197,503
<PP&E> 510,398
<DEPRECIATION> (245,360)
<TOTAL-ASSETS> 477,985
<CURRENT-LIABILITIES> 118,107
<BONDS> 0
0
0
<COMMON> 281
<OTHER-SE> 155,459
<TOTAL-LIABILITY-AND-EQUITY> 477,985
<SALES> 163,479
<TOTAL-REVENUES> 163,479
<CGS> 120,573
<TOTAL-COSTS> 144,885
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,156
<INCOME-PRETAX> 16,417
<INCOME-TAX> 5,333
<INCOME-CONTINUING> 11,158
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<EXTRAORDINARY> 0
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<NET-INCOME> 8,064
<EPS-BASIC> .30
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