<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SUN HYDRAULICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
April 21, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Sun Hydraulics Corporation. The meeting will be held Saturday,
May 22, 1999, at 10:00 a.m., Eastern Daylight Savings Time, at the Company's
manufacturing facility located at 1500 West University Parkway, Sarasota,
Florida 34243. A tour of the plant and refreshments will follow the meeting.
The Notice of the meeting and the Proxy Statement on the following
pages cover the formal business of the meeting, which includes the election of
Directors and a proposal to ratify the appointment of the Company's independent
certified public accountants. We also will report on the progress of the
Company and comment on matters of current interest.
It is important that your shares be represented at the meeting. We ask
that you promptly sign, date and return the enclosed proxy card in the envelope
provided, even if you plan to attend the meeting. Returning your proxy card to
us will not prevent you from voting in person at the meeting if you are present
and choose to do so.
If your shares are held in street name by a bank, brokerage or other
nominee, it will supply you with a proxy to be returned to it. It is important
that you return the form to the nominee as quickly as possible so that the
nominee may vote your shares. You may not vote your shares in person at the
Meeting unless you obtain a power of attorney or legal proxy from your nominee
authorizing you to vote the shares, and you present this power of attorney or
proxy at the Meeting.
The Board of Directors and management look forward to greeting you
personally at the meeting.
Sincerely,
ROBERT E. KOSKI
Chairman of the Board
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SATURDAY, MAY 22, 1999
Notice hereby is given that the Annual Meeting of Shareholders of Sun
Hydraulics Corporation, a Florida corporation, will be held on Saturday, May
22, 1999, at 10:00 a.m., Eastern Daylight Savings Time, at the Company's
manufacturing facility, located at 1500 West University Parkway, Sarasota,
Florida, 34243, for the following purposes:
1. To elect two Directors to serve until the Annual
Meeting in 2002 and until their successors are elected and qualified
or until their earlier resignation, removal from office or death;
2. To ratify the appointment of PricewaterhouseCoopers
LLP as the Company's independent certified public accountants for the
year 1999; and
3. To transact such other business as properly may come
before the Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete description of the matters to be acted upon at the
Meeting. The 1998 Annual Report of the Company is enclosed. Shareholders of
record at the close of business on March 31, 1999, are entitled to receive
notice of and to vote at the Meeting and any adjournment thereof.
All shareholders are cordially invited to attend the Meeting. Whether
or not you expect to attend, please sign and return the enclosed Proxy promptly
in the envelope provided to assure the presence of a quorum. You may revoke
your Proxy and vote in person at the Meeting if you desire. If your shares are
held in street name by a brokerage, your broker will supply you with a proxy to
be returned to the brokerage. It is important that you return the form to the
brokerage as quickly as possible so that the brokerage may vote your shares.
You may not vote your shares in person at the Meeting unless you obtain a power
of attorney or legal proxy from your broker authorizing you to vote the shares,
and you present this power of attorney or proxy at the Meeting.
By order of the Board of Directors,
GREGORY C. YADLEY
Secretary
Sarasota, Florida
April 21, 1999
<PAGE> 4
SUN HYDRAULICS CORPORATION
1500 WEST UNIVERSITY PARKWAY
SARASOTA, FLORIDA 34243
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors and
Management of Sun Hydraulics Corporation (the "Company") in connection with the
solicitation of proxies to be voted at the Company's 1999 Annual Meeting of
Shareholders, which will be held on Saturday, May 22, 1999, at 10:00 a.m.,
Eastern Daylight Savings Time, at the Company's manufacturing facility, located
at 1500 West University Parkway, Sarasota, Florida 34243 (the "Meeting").
Any proxy delivered pursuant to this solicitation may be revoked, at
the option of the person executing the proxy, at any time before it is
exercised by delivering a signed revocation to the Company, by submitting a
later-dated proxy, or by attending the Meeting in person and casting a ballot.
If proxies are signed and returned without voting instructions, the shares
represented by the proxies will be voted as recommended by the Board of
Directors.
The cost of soliciting proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone by regular employees of the Company. The Company does not expect to
pay any compensation for the solicitation of proxies, but may reimburse brokers
and other persons holding stock in their names, or in the names of nominees,
for their expense in sending proxy materials to their principals and obtaining
their proxies. The approximate date on which this Proxy Statement and enclosed
form of proxy first has been mailed to shareholders is April 21, 1999
The close of business on March 31, 1999, has been designated as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the Meeting. As of March 31, 1999, 6,383,148 shares of the
Company's Common Stock, par value $.001 per share, were issued and outstanding.
Each shareholder will be entitled to one vote for each share of Common Stock
registered in his or her name on the books of the Company on the close of
business on March 31, 1999, on all matters that come before the Meeting.
The affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, and voting at the Meeting will be required
to take action at the Meeting. Abstentions will be counted toward the number of
shares represented at the meeting. Broker non-votes will be disregarded.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven
members. The Board is divided into three classes of Directors serving staggered
three-year terms. Directors hold their positions until the annual meeting of
shareholders in the year in which their term expires, and until their
respective successors are elected and qualified or until their earlier
resignation, removal from office or death. Executive officers serve at the
pleasure of the Board of Directors.
The term of office of two of the Company's current seven Directors
will expire at the 1999 Annual Meeting. The Board of Directors unanimously
recommends that you vote "FOR" the reelection of Taco van Tijn and David N.
Wormley to serve until the Company's annual meeting in 2002, and until their
respective
<PAGE> 5
successors shall be duly elected and qualified or until their earlier
resignation, removal from office or death. See "Management-Directors and
Executive Officers" and "Certain Transactions" for further information on such
nominees. Shareholders may vote for up to two nominees. The affirmative vote of
a majority of the shares represented at the Meeting and entitled to vote
thereon will be required for the election of Directors. Shareholders may not
vote cumulatively in the election of Directors. Abstentions will be counted
toward the number of shares represented at the Meeting. Broker non-votes will
be disregarded. In the event any of the nominees should be unable to serve,
which is not anticipated, the proxy committee, which consists of Robert E.
Koski and Clyde G. Nixon, will vote for such other person or persons for the
office of Director as the Board of Directors may recommend.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
Directors, nominees for Director, and executive officers and the positions they
hold with the Company. Executive officers serve at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert E. Koski 70 Chairman of the Board of Directors (term expiring in 2000) and a member of
the Compensation Committee
Clyde G. Nixon 63 President, Chief Executive Officer, and Director (term expiring in 2001)
Jeffrey Cooper 58 Engineering Manager
Russell G. Copeman 60 Manufacturing Manager
Richard J. Dobbyn 55 Chief Financial Officer
Peter G. Robson 54 General Manager, Sun Hydraulics Limited
John S. Kahler 59 Director (term expiring in 2000) and a member of the Audit Committee
James G. March 71 Director (term expiring in 2000) and a member of the Compensation Committee
Ferdinand E. Megerlin 60 Director (term expiring in 2001) and a member of the Compensation Committee
Taco van Tijn 75 Director (term expiring in 1999), Nominee for Director (term expiring in
2002) and a member of the Audit Committee
David N. Wormley 59 Director (term expiring in 1999), Nominee for Director (term expiring in
2002) and a member of the Compensation Committee
</TABLE>
ROBERT E. KOSKI is a co-founder of the Company and has served as its
Chairman of the Board since it began operations in 1970. He was also its
President and Chief Executive Officer from that time until November 1988. He is
a graduate of Dartmouth College and past Chairman of the Board of the
-2-
<PAGE> 6
National Fluid Power Association. Mr. Koski has over 37 years experience in the
fluid power industry, and has served as Chairman of the Fluid Power Systems and
Technology Division of the American Society of Mechanical Engineers, and as a
member of the Board of Directors of the National Association of Manufacturers.
CLYDE G. NIXON joined the Company in January 1988, and was named its
President and Chief Executive Officer in November 1988. From September 1985, to
January 1988, he served as Vice President of Cross & Trecker Corporation and
was President of Warner & Swasey Company, its wholly-owned subsidiary. From
1964 to 1985, he served in various management capacities with Brown & Sharpe
Manufacturing Corporation, most recently as Vice President of its fluid power
division and President of Double A Products Company, its wholly-owned
subsidiary. Mr. Nixon is a graduate of Cornell University and the Harvard
Business School, and is past Chairman of the Board of the National Fluid Power
Association. Mr. Nixon has over 31 years experience in the fluid power
industry.
JEFFREY COOPER joined the Company in December 1990, as an engineer and
has been Engineering Manager since September 1991. From August 1987, to
December 1990, he was Engineering Manager, Mobile Valves, of Vickers,
Incorporated, a wholly-owned subsidiary of Trinova Corporation, and from
September 1979 to August 1986, he served as Vice President of Engineering for
Double A Products Company. Mr. Cooper is an engineering graduate of Willesden
College of Technology, London, England. Mr. Cooper has over 30 years experience
in the fluid power industry.
RUSSELL G. COPEMAN joined the Company in July 1996, as Manufacturing
Manager, in charge of manufacturing operations and processes. From January
1996, to July 1996, Mr. Copeman was the principal of Copeman Consulting, and
performed consulting services for the Company from March 1996 to July 1996.
From January 1994, to October 1995, Mr. Copeman was a partner with Coopers &
Lybrand, Australia; from July 1989, to December 1993, he was a Director of
Coopers & Lybrand's International Manufacturing Practice. From January 1985, to
July 1989, he served in various management positions with Vickers,
Incorporated, most recently as Vice President. From August 1967, to January
1985, he served in various management positions with Double A Products Company,
most recently as Vice President. Mr. Copeman is a Certified Manufacturing
Engineer and a graduate of Georgia Institute of Technology and the Krannert
Business School of Purdue University. Mr. Copeman has over 24 years experience
in the fluid power industry.
RICHARD J. DOBBYN joined the Company in October 1995, and was named
Chief Financial Officer in July 1996. From June 1995 to October 1995, Mr.
Dobbyn served as the Controller of Protek Electronics. From July 1994 to June
1995, he served as the Fiscal Director of a non-profit child care agency. From
September 1984 to July 1994, Mr. Dobbyn was Senior Vice President-Finance and
Administration for Loral Data Systems, formerly Fairchild Weston Systems, a
Schlumberger company. Mr. Dobbyn is a Certified Public Accountant and a
graduate of Boston College.
JOHN S. KAHLER is the President, CEO, and a Director of Cincinnati
Incorporated. Mr. Kahler has served in various management positions with
Cincinnati Incorporated since 1989. He is a graduate of Carnegie-Mellon
University and the Harvard Business School.
JAMES G. MARCH is a Professor Emeritus at Stanford University, Palo
Alto, California. He was a senior member of the faculty at Stanford University
and the Stanford Business School from September 1970, to August 1995, and is
the author of numerous books and articles on organizational behavior and
decision making. From September 1964, to August 1970, Dr. March was a Professor
of Psychology and Sociology at the University of California, Irvine, where he
was Dean of the School of Social Sciences from 1964 to 1969. Dr. March served
as a Director of the Company from 1989 to 1992, and rejoined the Company's
Board of Directors in November 1995. He also is a member of the Board of
Directors of
-3-
<PAGE> 7
Wally Industries and Chair of the Citicorp Behavioral Sciences Research
Council. Dr. March is a graduate of the University of Wisconsin and received
his Ph.D. from Yale University.
FERDINAND E. MEGERLIN is Chairman and Joint Managing Director of Linde
Lift Truck Corporation's Industrial Trucks and Hydraulics Division in
Aschaffenburg, Germany. He is also Chairman of Linde's U.S. subsidiaries Linde
Hydraulics Corp., Canfield, Ohio, and Baker Material Handling Corp.,
Sommerville, South Carolina. Within VDMA, German's association for mechanical
and plant engineering, Dr. Megerlin serves as Chairman of the German Fluid
Power Association and as a member of the main Board of Directors. He is an
engineer and received his Dr.-Ing. degree from TH Aachen, Germany. Dr. Megerlin
has over 27 years of experience in the fluid power industry.
PETER G. ROBSON has served as a Director of Sun Hydraulics Limited,
Coventry, England, since May 1993, and has been employed by the Company as the
General Manager of its United Kingdom operations since 1982. Mr. Robson is a
Chartered Engineer and a graduate of Coventry University. Mr. Robson has over
32 years experience in the fluid power industry.
TACO VAN TIJN is an attorney (solicitor), who has practiced law in
London, England, since May 1977. Since June 1998, he has been affiliated with
Rooks Rider. Mr. van Tijn has been a Director of the Company since February
1989, and the principal statutory officer of Sun Hydraulik Holdings Limited
since January 1991.
DAVID N. WORMLEY is the Dean of the Engineering School at Pennsylvania
State University, where he has taught since 1992. He previously was a member of
the engineering faculty at the Massachusetts Institute of Technology. Dr.
Wormley has served as a Director of the Company since December 1992. He is an
engineer and earned his Ph.D. from the Massachusetts Institute of Technology.
No family relationships exist between any of the Company's Directors
and executive officers, except that Mr. Koski and Dr. March are step-brothers.
There are no arrangements or understandings between Director and any other
person concerning service as a Director.
The Board of Directors has Audit and Compensation Committees. The
Company does not have a Nominating Committee; instead, the entire Board of
Directors functions as a Nominating Committee.
The Audit Committee was appointed in February 1997 and held two
meetings in 1998. The functions of the Audit Committee are to recommend
annually to the Board of Directors the appointment of the independent public
accountants of the Company, to discuss and review the scope of and the fees for
the prospective annual audit with the independent public accountants, to review
the results thereof with the independent public accountants, to review and
approve non-audit services of the independent public accountants, to review
compliance with existing major accounting and financial policies of the
Company, to review the adequacy of the financial organization of the Company,
to review management's procedures and policies relative to the adequacy of the
Company's internal accounting controls, to review compliance with federal and
state laws relating to accounting practices and to review and approve (with the
concurrence of a majority of the disinterested Directors of the Company)
transactions, if any, with affiliated parties.
A Compensation Committee was formed in December 1996 to review,
approve and recommend to the Board of Directors the terms and conditions of all
employee benefit plans or changes thereto, to administer the Company's stock
option plans and carry out the responsibilities required by the rules of the
Securities and Exchange Commission. The full Board of Directors carried out the
responsibilities of the Compensation Committee directly during 1998.
-4-
<PAGE> 8
The Board of Directors held four meetings during 1998. Except for two
Directors, who were unable to attend the December 1998 Board meeting, each
Director attended all of the meetings of the Board and of each committee of
which he was a member in 1998. Directors who are not officers of the Company
are paid $2,500 for attendance at each meeting of the Board of Directors, as
well as each meeting of each Board committee on which they serve when the
committee meeting is not held within one day of a meeting of the Board of
Directors. Directors also are reimbursed for their expenses incurred in
connection with their attendance at such meetings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 23, 1998, information as to
the beneficial ownership of the Company's Common Stock by (i) each person or
entity known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each Director, (iii) Each Named
Executive Officer of the Company, and (iv) all Directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) CLASS
- ---------------------------------------- ------------------------ -----
<S> <C> <C>
Robert E. Koski(3)(4)(5) ................................ 2,543,920 39.9
Beverly Koski(3)(4)(5) .................................. 2,543,920 39.9
Christine L. Koski(3) ................................... 2,322,838 36.4
5619 Preston Oaks Road
Dallas, Texas 75240
Robert C. Koski(3)(5) ................................... 2,285,543 35.8
315 Sycamore Street
Decatur, Georgia 30030
Koski Family Limited Partnership ........................ 2,258,543 35.4
5619 Preston Oaks Road
Dallas, Texas 75240
Thomas L. Koski(3) ...................................... 2,258,543 35.4
Six New Street
East Norwalk, Connecticut 06855
Bradley S. Ferrell(6) ................................... 449,642 7.0
5924 Cranbrook Way, #101
Naples, Florida 34112
Beck, Mack & Oliver LLC(7) .............................. 434,550 6.8
330 Madison Avenue
New York, NY 10017
Royce & Associates, Inc.(8) ............................. 359,600 5.6
Royce Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019
Clyde G. Nixon(9) ....................................... 218,092 3.4
Peter G. Robson(10) ..................................... 81,152 1.3
Jeffrey Cooper(10) ...................................... 59,949 *
James G. March(11) ...................................... 53,572 *
Russell G. Copeman(10) .................................. 31,578 *
</TABLE>
-5-
<PAGE> 9
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) CLASS
- ---------------------------------------- ------------------------ -----
<S> <C> <C>
Richard J. Dobbyn(12) ................................... 22,500 *
Taco van Tijn(13)........................................ 8,920 *
David N. Wormley(14)..................................... 3,940 *
John S. Kahler........................................... 1,000 *
Ferdinand E. Megerlin.................................... 0 --
All Directors and Executive Officers 3,026,823 45.1
as a Group (11 persons)................................
</TABLE>
- --------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the persons listed
who own more than 5% of the Company's Common Stock is 1500 West
University Parkway, Sarasota, Florida 34243.
(2) This column sets forth shares of the Company's Common Stock which are
deemed to be "beneficially owned" by the persons named in the table
under Rule 13d-3 of the Securities and Exchange Commission. Except as
otherwise indicated, the persons listed have sole voting and
investment power with respect to all shares of Common Stock owned by
them, except to the extent such power may be shared with a spouse.
(3) Includes 2,258,543 shares owned by the Koski Family Limited
Partnership, over which Christine L. Koski, Robert C. Koski, Thomas L.
Koski, Robert E. Koski and Beverly Koski share voting and investment
power as the general partners in the Partnership. Christine L. Koski,
Robert C. Koski and Thomas L. Koski are the adult children of Robert
E. Koski and Beverly Koski.
(4) Includes 141,215 shares owned by Beverly Koski and 117,162 shares
owned by Robert E. Koski. Beverly Koski is the spouse of Robert E.
Koski.
(5) Includes 27,000 shares owned by the Koski Family Foundation, Inc.,
over which Robert E. Koski, Beverly Koski and Robert C. Koski share
voting and investment power.
(6) Includes 38,205 shares owned by Mr. Ferrell, over which Mr. Ferrell
has sole voting and investment power, and 411,437 shares beneficially
owned by Mr. Ferrell in his capacity as trustee of various trusts,
over which Mr. Ferrell has shared voting and investment power.
(7) According to the Schedule 13G, filed January 25, 1999, by Beck Mack &
Oliver, LLC, a registered investment advisor, Beck Mack & Oliver has
shared investment power with respect to such shares, which are owned
by its investment advisory clients.
(8) According to the Schedule 13G, filed February 10, 1999, by Royce &
Associates, Inc. ("Royce") and Royce Management Company ("RMC"),
registered investment advisors, and Charles M. Royce, Royce has sole
voting and investment power with respect to 356,400 shares, and RMC
has sole voting and investment power with respect to 3,200 shares.
According to the Schedule 13G, Charles M. Royce may be deemed to be a
controlling person of Royce and RMC, and as such may be deemed to
beneficially own the shares beneficially owned by Royce and RMC.
According to the Schedule 13G, Mr. Royce does not own any shares
outside of Royce and RMC, and disclaims beneficial ownership of the
shares held by Royce and RMC.
(9) Includes 126,343 shares subject to currently exercisable options.
(10) Represents shares subject to currently exercisable options.
(11) Shares are owned by The March Family Trust, of which Dr. March and his
spouse are trustees.
(12) Includes 21,000 shares subject to currently exercisable options.
(13) Includes 3,920 shares subject to currently exercisable options.
(14) Includes 2,940 shares subject to currently exercisable options.
-6-
<PAGE> 10
DIRECTOR AND EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table is a summary of the compensation paid or accrued
by the Company for the last three fiscal years for services in all capacities
to the Company's Chief Executive Officer and each of its other most highly
compensated executive officers who earned more than $100,000 from the Company
in 1998 under the rules of the Securities and Exchange Commission (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
AWARDS--
SECURITIES
NAME AND UNDERLYING OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#) COMPENSATION(3)
------------------ ---- ------ ---------------- ----------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Robert E. Koski, 1998 $106,000 --- $ 14,045
Chairman of the 1997 106,000 --- 20,175
Board of Directors 1996 106,000 --- 28,158(4)
- --------------------------------------------------------------------------------------------------------------------
Clyde G. Nixon, 1998 191,300 --- $ 17,084
President and 1997 180,000 58,781(1) 22,927
Chief Executive Officer 1996 180,000 94,765(2) 12,239
- --------------------------------------------------------------------------------------------------------------------
Jeffrey Cooper 1998 126,525 $ 11,683
Engineering Manager 1997 121,000 27,100(1) 13,567
1996 116,000 43,689(2) 9,314
- --------------------------------------------------------------------------------------------------------------------
Russell G. Copeman 1998 135,075 --- $ 6,099
Manufacturing Manager 1997 134,000 65,000(1) 35,547(5)
1996 64,500 -- 92,931(5)
- --------------------------------------------------------------------------------------------------------------------
Richard J. Dobbyn 1998 107,575 --- $ 5,773
Chief Financial Officer 1997 97,000 35,000(1) 7,054
1996 88,000 --- ---
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents incentive stock options granted on January 9, 1997, the
date of the Company's initial public offering, at an exercise price
equal to the public offering price.
(2) Represents nonqualified stock options granted in conjunction with the
termination of the executive's phantom stock compensation agreement.
(3) Except as otherwise noted, reflects primarily contributions made by
the Company on behalf of the employee to the Company's 401(k) plan and
excess life insurance premiums.
(4) Includes payment of $18,728 by the Company for certain professional
fees on behalf of Mr. Koski.
(5) Includes payment by the Company of certain consulting fees and moving
expenses.
-7-
<PAGE> 11
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
--------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE POTENTIAL REALIZABLE VALUE AT
OPTIONS EMPLOYEES IN PRICE EXPIRATION ASSUMED ANNUAL RATES OF STOCK PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE APPRECIATION FOR OPTION TERM(1)
-----------------------------------
5% ($) 10% ($) 0% ($)
(A) (B) (C) (D) (E) (F) (G) (H)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert E. Koski -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Clyde G. Nixon -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Jeffrey Cooper 20,000 10.9% 16.75 05/22/08 $184,695 $454,912 --
4,000 10.00 12/05/08 36,939 90,982
- -----------------------------------------------------------------------------------------------------------------------
Russell G. Copeman -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Richard J. Dobbyn 10,000 5.5% 16.75 05/22/08 92,347 92,347 --
2,000 10.00 12/05/08 18,469 18,469
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options were granted on May 22, 1998, and December 5, 1998, at
exercise prices of $16.75 and $10.00, respectively, the closing prices
for the shares of Common Stock on such dates. The 5% and 10% assumed
annual rates of stock price appreciation are provided in compliance
with Regulation S-K under the Securities Exchange Act of 1934. The
Company does not necessarily believe that these appreciation
calculations are indicative of actual future stock option values or
that the price of Common Stock will appreciate at such rates.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS/SARS
UNDERLYING UNEXERCISED AT FISCAL
OPTIONS/SARS AT FISCAL YEAR-END($)
SHARES ACQUIRED VALUE REALIZED YEAR-END(#) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- -----------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
--- --- --- --- ---
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Robert E. Koski -- -- 0/0 0/0
- -----------------------------------------------------------------------------------------------------------------
Clyde G. Nixon -- -- 115,817/37,729 $ 469,087/0
- -----------------------------------------------------------------------------------------------------------------
Jeffrey Cooper -- -- 54,529/40,260 $ 149,853/0
- -----------------------------------------------------------------------------------------------------------------
Russell G. Copeman -- -- 21,052/43,948 0/0
- -----------------------------------------------------------------------------------------------------------------
Richard J. Dobbyn -- -- 14,000/33,000 0/0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the December 31, 1998, closing stock price of $8.313 per
share, as reported on the Nasdaq National Market.
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<PAGE> 12
The information contained in the following sections "Report of Board
of Directors Acting as Compensation Committee" and "Performance Graph" are not
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission or subject to Regulations 14A or 14C or to the liabilities
of Section 18 of the Securities Exchange Act of 1934.
REPORT OF BOARD OF DIRECTORS ACTING AS COMPENSATION COMMITTEE
The following report was prepared by the Board of Directors, acting as
the Company's Compensation Committee:
The goals of the Company's compensation program are to attract,
retain, motivate and reward highly qualified management personnel and to
provide them with long-term career opportunities. The Company's compensation
philosophy is to provide its executives with a competitive total compensation
package which motivates superior job performance, the achievement of the
Company's business objectives, and the enhancement of shareholder value.
Compensation of the Company's Named Executive Officers will be reviewed
annually by the Board of Directors and the Compensation Committee. Changes
proposed for these employees will be evaluated and approved by the Compensation
Committee on an individual basis.
The Company's general approach to compensating Named Executive
Officers is to pay cash salaries which generally are competitive within ranges
of salaries paid to executives of other manufacturing companies, although the
Company does not attempt to meet salary levels of such companies. Instead, the
Committee sets overall compensation at a level it believes to be fair, based
upon a subjective analysis of the individual executive's experience and past
and potential contributions to the Company. The Company, historically, has not
paid performance-based bonuses. To assist in determining appropriate overall
compensation, the Company intends in the future to review information regarding
revenues, income, and executive compensation for other public manufacturing
companies.
Stock option grants to Named Executive Officers and other key
employees of the Company, including the Chief Executive Officer, will be made
at the discretion of the Compensation Committee pursuant to the Company's 1996
Stock Option Plan (the "Stock Option Plan"). Factors and criteria to be used by
the Compensation Committee in the award of stock options will include
individual responsibilities, individual performance and direct and indirect
contributions to the profitability of the Company. The benefits derived from
each stock option granted under the Stock Option Plan are directly attributable
to a future increase in the value of the Company's Common Stock. Messrs.
Cooper, Copeman and Dobbyn were granted incentive stock options on May 22,
1998, and December 5, 1998, at exercise prices of $16.75 and $10.00,
respectively, the closing prices for the shares of Common Stock on such dates.
Section 162(m) of the Internal Revenue Code limits the tax deduction
to $1 million for compensation paid to a corporation's key executive officers
unless certain requirements are met. One of the requirements imposed under
regulations promulgated by the Internal Revenue Service is that the
corporation's compensation committee be comprised solely of "disinterested
directors." Not all of the Directors serving on the Company's Compensation
Committee are disinterested under those regulations. However, given the
Company's compensation program and historic compensation levels, the Company
does not believe the limitation on deductibility will have a material effect on
the Company. The Company intends to monitor the effect of the Section 162(m)
regulations and take steps in the future as might be appropriate.
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<PAGE> 13
Robert E. Koski and Clyde G. Nixon abstain from all determinations by
the Board of Directors acting as the Compensation Committee as they relate to
their respective compensation as Chairman of the Board and as Chief Executive
Officer and President, respectively.
BOARD OF DIRECTORS
Robert E. Koski
John S. Kahler Clyde G. Nixon James G. March
Ferdinand E. Megerlin David N. Wormley Taco Van Tijn
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Board of Directors determined the compensation, including salary
and bonus, of the Executive Officers of the Company for the fiscal year ended
December 31, 1998, and the initial compensation for the current fiscal year
through the date hereof. In the future, the Compensation Committee of the Board
of Directors, comprised of Robert E. Koski, James G. March, Ferdinand E.
Megerlin, and David N. Wormley, will determine the compensation of the
Company's Executive Officers. Mr. Koski is Chairman of the Company's Board of
Directors.
PERFORMANCE GRAPH
The following graph compares cumulative total return among Sun
Hydraulics Corporation, the Nasdaq Stock Market Index (U.S.) and two peer groups
from January 9, 1997, to December 31, 1998, assuming $100 invested in each on
January 9, 1997, the date of the initial public offering of the Company's Common
Stock. Total return assumes reinvestment of any dividends for all companies
considered within the comparison. The stock price performance shown on the graph
above is not necessarily indicative of future price performance. Companies in
Peer Group One are Aeroquip-Vickers Inc., Commercial Intertech Corp., Denison
International plc, Moog Inc., The Oilgear Company and Parker Hannifin Corp.
Companies in the Group Two are Commercial Intertech Corp., Denison International
plc, Moog Inc., The Oilgear Company and Sauer, Inc. The Company intends to
replace Peer Group One with Peer Group Two for 1999 due to its belief that Peer
Group Two more closely reflects the Company's peer group. Both Aeroquip-Vickers
Inc. and Parker Hannifin Corp are much larger corporations with more diverse
businesses than the Company and Aeroquip-Vickers recently has been acquired by
Eaton Corp. Sauer, Inc. began reporting as a publicly-held company in 1998.
-10-
<PAGE> 14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1/97 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sun Hydraulics Corporation 100 116 123 133 128 152 171 104 90
- --------------------------------------------------------------------------------------------------------------
Peer Group One 100 103 146 162 164 187 152 109 117
- --------------------------------------------------------------------------------------------------------------
Peer Group Two 100 90 116 148 148 170 150 113 108
- --------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market (U.S.) 100 92 109 127 119 140 144 130 168
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The stock price performance shown on the graph above is not necessarily
indicative of future price performance.
CERTAIN TRANSACTIONS
The information set forth herein briefly describes transactions during
the past fiscal year between the Company and its Directors, officers and 5%
shareholders. Management of the Company believes that such transactions have
been on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. These transactions have been approved by a
majority of the Company's disinterested Directors. Future transactions, if any,
with affiliated parties will be approved by a majority of the Company's
disinterested Directors and the Audit Committee and will be on terms no less
favorable to the Company than those that could be obtained from unaffiliated
parties.
SUNOPTECH, LTD.
In October 1995, the Company contributed certain intangible assets to
SunOpTech, Ltd. ("SunOpTech"), a limited partnership formed to further the
development of manufacturing software. In January 1996, the Company distributed
to its stockholders the 65% limited partnership interest in SunOpTech which it
received in exchange for the contributed intangible assets. Robert E. Koski
owns 51% of the common stock of the general partner of SunOpTech, and is a
member of the Board of Directors of the general partner. The Company currently
has no ownership interest in SunOpTech.
The Company entered into a contract with SunOpTech for a 35-month term
beginning November 1995, for the development of computer software and computer
support to the Company. The Company paid approximately $1,000,000 over the
contract term, provided office space and equipment and reimbursed SunOpTech for
reasonable expenses related to the software development. During 1998, the
Company paid fees of $33,000 and expenses of $45,000 under the agreement, and
provided certain administrative support to SunOpTech at no charge. The software
is being utilized in the Company's plants in Sarasota and Germany. Under its
agreement with SunOpTech, the Company has a perpetual, nonexclusive license to
use the software, as well as any future enhancements, without charge other than
the development and support fees to be provided during the 35-month term of the
agreement. The agreement expired in November 1998, and no further payments are
due by the Company to SunOpTech.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, officers and holders of more than 10% of the Company's
Common Stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
any other equity securities of the Company. To the Company's knowledge, based
solely upon a review of the forms, reports and certificates filed with the
Company by such persons, all of them complied with the Section 16(a) filing
requirements in 1998, except Clyde G. Nixon, who filed two late reports
covering four transactions.
-11-
<PAGE> 15
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company has engaged the firm of PricewaterhouseCoopers LLP,
independent certified public accountants, to report upon the financial
statements included in the Annual Report submitted herewith. A representative
from said firm will be in attendance at the Meeting, will have the opportunity
to make a statement if desired, and will be available to respond to any
questions from those in attendance. The Company has appointed
PricewaterhouseCoopers LLP to report upon its 1999 financial statements,
subject to ratification of such appointment by the shareholders at the Meeting.
Shareholder ratification of the Company's independent certified public
accountants is not required by the Company's Bylaws or otherwise. The Board of
Directors has elected to seek such ratification as a matter of good corporate
practice and unanimously recommends that you vote "FOR" such ratification.
Abstentions will be counted toward the number of shares represented at the
Meeting. Broker non-votes will be disregarded. If the shareholders do not
ratify this appointment, other certified public accountants will be considered
by the Board of Directors upon recommendation of the Audit Committee.
OTHER BUSINESS
Management of the Company does not know of any other business that may
be presented at the Meeting. If any matter not described herein should be
presented for shareholder action at the Meeting, the persons named in the
enclosed Proxy will vote the shares represented thereby in accordance with
their best judgment, provided that the Company had not received proper notice
of such matter prior to March 10, 1999.
SHAREHOLDER PROPOSALS FOR
PRESENTATION AT THE 2000 ANNUAL MEETING
The Board of Directors requests that any shareholder proposals
intended for presentation at the 2000 Annual Meeting be submitted to Gregory C.
Yadley, Secretary, in writing no later than December 22, 1999, for
consideration for inclusion in the Company's proxy materials for such meeting.
Members of the Company's proxy committee will have discretionary
voting authority with respect to all shares represented by proxies held by them
at the 2000 Annual Meeting for any matters raised at that meeting about which
the Company does not receive proper notice prior to March 7, 2000.
By Order of the Board of Directors,
/s/ Gregory C. Yadley
GREGORY C. YADLEY
Secretary
Dated: April 21, 1999
-12-
<PAGE> 16
APPENDIX
SUN HYDRAULICS CORPORATION
1500 WEST UNIVERSITY PARKWAY
SARASOTA, FL 34243
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 22, 1999.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, having received notice of the Annual Meeting of
Shareholders of Sun Hydraulics Corporation to be held at 10:00 a.m., Eastern
Daylight Savings Time, on Saturday, May 22, 1999, hereby designates and appoints
Robert E. Koski and Clyde G. Nixon, and each of them with authority to act
without the other, as attorneys and proxies for the undersigned, with full power
of substitution, to vote all shares of Common Stock, par value $.001 per share,
of Sun Hydraulics Corporation that the undersigned is entitled to vote at such
Meeting or at any adjournment thereof, with all the powers the undersigned would
possess if personally present, such proxies being directed to vote as specified
below and in their discretion on any other business that may properly come
before the Meeting.
1. Election of Directors: Taco van Tijn and David N. Wormley
2. Ratification of Appointment of PricewaterhouseCoopers LLP as independent
certified public accountants of the Company
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2.
1. Election of Directors
[ ] FOR [ ] WITHHELD
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
2. Ratification of Appointment of PricewaterhouseCoopers LLP as Independent
Certified Public Accountants of the Corporation
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(see reverse side)
3. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned reserves the right to revoke this Proxy at any time prior to
the Proxy being voted at the Meeting. The Proxy may be revoked by delivering a
signed revocation to the Company at any time prior to the Meeting, by submitting
a later-dated Proxy, or by attending the Meeting in person and casting a ballot.
The undersigned hereby revokes any proxy previously given to vote such shares at
the Meeting.
------------------------------
Signature(s)
Date
--------------------------
------------------------------
Signature(s)
Date
--------------------------
NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign. When
signing as attorney, executor,
administrator, trustee,
guardian or corporate officer,
please give full title as
such.
