<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SUN HYDRAULICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No filing fee required
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-------------------------------------------------------------
(2) Form, schedule or registration statement no.:
-------------------------------------------------------------
(3) Filing party:
-------------------------------------------------------------
(4) Date filed:
-------------------------------------------------------------
<PAGE> 2
April 24, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Sun Hydraulics Corporation. The meeting will be held Saturday,
May 23, 1998, at 10:00 a.m., Eastern Daylight Savings Time, at the Company's
manufacturing facility located at 701 Tallevast Road, Sarasota, Florida 34243.
A tour of the plant and refreshments will follow the meeting.
The Notice of the meeting and the Proxy Statement on the following
pages cover the formal business of the meeting, which includes the election of
Directors and a proposal to ratify the appointment of the Company's independent
certified public accountants. We also will report on the progress of the
Company and comment on matters of current interest.
It is important that your shares be represented at the meeting. We
ask that you promptly sign, date and return the enclosed proxy card in the
envelope provided, even if you plan to attend the meeting. Returning your
proxy card to us will not prevent you from voting in person at the meeting if
you are present and choose to do so.
If your shares are held in street name by a brokerage, your broker
will supply you with a proxy to be returned to the brokerage. It is important
that you return the form to the brokerage as quickly as possible so that the
brokerage may vote your shares. You may not vote your shares in person at the
Meeting unless you obtain a power of attorney or legal proxy from your broker
authorizing you to vote the shares, and you present this power of attorney or
proxy at the Meeting.
The Board of Directors and management look forward to greeting you
personally at the meeting.
Sincerely,
/s/ Robert E. Koski
----------------------------
ROBERT E. KOSKI
Chairman of the Board
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SATURDAY, MAY 23, 1998
Notice hereby is given that the Annual Meeting of Shareholders of Sun
Hydraulics Corporation, a Florida corporation, will be held on Saturday, May
23, 1998, at 10:00 a.m., Eastern Daylight Savings Time, at the Company's
manufacturing facility, located at 701 Tallevast Road, Sarasota, Florida,
34243, for the following purposes:
1. To elect one Director to serve until the Annual
Meeting in 2000 and two Directors to serve until the Annual Meeting in
2001 and until their successors are elected and qualified or until
their earlier resignation, removal from office or death;
2. To ratify the appointment of Price Waterhouse LLP as
the Company's independent certified public accountants for the year
1998; and
3. To transact such other business as properly may come
before the Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete description of the matters to be acted upon at the
Meeting. The 1997 Annual Report of the Company is enclosed. Shareholders of
record at the close of business on March 31, 1998, are entitled to receive
notice of and to vote at the Meeting and any adjournment thereof.
All shareholders are cordially invited to attend the Meeting. Whether
or not you expect to attend, please sign and return the enclosed Proxy promptly
in the envelope provided to assure the presence of a quorum. You may revoke
your Proxy and vote in person at the Meeting if you desire. If your shares are
held in street name by a brokerage, your broker will supply you with a proxy to
be returned to the brokerage. It is important that you return the form to the
brokerage as quickly as possible so that the brokerage may vote your shares.
You may not vote your shares in person at the Meeting unless you obtain a power
of attorney or legal proxy from your broker authorizing you to vote the shares,
and you present this power of attorney or proxy at the Meeting.
By order of the Board of Directors,
/s/ Gregory C. Yadley
----------------------------------
GREGORY C. YADLEY
Secretary
Sarasota, Florida
April 24, 1998
<PAGE> 4
SUN HYDRAULICS CORPORATION
1500 WEST UNIVERSITY PARKWAY
SARASOTA, FLORIDA 34243
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors and
Management of Sun Hydraulics Corporation (the "Company") in connection with the
solicitation of proxies to be voted at the Company's 1998 Annual Meeting of
Shareholders, which will be held on Saturday, May 23, 1998, at 10:00 a.m.,
Eastern Daylight Savings Time, at the Company's manufacturing facility, located
at 701 Tallevast Road, Sarasota, Florida 34243 (the "Meeting").
Any proxy delivered pursuant to this solicitation may be revoked, at
the option of the person executing the proxy, at any time before it is
exercised by delivering a signed revocation to the Company, by submitting a
later-dated proxy, or by attending the Meeting in person and casting a ballot.
If proxies are signed and returned without voting instructions, the shares
represented by the proxies will be voted as recommended by the Board of
Directors.
The cost of soliciting proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone by regular employees of the Company. The Company does not expect to
pay any compensation for the solicitation of proxies, but may reimburse brokers
and other persons holding stock in their names, or in the names of nominees,
for their expense in sending proxy materials to their principals and obtaining
their proxies. The approximate date on which this Proxy Statement and enclosed
form of proxy first has been mailed to shareholders is April 24, 1998.
The close of business on March 31, 1998, has been designated as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the Meeting. As of March 31, 1998, 6,325,922 shares of the
Company's Common Stock, par value $.001 per share, were issued and outstanding.
Each shareholder will be entitled to one vote for each share of Common Stock
registered in his or her name on the books of the Company on the close of
business on March 31, 1998, on all matters that come before the Meeting.
The affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, and voting at the Meeting will be required
to take action at the Meeting. Abstentions will be counted toward the number
of shares represented at the meeting. Broker non-votes will be disregarded.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of six
members. The Board is divided into three classes of Directors serving
staggered three-year terms. Directors hold their positions until the annual
meeting of shareholders in the year in which their term expires, and until
<PAGE> 5
their respective successors are elected and qualified or until their earlier
resignation, removal from office or death. Executive officers serve at the
pleasure of the Board of Directors.
The term of office of two of the Company's current six Directors will
expire at the 1998 Annual Meeting. One of those Directors, Arthur B. Bodley,
has informed the Company that he does not wish to be nominated for an
additional term. The Board of Directors unanimously recommends that you vote
"FOR" the election of Ferdinand E. Megerlin and the reelection of Clyde G.
Nixon to serve until the Company's annual meeting in 2001, and the election of
John S. Kahler to serve until the Company's annual meeting in 2000, and until
their respective successors shall be duly elected and qualified or until their
earlier resignation, removal from office or death. The Board of Directors See
"Management- Directors and Executive Officers" and "Certain Transactions" for
further information on such nominees. Shareholders may vote for up to three
nominees. The affirmative vote of a majority of the shares represented at the
Meeting and entitled to vote thereon will be required for the election of
Directors. Shareholders may not vote cumulatively in the election of
Directors. Abstentions will be counted toward the number of shares represented
at the Meeting. Broker non-votes will be disregarded. In the event any of the
nominees should be unable to serve, which is not anticipated, the proxy
committee, which consists of Robert E. Koski and Clyde G. Nixon, will vote for
such other person or persons for the office of Director as the Board of
Directors may recommend.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
Directors, nominees for Director, and executive officers and the positions they
hold with the Company. Executive officers serve at the pleasure of the Board
of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert E. Koski 69 Chairman of the Board of Directors (term expiring in 2000) and a member
of the Compensation Committee
Clyde G. Nixon 62 President, Chief Executive Officer, and Director (term expiring in 1998)
Jeffrey Cooper 57 Engineering Manager
Russell G. Copeman 59 Manufacturing Manager
Richard J. Dobbyn 54 Chief Financial Officer
Peter G. Robson 53 General Manager, Sun Hydraulics Limited
John S. Kahler 58 Nominee for Director (term expiring in 2000)
James G. March 70 Director (term expiring in 2000) and a member of the Compensation
Committee
</TABLE>
-2-
<PAGE> 6
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Ferdinand E. Megerlin 59 Nominee for Director (term expiring in 2001)
Taco van Tijn 74 Director (term expiring in 1999) and a member of the Audit Committee
David N. Wormley 58 Director (term expiring in 1999) and a member of the Compensation
Committee
</TABLE>
ROBERT E. KOSKI is a co-founder of the Company and has served as its
Chairman of the Board since it began operations in 1970. He was also its
President and Chief Executive Officer from that time until November 1988. He
is a graduate of Dartmouth College and past Chairman of the Board of the
National Fluid Power Association. Mr. Koski has over 36 years experience in
the fluid power industry, and has served as Chairman of the Fluid Power Systems
and Technology Division of the American Society of Mechanical Engineers, and as
a member of the Board of Directors of the National Association of
Manufacturers.
CLYDE G. NIXON joined the Company in January 1988, and was named its
President and Chief Executive Officer in November 1988. From September 1985,
to January 1988, he served as Vice President of Cross & Trecker Corporation and
was President of Warner & Swasey Company, its wholly-owned subsidiary. From
1964 to 1985, he served in various management capacities with Brown & Sharpe
Manufacturing Corporation, most recently as Vice President of its fluid power
division and President of Double A Products Company, its wholly-owned
subsidiary. Mr. Nixon is a graduate of Cornell University and the Harvard
Business School, and is Chairman of the Board of the National Fluid Power
Association. Mr. Nixon has over 30 years experience in the fluid power
industry.
JEFFREY COOPER joined the Company in December 1990, as an engineer and
has been Engineering Manager since September 1991. From August 1987, to
December 1990, he was Engineering Manager, Mobile Valves, of Vickers,
Incorporated, a wholly-owned subsidiary of Trinova Corporation, and from
September 1979 to August 1986, he served as Vice President of Engineering for
Double A Products Company. Mr. Cooper is an engineering graduate of Willesden
College of Technology, London, England. Mr. Cooper has over 29 years
experience in the fluid power industry.
RUSSELL G. COPEMAN joined the Company in July 1996, as Manufacturing
Manager, in charge of manufacturing operations and processes. From January
1996, to July 1996, Mr. Copeman was the principal of Copeman Consulting, and
performed consulting services for the Company from March 1996 to July 1996.
From January 1994, to October 1995, Mr. Copeman was a partner with Coopers &
Lybrand, Australia; from July 1989, to December 1993, he was a Director of
Coopers & Lybrand's International Manufacturing Practice. From January 1985,
to July 1989, he served in various management positions with Vickers,
Incorporated, most recently as Vice President. From August 1967, to January
1985, he served in various management positions with Double A Products Company,
most recently as Vice President. Mr. Copeman is a Certified Manufacturing
Engineer and a graduate of Georgia Institute of Technology and the Krannert
Business School of Purdue University. Mr. Copeman has over 23 years experience
in the fluid power industry.
-3-
<PAGE> 7
RICHARD J. DOBBYN joined the Company in October 1995, and was named
Chief Financial Officer in July 1996. From June 1995 to October 1995, Mr.
Dobbyn served as the Controller of Protek Electronics. From July 1994 to June
1995, he served as the Fiscal Director of a non-profit child care agency. From
September 1984 to July 1994, Mr. Dobbyn was Senior Vice President-Finance and
Administration for Loral Data Systems, formerly Fairchild Weston Systems, a
Schlumberger company. Mr. Dobbyn is a Certified Public Accountant and a
graduate of Boston College.
PETER G. ROBSON has served as a Director of Sun Hydraulics Limited,
Coventry, England, since May 1993, and has been employed by the Company as the
General Manager of its United Kingdom operations since 1982. Mr. Robson is a
Chartered Engineer and a graduate of Coventry University. Mr. Robson has over
31 years experience in the fluid power industry.
JOHN S. KAHLER has served as President, CEO and a Director of
Cincinnati Incorporated since January 1996. Prior to that, he served as Vice
President of Cincinnati Incorporated since 1993 and a consultant to that
company from 1989 to 1993. He is a graduate of Carnegie-Mellon University and
the Harvard Business School.
JAMES G. MARCH is a Professor Emeritus at Stanford University, Palo
Alto, California. He was a senior member of the faculty at Stanford University
and the Stanford Business School from September 1970, to August 1995, and is
the author of numerous books and articles on organizational behavior and
decision making. From September 1964, to August 1970, Dr. March was a
Professor of Psychology and Sociology at the University of California, Irvine,
where he was Dean of the School of Social Sciences from 1964 to 1969. Dr.
March served as a Director of the Company from 1989 to 1992, and rejoined the
Company's Board of Directors in November 1995. He also is a member of the
Board of Directors of Wally Industries and Chair of the Citicorp Behavioral
Sciences Research Council. Dr. March is a graduate of the University of
Wisconsin and received his Ph.D. from Yale University.
FERDINAND E. MEGERLIN is Chairman and Joint Managing Director of Linde
AG's Industrial Trucks and Hydraulics Division in Aschaffenburg, Germany. He
is also Chairman of Linde's U.S. subsidiaries Linde Hydraulics Corp., Canfield,
Ohio, and Baker Material Handling Corp., Sommerville, South Carolina. Within
VDMA, Germany's association for mechanical and plant engineering, Dr. Megerlin
serves as Chairman of the German Fluid Power Association and as a member of the
main Board of Directors. He is an engineer and received his PhD from TH
Aachen, Germany. Dr. Mergerlin has over 26 years of experience in the fluid
power industry.
TACO VAN TIJN is an attorney (solicitor), practicing law in London,
England, since May 1977. He has been a Director of the Company since February
1989, and the principal statutory officer of Sun Hydraulik Holdings Limited
since January 1991.
DAVID N. WORMLEY is the Dean of the Engineering School at Pennsylvania
State University, where he has taught since 1992. He previously was a member
of the engineering faculty at the Massachusetts Institute of Technology. Dr.
Wormley is Vice-Chair of the National Science Foundation Engineering
Directorate Advisory Committee. Dr. Wormley has served as a Director of the
Company since December 1992. He is an engineer and earned his Ph.D. from the
Massachusetts Institute of Technology.
-4-
<PAGE> 8
No family relationships exist between any of the Company's Directors,
nominees and executive officers, except that Mr. Koski and Dr. March are
step-brothers. There are no arrangements or understandings between any
Director or nominee and any other person concerning service or nomination as a
Director.
The Board of Directors has Audit and Compensation Committees. The
Company does not have a Nominating Committee; instead, the entire Board of
Directors functions as a Nominating Committee.
The Board of Directors held four meetings during 1997. Directors who
are not officers of the Company are paid $2,500 for attendance at each meeting
of the Board of Directors, as well as each meeting of each Board committee on
which they serve when the committee meeting is not held within one day of a
meeting of the Board of Directors. Directors also are reimbursed for their
expenses incurred in connection with their attendance at such meetings.
In September, 1996, the Company granted non-statutory options to
Directors Bodley and van Tijn to purchase 3,920 shares of the Company's common
stock, and to Director Wormley to purchase 2,940 shares of the Company's Common
Stock. All of the foregoing options were exercisable upon grant, at an
exercise price of $3.00 per share, and they expire in January, 2007.
The Audit Committee was appointed in February 1997 and held one
meeting in 1997. The functions of the Audit Committee are to recommend
annually to the Board of Directors the appointment of the independent public
accountants of the Company, to discuss and review the scope of and the fees for
the prospective annual audit with the independent public accountants, to review
the results thereof with the independent public accountants, to review and
approve non-audit services of the independent public accountants, to review
compliance with existing major accounting and financial policies of the
Company, to review the adequacy of the financial organization of the Company,
to review management's procedures and policies relative to the adequacy of the
Company's internal accounting controls, to review compliance with federal and
state laws relating to accounting practices and to review and approve (with the
concurrence of a majority of the disinterested Directors of the Company)
transactions, if any, with affiliated parties.
The Compensation Committee was appointed in December 1996, and did not
meet separately during 1997. The functions of the Compensation Committee are
to review and approve annual salaries and bonuses for all executive officers,
to review, approve and recommend to the Board of Directors the terms and
conditions of all employee benefit plans or changes thereto, to administer the
Company's stock option plans and carry out the responsibilities required by the
rules of the Securities and Exchange Commission.
In 1997, each incumbent Director attended all of the meetings of the
Board and of each committee of which he was a member held during the period.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 25, 1998, information as to
the beneficial ownership of the Company's Common Stock by (i) each person or
entity known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each Director and nominee for
Director, (iii) each named executive officer of the Company, as defined in
-5-
<PAGE> 9
Item 402(a)(3) of Regulation S-K under the Securities Exchange Act of 1934
("Named Executive Officer"), and (iv) all Directors and executive officers of
the Company as a group. Except as otherwise indicated, the persons listed below
have sole voting and investment power with respect to all shares of Common Stock
owned by them, except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS (2)
---------------------------------------- -------------------- ---------
<S> <C> <C>
Koski Family Limited Partnership . . . . . . . . . . 2,258,543 35.7
5619 Preston Oaks Road
Dallas, Texas 75240
Christine L. Koski(3) . . . . . . . . . . . . . . . . 2,322,838 36.7
5619 Preston Oaks Road
Dallas, Texas 75240
Robert C. Koski(3)(5) . . . . . . . . . . . . . . . . 2,266,543 35.8
315 Sycamore Street
Decatur, Georgia 30030
Thomas L. Koski(3) . . . . . . . . . . . . . . . . . 2,258,543 35.7
Six New Street
East Norwalk, Connecticut 06855
Robert E. Koski(3)(4)(5) . . . . . . . . . . . . . . 2,544,921 40.2
Beverly Koski(3)(4)(5) . . . . . . . . . . . . . . . 2,544,921 40.2
Robert S. and Ann R. Ferrell(6) . . . . . . . . . . . 421,037 6.7
5924 Cranbrook Way, #101
Naples, Florida 34112
Clyde G. Nixon(7) . . . . . . . . . . . . . . . . . . 213,266 3.3
Peter G. Robson(8) . . . . . . . . . . . . . . . . . 72,730 1.1
James G. March(9) . . . . . . . . . . . . . . . . . . 53,572 *
Jeffrey Cooper(8) . . . . . . . . . . . . . . . . . . 54,529 *
Arthur B. Bodley(10) . . . . . . . . . . . . . . . . 13,860 *
Russell G. Copeman(8) . . . . . . . . . . . . . . . . 21,052 *
Taco van Tijn(10) . . . . . . . . . . . . . . . . . . 8,920 *
Richard J. Dobbyn(11) . . . . . . . . . . . . . . . . 15,500 *
David N. Wormley(12) . . . . . . . . . . . . . . . . 3,940 *
John S. Kahler(13) . . . . . . . . . . . . . . . . . 1,000 *
Ferdinand E. Megerlin . . . . . . . . . . . . . . . . 0 -
All Directors and Executive Officers
as a Group (10 persons) . . . . . . . . . . . . . . 3,002,290 45.4
</TABLE>
- --------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the persons listed
who own more than 5% of the Company's Common Stock is 1500 West
University Parkway, Sarasota, Florida 34243.
-6-
<PAGE> 10
(2) This column set forth shares of the Company's Common Stock which are
deemed to be "beneficially owned" by the persons named in the table
under Rule 13d-3 of the Securities and Exchange Commission. All of
the persons named in the table have sole voting and investment power
with respect to all shares beneficially owned by them except as
otherwise described in the following footnotes.
(3) Includes 2,258,543 shares owned by the Koski Family Limited
Partnership, over which Christine L. Koski, Robert C. Koski, Thomas L.
Koski, Robert E. Koski and Beverly Koski share voting and dispositive
power as the general partners in the Partnership. Christine L. Koski,
Robert C. Koski and Thomas L. Koski are the adult children of Robert
E. Koski and Beverly Koski.
(4) Includes 151,216 shares owned by Beverly Koski and 127,162 shares
owned by Robert E. Koski. Beverly Koski is the spouse of Robert E.
Koski.
(5) Includes 8,000 shares owned by the Koski Family Foundation, Inc., over
which Robert E. Koski, Beverly Koski and Robert C. Koski share voting
and dispositive power.
(6) According to information supplied to the Company by the Ferrells in
connection with the initial public stock offering of the Company on
January 9, 1997. Includes 240,125 shares owned by the Robert S.
Ferrell Trust, of which Robert S. Ferrell is the sole trustee, and
180,312 shares owned by the Ann R. Ferrell Trust, of which Ann R.
Ferrell is the sole trustee. Robert S. Ferrell is the spouse of Ann
R. Ferrell. Includes 600 shares owned individually by Ann R. Ferrell.
(7) Includes 47,927 shares which are owned jointly by Mr. Nixon and his
spouse. Also includes 115,817 shares subject to currently exercisable
options and 49,522 shares which are held by Lois Joan Nixon Trust.
(8) Represents shares subject to currently exercisable options.
(9) Shares are owned by the March Family Trust, of which Dr. March and his
spouse are trustees.
(10) Includes 3,920 shares subject to currently exercisable options, and
2,500 shares owned by Mr. van Tijn's spouse.
(11) Includes 14,000 shares subject to currently exercisable options.
(12) Includes 2,940 shares subject to currently exercisable options.
(13) Shares are owned jointly by Mr. Kahler and his spouse.
-7-
<PAGE> 11
DIRECTOR AND EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table is a summary of the compensation paid or accrued
by the Company for the last three fiscal years for services in all capacities
to each of the Named Executive Officers.
- -------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS--
ANNUAL COMPENSATION SECURITIES
NAME AND ------------------------ UNDERLYING OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS (#) COMPENSATION (4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert E. Koski, 1997 $106,000 --- $20,175
Chairman of the 1996 106,000 --- 18,798 (5)
Board of Directors 1995 106,000 --- 28,033 (5)
Clyde G. Nixon, 1997 $180,000 58,781 (1) $22,927
President and 1996 180,000 94,765 (2) 12,239
Chief Executive Officer 1995 165,000 110,739 (3) 21,807 (6)
Robert J. Devereaux 1997 $129,000 29,963 (1) $18,461
Vice President (7) 1996 129,000 48,306 (2) 11,160
1995 123,500 --- 19,771
Jeffrey Cooper 1997 $121,000 27,100 $13,567
Engineering Manager 1996 116,000 43,689 (2) 9,314
1995 110,500 --- 10,280
Russell G. Copeman 1997 $134,000 65,000 (1) $35,547 (8)
Manufacturing Manager 1996 64,500 --- 92,931 (8)
1995 --- --- ---
Richard J. Dobbyn 1997 $ 97,000 35,000 (1) $ 7,054
Chief Financial Officer 1996 88,000 --- ---
1995 17,083 --- ---
</TABLE>
(1) Represents incentive stock options granted on January 9, 1997, the
date of the Company's initial public offering, at an exercise price
equal to the public offering price.
(2) Represents nonqualified stock options granted in conjunction with the
termination of the executive's phantom stock compensation agreement.
(3) Represents phantom stock compensation award.
-8-
<PAGE> 12
(4) Except as otherwise noted, reflects primarily contributions made by
the Company on behalf of the employee to the Company's 401(k) plan and
excess life insurance premiums.
(5) Includes payment by the Company of certain professional fees on behalf
of Mr. Koski in 1996 and 1995 in the amounts of $11,478 and $7,250,
respectively.
(6) Includes payment by the Company of certain club dues on behalf of Mr.
Nixon in the amount of $12,000.
(7) Mr. Devereaux resigned as Vice President of the Company effective
December 31, 1997.
(8) Includes payment by the Company of certain consulting fees and moving
expenses.
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table details individual grants of stock options made in
fiscal year 1997 to each of the Named Executive Officers of the Company. All
options were granted pursuant to the Company's 1996 Stock Option Plan and are
exercisable currently. No stock appreciation rights (SAR) were granted during
the period. The table also indicates the potential realizable value of each
grant of options assuming that the market price of the underlying security
appreciates in value from the date of the grant to the end of the option term
at the following annualized rates:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM (1)
- ------------------------------------------------------------------------------------------------------------
NUMBER PERCENT
OF OF TOTAL
SECURITIES OPTIONS
UNDER- GRANTED EXERCISE
LYING TO OR
OPTIONS EMPLOYEES BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($) 0% ($)
(a) (b) (c) (d) (e) (f) (g) (h)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert E. Koski -- -- -- -- -- -- --
Clyde G. Nixon 58,781 20.3% $9.50 1/9/07 $307,872 $758,304 --
Jeffrey Cooper 27,100 9.4% 9.50 1/9/07 141,939 349,604 --
Russell G. Copeman 65,000 22.5% 9.50 1/9/07 340,445 838,533 --
Richard J. Dobbyn 35,000 12.1% 9.50 1/9/07 183,317 451,518 --
Robert J. Devereaux (2) 29,963 10.4% 9.50 1/9/07 156,935 386,538 --
</TABLE>
(1) These options were granted on January 9, 1997, the date of the
Company's initial public offering, at a price of $9.50, which was the
initial public offering price for the shares of Common Stock on such
date. The 5% and 10% assumed annual rates of stock price appreciation
are provided in compliance with Regulation S-K under the Securities
Exchange Act of 1934. The Company does not necessarily believe that
these appreciation calculations are indicative of actual future stock
option values or that the price of Common Stock will appreciate at
such rates.
(2) Mr. Devereaux resigned as Vice President of the Company effective
December 31, 1997.
STOCK OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1997 and
unexercised options held on December 31, 1997.
-9-
<PAGE> 13
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
- --------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FISCAL AT FISCAL
YEAR-END (#) YEAR-END ($)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE (1)
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Koski --- --- 0 / 0 0 / 0
Clyde G. Nixon --- --- 105,291 / 48,255 $694,408 / $120,638
Robert J. Devereaux (2) 10,000 $80,300 48,832 / 19,437 $353,065 / $ 48,593
Jeffrey Cooper --- --- 49,109 / 21,680 $387,965 / $ 54,200
Russell G. Copeman --- --- 10,526 / 54,474 $ 26,315 / $136,185
Richard J. Dobbyn --- --- 7,000 / 28,000 $ 17,500 / $ 70,000
</TABLE>
(1) Based upon the December 31, 1997 closing stock price of $12.00 per
share, as reported on the Nasdaq National Market.
(2) Mr. Devereaux resigned as Vice President of the Company effective
December 31, 1997.
The information contained in the following sections "Report of Board
of Directors Acting as Compensation Committee" and "Performance Graph" are not
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission or subject to Regulations 14A or 14C or to the liabilities
of Section 18 of the Securities Exchange Act of 1934.
REPORT OF BOARD OF DIRECTORS ACTING AS COMPENSATION COMMITTEE
The following report was prepared by the Board of Directors, acting in
conjunction with the Company's Compensation Committee:
The goals of the Company's compensation program are to attract,
retain, motivate and reward highly qualified management personnel and to
provide them with long-term career opportunities. The Company's compensation
philosophy is to provide its executives with a competitive total compensation
package which motivates superior job performance, the achievement of the
Company's business objectives, and the enhancement of shareholder value.
Compensation of the Company's Named Executive Officers will be reviewed
annually by the Board of Directors and the Compensation Committee. Changes
proposed for these employees will be evaluated and approved by the Compensation
Committee on an individual basis.
The Company's general approach to compensating Named Executive
Officers is to pay cash salaries which generally are competitive within ranges
of salaries paid to executives of other manufacturing companies, although the
Company does not attempt to meet salary levels of such companies. Instead, the
Committee sets overall compensation at a level it believes to be fair, based
upon a subjective analysis of the individual executive's experience and past
and potential contributions to the Company. The Company, historically, has not
paid performance-based bonuses. To assist in determining appropriate overall
compensation, the Company intends in the
-10-
<PAGE> 14
future to review information regarding revenues, income, and executive
compensation for other public manufacturing companies.
Stock option grants to Named Executive Officers and other key
employees of the Company, including the Chief Executive Officer, will be made
at the discretion of the Compensation Committee pursuant to the Company's 1996
Stock Option Plan (the "Stock Option Plan"). Factors and criteria to be used
by the Compensation Committee in the award of stock options will include
individual responsibilities, individual performance and direct and indirect
contributions to the profitability of the Company. The benefits derived from
each stock option granted under the Stock Option Plan are directly attributable
to a future increase in the value of the Company's Common Stock. Messrs.
Cooper, Devereaux, and Nixon received stock options on January 9, 1997, which
grants were made in connection with the termination of certain phantom stock
agreements. See "Executive Compensation Agreements." Messrs. Copeman and
Dobbyn were granted incentive stock options on January 9, 1997.
Section 162(m) of the Internal Revenue Code limits the tax deduction
to $1 million for compensation paid to a corporation's key executive officers
unless certain requirements are met. One of the requirements imposed under
regulations promulgated by the Internal Revenue Service is that the
corporation's compensation committee be comprised solely of "disinterested
directors." Not all of the Directors serving on the Company's Compensation
Committee are disinterested under those regulations. However, given the
Company's compensation program and historic compensation levels, the Company
does not believe the limitation on deductibility will have a material effect on
the Company. The Company intends to monitor the effect of the Section 162(m)
regulations and take steps in the future as might be appropriate.
Robert E. Koski and Clyde G. Nixon abstain from all determinations by
the Board of Directors acting as the Compensation Committee as they relate to
their respective compensation as Chairman of the Board and as Chief Executive
Officer and President, respectively.
BOARD OF DIRECTORS
Arthur B. Bodley Robert E. Koski
James G. March Clyde G. Nixon
Taco Van Tijn David N. Wormley
EXECUTIVE COMPENSATION AGREEMENTS
In September 1996, in connection with the termination of certain
individual phantom stock compensation agreements, the Company issued to eight
employees of the Company, including Messrs. Cooper, Nixon and Robson, who are
Executive Officers of the Company (and Mr. Devereaux, who resigned as an
Executive Officer effective December 31, 1997), options to purchase 305,260
shares of Common Stock. The exercise prices for such options ranged from $3.00
to $5.05, with a weighted average of $3.95. Such options are exercisable and
have a term of
-11-
<PAGE> 15
10 years. As part of the same agreements, following its initial public
offering, the Company also issued to such employees incentive stock options to
purchase 189,348 shares of Common Stock at the initial public offering price of
the Common Stock of $9.50 per share. Such incentive stock options vest over
varying periods of up to seven years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Board of Directors of the Company, in conjunction with the
Compensation Committee, determined the compensation, including salary and
bonus, of the Executive Officers of the Company for the fiscal year ended
December 31, 1997, and the initial compensation for the current fiscal year
through the date hereof. In the future, the Compensation Committee of the
Board of Directors will determine the compensation of the Company's Executive
Officers.
PERFORMANCE GRAPH
The following graph compares cumulative total return among Sun
Hydraulics Corporation, Nasdaq Stock Market Index (U.S.) and a Peer Group from
January 9, 1997, to December 31, 1997, assuming $100 invested in each on
January 9, 1997. Total return assumes reinvestment of any dividends for all
companies considered within the comparison. The stock price performance shown
on the graph above is not necessarily indicative of future price performance.
Companies in the peer group are Aeroquip-Vickers Inc., Commercial Intertech
Corp., Denison International plc, Moog Inc., The Oilgear Company and Parker
Hannifin Corp.
[GRAPH]
<TABLE>
<CAPTION>
1/9/97 3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C> <C>
Sun Hydraulics Corporation 100 116 123 133 128
Peer Group 100 103 146 162 164
Nasdaq Stock Market (U.S.) 100 92 109 127 119
</TABLE>
-12-
<PAGE> 16
CERTAIN TRANSACTIONS
The information set forth herein briefly describes transactions during
the past fiscal year between the Company and its Directors, officers and 5%
shareholders. Management of the Company believes that such transactions have
been on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. These transactions have been approved by a
majority of the Company's disinterested Directors. Future transactions, if
any, with affiliated parties will be approved by a majority of the Company's
disinterested Directors and the Audit Committee and will be on terms no less
favorable to the Company than those that could be obtained from unaffiliated
parties.
REORGANIZATION WITH SUN HYDRAULIK HOLDINGS LIMITED
Immediately prior to the Company's initial public offering of Common
Stock in January, 1997, the Company effected a 9.90373 for 1 stock split of its
capital stock. The Company at the same time acquired all of the outstanding
shares of capital stock of Sun Hydraulik Holdings Limited, a private limited
company organized under the Laws of England and Wales ("SHHL"), pursuant to an
exchange offer made by the Company to all of the shareholders of SHHL (the
"Reorganization"). Pursuant to the terms of the exchange offer, the Company
issued 1.17013 shares of Common Stock (for a total of 374,810 shares of Common
Stock) and $0.16 in cash for each share of stock of SHHL acquired by it. No
registration rights were granted to the SHHL shareholders, and the shares of
the Company's Common Stock issued to them in the Reorganization are "restricted
securities" under the Securities Act of 1933.
Prior to the Reorganization, the Company and SHHL were controlled by
the same group of shareholders and were operated as a common enterprise, with
all of the Company's European operations carried out through subsidiaries of
SHHL operating in England and Germany. The relative values of the Company and
SHHL for purposes of the Reorganization were established by appraisals
conducted for this purpose. These appraisals also were used to establish the
relative values of the Company and Suninco, Inc. for the June 1996 merger of
those two corporations. See "Suninco Merger" below.
SUNOPTECH, LTD.
In October 1995, the Company contributed certain intangible assets to
SunOpTech, Ltd. ("SunOpTech"), a limited partnership formed to further the
development of manufacturing software. In January 1996, the Company
distributed to its shareholders the 65% limited partnership interest in
SunOpTech which it received in exchange for the contributed intangible assets.
Robert E. Koski owns 51% of the common stock of the general partner of
SunOpTech and is a member of the board of directors of the general partner.
The Company currently has no ownership interest in SunOpTech.
-13-
<PAGE> 17
The Company entered into a contract with SunOpTech for a 35-month term
beginning November 1995, for the development of computer software and computer
support to the Company. The Company will pay approximately $1,000,000 over the
contract term, provide office space and equipment and reimburse SunOpTech for
reasonable expenses related to the software development. During 1997, the
Company paid fees of $317,000 and expenses of $291,000 under the agreement, and
provided certain administrative support to SunOpTech at no charge. The
software is being utilized in the Company's plants in Sarasota and Germany.
Under its agreement with SunOpTech, the Company has a perpetual, nonexclusive
license to use the software, as well as any future enhancements, without charge
other than the development and support fees to be provided during the 35-month
term of the agreement.
SUNINCO MERGER
On June 28, 1996, Suninco, Inc. ("Suninco") was merged into the
Company. Prior to the merger, the Company and Suninco were controlled by the
same group of shareholders and were operated as a common enterprise, with
Suninco as the owner and lessor of the Company's Sarasota, Florida,
manufacturing plant and certain equipment utilized by the Company at that
location. The relative values of the Company and Suninco in the merger were
established by appraisals conducted for this purpose. In structuring the
merger, the Company concluded that, based upon such appraisals, the issuance of
178,426 shares of Common Stock to the former Suninco shareholders represented
fair value for the acquired assets of Suninco.
ATLAS FLUID COMPONENTS COMPANY, INC.
Arthur B. Bodley, a Director of the Company, is the President, Chief
Executive Officer and controlling stockholder of Atlas Fluid Components
Company, Inc. ("Atlas"), a fluid power distributorship in Akron, Ohio, that
purchases and sells the Company's products pursuant to one of the Company's
standard distributor agreements. Atlas purchased approximately $1.3 million,
$1.1 million and $0.9 million of products from the Company in fiscal 1995,
1996, 1997, respectively.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, officers and holders of more than 10% of the Company's
Common Stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
any other equity securities of the Company. To the Company's knowledge, based
solely upon a review of the forms, reports and certificates filed with the
Company by such persons, all of them complied with the Section 16(a) filing
requirements in 1997.
-14-
<PAGE> 18
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company has engaged the firm of Price Waterhouse LLP, independent
certified public accountants, to report upon the financial statements included
in the Annual Report submitted herewith. A representative from said firm will
be in attendance at the Meeting, will have the opportunity to make a statement
if desired, and will be available to respond to any questions from those in
attendance. The Company has appointed Price Waterhouse LLP to report upon its
1998 financial statements, subject to ratification of such appointment by the
shareholders at the Meeting. Shareholder ratification of the Company's
independent certified public accountants is not required by the Company's
Bylaws or otherwise. The Board of Directors has elected to seek such
ratification as a matter of good corporate practice and unanimously recommends
that you vote "FOR" such ratification. Abstentions will be counted toward the
number of shares represented at the Meeting. Broker non-votes will be
disregarded. If the shareholders do not ratify this appointment, other
certified public accountants will be considered by the Board of Directors upon
recommendation of the Audit Committee.
OTHER BUSINESS
Management of the Company does not know of any other business that may
be presented at the Meeting. If any matter not described herein should be
presented for shareholder action at the Meeting, the persons named in the
enclosed Proxy will vote the shares represented thereby in accordance with
their best judgment.
SHAREHOLDER PROPOSALS FOR
PRESENTATION AT THE 1999 ANNUAL MEETING
The Board of Directors requests that any shareholder proposals
intended for presentation at the 1999 Annual Meeting be submitted to Gregory C.
Yadley, Secretary, in writing no later than November 1, 1998, for consideration
for inclusion in the Company's proxy materials for such meeting.
By Order of the Board of Directors,
GREGORY C. YADLEY
Secretary
Dated: April 24, 1998
-15-
<PAGE> 19
APPENDIX
SUN HYDRAULICS CORPORATION
1500 WEST UNIVERSITY PARKWAY
SARASOTA, FL 34243
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 23, 1998.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, having received notice of the Annual Meeting of
Shareholders of Sun Hydraulics Corporation to be held at 10:00 a.m., Eastern
Daylight Savings Time, on Saturday, May 23, 1998, hereby designates and appoints
Robert E. Koski and Clyde G. Nixon, and each of them with authority to act
without the other, as attorneys and proxies for the undersigned, with full power
of substitution, to vote all shares of Common Stock, par value $.001 per share,
of Sun Hydraulics Corporation that the undersigned is entitled to vote at such
Meeting or at any adjournment thereof, with all the powers the undersigned would
possess if personally present, such proxies being directed to vote as specified
below and in their discretion on any other business that may properly come
before the Meeting.
1. Election of Directors: Clyde G. Nixon, John S. Kahler and Ferdinand E.
Megerlin
2. Appointment of Price Waterhouse LLP as independent certified public
accountants of the Company
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for Proposals 1 and 2.
1. Election of Directors
[ ] FOR [ ] WITHHELD
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
2. Appointment of Price Waterhouse LLP as Independent Certified Public
Accountants of the Corporation
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(see reverse side)
3. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned reserves the right to revoke this Proxy at any time prior to
the Proxy being voted at the Meeting. The Proxy may be revoked by delivering a
signed revocation to the Company at any time prior to the Meeting, by submitting
a later-dated Proxy, or by attending the Meeting in person and casting a ballot.
The undersigned hereby revokes any proxy previously given to vote such shares at
the Meeting.
----------------------------------
Signature(s)
Date
----------------------------------
----------------------------------
Signature(s)
Date
----------------------------------
NOTE: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee, guardian or corporate
officer, please give full title as
such.
