UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 7, 2009

SUN HYDRAULICS CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code 941-362-1200

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

On December 7, 2009, the Board of Directors of Sun Hydraulics Corporation (the “Company”) approved, and the Company entered into, an Executive Continuity Agreement (the “Agreement”) with each of Allen J. Carlson, President and Chief Executive Officer of the Company, and Tricia L. Fulton, Chief Financial Officer of the Company, with the intent of assuring the Company and the executive of continuity of management in the event of any actual or threatened change in control of the Company, by providing for specific benefits to such executives in the event of the termination of their employment with the Company following a change in control of the Company.

Upon a termination of the executive’s employment following a change in control during the term of the Agreement, the executive will be entitled to:

(a) a lump sum payment, within 15 days following the date of such termination, in an amount equal to two times the sum of (A) the amount of the executive’s annual salary at the time of termination plus (B) the cash value at the time of grant of the annual long-term compensation award to the executive, if any, granted during the current fiscal year or, if the compensation committee of the board of directors has not yet met to consider the annual long-term compensation award to the executive for the current fiscal year, then the cash value at the time of grant of the annual long-term compensation award to the executive, if any, granted during the immediately preceding fiscal year;

(b) immediate vesting of and an extended period of at least one year following the date of such termination in which to exercise all previously granted but unvested and/or unexercised options to acquire Company stock;

(c) immediate vesting and lapse of all forfeiture provisions relating to, and restrictions upon transfer of, all previously issued shares of restricted Company stock; and (iv) continuing medical, dental, life, disability and hospitalization benefits, at Company expense, for the executive and his or her family as then in effect, for a period of 24 months following the date of termination. At any time prior to a termination of the executive’s employment following a change in control, the executive may elect to have the payments required under clauses (i) and

(d) above made in equal installments over 24 months, commencing within 15 days following the date of a termination following a change in control.

A change in control will be deemed to have occurred under the Agreement if:

(a) any “person” as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding equity securities;

(b) during any period of two consecutive years, individuals who, at the beginning of such period, constituted the board of directors of the Company cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election for each new

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director was approved by the vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period;

(c) there is a merger or consolidation of the Company in which the Company does not survive as an independent public company other than a merger of the Company in which the holders of equity securities of the Company immediately prior to the merger have the same proportionate ownership of equity securities of the surviving company immediately after the merger; or

(d) the business or businesses of the Company for which the executive’s services are principally performed are disposed of by the Company pursuant to a partial or complete liquidation of the Company, a sale of assets (including stock of a subsidiary) of the Company, or otherwise.

For purposes of the Agreement, a termination of the executive’s employment following a change in control will be deemed to occur if at any time during the one-year period immediately following a change in control:

(a) there has been an actual termination by the Company of the executive’s employment, other than (i) for “cause” (as defined in the Agreement), (ii) the executive’s death, or (iii) on account of an accident or illness which renders the executive unable, for a period of at least six (6) consecutive months, to perform the essential functions of his or her job notwithstanding the provision of reasonable accommodation by the Company;

(b) the Company reduces the executive’s salary, reward opportunities (which will be evaluated in light of the performance requirements therefor), or other compensation, or deprives the executive of any material fringe benefit, without his or her prior express written approval; or

(c) any material breach by the Company of any provision of the Agreement.

The executive is not required to mitigate the amount of any payment provided for in the Agreement by seeking other employment or otherwise, nor will the amount of any payment or benefit provided for in the Agreement be reduced by any amounts earned or accrued through the date of termination or by any amounts to which the executive is entitled by law or by any retirement benefits after the date of termination, or otherwise.

The Agreement will remain in effect until the termination of the executive’s employment.

Copies of the Executive Continuity Agreements are attached as exhibits to this Report.

On December 8, 2009, the Company issued the press release attached hereto as Exhibit 99.3 announcing the declaration of a $0.09 per share cash dividend on its common stock, payable on January 15, 2010, to shareholders of record as of December 31, 2009.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: December 10, 2009

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