<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
<TABLE>
<S> <C>
For the quarterly period ended April 3, 1999 Commission file number 0-21835
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SUN HYDRAULICS CORPORATION
(Exact Name of Registration as Specified in its Charter)
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<TABLE>
<S> <C>
FLORIDA 59-2754337
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(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)
</TABLE>
941/362-1200
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(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 6,383,148 shares of common stock, par value $.001,
outstanding as of May 13, 1999.
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Sun Hydraulics Corporation
INDEX
For the first quarter ended April 3, 1999
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of April 3, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Income for the
Three Months Ended April 3, 1999 (unaudited) and March 31, 1998 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity and
Comprehensive Income for the Three Months Ended April 3, 1999
(unaudited) and the Year Ended December 31, 1998 5
Consolidated Statements of Cash Flows
for the Three Months Ended April 3, 1999 (unaudited) and March 31, 1998 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Forward Looking Information 16
PART II. OTHER INFORMATION 18
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 18
</TABLE>
2
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PART I: FINANCIAL INFORMATION
Item 1.
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 3, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,715 $ 1,592
Accounts receivable, net of allowance for
doubtful accounts of $173 and $169 5,713 5,342
Inventories 7,639 8,125
Other current assets 914 891
------- -------
Total current assets 15,981 15,950
Property, plant and equipment, net 44,128 44,003
Investment in joint venture 212 246
Other assets 788 820
------- -------
Total assets $61,109 $61,019
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,896 $ 2,877
Accrued expenses and other liabilities 1,777 2,065
Long-term debt due within one year 4,395 4,302
Notes payable to related parties due within one year 340 578
Dividends payable 255 254
Income taxes payable 529 245
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Total current liabilities 9,192 10,321
Long-term debt due after one year 7,099 6,461
Notes payable to related parties due after one year 571 566
Deferred income taxes 3,633 3,656
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Total liabilities 20,495 21,004
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Commitments and contingencies (Note 17)
Shareholders' equity:
Preferred stock -- --
Common stock 6 6
Capital in excess of par value 24,473 24,386
Retained earnings 15,830 15,363
Accumulated other comprehensive income 305 260
------- -------
Total shareholders' equity 40,614 40,015
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Total liabilities and shareholders' equity $61,109 $61,019
======= =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
3
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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 3, MARCH 31
1999 1998
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(UNAUDITED)
<S> <C> <C>
NET SALES $18,465 $19,133
Cost of sales 13,945 13,347
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GROSS PROFIT 4,520 5,786
Selling, engineering and
administrative expenses 3,092 3,014
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OPERATING INCOME 1,428 2,772
Interest expense 253 260
Miscellaneous (income) expense 63 43
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INCOME BEFORE INCOME TAXES 1,112 2,469
Income tax provision 355 829
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NET INCOME BEFORE EQUITY LOSS IN JOINT VENTURE 757 1,640
Equity loss in joint venture 34 --
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NET INCOME $ 723 $ 1,640
======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.11 $ 0.26
WEIGHTED AVERAGE SHARES OUTSTANDING 6,367 6,325
DILUTED NET INCOME PER COMMON SHARE $ 0.11 $ 0.25
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,520 6,499
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
4
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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 (256) (256)
Exercise of stock options 22 75 75
Tax effect of non-qualified stock options 12 12
Comprehensive income:
Net income 723 723
Other comprehensive income:
Foreign currency translation adjustments 45 45
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Comprehensive income 768
----- ------- ------- ------- ---- -------
Balance, April 3, 1999 (unaudited) 6,383 $ 6 $24,473 $15,830 $305 $40,614
===== ======= ======= ======= ==== =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
5
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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 3, MARCH 31
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 723 $ 1,640
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,199 1,127
Provision for deferred income taxes (11) --
(Increase) decrease in:
Accounts receivable (371) (1,617)
Inventories 486 272
Other current assets (23) 200
Other assets 66 (27)
Increase (decrease) in:
Accounts payable (981) 283
Accrued expenses and other liabilities (288) (135)
Income taxes payable, net 284 875
Other liabilities -- --
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Net cash provided by operating activities 1,084 2,618
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Cash flows from investing activities:
Capital expenditures (1,354) (1,521)
Proceeds from dispositions of equipment 30 --
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Net cash used in investing activities (1,324) (1,521)
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Cash flows from financing activities:
Proceeds from debt 3,862 2,182
Repayment of debt (3,131) (1,312)
Repayment of notes payable to related parties (233) (179)
Proceeds from exercise of stock options 75 12
Dividends to shareholders (255) (221)
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Net cash provided by financing activities 318 482
------- -------
Effect of exchange rate changes on cash and
cash equivalents 45 139
------- -------
Net increase in cash and cash equivalents 123 1,718
Cash and cash equivalents, beginning of period 1,592 1,249
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Cash and cash equivalents, end of period $ 1,715 $ 2,967
======= =======
Supplemental disclosure of cash flow information:
Cash paid for:
Interest (including amounts capitalized) $ 301 $ 265
======= =======
Income taxes $ 82 $ (46)
======= =======
Non-cash tax effect of non-qualified stock options $ 12 $ --
======= =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these financial statements.
6
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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
the Company, 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,
"GmbH"). Sun Ltd. operates a manufacturing and distribution facility located in
Coventry, England and GmbH, located in Erkelenz, Germany, markets the Company's
products in German-speaking European markets. Sun Hydraulics Korea Corporation
("Sun Korea"), a wholly-owned subsidiary of the Company, was acquired September
28, 1998, (see Note 4). 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. ("KFP"), 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 $547, net of amortization as of April 3, 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. This agreement provides for an initial
capital contribution of $250, which is recorded in Investment in joint venture
in the Company's financial statements.
7
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 requires that all costs incurred in start-up
activities be expensed as incurred. Start-up activities include the costs
associated with one-time activities related to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer or initiating a new process in an existing facility. SOP 98-5 is
effective for financial statements for fiscal years beginning after December 15,
1998. The Company's organization cost of $41 related to the acquisition of Sun
Korea was written off as administrative expense in the first quarter of 1999.
5. LONG-TERM DEBT (in thousands)
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
(unaudited)
<S> <C> <C>
Lines of credit agreements $ 4,017 $ 3,974
Secured notes payable-Korea 55 177
Mortgage note payable-U.S. Manatee County facility 4,830 4,864
Mortgage note payable-German facility 1,571 1,748
Secured notes payable-German equipment 1,021 --
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11,494 10,763
Less amounts due within one year (4,395) (4,302)
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$ 7,099 $ 6,461
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</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.
The United States has a revolving credit facility which provides for a
maximum availability of $10,000, payable on demand at the lender's prime rate of
interest, and contains no debt covenants. In February 1999, the Company
renegotiated this unsecured credit facility for an additional one year term 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. At April 3,
1999, the interest rate was 6.75%, and $4,000 was outstanding under this credit
facility.
In England, the Company has a $1,200 line of credit, denominated in
British pounds, which bears interest at a floating rate equal to 2.25% over the
bank's base rate and is payable on demand. At April 3, 1999, there was no
balance outstanding on this credit facility.
8
<PAGE> 9
The German line of credit is a demand note denominated in German marks
with interest payable at the lender's prime rate. At April 3, 1999, the interest
rate was 8.5%, and $17 was outstanding under this credit facility.
Sun Korea has various notes denominated in Korean Won, and secured by
property, plant and equipment, with interest payable at fixed rates ranging from
6% to 6.5% and maturities ranging from February 1999 to March 2005. At April 3,
1999, $55 was outstanding under these credit facilities.
A 10-year mortgage loan of $6,187 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-year mortgage note with a
15-year amortization schedule. The Company applied $1,000 of the IPO proceeds
toward repayment of this note. In February 1998, this mortgage note was
renegotiated to an interest rate of 7.875%. Effective April 1999, this mortgage
note will have an interest rate of 7.375%. Terms are monthly principal and
interest payments of $43 for 8.25 years with remaining principal due July 1,
2006. At April 3, 1999, $4,830 was outstanding under this mortgage note.
In May 1996, the Company obtained a mortgage loan of approximately
$2,400, denominated in German marks, for the new facility in Erkelenz, Germany.
The loan has a term of 12 years and bears interest at 6.47%. At April 3, 1999,
$1,571 was outstanding under this mortgage note.
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 April 3, 1999, the
outstanding balance on these facilities was $275, $0, and $746, respectively.
6. 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:
9
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<TABLE>
<CAPTION>
United United
States Korea Kingdom Germany Elimination Consolidated
<S> <C> <C> <C> <C> <C> <C>
March 31, 1998
Sales to unaffiliated
customers $14,817 - $3,096 $1,220 $ - $19,133
Intercompany sales 1,730 - 575 17 (2,322) -
Operating profits 2,008 - 645 99 20 2,772
Identifiable assets 44,125 - 8,366 4,287 (105) 56,673
Depreciation expense 913 - 168 46 - 1,127
Capital expenditures 1,135 - 372 14 - 1,521
April 3, 1999
Sales to unaffiliated
customers $13,542 $722 $2,784 $1,417 $ - $18,465
Intercompany sales 1,698 - 598 7 (2,303) -
Operating profits 718 28 453 143 86 1,428
Identifiable assets 46,214 218 9,740 5,117 (180) 61,109
Depreciation expense 916 - 201 82 - 1,199
Capital expenditures 616 (17) 455 300 - 1,354
</TABLE>
Total liabilities attributable to foreign operations were $5,376, and
$4,210, at April 3, 1999, and March 31, 1998, respectively. Net foreign currency
gains (losses) reflected in results of operations were $17 and $50 for the
periods ended April 3, 1999, and March 31, 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).
Included in U.S. sales to unaffiliated customers were export sales,
principally to Canada and Asia, of $1,617, and $1,760, during the period ended
April 3, 1999, and March 31, 1998, respectively.
10
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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.
National Fluid Power Association reports indicate that the United
States hydraulic industry's first quarter orders were down 9.8%, and shipments
were down 7.9% compared to the same period in 1998. The order slowdown is a
result of depressed markets for agricultural equipment, softening markets for
construction equipment, and a marked slowdown in spending for capital equipment.
The Company's orders in the first quarter of 1999 were $17.4 million, a
decrease of $0.3 million, or 1.5%, from the fourth quarter of 1998, as expected,
and a $1.3 million decrease, or 7.1%, from the first quarter of 1998. The
decrease in orders from the first quarter of 1998 was due primarily to a
decrease in domestic orders of 13.8%. United States distributors' inventories at
the end of the first quarter of 1999 were approximately the same as the end of
the fourth quarter of 1998. However, management believes the United States
distributors started reducing their inventories in the second quarter.
Net sales in the first quarter exceeded management's expectations,
reflecting a further reduction in backlog. Net sales for the first quarter of
1999 were $18.5 million, an increase of $1.0 million, or 5.5%, from the fourth
quarter of 1998, and a decrease of $0.7 million, or 3.5%, from the first quarter
of 1998. The Company changed to a 52-week reporting period at the beginning of
the year, and therefore, had two additional production days in the first quarter
of 1999 that contributed to net sales. Operating income for the first quarter of
1999 was 10.2% higher than the fourth quarter of 1998 and decreased 48.5%
compared to the first quarter of 1998. The decrease from the first quarter of
1998 was due to unfavorable product mix, production start-up costs, and lower
net sales spread over a higher fixed cost base.
The Company began conversion to an integrated software system for its
Sarasota facility operations in May 1999. This system conversion process reduced
productivity in the United States operation in the quarter ended April 3, 1999,
and management believes the actual implementation in the second quarter will
continue to degrade productivity. The Company is also in the process of
implementing a new software system for its Coventry, England, operation. As with
any system conversion, there can be no assurances that the timing of the
conversions will be met precisely and that the conversion process will not
adversely impact operating results.
Prototype production of manifolds in the German plant commenced in the
first quarter of 1999, and increased production of aluminum manifolds for the
German market will continue in the second quarter. Local production in the
German market is expected to provide significantly improved market support and
timely product deliveries.
11
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As of March 1999, Sun Hydraulics Systems (Shanghai) Co. Ltd. had
equipment in place to begin production of steel and ductile iron manifolds.
Although production in China will begin in the second quarter of 1999, at this
time the Company does not expect any immediate material contribution to
operating results.
The Company introduced its new electrically actuated cartridge valve
product line (solenoid valves), in April 1999 at the Hannover Fair in Germany.
Pilot production of solenoid products began in the United States in the first
quarter of 1999. As the Company continues to increase production capacity for
these products in the United States, it is also evaluating possible solenoid
valve assembly at the German plant for delivery to support the European market.
The solenoid valve product line allows the Company to serve a new, larger market
that is currently addressed by most of its competitors.
Production capacity plans call for the relocation of the high-volume
cartridge production cell from the Sarasota facility to the Manatee facility by
year end. An additional fully automated assembly machine and other equipment
will be added to the cell. A second heat treat operation will be added at the
Manatee facility by year-end, effectively doubling the Company's heat treat
capacity. The space created at the Sarasota plant by the relocation of the cell
will permit a new layout of production processes which management believes will
improve productivity as well as increase capacity.
COMPARISON OF THREE MONTHS ENDED APRIL 3, 1999 AND MARCH 31, 1998
Net sales decreased 3.5%, or $0.7 million, to $18.5 million in the
quarter ended April 3, 1999, compared to $19.1 million in the quarter ended
March 31, 1998. United States operations net sales decreased 8.6%, or $1.3
million, in the first quarter of 1999, compared to the first quarter of 1998.
This decrease was due primarily to a 31.1%, or $1.2 million decrease in net
sales of the manifold product line in the United States. The cartridge valve
product line net sales in the United States for the first quarter of 1999 were
slightly below the first quarter of 1998. The Company believes that a
significant portion of manifold net sales in the first quarter of 1998
represented prior period orders, and reflected "production catch-up" and a large
reduction in backlog. United Kingdom operations net sales decreased 10.1%, or
$0.3 million, and German operations increased 16.1%, or $0.2 million, in the
first quarter of 1999, compared to the first quarter of 1998. The net sales of
the Korean operation acquired on September 28, 1998 were $0.7 million.
Gross profit decreased 21.9%, or $1.3 million, to $4.5 million in the
quarter ended April 3, 1999, compared to $5.8 million in the quarter ended March
31, 1998. Gross profit as a percentage of net sales was 24.5% for the first
quarter of 1999, compared to 30.2% for the first quarter of 1998. The decrease
in gross profit as a percentage of net sales was mainly due to a change in
product mix, decreased productivity, and lower sales spread over a higher fixed
cost base in the United States operation. The decrease in manifold product line
net sales in the United States adversely affected the gross profit because these
products have a higher margin after variable costs than cartridge valve
products. Additionally, cartridge valve product line net sales in the United
States in the first quarter of 1999 included a higher content of the new Series
'0' products, which are still in a start-up mode. Productivity declined due to
start-up of solenoid valve production and training related to new software
implementation. Lower net sales in the United States had to cover a base of
fixed costs or manufacturing overhead, which increased 7.6% from the same
quarter last year, largely due to direct wages and related costs.
12
<PAGE> 13
Selling, engineering and administrative expenses increased 2.6%, to
$3.1 million in the quarter ended April 3, 1999, compared to $3.0 million in the
quarter ended March 31, 1998. The increase was due to the addition of Korean
operations and increased wages offset by lower advertising and catalogue costs.
Selling, engineering and administrative expenses as a percentage of net sales
increased to 16.7% from 15.8% for the same period last year with a 3.5% decrease
in net sales.
Interest expense was $0.3 million for the quarter ended April 3, 1999,
approximately the same as the quarter ended March 31, 1998. Miscellaneous
expense for the quarter ended April 3, 1999, was approximately the same as the
quarter ended March 31, 1998.
The provision for income taxes in the quarter ended April 3, 1999, was
31.9% of pretax income compared to 33.6% of pretax income in the quarter ended
March 31, 1998. This decrease in rate was due primarily to the change in mix of
pretax income among the Company's four operating units in Germany, Korea, the
United Kingdom and the United States. Tax savings were realized in the United
States from the Sun Hydraulics Foreign Sales Corporation and in Korea from
provisions of local law which provide newly established companies with an
initial tax abatement.
Net income decreased to $0.7 million, representing 3.9% of net sales,
for the quarter ended April 3, 1999, compared to $1.6 million, representing 8.6%
of net sales for the quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of capital has been cash
generated from operations, although short-term 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 April 3, 1999, the Company had working capital of $6.8 million. Cash
flow from operations for the quarter ended April 3, 1999 decreased $1.5 million,
to $1.1 million, compared to $2.6 million for the quarter ended March 31, 1998.
Approximately, $0.9 million was due to the decrease in net income. Net cash used
in investing activities for the quarter ended April 3, 1999, was $1.3 million
compared to $1.5 million for the quarter ended March 31, 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.
In February 1999, the Company renegotiated its one-year, unsecured
revolving credit facility in the United States. The credit facility provides for
a maximum availability of $10.0 million, payable on demand and does not contain
any debt covenants. The interest rate is 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 April 3, 1999, there was $4.0 million outstanding under this credit
facility.
A 10-year mortgage loan of $6.2 million was obtained by the Company in
May 1996, at a fixed interest rate of 8.25%, for construction of the Manatee
County facility in Sarasota, Florida. Terms on the new mortgage note were
interest-only on the balance drawn down through the completion of construction
and then conversion to a 10-year note with a 15-year amortization
13
<PAGE> 14
schedule. In May 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 April 3, 1999, $4.8 million was outstanding on
this facility.
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 April 3, 1999, $0.9 million was outstanding
under these notes.
In 1996, the Company was awarded a grant of $0.4 million by the German
government, which helped to offset the cost of the German facility. This grant
requires that the German operation have employed 26 people by June 30, 1998.
This deadline has been extended until September 30, 1999, and if the requirement
is not met, 50% of the grant plus interest will have to be repaid. This amount
has been recorded as a deferred grant. Therefore, the repayment of the $0.2
million would affect only cash and would have no effect on net income.
In Korea, the Company has various secured notes, denominated in Korean
Won, and secured by property, plant and equipment, with interest payable at
rates ranging from 6% to 6.5% and maturities ranging from December 1998 to March
2005. At April 3, 1999, $0.1 million was outstanding under these credit
facilities.
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 April 3, 1999, the outstanding balance on these facilities was $1.0
million.
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 a quarterly dividend of $0.04 per share to
shareholders of record on March 31, 1999, which was paid on April 15, 1999.
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
14
<PAGE> 15
all internal source codes. Other than with regard to its embedded systems,
this phase is now substantially completed. The Company anticipates full
completion, including assessment of its embedded systems, by the end of the
second quarter of 1999.
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 approximately seventy percent of its third party questionnaires.
The Company anticipates the completion of this external assessment by the end of
the fourth quarter of 1999.
The Company is currently testing all critical applications for year
2000 readiness and anticipates completion of this testing by the second quarter
of 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. While
testing continues, the Company has entered its renovation phase by replacing the
computer systems in its United States Sarasota facility and by commencing
replacement of the computer system in the United Kingdom operation with
"enterprise manufacturing systems" that, according to representations made by
the systems' manufacturers, are currently year 2000 ready. The Company believes
that its other three 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, to be completed by the end of the fourth quarter
of 1999. However, there can be no assurance that these deadlines will be met or
precisely when the Company will be year 2000 ready.
The Company has not yet obtained information sufficient to quantify the
potential effects of possible internal and external year 2000 non-compliance so
as to determine the likely worst-case scenarios or to develop contingency plans
to deal with such scenarios. However, 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.
Also, there can be no assurance that the systems of other companies on which the
Company relies will be timely converted or that any such failure to convert by
another company will not have an adverse effect on the Company's operations.
While the Company intends to develop appropriate contingency plans prior to the
end of the fourth quarter of 1999, there can be no assurances that the Company's
contingency plans, once developed, will substantially reduce the risk of year
2000 non-compliance.
The Company estimates that the total costs of its year 2000 project
will be approximately $0.9 million, including costs totaling $0.7 million
incurred through April 3, 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 as 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 April 3,
15
<PAGE> 16
1999, and March 31, 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 April 3, 1999, the Company had approximately $4.0 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.
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
16
<PAGE> 17
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 timely 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 April 3, 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.
17
<PAGE> 18
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:
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
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 (previously filed
as Exhibit 3.2 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).
4.1 Revolving Credit Agreement, dated March 9, 1992, between Sun
Hydraulics Corporation and Northern Trust Bank of
Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.2 Modification Agreement, dated March 25, 1993, amending
Revolving Credit Agreement dated March 9, 1992, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.2 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.3 Second Modification to Revolving Credit Agreement, dated May
__, 1995, between Sun Hydraulics Corporation and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.3
in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein
by reference).
4.4 Revolving Line of Credit Renewal Note, dated May __, 1995, in
the amount of $1,700,000.00 given by Sun Hydraulics
Corporation to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.4 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.5 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).
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
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).
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).
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
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).
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).
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
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 as of February 3, 1999, in the
amount of $4,965,524.51, between the Company and Northern
Trust Bank of Florida, N.A.
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).
21.1 Subsidiaries of the Company (previously filed as Exhibit 21 in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
27.1 Financial Data Schedule for period ended April 3, 1999 (for
SEC purposes only).
</TABLE>
+ Executive management contract or compensatory plan or arrangement.
22
<PAGE> 23
(b) Reports on Form 8-K.
Report on Form 8-K dated March 8, 1999, announcing a $0.04 per share
dividend on its common stock payable on April 15, 1999, to shareholders
of record on March 31, 1999, as well as year end and fourth quarter
results.
23
<PAGE> 24
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 May 14, 1999.
SUN HYDRAULICS CORPORATION
By: /s/ Richard J. Dobbyn
--------------------------------
Richard J. Dobbyn
Chief Financial Officer
(Principal Financial and
Accounting Officer)
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
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 (previously filed
as Exhibit 3.2 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).
4.1 Revolving Credit Agreement, dated March 9, 1992, between Sun
Hydraulics Corporation and Northern Trust Bank of
Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.2 Modification Agreement, dated March 25, 1993, amending
Revolving Credit Agreement dated March 9, 1992, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.2 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
4.3 Second Modification to Revolving Credit Agreement, dated May
__, 1995, between Sun Hydraulics Corporation and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.3
in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein
by reference).
4.4 Revolving Line of Credit Renewal Note, dated May __, 1995, in
the amount of $1,700,000.00 given by Sun Hydraulics
Corporation to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.4 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.5 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).
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
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).
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).
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
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).
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).
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
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 as of February 3, 1999, in the
amount of $4,965,524.51, between the Company and Northern
Trust Bank of Florida, N.A.
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).
21.1 Subsidiaries of the Company (previously filed as Exhibit 21 in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
27.1 Financial Data Schedule for period ended April 3, 1999 (for
SEC purposes only).
</TABLE>
+ Executive management contract or compensatory plan or arrangement.
28
<PAGE> 1
Exhibit 4.25
Dated as of February 3, 1999
RENEWAL MASTER NOTE
(CORPORATION, PARTNERSHIP OR JOINT VENTURE)
This Note has been executed by SUN HYDRAULICS CORPORATION, a
corporation formed under the laws of the State of Florida ("Borrower"); if more
than one entity executes this Note, the term "Borrower" refers to each of them
individually and some or all of them collectively, and their obligations
hereunder shall be joint and several.* If a land trustee executes this Note,
"Borrower" as used in sections 6 and 7 below also includes any beneficiary(ies)
of the land trust.**
FOR VALUE RECEIVED, on or before February 3, 2000, the scheduled
maturity date hereof, Borrower promises to pay to the order of NORTHERN TRUST
BANK OF FLORIDA, N.A., a national banking association (hereafter, together with
any subsequent holder hereof, called "Lender"), at its _______ banking office at
1515 Ringling Blvd., Sarasota, FL, or at such other place as Lender may direct,
the aggregate unpaid principal balance of each advance (a "Loan" and
collectively the "Loans") made by Lender to Borrower hereunder. The total
principal amount of Loans outstanding at any one time hereunder shall not exceed
TEN MILLION AND 00/100 UNITED STATES DOLLARS ($10,000,000.00).
Lender is hereby authorized by Borrower at any time and from time to
time at Lender's sole option to attach a schedule (grid) to this Note and to
endorse thereon notations with respect to each Loan specifying the date and
principal amount thereof, the Interim Maturity Date (as defined below) (if
applicable), the applicable interest rate and rate option, and the date and
amount of each payment of principal and interest made by Borrower with respect
to each such Loan. Lender's endorsements as well as its records relating to
Loans shall be rebuttably presumptive evidence of the outstanding principal and
interest on the Loans, and, in the event of inconsistency, shall prevail over
any records of Borrower and any written confirmations of Loans given by
Borrower.
If Borrower wishes to obtain a Loan under this Note, Borrower shall
notify Lender orally or in writing on a banking day. Any such notice shall be
irrevocable; if the notice is received after 2:00 p.m. Eastern time the Loan may
not be available until the next banking day. Additional procedures for "Bank
Offered Rate" Loans, if available, are set forth below.
Each request for a Loan shall be deemed to be a representation and
warranty by Borrower to Lender that: (i) no Event of Default or Unmatured Event
of Default (in each case as defined below) has occurred and is continuing as of
the date of such request or would result from the making of the Loan; and (ii)
Borrower's representations and warranties herein are true and correct as of such
date as though made on such date. Upon receipt of each Loan request Lender in
its sole discretion shall
- ----------
* Insert "N/A" in any blank in this Note which is not applicable.
** Land trustee may not sign upon direction of individual beneficiary(ies)
unless Loans are for business purposes.
<PAGE> 2
have the right to request that Borrower provide to Lender, prior to Lender's
funding of the Loan, a certificate executed by Borrower's President, Treasurer,
or Chief Financial Officer (if Borrower is a corporation), or a general partner
or joint venturer of Borrower (if Borrower is a partnership or joint venture) to
such effect.
1. INTEREST.
Borrower agrees to pay interest on the unpaid principal amount from
time to time outstanding hereunder at the following rate per year: (CHECK ONE
ONLY)
[X] (i) The "Prime-Based Rate", which shall mean the Prime Rate minus One
percent (1.00%).
[ ] ***(ii) The "Bank Offered Rate", which shall be equal to that rate of
interest offered by Lender and accepted by Borrower and fixed for
periods of up to one year ("Interest Period(s)") (the last day of any
Interest Period being referred to as an "Interim Maturity Date"). Other
description N/A .
"Prime Rate" means that rate of interest announced from time to time by Lender
called its prime rate, which rate may not at any time be the lowest rate charged
by Lender. Changes in the rate of interest on the Loans resulting from a change
in the Prime Rate shall take effect on the date set forth in each announcement
of a change in the Prime Rate.
Without limiting Borrower's obligation to repay all outstanding Loans
in full on the scheduled maturity date, each Loan at the Bank Offered Rate shall
be due and payable in full on its Interim Maturity Date. After the maturity of
any Loan, whether by acceleration or otherwise, such Loan shall bear interest
until paid, at a rate equal to six percent (6%) in addition to the rate in
effect immediately prior to maturity (but not less than the Prime Rate in effect
at maturity).
If this Note bears interest at the Bank Offered Rate and Borrower
requests a Loan, Lender shall in its sole discretion offer or decline to offer a
Bank Offered Rate (and if it offers a Bank Offered Rate, the rate of such Bank
Offered Rate shall be in Lender's sole discretion), and Borrower shall
irrevocably accept or decline such particular Bank Offered Rate and the related
Loan and confirm such acceptance in writing by letter or other written
communication dated and sent the date of such borrowing. Any confirmation by
Lender of the rate and Interest Period for any Bank Offered Rate Loan shall be
conclusive in the absence of manifest error. Without limiting Borrower's
obligations under any other document or instrument, Lender may rely without
inquiry upon any person whom it reasonably believes to be a party authorized to
accept or decline such Bank Offered Rate and the related Loan. Lender has no
obligation to make a new Loan to Borrower when a Loan at the Bank Offered Rate
matures on its Interim Maturity Date.
- ----------
*** Do not use if collateral includes real estate.
2
<PAGE> 3
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days, including the date a Loan is made and
excluding the date a Loan or any portion thereof is paid or prepaid. Interest
shall be due and payable as follows:
[X] Monthly, on the 1st day of each month, beginning March 1, 1999, with
all accrued but unpaid interest being due and payable in full with the
final principal payment due hereunder.
[ ] Quarterly, on the N/A day of each _____________, ______________,
---
_____________, and ______________ in each year, beginning
______________, with all accrued but unpaid interest being due and
payable in full with the final principal payment due hereunder.
[ ] Other N/A
---
In addition, if the Bank Offered Rate is available under this Note, interest on
any Loan at the Bank Offered Rate, if not otherwise previously due and payable
as indicated above, shall be due and payable in full on the last day of each
Interest Period. After maturity interest shall be payable on demand.
2. PREPAYMENTS.
Borrower may prepay without penalty or premium any principal bearing
interest at the Prime-Based Rate. If Borrower prepays any principal bearing
interest at the Bank Offered Rate in whole or in part, or if the maturity of any
such Bank Offered Rate principal is accelerated, then, to the fullest extent
permitted by law Borrower shall also pay Lender for all losses (including but
not limited to interest rate margin and any other losses of anticipated profits)
and expenses incurred by reason of the liquidation or re-employment of deposits
acquired by Lender to make the Loan or maintain principal outstanding at the
Bank Offered Rate. Upon Lender's demand in writing specifying such losses and
expenses, Borrower shall promptly pay them; Lender's specification shall be
deemed correct in the absence of manifest error. Each Loan bearing interest at
the Bank Offered Rate shall be conclusively deemed to have been funded by or on
behalf of Lender by the purchase of a deposit corresponding in amount to such
Loan and in maturity to the Interest Period specified by Lender.
3. REFERENCES TO PREVIOUS NOTES, FACILITY TYPE, COLLATERAL, GUARANTIES,
LOAN & OTHER AGREEMENTS. (Check As Applicable)
LINE OF CREDIT: This Note has been executed pursuant to a line of credit. At the
present time Lender intends to make available to Borrower credit as outlined
herein or in any related letter until the maturity day indicated above unless in
Lender's sole judgment there has occurred an adverse change in the assets,
condition or prospects of Borrower or any guarantor. THE LINE OF CREDIT MAY BE
CANCELLED OR REDUCED BY LENDER AT LENDER'S SOLE OPTION WITHOUT PRIOR NOTICE TO
BORROWER OR ANY OTHER PERSON OR ENTITY. THE LINE OF CREDIT IS REVOCABLE
NOTWITHSTANDING PAYMENT OF ANY FEES OR MAINTENANCE OF ANY ACCOUNT BALANCES, AS
AND IF PROVIDED IN ANY ACCOMPANYING LETTER OR OTHER DOCUMENT PERTAINING TO SUCH
FEES
3
<PAGE> 4
AND/OR BALANCES. Any such fees and/or balances shall be deemed compensation
to Lender for being prepared to respond to Borrower's requests for credit under
this Note.
[X] This Note amends, restates, renews and replaces in its entirety the
note dated February 3, 1997, in the amount of $10,000,000.00 and any previously
renewed note(s). Borrower hereby expressly confirms that all collateral and
guaranties given for such prior note(s) shall secure or guarantee this Note. All
amounts outstanding under such previous note(s) shall be deemed automatically
outstanding hereunder.
[ ] This Note is secured without limitation as provided in the following
and all related documents, in each case as amended, modified, renewed, restated
or replaced from time to time:
[ ] Security Agreement dated as of N/A .
-----
[ ] Mortgage dated as of N/A on property all or part of which is
-----
commonly known as __________________________
[ ] Pledge Agreement dated as of N/A .
-----
[ ] Other (describe) N/A .
-----
[ ] Payment of this Note has been unconditionally guaranteed by N/A (each
-----
individually an all collectively referred to as "guarantor") as
provided in separately executed guaranties.
[ ] This Note has been executed pursuant to a N/A Agreement, dated as of
-----
the date hereof, as amended, modified, restated, renewed, or replaced from time
to time, containing covenants and other terms, to which reference is hereby
made.
4. USE OF PROCEEDS. CHECK ONE:
[X] Borrower represents and warrants that the proceeds of this Note will be
used solely for business purposes, and not for personal, family or household
use, within the meaning of Federal Truth-in-Lending and similar state laws and
regulations.
[ ] ****Borrower represents that the proceeds of this Note will be used for
personal, family or household use. IF THIS OPTION IS CHECKED, THE FIRST LOAN
MUST BE IN THE AMOUNT OF $25,001 OR MORE.
If Loan proceeds will be used to purchase or refinance the purchase of any
property describe:
N/A .
- ------------------------------------------------------------------------------
- ------------------------------
**** If this box is checked and a land trustee is signing the Note, do not
take real estate as collateral.
4
<PAGE> 5
Notwithstanding any other provision hereof, if this Note is covered by
Regulation Z of the Federal Reserve Board (Truth-in-Lending) or any like
disclosure requirement, this Note shall be secured by collateral referenced
herein or in any other document only if disclosed in a related disclosure
statement.
5. REPRESENTATIONS.
Borrower hereby represents and warrants to Lender that:
(a) Borrower and any "Subsidiary" (as defined below) are existing
and in good standing under the laws of their state of formation, are
duly qualified, in good standing and authorized to do business in each
jurisdiction where failure to do so might have a material adverse
impact on the consolidated assets, condition or prospects of Borrower;
the execution, delivery and performance of this Note and all related
documents and instruments are within Borrower's powers and have been
authorized by all necessary corporate, partnership or joint venture
action;
(b) the execution, delivery and performance of this Note and all
related documents and instruments have received any and all necessary
governmental approval, and do not and will not contravene or conflict
with any provision of law or of the partnership or joint venture or
similar agreement, charter or by-laws of Borrower or any agreement
affecting Borrower or its property; and
(c) there has been no material adverse change in the business,
condition, properties, assets, operations or prospects of Borrower or
any guarantor since the date of the latest financial statements
provided on behalf of Borrower or any guarantor to Lender prior to the
execution of this Note.
"Subsidiary" means any corporation, partnership, joint venture, trust, or other
legal entity of which Borrower owns directly or indirectly fifty percent (50%)
or more of the outstanding voting stock or interest, or of which Borrower has
effective control, by contract or otherwise.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default":
(a) failure to pay, when and as due, any principal, interest or
other amounts payable hereunder; failure to comply with or perform any agreement
or covenant of Borrower contained herein; or failure to furnish (or caused to be
furnished to) Lender when and as requested by Lender (but not more often than
once every twelve months) fully completed personal financial statement(s) of any
individual guarantor on Lender's then-standard form together with such
supporting information as Lender may reasonably request; or
(b) any default, event of default, or similar event shall occur or
continue under any other instrument, document, note, agreement, or guaranty
delivered to Lender in connection with this
5
<PAGE> 6
Note, or any such instrument, document, note, agreement, or guaranty shall not
be, or shall cease to be, enforceable in accordance with its terms; or
(c) there shall occur any default or event of default, or any
event or condition that might become such with notice or the passage of time or
both, or any similar event, or any event that requires the prepayment of
borrowed money or the acceleration of the maturity thereof, under the terms of
any evidence of indebtedness or other agreement issued or assumed or entered
into by Borrower, any Subsidiary, any general partner or joint venturer of
Borrower, or any guarantor, or under the terms of any indenture, agreement, or
instrument under which any such evidence of indebtedness or other agreement is
issued, assumed, secured, or guaranteed, and such event shall continue beyond
any applicable period of grace; or
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice or other writing furnished by or on behalf of
Borrower, any Subsidiary, any general partner or joint venturer of Borrower, or
any guarantor to Lender is false or misleading in any material respect on the
date as of which the facts therein set forth are stated or certified; or
(e) any guaranty of or pledge of collateral security for this Note
shall be repudiated or become unenforceable or incapable of performance, or
(f) Borrower or any Subsidiary shall fail to maintain their
existence in good standing in their state of formation or shall fail to be duly
qualified, in good standing and authorized to do business in each jurisdiction
where failure to do so might have a material adverse impact on the consolidated
assets, condition or prospects of Borrower; or
(g) Borrower, any Subsidiary, any general partner or joint
venturer of Borrower, or any guarantor shall die, become incompetent, dissolve,
liquidate, merge, consolidate, or cease to be in existence for any reason; or
any general partner or joint venturer of Borrower shall withdraw or notify any
partner or joint venturer of Borrower of its or his/her intention to withdraw as
a partner or joint venturer (or to become a limited partner) of Borrower; or any
general or limited partner or joint venturer of Borrower shall fail to make any
contribution required by the partnership or joint venture agreement of Borrower
as and when due under such agreement; or there shall be any change in the
partnership or joint venture agreement of Borrower from that in force on the
date hereof which may have a material adverse impact on the ability of Borrower
to repay this Note, or
(h) any person or entity presently not in control of a corporate,
partnership or joint venture Borrower, any corporate general partner or joint
venturer of Borrower, or any guarantor, shall obtain control directly or
indirectly of Borrower, such a corporate general partner or joint venturer, or
any guarantor, whether by purchase or gift of stock or assets, by contract, or
otherwise; or
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary, any general partner or joint venturer of
Borrower, or any guarantor, or with respect to any assets of Borrower, any
Subsidiary, any general partner or joint venturer of Borrower, or any guarantor
which shall threaten to have a material and adverse effect on the assets,
condition or
6
<PAGE> 7
prospects of Borrower, any Subsidiary, any general partner or joint venturer of
Borrower, or any guarantor; or final judgment(s) and/or settlement(s) in an
aggregate amount in excess of One Hundred Thousand UNITED STATES DOLLARS
($100,000.00) in excess of insurance for which the insurer has confirmed
coverage in writing, a copy of which writing has been furnished to Lender, shall
be entered or agreed to in any suit or action commenced against Borrower, any
Subsidiary, any general partner or joint venturer of Borrower or any guarantor;
or
(j) Borrower shall grant or any person (other than Lender) shall
obtain a security interest in any collateral for this Note; Borrower or any
other person shall perfect (or attempt to perfect) such a security interest; a
court shall determine that Lender does not have a first-priority security
interest in any of the collateral for this Note enforceable in accordance with
the terms of the related documents; or any notice of a federal tax lien against
Borrower or any general partner or joint venturer of Borrower shall be filed
with any public recorder; or
(k) there shall be any material loss or depreciation in the value
of any collateral for this Note for any reason, or Lender shall otherwise
reasonably deem itself insecure; or, unless expressly permitted by the related
documents, all or any part of any collateral for this Note or any direct,
indirect, legal, equitable or beneficial interest therein is assigned,
transferred or sold without Lender's prior written consent; or
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary, any general
partner or joint venturer of Borrower, or any guarantor; or Borrower, any
Subsidiary, any general partner or joint venturer of Borrower, or any guarantor
shall take any steps toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary, any general partner or joint
venturer of Borrower, or any guarantor shall become insolvent, generally shall
fail or be unable to pay its debts as they mature, shall admit in writing its
inability to pay its debts as they mature, shall make a general assignment for
the benefit of its creditors, shall enter into any composition or similar
agreement, or shall suspend the transaction of all or a substantial portion of
its usual business.
7. DEFAULT REMEDIES.
(a) Upon the occurrence and during the continuance of any Event of
Default specified in Section 6(a)-(k), Lender at its option may declare this
Note (principal, interest and other amounts) immediately due and payable without
notice or demand of any kind. Upon the occurrence of any Event of Default
specified in Section 6(l)-(m), this Note (principal, interest and other amounts)
shall be immediately and automatically due and payable without action of any
kind on the part of Lender. Upon the occurrence and during the continuance of
any Event of Default, Lender may exercise any rights and remedies under this
Note, any related document or instrument (including without limitation any
pertaining to collateral), and at law or in equity.
In addition, without limiting the Lender's right to accelerate this
Note as provided above, if an Event of Default occurs and is continuing under
Section 6(a)-(k) (including without limitation
7
<PAGE> 8
failure to furnish or cause to be furnished financial statements as required by
this Note or any related document), then, at the Lender's election and beginning
five (5) days after written notice of such an Event of Default is given by
Lender and continuing until such Event of Default is no longer continuing and
the Lender is aware of such fact, the interest rate hereunder shall increase by
one quarter of one percent (.25%) during the first thirty (30) day period
beginning five (5) days after such notice is given, and increase (cumulatively)
by an additional one quarter of one percent (.25%) during and effective with
respect to each thirty (30) day period thereafter during which such Event of
Default continues. The increased interest rate(s) provided for in the previous
sentence shall apply to the entire outstanding principal balance hereunder, and
the interest rate shall revert to the otherwise applicable interest rate
effective on the date on which the Event of Default is no longer continuing and
the Lender is aware of such fact; the provisions of this sentence and the
preceding sentence shall not apply if this Note is covered by Regulation Z of
the Federal Reserve Board (Truth in Lending) or any like disclosure requirement.
(b) Lender may, by written notice to Borrower, at any time and
from time to time, waive any Event of Default or "Unmatured Event of Default"
(as defined below), which shall be for such period and subject to such
conditions as shall be specified in any such notice. In the case of any such
waiver, Lender and Borrower shall be restored to their former position and
rights hereunder, and any Event of Default or Unmatured Event of Default so
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to or impair any subsequent or other Event of Default or Unmatured Event
of Default. No failure to exercise, and no delay in exercising, on the part of
Lender of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies of Lender herein provided are cumulative and not
exclusive of any rights or remedies provided by law. "Unmatured Event of
Default" means any event or condition which would become an Event of Default
with notice or the passage of time or both.
8. NO INTEREST OVER LEGAL RATE.
Borrower does not intend or expect to pay, nor does Lender intend or
expect to charge, accept or collect any interest which, when added to any fee or
other charge upon the principal which may legally be treated as interest, shall
be in excess of the highest lawful rate. If acceleration, prepayment or any
other charges upon the principal or any portion thereof, or any other
circumstance, result in the computation or earning of interest in excess of the
highest lawful rate, then any and all such excess is hereby waived and shall be
applied against the remaining principal balance. Without limiting the generality
of the foregoing, and notwithstanding anything to the contrary contained herein
or otherwise, no deposit of funds shall be required in connection herewith which
will, when deducted from the principal amount outstanding hereunder, cause the
rate of interest hereunder to exceed the highest lawful rate.
9. PAYMENTS, ETC.
All payments hereunder shall be made in immediately available funds,
and shall be applied first to accrued interest and then to principal; however,
if an Event of Default occurs, Lender may, in its sole discretion, and in such
order as it may choose, apply any payment to interest, principal
8
<PAGE> 9
and/or lawful charges and expenses then accrued. Borrower shall receive
immediate credit on payments received during Lender's normal banking hours if
made in cash, immediately available funds, or by debit to available balances in
an account at Lender; otherwise payments shall be credited after clearance
through normal banking channels. Borrower authorizes Lender to charge any
account of Borrower maintained with Lender for any amounts of principal,
interest, taxes, duties, or other charges or amounts due or payable hereunder,
with the amount of such payment subject to availability of collected balances in
Lender's discretion; unless Borrower instructs otherwise, all Loans shall be
credited to an account(s) of Borrower with Lender. LENDER AT ITS OPTION MAY MAKE
LOANS HEREUNDER UPON TELEPHONIC INSTRUCTIONS AND IN SO DOING SHALL BE FULLY
ENTITLED TO RELY SOLELY UPON INSTRUCTIONS, INCLUDING WITHOUT LIMITATION
INSTRUCTIONS TO MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED BY LENDER
TO HAVE BEEN GIVEN BY AN AUTHORIZED PERSON, WITHOUT INDEPENDENT INQUIRY OF ANY
TYPE. All payments shall be made without deduction for or on account of any
present or future taxes, duties or other charges levied or imposed on this Note
or the proceeds. Lender or Borrower by any government or political subdivision
thereof. Borrower shall upon request of Lender pay all such taxes, duties or
other charges in addition to principal and interest, including without
limitation all documentary stamp and intangible taxes, but excluding income
taxes based solely on Lender's income.
10. SETOFF.
At any time and without notice of any kind, any account, deposit or
other indebtedness owing by Lender to Borrower, and any securities or other
property of Borrower delivered to or left in the possession of Lender or its
nominee or bailee, may be set off against and applied in payment of any
obligation hereunder, whether due or not.
11. NOTICES.
All notices, requests and demands to or upon the respective parties
hereto shall be deemed to have been given or made when deposited in the mail,
postage prepaid, addressed if to Lender to its ________ banking office indicated
above (Attention: Division Head, Lending Division), and if to Borrower to its
address set forth below, or to such other address as may be hereafter designated
in writing by the respective parties hereto or, as to Borrower, may appear in
Lender's records.
12. MISCELLANEOUS.
This Note and any document or instrument executed in connection
herewith shall be governed by and construed in accordance with the internal law
of the State of Florida, and shall be deemed to have been executed in the State
of Florida. Unless the context requires otherwise, wherever used herein the
singular shall include the plural and vice versa, and the use of one gender
shall also denote the other. Captions herein are for convenience of reference
only and shall not define or limit any of the terms or provisions hereof;
references herein to Sections or provisions without reference to the document in
which they are contained are references to this Note. This Note shall bind
Borrower, its heirs, trustees (including without limitation successor and
replacement
9
<PAGE> 10
trustees), executors, personal representatives, successor and assigns, and shall
inure to the benefit of Lender, its successors and assigns, except that Borrower
may not transfer or assign any of its rights or interest hereunder without the
prior written consent of Lender. Borrower agrees to pay upon demand all expenses
(including without limitation attorneys' fees, legal costs and expenses, and
time charges of attorneys who may be employees of Lender, in each case whether
in or out of court, in original or appellate proceedings or in bankruptcy)
incurred or paid by Lender or any holder hereof in connection with the
enforcement or preservation of its rights hereunder or under any document or
instrument executed in connection herewith. Borrower expressly and irrevocably
waives notice of dishonor or default as well as presentment, protest, demand and
notice of any kind in connection herewith. If there shall be more than one
person or entity constituting Borrower, each of them shall be primarily, jointly
and severally liable for all obligations hereunder.
13. WAIVER OF JURY TRIAL, ETC.
BORROWER HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S SOLE AND
ABSOLUTE ELECTION, ALL SUITS, ACTIONS OR OTHER PROCEEDINGS WITH RESPECT TO,
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT OR INSTRUMENT
EXECUTED IN CONNECTION HEREWITH SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING
SITUS WITHIN OR JURISDICTION OVER THE STATE OF FLORIDA. BORROWER HEREBY CONSENTS
AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED IN
OR HAVING JURISDICTION OVER SUCH STATE, AND HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR CHANGE THE VENUE
OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY LENDER IN ACCORDANCE WITH
THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
[ ] See Rider attached hereto and incorporated herein by reference.
Lender is hereby authorized by Borrower without notice to Borrower to
fill in any blank spaces and dates and strike inapplicable terms herein or in
any related document to conform to the terms upon which the Loan(s) evidenced
hereby are or may be made, for which purpose Lender shall be deemed to have been
granted an irrevocable power of attorney coupled with an interest.
Florida documentary stamp tax required by law in the amount of $ N/A
-----
has been paid or will be paid directly to the Department of Revenue. Certificate
of Registration No. __________.
Address for Notices:
SUN HYDRAULICS CORPORATION, 1500 University Parkway
a Florida Corporation Sarasota, FL 34243
Attention:
By: /s/ Jean A. Snyder --------------------------
------------------------------
Jean A. Snyder
Title: Corporate Accounts Manager
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF SUN HYDRAULICS INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<CASH> 1,715
<SECURITIES> 0
<RECEIVABLES> 5,886
<ALLOWANCES> 173
<INVENTORY> 7,639
<CURRENT-ASSETS> 15,981
<PP&E> 64,585
<DEPRECIATION> 20,457
<TOTAL-ASSETS> 61,109
<CURRENT-LIABILITIES> 9,192
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 40,608
<TOTAL-LIABILITY-AND-EQUITY> 61,109
<SALES> 18,465
<TOTAL-REVENUES> 18,465
<CGS> 13,945
<TOTAL-COSTS> 17,037
<OTHER-EXPENSES> 63
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> 1,112
<INCOME-TAX> 355
<INCOME-CONTINUING> 757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 723
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
