<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999 Commission file number 0-21835
SUN HYDRAULICS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registration as Specified in its Charter)
FLORIDA 59-2754337
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1500 WEST UNIVERSITY PARKWAY
SARASOTA, FLORIDA 34243
---------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
941/362-1200
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 [ ]
The Registrant had 6,384,948 shares of common stock, par value $.001,
outstanding as of November 12, 1999.
<PAGE> 2
Sun Hydraulics Corporation
INDEX
For the third quarter ended October 2, 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of October 2, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Income for the
Three Months Ended October 2, 1999 (unaudited) and September 30, 1998 (unaudited) 4
Consolidated Statements of Income for the
Nine Months Ended October 2, 1999 (unaudited) and September 30, 1998 (unaudited) 5
Consolidated Statement of Changes in Shareholders' Equity and
Comprehensive Income for the Nine Months Ended October 2, 1999
(unaudited) and the Year Ended December 31, 1998 6
Consolidated Statements of Cash Flows
for the Nine Months Ended October 2, 1999 (unaudited) and September 30, 1998 (unaudited) 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Forward Looking Information 18
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1.
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,087 $ 1,592
Accounts receivable, net of allowance for
doubtful accounts of $219 and $169 6,750 5,342
Inventories 7,237 8,125
Other current assets 752 891
------------ -------------
Total current assets 15,826 15,950
Property, plant and equipment, net 45,619 44,003
Investment in joint venture 162 246
Other assets 912 820
------------ -------------
Total assets $ 62,519 $ 61,019
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,327 $ 2,877
Accrued expenses and other liabilities 1,633 2,065
Long-term debt due within one year 2,802 4,302
Notes payable to related parties due within one year 375 578
Dividends payable 255 254
Income taxes (receivable) payable (25) 245
------------- -------------
Total current liabilities 7,367 10,321
Long-term debt due after one year 10,621 6,461
Notes payable to related parties due after one year 201 566
Deferred income taxes 3,641 3,656
------------ -------------
Total liabilities 21,830 21,004
------------ -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock - -
Common stock 6 6
Capital in excess of par value 24,486 24,386
Retained earnings 15,693 15,363
Accumulated other comprehensive income 504 260
------------ -------------
Total shareholders' equity 40,689 40,015
------------ -------------
Total liabilities and shareholders' equity $ 62,519 $ 61,019
============ ============
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
3
<PAGE> 4
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(UNAUDITED)
<S> <C> <C>
NET SALES $ 17,664 $ 17,664
Cost of sales 13,174 13,132
-------- --------
GROSS PROFIT 4,490 4,532
Selling, engineering and
administrative expenses 3,157 2,864
-------- --------
OPERATING INCOME 1,333 1,668
Interest expense 264 216
Miscellaneous expense (income) 151 (1,586)
-------- --------
INCOME BEFORE INCOME TAXES 918 3,038
Income tax provision 303 1,015
-------- --------
NET INCOME BEFORE EQUITY LOSS IN JOINT VENTURE 615 2,023
Equity loss in joint venture 27 --
-------- --------
NET INCOME $ 588 $ 2,023
======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.09 $ 0.32
WEIGHTED AVERAGE SHARES OUTSTANDING 6,384 6,354
DILUTED NET INCOME (PER COMMON SHARE) $ 0.09 $ 0.31
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,536 6,560
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
4
<PAGE> 5
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(UNAUDITED)
<S> <C> <C>
NET SALES $ 52,050 $ 54,381
Cost of sales 40,100 39,078
-------- --------
GROSS PROFIT 11,950 15,303
Selling, engineering and
administrative expenses 9,317 8,911
-------- --------
OPERATING INCOME 2,633 6,392
Interest expense 693 707
Miscellaneous expense (income) 228 (1,588)
-------- --------
INCOME BEFORE INCOME TAXES 1,712 7,273
Income tax provision 532 2,430
-------- --------
NET INCOME BEFORE EQUITY LOSS IN JOINT VENTURE 1,180 4,843
Equity loss in joint venture 84 --
-------- --------
NET INCOME $ 1,096 $ 4,843
======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.17 $ 0.76
WEIGHTED AVERAGE SHARES OUTSTANDING 6,378 6,340
DILUTED NET INCOME PER COMMON SHARE $ 0.17 $ 0.74
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,531 6,561
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
5
<PAGE> 6
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
SHARES STOCK PAR VALUE EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,000 $ 2,179 $ 2,719 $ 17,450 $ 49 $ 22,397
Net proceeds from stock offering 2,300 2 19,250 19,252
Distributions to shareholders (10,545) (10,545)
Dividends declared (883) (883)
Merger with Sun Holdings (Note 2) (2,175) 2,123 (52)
Exercise of stock options 22 71 71
Comprehensive income:
Net income 4,710 4,710
Other comprehensive income:
Foreign currency translation
adjustments 50 50
---------
Comprehensive income 4,760
----- --------- -------- -------- --------- ---------
Balance, December 31, 1997 6,322 6 24,163 10,732 99 35,000
Dividends declared (1,016) (1,016)
Exercise of stock options 39 223 223
Comprehensive income:
Net income 5,647 5,647
Other comprehensive income:
Foreign currency translation
adjustments 161 161
---------
Comprehensive income 5,808
----- --------- -------- -------- --------- ---------
Balance, December 31, 1998 6,361 6 24,386 15,363 260 40,015
Dividends declared (766) (766)
Exercise of stock options 22 75 75
Issue of stock 2 13 13
Tax effect of non-qualified
stock options 12 12
Comprehensive income:
Net income 1,096 1,096
Other comprehensive income:
Foreign currency translation
adjustments 244 244
---------
Comprehensive income 1,340
----- --------- -------- -------- --------- ---------
Balance, October 2, 1999 (unaudited) 6,385 $ 6 $ 24,486 $ 15,693 $ 504 $ 40,689
===== ========= ======== ======== ========= =========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
6
<PAGE> 7
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,096 $ 4,843
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,705 3,328
Loss on disposal of assets 139 --
Compensation expense-stock issued 13 --
Provision for deferred income taxes (3) --
(Increase) decrease in:
Accounts receivable (1,408) (1,208)
Inventories 888 (762)
Other current assets 139 31
Other assets (8) 162
Increase (decrease) in:
Accounts payable (550) 591
Accrued expenses and other liabilities (432) 92
Income taxes payable, net (270) 770
-------- --------
Net cash provided by operating activities 3,309 7,847
-------- --------
Cash flows from investing activities:
Investment in Korea Fluid Power (Note 3) -- (771)
Capital expenditures (5,517) (6,017)
Proceeds from dispositions of equipment 56 128
-------- --------
Net cash used in investing activities (5,461) (6,660)
-------- --------
Cash flows from financing activities:
Proceeds from debt 10,357 5,882
Repayment of debt (7,697) (5,977)
Repayment of notes payable to related parties (568) (558)
Proceeds from exercise of stock options 75 223
Dividends to shareholders (764) (728)
-------- --------
Net cash provided by (used in) financing activities 1,403 (1,158)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents 244 196
-------- --------
Net (decrease) increase in cash and cash equivalents (505) 225
Cash and cash equivalents, beginning of period 1,592 1,249
-------- --------
Cash and cash equivalents, end of period $ 1,087 $ 1,474
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest (including amounts capitalized) $ 777 $ 737
======== ========
Income taxes $ 805 $ 1,660
======== ========
Non-cash tax effect of non-qualified stock options $ 12 $ --
======== ========
Stock issued to employees $ 13 $ --
======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
7
<PAGE> 8
SUN HYDRAULICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share data)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain
information and footnotes required by generally accepted accounting principles
for complete financial statements are not included herein. The financial
statements are prepared on a consistent basis (including normal recurring
adjustments) and should be read in conjunction with the consolidated financial
statements and related notes contained in the Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed by Sun Hydraulics Corporation
(the "Company") with the Securities and Exchange Commission on March 30, 1999.
2. BUSINESS
Sun Hydraulics Corporation and its wholly-owned subsidiaries (the
"Company") design, manufacture and sell screw-in cartridge valves and manifolds
used in hydraulic systems. The Company has facilities in the United States, the
United Kingdom, Germany, and Korea. Sun Hydraulics Corporation ("Sun
Hydraulics"), with its main offices located in Sarasota, Florida, designs,
manufactures and sells through independent distributors in the United States.
Sun Hydraulik Holdings Limited ("Sun Holdings"), a wholly-owned subsidiary of
Sun Hydraulics, was formed to provide a holding company vehicle for the
European market operations; its wholly-owned subsidiaries are Sun Hydraulics
Limited (a British corporation, "Sun Ltd.") and Sun Hydraulik GmbH (a German
corporation, "Sun GmbH"). Sun Ltd. operates a manufacturing and distribution
facility located in Coventry, England, and Sun GmbH, located in Erkelenz,
Germany, designs, manufactures and markets the Company's products in
German-speaking European markets. Sun Hydraulics Korea Corporation ("Sun
Korea"), a wholly-owned subsidiary of Sun Hydraulics, was acquired September
28, 1998 (see Note 3). Sun Korea, located in Inchon, South Korea, operates a
manufacturing and distribution facility.
3. ACQUISITION AND JOINT VENTURE
On September 28, 1998, Sun Hydraulics acquired 100% of the equity shares
of Korea Fluid Power Co. Ltd., which had been the Company's exclusive
distributor in South Korea since 1988. This wholly-owned subsidiary's name was
changed to Sun Hydraulics Korea Corporation in January 1999. The acquisition
price paid by the Company was $860. The amounts paid in excess of the net book
value have been capitalized as goodwill, and are amortized over a period of 15
years. Goodwill is recorded under other assets in the Company's financial
statements, and was $529, net of amortization as of October 2, 1999.
On November 1, 1998, Sun Hydraulics entered into a 50/50 joint venture
agreement ("joint venture") with Links Lin, the owner of Sun Hydraulics
Corporation's Taiwanese distributor.
8
<PAGE> 9
This agreement provides for an initial capital contribution of $250, which is
recorded in Investment in joint venture in the Company's financial statements.
4. LONG-TERM DEBT (in thousands)
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
---------- ------------
(unaudited)
<S> <C> <C>
Lines of credit agreements-unsecured $ 2,316 $ 3,974
Lines of credit agreements-secured 3,859 --
Secured notes payable-Korea 28 177
Mortgage note payable-U.S. Manatee County facility 4,760 4,864
Mortgage note payable-German facility 1,468 1,748
Secured notes payable-German equipment 992 --
-------- --------
13,423 10,763
Less amounts due within one year (2,802) (4,302)
-------- --------
$ 10,621 $ 6,461
======== ========
</TABLE>
The Company has three revolving lines of credit: one in the United States,
one in England, and one in Germany. None of these arrangements contain
pre-payment penalties.
On July 23, 1999, the Company replaced its $10,000 unsecured revolving
credit facility with a five year, secured, revolving credit facility of $7,500,
and a one-year unsecured, revolving credit facility of $5,000. The $7,500
credit facility has an interest rate equal to the bank lender's prime rate less
1% for the first year, and the treasury bill rate plus 1.75% for the remaining
four years. The $5,000 credit facility has an interest rate equal to the bank
lender's prime rate less 1% or LIBOR plus 1.9% for predetermined periods of
time, at the Company's option. At October 2, 1999, the interest rate for both
the secured and unsecured facilities was 7.25%, and the balances outstanding
were $3,859 and $2,300, respectively.
In February 1999, the Company negotiated three loans in Germany, secured
by equipment; a ten year 5.1% fixed interest rate loan for approximately $300,
a ten year 5.1% fixed interest rate loan for approximately $100, and a ten year
3.5% fixed interest rate loan for approximately $800. At October 2, 1999, the
outstanding balance on these facilities was $257, $0, and $735, respectively.
9
<PAGE> 10
5. SEGMENT REPORTING
In 1998, the Company adopted Statement of Accounting Standards No. 131,
"Disclosures about Segments of Enterprise and Related Information" ("SFAS
131"). SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise," replacing the "industry segment" approach with the
"management" approach of determining reportable segments of an organization.
The management approach designates the internal organization that is used by
management for making operational decisions and addressing performance as the
source of determining the Company's reportable segments. Management bases its
financial decisions by the geographical location of its operations.
The individual subsidiaries comprising the Company operate predominantly
in a single industry as manufacturers and distributors of hydraulic components.
The subsidiaries are multinational with operations in the United States, the
United Kingdom, Germany, and Korea. In computing earnings from operations for
the foreign subsidiaries, no allocations of general corporate expenses,
interest or income taxes have been made.
Identifiable assets of the foreign subsidiaries are those assets related
to the operation of those companies. United States assets consist of all other
operating assets of the Company.
Segment information is as follows:
<TABLE>
<CAPTION>
United United
States Korea Kingdom Germany Elimination Consolidated
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS
ENDED OCTOBER 2, 1999
Sales to unaffiliated
customers $ 36,933 $ 2,926 $ 8,240 $ 3,951 $ - $ 52,050
Intercompany sales 5,945 - 1,627 25 (7,597) -
Operating profits 1,226 51 1,007 253 96 2,633
Identifiable assets 47,126 2,753 8,689 6,299 (2,348) 62,519
Depreciation expense 2,806 56 609 234 - 3,705
Capital expenditures 4,007 54 1,090 366 - 5,517
NINE MONTHS
ENDED SEPTEMBER 30, 1998
Sales to unaffiliated
customers $ 41,455 $ - $ 9,231 $ 3,695 $ - $ 54,381
Intercompany sales 6,397 - 1,740 34 (8,171) -
Operating profits 4,652 - 1,669 131 (60) 6,392
Identifiable assets 43,602 2,430 8,416 5,900 (222) 60,126
Depreciation expense 2,643 - 529 156 - 3,328
Capital expenditures 4,342 77 1,123 475 - 6,017
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
United United
States Korea Kingdom Germany Elimination Consolidated
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS
ENDED OCTOBER 2, 1999
Sales to unaffiliated
customers $ 12,700 $ 1,052 $ 2,653 $ 1,259 $ - $ 17,664
Intercompany sales 2,108 - 546 11 (2,665) -
Operating profits 917 14 339 70 (7) 1,333
Depreciation expense 946 37 205 77 - 1,265
Capital expenditures 1,816 8 534 24 - 2,382
THREE MONTHS
ENDED SEPTEMBER 30, 1998
Sales to unaffiliated
customers $ 13,445 $ - $ 3,006 $ 1,213 $ - $ 17,664
Intercompany sales 2,291 - 610 8 (2,909) -
Operating profits 1,217 - 518 (1) (66) 1,668
Depreciation expense 817 - 182 60 - 1,059
Capital expenditures 1,460 77 438 413 - 2,388
</TABLE>
Total liabilities attributable to foreign operations were $4,410, and
$5,384, at October 2, 1999, and September 30, 1998, respectively. Net foreign
currency losses reflected in results of operations were $123 and $97 for the
nine months ended October 2, 1999, and September 30, 1998, respectively.
Operating profit is total sales and other operating income less operating
expenses. In computing segment operating profit, interest expense and net
miscellaneous income (expense) have not been deducted (added).
11
<PAGE> 12
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading designer and manufacturer of high-performance,
screw-in hydraulic cartridge valves and manifolds which control force, speed
and motion as integral components in fluid power systems. The Company sells its
products globally through independent distributors.
Orders in the third quarter of 1999 were $16.6 million, an increase of
$1.1 million, or 6.9%, from the second quarter of 1999. Domestic orders
increased $1.3 million, or 13.9%. As management expected, distributors reduced
their orders and, thus, inventories during the second quarter partially in
response to the Company's improved delivery times. Management believes that the
increase in domestic orders in the third quarter represents demand in line with
end-user requirements. An increase in Asian orders of $0.2 million was more
than offset by decreases in European orders of $0.4 million, and Canadian
orders of $0.1 million.
Net sales in the third quarter were $17.7 million, an increase of $1.7
million, or 11.0%, compared to the second quarter of 1999, and approximately
the same as net sales for the quarter ended September 30, 1998. The net sales
increase from the previous quarter was due primarily to an increase in
production output in the United States operations. Second quarter production
output in the United States was adversely affected by the implementation of a
fully-integrated operating system that began on May 1, 1999. The system affects
all aspects of the business, and many difficulties were encountered during
implementation. Third quarter production output, and the related net sales
increase, compared to the second quarter, represents a return to shipment
volumes achieved in the first quarter of 1999. Management believes productivity
will continue to improve as a result of the ongoing efforts to "fine tune" the
new operating system.
The Company implemented a new software system on November 1, 1999, in its
Coventry, England, operation. This system has been running parallel for several
months, and management expects minimal disruption to business operations due to
the implementation. However, as with any system conversion, there can be no
assurance that the timing of the conversion will be met precisely and that the
conversion process will not adversely impact operating results.
Production capacity expansion plans in the United States operation is
scheduled for completion by the end of 1999. The high-volume cartridge
production cell, currently operating in the Sarasota facility, will be moved to
the Manatee facility in December during the holiday shutdown to minimize
production disruptions associated with the physical movement of machinery. A
new, fully-automated assembly machine, that will become part of the high-volume
production cell, is currently operating in the Manatee facility. New test
stands and additional equipment for the cell are installed and operating in the
Manatee plant, and a new heat treat facility is scheduled for completion by the
end of the year.
Orders for the Company's electrically actuated cartridge valve products
(solenoid valves), introduced in Europe in April 1999, are not yet significant.
These new products were officially
12
<PAGE> 13
released to the Company's North American distributors in September 1999.
Management anticipates that demand for these products will build slowly as
distributors evaluate the products' performance in initial applications and
begin to stock products. The solenoid valve products address a new market for
the Company, and management believes that, in time, solenoid sales will bring
additional demand for manifolds and non-solenoid cartridge valve sales.
The Company's joint venture in China has begun production of manifold
products and had a minimal amount of sales in the third quarter. The Korean
operation is seeing an improved business climate and has not experienced any
cash flow problems related to financial restructuring at it largest customer,
Daewoo Group. Management will continue to monitor this situation.
Gross profit as a percent of sales was 25.4%, in the quarter ended October
2, 1999, an increase over the previous three quarters. The gross profit
improvement is due primarily to reduced material costs in the United States
operation. Management anticipates there will be further improvements in the
cost and quality of purchased parts for cartridge valves resulting from a
supplier improvement initiative started at the end of 1998. Management also
anticipates that investments made in equipment for the manufacture of high
volume cartridge valves will result in increased productivity for these
products during the first quarter of 2000.
COMPARISON OF THREE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
Net sales were $17.7 million for the quarter ended October 2, 1999, and
for the quarter ended September 30, 1998. The Korean operation, acquired in
September 1998, provided additional net sales of $0.7 million for the quarter
ended October 2, 1999. Excluding the Korean operation, net sales decreased
4.2%, or $0.7 million. Approximately $0.3 million of the decrease was due to a
slowdown in orders in the United Kingdom. Additionally, sales declined in the
United States operation as production output continued to be hampered by
problems associated with the implementation of a fully-integrated operating
system.
Gross profit was $4.5 million for the quarter ended October 2, 1999;
approximately the same as the quarter ended September 30, 1998. Gross profit as
a percentage of net sales was 25.4% for the third quarter of 1999, compared to
25.7% for the third quarter of 1998. Direct labor and manufacturing overhead
increases were offset by decreased material costs. The decrease in material
cost is due primarily to a supplier improvement initiative started at the end
of 1998.
Selling, engineering and administrative expenses increased 10.2%, or $0.3
million, to $3.2 million in the quarter ended October 2, 1999, compared to $2.9
million in the quarter ended September 30, 1998. This increase is due primarily
to the acquisition of the Korean operation.
Interest expense was $0.3 million for the quarter ended October 2, 1999,
compared to $0.2 million for the quarter ended September 30, 1998. This
increase was due to an increase in the average indebtedness outstanding under
secured and unsecured lines of credit.
Miscellaneous expense was $0.2 million for the quarter ended October 2,
1999, compared to miscellaneous income of $1.5 million in the quarter ended
September 30, 1998. The expense in
13
<PAGE> 14
the quarter ended October 2, 1999, is due primarily to foreign currency
exchange losses, and the income in the quarter ended September 30, 1998, is due
primarily to the settlement of a business interruption insurance claim.
The provision for income taxes for the quarter ended October 2, 1999, was
33.0% of pretax income, compared to 33.4% of pretax income for the quarter
ended September 30, 1998. Tax savings were realized in the United States from
the Sun Hydraulics Foreign Sales Corporation and in Korea from provisions of
local law. Excluding income from the Korean operation, the provision for income
taxes was 33.2% of pretax income, approximately the same as the quarter ended
September 30, 1998.
COMPARISON OF NINE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
Net sales decreased 4.3%, or $2.3 million, to $52.1 million in the nine
month period ended October 2, 1999, compared to $54.4 million in the nine month
period ended September 30, 1998. Adjusting for the incremental net sales
related to the Korean operation, acquired in September 1998, net sales
decreased 8.2%, or $4.4 million, to $50.0 million, in the nine month period
ended October 2, 1999, compared to the nine month period ended September 30,
1998. The decrease in net sales was due primarily to reduced production
associated with the implementation of a new fully integrated operating system
in the United States. Additionally, shipments and orders of manifolds and
"assemblies" (a combination of manifolds and cartridges), in the United States
operation were significantly less in the nine months ended October 2, 1999,
compared to the same period last year. Sales in the United Kingdom declined
$1.0 million for the nine months ended October 2, 1999, which was partially
offset by an increase in sales in the German operation of $0.3 million.
Gross profit decreased 21.9%, or $3.4 million, to $12.0 million in the
nine month period ended October 2, 1999, compared to $15.3 million in the nine
month period ended September 30, 1998. Gross profit as a percentage of net
sales was 23.0% in the nine month period ended October 2, 1999, compared to
28.1% in the nine month period ended September 30, 1998. The gross profit
percentage decrease was due to the net sales spread over an increased cost base
and production inefficiencies related to the implementation of the new
operating system in the United States. Additionally, the United States
operation's net sales of manifolds and assemblies, which have a higher margin
than individual cartridges, were a lower percentage of total net sales for the
nine month period ended October 2, 1999.
Selling, engineering and administrative expenses increased 4.6%, or $0.4
million, to $9.3 million in the nine month period ended October 2, 1999,
compared to $8.9 million in the nine month period ended September 30, 1998.
This increase was due primarily to the incremental expenses of the Korean
operation acquired in September 1998. Incremental operating system
implementation costs and increased wages were partially offset by decreases in
fringe benefit costs, and advertising and catalog costs.
Interest expense was $0.7 million for the nine month period ended October
2, 1999, approximately the same as the nine month period ended September 30,
1998. Miscellaneous expense of $0.2 million for the period ended October 2,
1999, consisted primarily of a loss on the disposal of certain equipment in the
United States operation no longer used in production, and
14
<PAGE> 15
losses on foreign currency exchange transactions. Miscellaneous income of $1.6
million for the nine months ended September 30, 1998, consisted primarily of a
business interruption insurance claim.
The provision for income taxes in the nine month period ended October 2,
1999, was 31.1% of pretax income compared to 33.4% of pretax income in the nine
month period ended September 30, 1998. Excluding income from the Korean
operation, the provision for income taxes in the nine months ended October 2,
1999, was 32.8%. Tax savings were realized in the United States from the Sun
Hydraulics Foreign Sales Corporation and in Korea from provisions of local law.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of capital has been cash
generated from operations, although fluctuations in working capital
requirements have been met through borrowings under revolving lines of credit.
The Company's principal uses of cash have been to pay operating expenses, make
capital expenditures, pay dividends to shareholders and service debt.
At October 2, 1999, the Company had working capital of $8.5 million. Cash
flow from operations for the quarter ended October 2, 1999, decreased $4.5
million, to $3.3 million, compared to $7.8 million for the quarter ended
September 30, 1998. This decrease was due primarily to a decrease in income
from operations, reduced levels of inventory on hand, and the receipt, in 1998,
of a business insurance interruption claim. Capital expenditures, consisting
primarily of purchases of machinery and equipment, were $5.5 million for the
quarter ended October 2, 1999, compared to $6.0 million of capital expenditures
for the quarter ended September 30, 1998.
The Company has three revolving lines of credit: one in the United States,
one in England, and one in Germany. None of these arrangements contain
pre-payment penalties.
As of the quarter ended July 3, 1999, the Company had a revolving credit
facility in the United States, which provided for a maximum availability of
$10.0 million, payable on demand with no debt covenants and an interest rate
equal to the bank lender's prime rate less 1%, or LIBOR plus 1.9% for
predetermined periods of time at the Company's option. On July 23, 1999, the
Company replaced the $10.0 million unsecured revolving credit facility with a
five year, secured, revolving credit facility of $7.5 million, and a one-year
unsecured, revolving credit facility of $5.0 million. The $7.5 million credit
facility has an interest rate equal to the bank lender's prime rate less 1% for
the first year, and the treasury bill rate plus 1.75% for the remaining four
years. The $5.0 million credit facility has an interest rate equal to the bank
lender's prime rate less 1% or LIBOR plus 1.9% for predetermined periods of
time, at the Company's option. At October 2, 1999, the interest rate for both
the secured and unsecured facilities was 7.25%, and the balances outstanding
were $3.9 million and $2.3 million, respectively.
A 10-year mortgage loan of $6.2 million was obtained, at a fixed interest
rate of 8.25%, for construction of the Manatee County facility. Terms on the
construction note were interest-only on the balance drawn down through the
completion of construction and then conversion to a 10-
15
<PAGE> 16
year mortgage note with a 15-year amortization schedule. In April 1999, this
mortgage note was renegotiated to an interest rate of 7.375%. Terms are monthly
principal and interest payments with remaining principal due July 1, 2006. At
October 2, 1999, $4.8 million was outstanding under this mortgage loan.
In February 1999, the Company negotiated three loans in Germany secured by
equipment, a ten year 5.1% fixed interest rate loan for approximately $0.3
million, a ten year 5.1% fixed interest rate loan for approximately $0.1
million, and a ten year 3.5% fixed interest rate loan for approximately $0.8
million. At October 2, 1999, the outstanding balance on these facilities was
$1.0 million.
The Company has notes payable to five former shareholders that bear
interest at a weighted rate of 15% and have terms expiring in one to four
years. These notes were issued by the Company in 1989 and 1990, in connection
with the repurchase of shares of common stock from former shareholders and do
not allow for prepayment by the Company. At October 2, 1999, $0.6 million was
outstanding under these notes.
The Company believes that cash generated from operations and its borrowing
availability under its revolving lines of credit will be sufficient to satisfy
the Company's operating expenses and capital expenditures for the foreseeable
future.
The Company declared quarterly dividends of $0.04 per share to
shareholders of record on September 30, 1999, June 30, 1999, and March 31,
1999, which were paid on October 15, 1999, July 15, 1999, and April 15, 1999,
respectively.
YEAR 2000 READINESS DISCLOSURE
Management continues to evaluate the issues associated with the year 2000
in an effort to minimize the impact of the millennium date change on its
business operations, information technology systems, and production
infrastructure. In general, these issues arise from the fact that many existing
computer systems, including hardware, software and embedded technology, only
use the last two digits to refer to a year. Accordingly, many of these computer
systems will not properly recognize a year that begins with "20" instead of the
familiar "19." If not corrected, these computer systems could fail or create
erroneous results.
The Company has established the following four-phased approach to address
the year 2000 issue: (1) assessment, (2) testing, (3) renovation and (4)
validation. With regard to its internal operations, the assessment phase
consist of (i) the inventory of all systems, including hardware, software and
embedded systems (such as the Company's CNC equipment) in all of Company's
locations, (ii) the identification of all critical applications, and (iii) the
collection of all internal source codes. All material aspects of the internal
assessment phase are now complete.
With regard to its external relationships, the assessment phase includes
surveying the Company's material suppliers, distributors, and customers to
determine the potential exposure to the Company if such parties fail to correct
their year 2000 issues in a timely manner. The Company has now received
responses to all but five of its critical third party questionnaires.
16
<PAGE> 17
The Company is testing its critical applications for year 2000 readiness
and anticipates completion of this testing during December 1999. The Company
defines "year 2000 ready" to mean that neither the performance nor
functionality of any of its critical systems, including both information
technology and non-information technology systems, will be materially affected
by dates prior to, during and after the year 2000. Certain software subsystems
and routines have been identified which require modification to be fully year
2000 compliant. Management believes that these modifications will be completed
during December 1999.
As a result of such testing, the Company has entered its renovation phase
by replacing the computer operating systems in its United States Sarasota
facility, and is in the process of replacing its computer operating system in
its United Kingdom facility, with "enterprise manufacturing systems" that,
according to representations made by the systems' manufacturers, are currently
year 2000 ready. The Company believes that its other locations' systems are
year 2000 ready.
The final phase of the Company's year 2000 readiness plan is a validation
phase, during which upgraded systems will be re-tested. The Company anticipates
all phases of its year 2000 readiness plan, including the validation phase,
will be completed during December 1999.
The most likely worst-case scenario which might result from a lack of
Company or third party year 2000 readiness would be a temporary but significant
interruption in the Company's production capability. The Company has developed
contingency plans that focus primarily on continued production without the
availability of internal computer systems. Alternative sources for external
supply of critical components have been identified, although no backup or
contingent orders have been placed. Most critical components can be produced
in-house at additional cost. Major manufacturing equipment is capable of being
reset to an appropriate date that mirrors the year 2000 to allow continued
production as necessary. Production scheduling and related administrative
functions necessary to maintain production output can be accomplished manually
until alternative processes can be put in place. A significant interruption in
the Company's business due to a year 2000 non-compliance issue could have a
material adverse effect on the Company's financial position, operations, and
liquidity. There can be no assurance that the Company will be year 2000 ready
or that the systems of other companies upon which the Company relies similarly
will be year 2000 ready by December 31, 1999. Additionally, there can be no
assurance that the Company's contingency plans will substantially reduce the
risk of year 2000 non-compliance.
The Company estimates that the total costs of its year 2000 project will
be $1.3 million, including costs of approximately $1.2 million incurred through
October 2, 1999. These expenditures are being funded through operating cash
flows. Although there can be no assurances thereof, the estimated costs of the
year 2000 project are not expected to have a material impact on the Company's
business, operations or financial condition in future periods.
SEASONALITY AND INFLATION
The Company generally has experienced reduced activity during the fourth
quarter of the year, largely a result of fewer working days due to holiday
shutdowns. The Company does not believe that inflation had a material effect on
its operations for the periods ended October 2,
17
<PAGE> 18
1999, and September 30, 1998. There can be no assurance, however, that the
Company's business will not be affected by inflation in the future.
EURO
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their national currencies and the
"euro," which will ultimately result in the replacement of the currencies of
these participating countries with the euro (the "Euro Conversion"). The
Company is currently assessing the potential impact of the Euro Conversion and
has initiated an internal analysis to plan for the conversion and implement
remediation measures. The Company's analysis will encompass the costs and
consequences of incomplete or untimely resolution of any required systems
modifications, various technical and operational challenges and other risks
including possible effects on the Company's financial position and results of
operations. Costs associated with the Euro Conversion are being expensed by the
Company during the period in which they are incurred and are not currently
anticipated to be material. The Company presently believes that, with
remediation measures, any material risks associated with the Euro Conversion
can be mitigated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
borrowed funds, which could affect its results of operations and financial
condition. At October 2, 1999, the Company had approximately $6.2 million in
variable-rate debt outstanding and, as such, the market risk is immaterial
based upon a 10% increase or decrease in interest rates. The Company manages
this risk by selecting debt financing at its U.S. bank lender's prime rate less
1%, or the Libor rate plus 1.9%, whichever is the most advantageous.
FORWARD-LOOKING INFORMATION
Certain oral statements made by management from time to time and certain
statements contained herein that are not historical facts are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and, because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Forward-looking statements, including those in
Management's Discussion and Analysis of Financial Condition and Results of
Operations are statements regarding the intent, belief or current expectations,
estimates or projections of the Company, its Directors or its Officers about
the Company and the industry in which it operates, and assumptions made by
management, and include among other items, (i) the Company's strategies
regarding growth, including its intention to develop new products; (ii) the
Company's financing plans; (iii) trends affecting the Company's financial
condition or results of operations; (iv) the Company's ability to continue to
control costs and to meet its liquidity and other financing needs; (v) the
declaration and payment of dividends; (vi) the Company's Year 2000 readiness
plans and costs; and (vii) the Company's ability to respond to changes in
customer demand domestically and internationally, including as a result of
standardization. Although the Company believes that its expectations are based
on reasonable assumptions, it can give no assurance that the anticipated
results will occur.
18
<PAGE> 19
Important factors that could cause the actual results to differ materially
from those in the forward-looking statements include, among other items, (i)
the economic cyclicality of the capital goods industry in general and the
hydraulic valve and manifold industry in particular, which directly affect
customer orders, lead times and sales volume; (ii) conditions in the capital
markets, including the interest rate environment and the availability of
capital; (iii) changes in the competitive marketplace that could affect the
Company's revenue and/or cost bases, such as increased competition, lack of
qualified engineering, marketing, management or other personnel, and increased
labor and raw materials costs; (iv) changes in technology or customer
requirements, such as standardization of the cavity into which screw-in
cartridge valves must fit, which could render the Company's products or
technologies noncompetitive or obsolete; (v) new product introductions, product
sales mix and the geographic mix of sales nationally and internationally; (vi)
the Company's ability to become Year 2000 ready, including the Company's
ability to identify all critical systems that will be impacted by the Year
2000, the Company's ability, in a cost-efficient manner, to correct, upgrade or
replace such systems, and the Year 2000 readiness of third parties with which
the Company has material relationships; and (vii) changes relating to the
Company's international sales, including changes in regulatory requirements or
tariffs, trade or currency restrictions, fluctuations in exchange rates, and
tax and collection issues. Further information relating to factors that could
cause actual results to differ from those anticipated is included but not
limited to information under the headings "Risk Factors" in the Form S-1
Registration Statement and Prospectus for the Company's initial public
offering, "Business" in the Company's Form 10-K for the year ended December 31,
1998, and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" in the Form 10-Q for the quarter ended October 2, 1999.
The Company disclaims any intention or obligation to update or revise
forward-looking statements, whether as a result of new information, future
events or otherwise.
19
<PAGE> 20
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
20
<PAGE> 21
EXHIBIT EXHIBIT DESCRIPTION
NUMBER -------------------
-------
3.1 Amended and Restated Articles of Incorporation of the Company
(previously filed as Exhibit 3.1 in the Pre-Effective
Amendment No. 4 to the Company's Registration Statement on
Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).
3.2 Amended and Restated Bylaws of the Company
4.5 Mortgage and Security Agreement, dated January 9, 1992,
between Suninco, Inc., Sun Hydraulics Corporation, and
Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.5 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.6 Loan Agreement, dated March 29, 1996, between Suninco, Inc.,
Sun Hydraulics Corporation, and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.6 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.7 Security Agreement, dated March 29, 1996, between Suninco,
Inc., Sun Hydraulics Corporation, and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.7 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.8 Modification and Additional Advance Agreement, dated March 29,
1996, between Suninco, Inc. and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.8 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.9 Consolidated Note, dated March 29, 1996, in the amount of
$2,475,000.00, given by Suninco, Inc. to Northern Trust Bank
of Florida, N.A. (previously filed as Exhibit 4.9 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.10 Loan Agreement, dated May 20, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.10 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
21
<PAGE> 22
4.11 Security Agreement, dated May 20, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.11 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.12 Consolidated Note, dated May 20, 1996, in the amount of
$3,063,157.00, given by Sun Hydraulics Corporation to Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.12
in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein
by reference).
4.13 Loan Agreement, dated June 14, 1996, between Sun Hydraulics
Corporation, Suninco Inc., and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.13 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.14 Mortgage, dated June 14, 1996, between Sun Hydraulics
Corporation, Suninco Inc., and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.14 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.15 Security Agreement, dated June 14, 1996, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.15 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.16 Promissory Note, dated June 14, 1996, in the amount of
$6,187,000.00, given by Sun Hydraulics Corporation and
Suninco, Inc. to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.16 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.17 Revolving Loan Facility letter agreement, dated July 30, 1996,
in the amount of (pound)800,000, between Sun Hydraulics Ltd.
and Lloyds Bank Plc. (previously filed as Exhibit 4.17 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.18 Overdraft and Other Facilities letter agreement, dated June 7,
1996, in an amount not to exceed (pound)250,000, between Sun
Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as
Exhibit 4.18 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
22
<PAGE> 23
4.19 Mortgage, dated April 11, 1996, between Sun Hydraulik GmbH and
Dresdner Bank (previously filed as Exhibit 4.19 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.20 Amendment to Recommended Offer by Sun Hydraulics Corporation
to acquire the whole of the issued share capital of Sun
Hydraulik Holdings Limited, dated December 17, 1996
(previously filed as Exhibit 2.1 in the Pre-Effective
Amendment No. 4 to the Company's Registration Statement on
Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.21 Master Note, dated February 3, 1997, in the amount of
$10,000,000.00, made by the Company to evidence a line of
credit granted to the Company by Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.21 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
4.22 Renewal Master Note, dated February 3, 1998, in the amount of
$10,000,000.00, made by the Company to evidence a line of
credit granted to the Company by Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.22 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).
4.23 Modification Agreement, dated March 1, 1998, between the
Company and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
4.24 Renewal Master Note, dated as of February 3, 1998, in the
amount of $4,965,524.51, between the Company and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.24
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 and incorporated herein by reference).
4.25 Renewal Master Note, dated of February 3, 1999, in the amount
of $4,965,524.51, between the Company and Northern Trust Bank
of Florida, N.A. (previously filed as Exhibit 4.25 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 3, 1999 and incorporated herein by reference).
4.26 Renewal Master Note, dated July 23, 1999, in the amount of
$5,000,000.00 between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.26 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 and incorporated herein by reference).
4.27 Loan Agreement, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.27 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 and incorporated herein by reference).
23
<PAGE> 24
4.28 Security Agreement, dated July 23, 1999, between the Company
and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.28 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 and incorporated herein by
reference).
4.29 Promissory Note, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.29 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 and incorporated herein by reference).
10.1 Form of Distributor Agreement (Domestic) (previously filed as
Exhibit 10.1 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
10.2 Form of Distributor Agreement (International) (previously
filed as Exhibit 10.2 in the Company's Registration Statement
on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
10.3+ 1996 Sun Hydraulics Corporation Stock Option Plan (previously
filed as Exhibit 10.3 in the Pre-Effective Amendment No. 4 to
the Company's Registration Statement on Form S-1 filed on
December 19, 1996 (File No. 333-14183) and incorporated herein
by reference).
10.4+ Amendment No. 1 to 1996 Stock Option Plan (previously filed as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and incorporated herein by
reference).
10.5+ Form of Indemnification Agreement (previously filed as Exhibit
10.4 in the Pre-Effective Amendment No. 4 to the Company's
Registration Statement on Form S-1 filed on December 19, 1996
(File No. 333-14183) and incorporated herein by reference).
27.1 Financial Data Schedule for period ended July 3, 1999 (for SEC
purposes only).
+ Executive management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
Report on Form 8-K dated July 29, 1999, announcing an expected second
quarter loss of between $0.03 and $0.05 per share.
Reports on Form 8-K and 8-K/A dated August 11, 1999, announcing results
for the quarter ended July 3, 1999.
Report on Form 8-K dated September 20, 1999, announcing a $0.04 per
share dividend on its common stock payable on October 15, 1999, to
shareholders of record on September 30, 1999.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Sarasota, State of Florida on November 15, 1999.
SUN HYDRAULICS CORPORATION
By: /s/ Richard J. Dobbyn
----------------------------------
Richard J. Dobbyn
Chief Financial Officer (Principal
Financial and Accounting Officer)
25
<PAGE> 26
EXHIBIT INDEX
EXHIBIT EXHIBIT DESCRIPTION
NUMBER -------------------
------
3.1 Amended and Restated Articles of Incorporation of the Company
(previously filed as Exhibit 3.1 in the Pre-Effective Amendment No.
4 to the Company's Registration Statement on Form S-1 filed on
December 19, 1996 (File No. 333-14183) and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of the Company
4.5 Mortgage and Security Agreement, dated January 9, 1992, between
Suninco, Inc., Sun Hydraulics Corporation, and Northern Trust Bank
of Florida, N.A. (previously filed as Exhibit 4.5 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File
No. 333-14183) and incorporated herein by reference).
4.6 Loan Agreement, dated March 29, 1996, between Suninco, Inc., Sun
Hydraulics Corporation, and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.6 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.7 Security Agreement, dated March 29, 1996, between Suninco, Inc.,
Sun Hydraulics Corporation, and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.7 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.8 Modification and Additional Advance Agreement, dated March 29,
1996, between Suninco, Inc. and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.8 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.9 Consolidated Note, dated March 29, 1996, in the amount of
$2,475,000.00, given by Suninco, Inc. to Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.9 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File
No. 333-14183) and incorporated herein by reference).
4.10 Loan Agreement, dated May 20, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.10 in the Company's Registration Statement on
Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
26
<PAGE> 27
4.11 Security Agreement, dated May 20, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.11 in the Company's Registration Statement on
Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.12 Consolidated Note, dated May 20, 1996, in the amount of
$3,063,157.00, given by Sun Hydraulics Corporation to Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.12 in
the Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.13 Loan Agreement, dated June 14, 1996, between Sun Hydraulics
Corporation, Suninco Inc., and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.13 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.14 Mortgage, dated June 14, 1996, between Sun Hydraulics Corporation,
Suninco Inc., and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.14 in the Company's Registration Statement on
Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.15 Security Agreement, dated June 14, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.15 in the Company's Registration Statement on
Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.16 Promissory Note, dated June 14, 1996, in the amount of
$6,187,000.00, given by Sun Hydraulics Corporation and Suninco,
Inc. to Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.16 in the Company's Registration Statement on Form S-1
filed on October 15, 1996 (File No. 333-14183) and incorporated
herein by reference).
4.17 Revolving Loan Facility letter agreement, dated July 30, 1996, in
the amount of (pound)800,000, between Sun Hydraulics Ltd. and
Lloyds Bank Plc. (previously filed as Exhibit 4.17 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File
No. 333-14183) and incorporated herein by reference).
4.18 Overdraft and Other Facilities letter agreement, dated June 7,
1996, in an amount not to exceed (pound)250,000, between Sun
Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as Exhibit
4.18 in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein by
reference).
27
<PAGE> 28
4.19 Mortgage, dated April 11, 1996, between Sun Hydraulik GmbH and
Dresdner Bank (previously filed as Exhibit 4.19 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File
No. 333-14183) and incorporated herein by reference).
4.20 Amendment to Recommended Offer by Sun Hydraulics Corporation to
acquire the whole of the issued share capital of Sun Hydraulik
Holdings Limited, dated December 17, 1996 (previously filed as
Exhibit 2.1 in the Pre-Effective Amendment No. 4 to the Company's
Registration Statement on Form S-1 filed on December 19, 1996 (File
No. 333-14183) and incorporated herein by reference).
4.21 Master Note, dated February 3, 1997, in the amount of
$10,000,000.00, made by the Company to evidence a line of credit
granted to the Company by Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference).
4.22 Renewal Master Note, dated February 3, 1998, in the amount of
$10,000,000.00, made by the Company to evidence a line of credit
granted to the Company by Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.22 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 and incorporated
herein by reference).
4.23 Modification Agreement, dated March 1, 1998, between the Company
and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.23 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by reference).
4.24 Renewal Master Note, dated as of February 3, 1998, in the amount of
$4,965,524.51, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.24 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
and incorporated herein by reference).
4.25 Renewal Master Note, dated of February 3, 1999, in the amount of
$4,965,524.51, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.25 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1999
and incorporated herein by reference).
4.26 Renewal Master Note, dated July 23, 1999, in the amount of
$5,000,000.00 between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.26 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference).
28
<PAGE> 29
4.27 Loan Agreement, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference).
4.28 Security Agreement, dated July 23, 1999, between the Company and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit
4.28 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999 and incorporated herein by reference).
4.29 Promissory Note, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.29 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference).
10.1 Form of Distributor Agreement (Domestic) (previously filed as
Exhibit 10.1 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
10.2 Form of Distributor Agreement (International) (previously filed as
Exhibit 10.2 in the Company's Registration Statement on Form S-1
filed on October 15, 1996 (File No. 333-14183) and incorporated
herein by reference).
10.3+ 1996 Sun Hydraulics Corporation Stock Option Plan (previously filed
as Exhibit 10.3 in the Pre-Effective Amendment No. 4 to the
Company's Registration Statement on Form S-1 filed on December 19,
1996 (File No. 333-14183) and incorporated herein by reference).
10.4+ Amendment No. 1 to 1996 Stock Option Plan (previously filed as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).
10.5+ Form of Indemnification Agreement (previously filed as Exhibit 10.4
in the Pre-Effective Amendment No. 4 to the Company's Registration
Statement on Form S-1 filed on December 19, 1996 (File No.
333-14183) and incorporated herein by reference).
27.1 Financial Data Schedule for period ended July 3, 1999 (for SEC
purposes only).
+ Executive management contract or compensatory plan or arrangement.
29
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
SUN HYDRAULICS CORPORATION
Set forth below are the Bylaws of Sun Hydraulics Corporation, a
Florida corporation (the "Corporation"), as adopted by the Board of Directors
of the Corporation effective as of December 17, 1996, as amended on February
26, 1999.
ARTICLE I
Offices
-------
Section 1. Registered Office. The address of the Corporation's
registered office in the State of Florida is 1500 University Parkway, Sarasota,
Florida 34230.
Section 2. Other Offices. The Corporation also may have offices at
such other places both within and without the State of Florida as the Board of
Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
------------------------
Section 1. Place of Meetings. Meetings of the Shareholders for the
election of Directors or for any other purpose shall be held at such time and
place, either within or without the State of Florida, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Shareholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting. Written
notice of the Annual Meeting stating the place, date and hour of the meeting
shall be given to each shareholder entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before the date of the meeting.
Section 3. Special Meeting. Special Meetings of Shareholders may be
called by the Chairman, the President, a majority of the Board of Directors and
shall be called if the holders of fifty percent (50%) of the votes entitled to
be cast on any issue proposed to be considered at the proposed meeting sign,
date and deliver a written demand or several such written demands for the
special meeting describing the purpose or purposes for the meeting to the
Corporation's Secretary.
<PAGE> 2
Only business within the purpose or purposes described in the special meeting
notice may be conducted at such special meeting. Written notice of a Special
Meeting must state the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called and shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
shareholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Articles of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the shareholders, the
shareholders entitled to vote thereof, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Articles of
Incorporation or these Bylaws (i) any question brought before any meeting of
shareholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat, and (ii) each shareholder
represented at a meeting of shareholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
shareholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three (3) years from its date, unless such proxy provides for
a longer period. The Board of Directors, in its discretion, or the officer of
the Corporation presiding at a meeting of shareholders, in his or her
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
Section 6. List of Shareholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open
to the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any shareholder of the Corporation who is
present.
Section 7. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by
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<PAGE> 3
Section 6 of this Article II or the books of the Corporation, or to vote in
person or by proxy at any meeting of shareholders.
Section 8. Notice of Business. At any annual meeting of shareholders,
only such business shall be conducted as shall have been (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
to the direction of the Board of Directors, or (c) otherwise properly brought
before the annual meeting by a shareholder who is a shareholder of record at
the time of the giving of the notice provided for in this Section 8 of this
Article II and who shall be entitled to vote at such meeting. If the
outstanding shares of the capital stock are held by more than thirty (30)
shareholders, then no action required or permitted to be taken at any annual or
special meeting of shareholders of the Corporation may be taken by written
consent without a meeting of such shareholders.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than one hundred twenty (120) days prior to the anniversary of the date of
the proxy statement relating to the prior year's annual meeting of
shareholders. A shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting, (ii) the reasons for conducting such business at the meeting, (iii)
the name and record address of the shareholder proposing such business, (iv)
the class or series and number of shares of the Corporation which are owned
beneficially or of record by the shareholder, (v) a description of all
arrangements or understandings between the shareholder and any other person or
persons (including their names) in connection with the proposal of such
business by the shareholder and any material interest of the shareholder in
such business, and (vi) a representation that the shareholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 8 of this Article II; provided, however,
that nothing in this Section 8 of this Article II shall be deemed to preclude
discussion by any shareholder of any business properly brought before the
annual meeting in accordance with said procedure.
The officer of the Corporation presiding at the annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the provisions of
this Section 8 of this Article II, and if he or she should so determine, shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this Section 8 of this Article II, a shareholder also shall comply with all
applicable requirements of
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<PAGE> 4
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 8 of this
Article II.
ARTICLE III
Directors
---------
Section 1. Number of Directors. The number of Directors shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the Directors then in office. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of Directors constituting the entire Board of Directors. Each Director
shall be elected for a three-year term. If the number of Directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of Directors in each class as nearly equal as possible, but
in no case shall a decrease in the number of Directors shorten the term of any
incumbent Director.
Section 2. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors at the
annual meeting may be made at a meeting of shareholders by or at the direction
of the Board of Directors, by any nominating committee or person appointed by
the Board of Directors or by any shareholder of the Corporation entitled to
vote for the election of Directors at the meeting who complies with the notice
procedures set forth in this Article III. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the Corporation. To be timely,
a shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days
nor more than ninety (90) days prior to the meeting; provided, however, that in
the event that less than seventy (70) days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be received not later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. Such shareholder's notice to the Secretary shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person, (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of Directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, and (v) the consent of
the person to serve as a Director of the Corporation, if so elected; and (b) as
to the shareholder giving the notice (i) the name and record address of
shareholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are beneficially owned by the shareholder, (iii) a
description of all arrangements or understandings between the shareholder and
each proposed nominee and any other person pursuant to which the nominations
are to be made, (iv) a representation that the shareholder intends to appear in
person or by proxy at the meeting to nominate the persons named, and (v)
certain other information. The Corporation may require any
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<PAGE> 5
proposed nominee to furnish such other information as reasonably may be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as Director of the Corporation. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth herein.
The officer of the Corporation presiding at the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he or she should so
determine, shall so declare to the meeting and the defective nomination shall
be disregarded.
Subject to the rights of holders of any series of Preferred Stock then
outstanding, any vacancy on the Board of Directors that results from an
increase in the number of Directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring in the Board of Directors may be filled by a majority of the
Directors then in office, even if less than a quorum is present, or by a sole
remaining Director. Any Director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class. Any Director elected to
fill a vacancy not resulting from an increase in the number of Directors shall
have the same remaining term as that of his or her predecessor.
Subject to the rights of holders of any series of Preferred Stock then
outstanding, any Director or the entire Board of Directors, may be removed from
office at any time, but only for cause by an affirmative vote of the holders of
a majority of the then outstanding shares of voting stock.
Section 3. Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
Bylaws directed or required to be exercised or done by the shareholders.
Section 4. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Florida. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President or by a majority of the Board of
Directors. Notice of a special meeting must be given at least two (2) days
prior to the date of the meeting by written notice pursuant to the notice
provisions of these Bylaws. The notice of a special meeting need not describe
the purpose of the special meeting.
Section 5. Quorum. Except as may be otherwise specifically provided
by law, the Articles of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of Directors,
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<PAGE> 6
the Directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 6. Actions of the Board. Unless otherwise provided by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Articles of Incorporation or these Bylaws, members of
the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 of
Article III shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. Any committee, to the extent
allowed by law and provided in the resolution establishing such committee,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The Directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at such meeting of the Board of Directors and/or a
stated salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its Directors or officers are Directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the
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<PAGE> 7
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose if (a) the fact of such relationship or interest is disclosed or known
to the Board of Directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested Directors; (b) the
fact of such relationship or interest is disclosed or known to the shareholders
entitled to vote and they authorize, approve, or ratify such contract or
transaction by vote or written consent; or (c) the contract or transaction is
fair and reasonable as to the Corporation at the time it is authorized by the
Board of Directors, a committee, or the shareholders.
ARTICLE IV
Officers
--------
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, also may choose a
Chairman and a Vice Chairman of the Board of Directors (each of whom must be a
Director) and one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Articles of Incorporation or
these Bylaws. The officers of the Corporation need not be shareholders of the
Corporation nor, except in the case of the Chairman and Vice Chairman of the
Board of Directors, need such officers be Directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held
after each Annual Meeting of Shareholders shall elect the officers of the
Corporation, who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors; and all officers of the Corporation shall hold office
until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all
such actions as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
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<PAGE> 8
Section 4. Chairman. The Chairman, if present, shall preside at all
meetings of the shareholders and of the Board of Directors. The Chairman of the
Board of Directors shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him or her by these Bylaws
or by the Board of Directors.
Section 5. Vice Chairman. In the absence or disability of the
Chairman, or if there be none, the Vice Chairman shall preside at all meetings
of the shareholders and the Board of Directors. The Vice Chairman of the Board
of Directors also shall perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these Bylaws or by
the Board of Directors.
Section 6. President. The President shall be the chief executive
officer of the Corporation unless the Board of Directors shall resolve
otherwise, and, as such, shall have general supervision and direction of the
business and affairs of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. In the absence
or disability of the Chairman and the Vice Chairman, or if there be none, the
President shall preside at all meetings of the shareholders and the Board of
Directors. The President also shall perform such other duties and may exercise
such other powers as from time to time may be assigned to him or her by these
Bylaws or by the Board of Directors.
Section 7. Vice President. At the request of the President or in his
or her absence or in the event of his or her inability or refusal to act (and
if there be no Chairman or Vice Chairman of the Board of Directors), the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there is no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President
or in the event of the inability or refusal of the President to act, shall
perform the duties of the President, and when so acting, shall have all powers
of and be subject to the restrictions upon the President.
Section 8. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of shareholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary also shall perform like duties of the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the President or
the Board of Directors, under whose supervision he or she shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the shareholders and special meetings of the Board of Directors,
and if there be no Assistant Secretary, then either the President or the Board
of Directors may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary
or any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority
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<PAGE> 9
to any other officer to affix the seal of the Corporation and to attest the
affixing by his or her signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
Section 9. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and either valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his or
her transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control belonging to the Corporation.
Section 10. Assistant Secretaries. Except as may be otherwise provided
in these Bylaws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 11. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in
the event of his or her disability or refusal to act, shall perform the duties
of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his or her office and
for the restoration to the Corporation, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his or her possession or under his
or her control belonging to the Corporation.
Section 12. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers from time
to time may be assigned to them by the President or the Board of Directors, as
the case may be. The Board of Directors may delegate to any other officer of
the Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
-9-
<PAGE> 10
ARTICLE V
Stock
-----
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, the
President or a Vice President and (ii) by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these Bylaws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his or her attorney lawfully constituted in writing and upon
the surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than seventy (70) days nor
less than ten (10) days before the date of such meeting, nor more than seventy
(70) days prior to any other action. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to
any
-10-
<PAGE> 11
adjournment of the meeting unless the Board of Directors fixes a new record
date, which it must do if the meeting is adjourned to a date more than one
hundred and twenty (120) days after the date fixed for the original meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
Notices
-------
Section 1. Notices. Whenever written notice is required by law, the
Articles of Incorporation or these Bylaws, to be given to any Director, member
of a committee or shareholder, such notice may be given by mail, addressed to
such Director, member of a committee or shareholder, at his or her address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally or by electronic facsimile, or telegram, telex or cable. Written
notices delivered personally, by mail, telegram, telecopy or nationally
recognized overnight courier service (such as Federal Express, Airborne, UPS,
Emery or Purolator) to each Director at his or her address. Such notice shall
be effective upon the earliest of (a) receipt, (b) five days after its deposit
in the United States mail, as evidenced by the postmark, if mailed postpaid and
correctly addressed, or (c) the day after its deposit with such an overnight
courier service, marked for next day delivery. Such written notice shall
include the date, time and place of the meeting.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Articles of Incorporation or these Bylaws, to be given to any Director,
member of a committee or shareholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
General Provisions
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for
-11-
<PAGE> 12
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify
or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed or signed by facsimile by each officer or
officers or such other person or persons as the Board of Directors may from
time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Florida." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
Indemnification
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a Director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner in which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
in the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he or she is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of
-12-
<PAGE> 13
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the Director, officer or other person is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such proceeding; (b)
if such a quorum is not obtainable or, event if obtainable, by majority vote of
a committee duly designated by the Board of Directors (in which Directors who
are parties may participate) consisting solely of two or more Directors not at
the time parties to the proceeding; (c) by independent legal counsel (1)
selected by the Board of Directors prescribed in paragraph (a) or the committee
prescribed in paragraph (b); or (2) if a quorum of the Directors cannot be
obtained for paragraph (a) and the committee cannot be designated under
paragraph (b), selected by majority vote of the full Board of Directors (in
which Directors who are parties may participate); or (d) by the shareholders by
a majority vote of a quorum consisting of shareholders who were not parties to
such proceeding or, if no such quorum is obtainable, by a majority vote of
shareholders who were not parties to such proceeding. To the extent, however,
that a Director or officer of the Corporation has been successful in the merits
or otherwise in defense of any action, suit or proceeding described above, or
in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith, without the
necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
or her conduct was unlawful, if his or her action is based on the records or
books of account of the Corporation or another enterprise, or on information
supplied to him or her by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Corporation or another enterprise. The term "another enterprise" as
used in this Section 4 of this Article VIII shall mean any other corporation or
any partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person
-13-
<PAGE> 14
is or was serving at the request of the Corporation as a Director, officer,
employee or agent. The provisions of this Section 4 of this Article VIII shall
not be deemed to be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of conduct set forth
in Section 1 or Section 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any Director or
officer may apply to any court of competent jurisdiction in the State of
Florida for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VIII. The basis of such indemnification by a court
shall be a determination of such court that indemnification of the Director or
officer is proper in the circumstances because he or she has met the applicable
standards of conduct as set forth in Section 1 or Section 2 of this Article
VIII, as the case may be. Neither a contrary determination in the specific case
under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the Director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 of this Article VIII shall be given to the Corporation promptly
upon the filing of such application. If successful, in whole or in part, the
Director or officer seeking indemnification shall also be entitled to be paid
the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
Director or officer in defending or investigating a threatened or pending
action,suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article VIII. Such
expenses (including attorney's fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
disinterested Directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, but as to action in his or
her official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by the Florida Business Corporation Act, as the same
exists or may hereafter be amended. The provisions of this Article VIII shall
not be deemed to preclude the indemnification of any person who is not
specified in Section 1 or Section 2 of this Article VIII but whom the
Corporation has the power or obligation to indemnify under the provisions of
the Florida Business Corporation Act or otherwise.
-14-
<PAGE> 15
Section 8. Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a Director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him or her and incurred by him or her in
any such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power or the obligation to indemnify him or her
against such liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors and officers, so that any person who is or was a Director or officer
of such constituent corporation, or is or was a Director or officer of such
constituent corporation serving at the request of such constituent corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such indemnification relates to his or
her acts while serving in any of the foregoing capacities, of such constituent
corporation, as he or she would have with respect to such constituent
corporation if this separate existence had continued. For purposes of this
Article VIII, references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a Director or
officer of the Corporation which imposes duties on, or involves services by,
such Director or officer with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in
a manner "not opposed to the best interests of the Corporation" as referred to
in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VIII shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a Director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Any repeal or modification of this Article VIII by the
shareholders of the Corporation shall not adversely affect any rights to
indemnification and advancement of expenses existing pursuant to this Article
VIII with respect to any acts or omissions occurring prior to such repeal or
modification.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 of this
Article VIII), the Corporation shall not be obligated to indemnify any Director
or officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
-15-
<PAGE> 16
ARTICLE IX
Amendments
----------
The Corporation's Board of Directors may amend or repeal these Bylaws
unless: (a) the Articles of Incorporation or law reserves the power to amend
the Bylaws generally, or a particular Bylaw provision exclusively, to the
shareholders; or (b) the shareholders, in amending or repealing the Bylaws
generally or a particular Bylaw provision, provide expressly that the Board of
Directors may not amend or repeal the Bylaws or that Bylaw provision.
The Corporation's shareholders may amend or repeal the Corporation's
Bylaws even though the Bylaws also may be amended or repealed by its Board of
Directors.
-16-
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