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SAUER-DANFOSS INC.
409A DEFERRED COMPENSATION PLAN
FOR SELECTED EMPLOYEES US NONEMPLOYEE DIRECTORS

As Amended and Restated as of January 1, 2008

Article 1.  Establishment and Purpose

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

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

Article 2.  Definitions

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

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

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

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

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

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substantially the same proportions as their ownership of stock of the Company) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power of the Company’s then outstanding securities; provided, however, that a Change in Control shall not result from:

(A)           Danfoss A/S (as defined herein) acquiring securities of the Company from the Murmann Group, as such term is defined below, either directly, or indirectly by acquiring voting control of Danfoss Murmann Holding A/S or its successor; or

(B)            the Murmann Group (as defined herein) acquiring securities of the Company from Danfoss A/S either directly, or indirectly by acquiring voting control of Danfoss Murmann Holding A/S or its successor; or

(ii)            During any period of twelve (12) consecutive months, a majority of the individuals who at the beginning of such period constitute the Board are replaced during such period by individuals whose appointment or election is not endorsed by a majority of the members of the Company’s Board prior to the date of the appointment or election; or

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

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

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

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

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

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

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

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

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

(h)            “ Compensation ” means:

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

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

(i)             “ Danfoss A/S ” means any one or more of Danfoss A/S, any of its subsidiaries or related or affiliated companies or joint ventures, or any successor of the foregoing.

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

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

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

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

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

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

(m)           “ Earnings Credit Rate ” means a quarterly interest rate, equal to 1/4 of the sum of the annual yield on 10-year U.S. Treasury notes plus a credit risk spread over the 10-year Treasury note yield based on the then current credit rating of the Company.  The Earnings Credit Rate will be redetermined quarterly pursuant to the Plan.  For purposes of this definition, the yield on 10-year U.S. Treasury notes shall be such yield as published in the Wall Street Journal, or an equivalent yield if the Wall Street Journal published rates become unavailable.  For purposes of this definition, the credit risk spread over the 10-year Treasury note yield and the then current credit rating of the Company will be determined in advance of each quarter by the Company’s Treasurer, based on input from independent third parties including the Company’s relationship banks and/or independent credit rating agencies.    For purposes of Transition Year Deferrals that relate to service prior to December 31, 2004 and that would have been payable in 2005 absent any deferral election (i.e. deferred 2004 annual incentive plan payments), the Earnings Credit Rate shall at all times be computed as a quarterly interest rate equal to ¼ of the sum of the annual yield on 10-year U.S. Treasury Notes plus 300 basis points (3%).

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

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

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

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

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

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

(i)             Klaus Murmann;

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

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

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

3.3.                               Indemnification .  Each person who is or shall have been a member of the Committee or the Executive Office or who