<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CERADYNE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF CERADYNE, INC.]
3169 REDHILL AVENUE
COSTA MESA, CALIFORNIA 92626
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 28, 1997
----------------
The Annual Meeting of Stockholders of Ceradyne, Inc., a Delaware corporation
(the "Company") will be held at the Sheraton Hotel, 4545 MacArthur Blvd.,
Newport Beach, CA 92660, on Monday, July 28, 1997, at 10:00 a.m. local time,
for the following purposes, all as set forth in the attached Proxy Statement.
1. To elect seven directors to serve until the next annual meeting of
stockholders and until their successors are elected and have qualified.
2. To approve an amendment to the Company's 1994 Stock Incentive Plan to
increase the number of shares of Common Stock authorized for issuance
thereunder from 450,000 shares to 550,000 shares.
3. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors intends to present for election as directors the
nominees named in the accompanying Proxy Statement, whose names are
incorporated herein by reference.
In accordance with the Bylaws of the Company, the Board of Directors has
fixed the close of business on June 20, 1997 as the record date for the
determination of stockholders entitled to vote at the Annual Meeting and to
receive notice thereof.
Stockholders are cordially invited to attend the meeting in person. However,
even if you do plan to attend the meeting, please complete, sign and date the
enclosed proxy card and return it without delay in the enclosed postage paid
envelope. If you do attend the meeting, you may withdraw your proxy and vote
personally on each matter brought before the meeting.
By Order of the Board of Directors
Howard F. George
Secretary
Costa Mesa, California
June 23, 1997
<PAGE>
[LOGO OF CERADYNE, INC.]
3169 REDHILL AVENUE
COSTA MESA, CALIFORNIA 92626
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 28, 1997
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy on behalf of the Board of Directors of Ceradyne, Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders of the Company to be held on Monday, July 28, 1997, and at any
adjournments thereof. It is anticipated that this Proxy Statement and the
enclosed form of proxy will be first mailed to stockholders on or about June
24, 1997.
The purpose of the meeting and the matters to be acted upon are set forth in
the foregoing attached Notice of Annual Meeting. As of the date of this
statement, the Board of Directors knows of no other business which will be
presented for consideration at the meeting. However, if any other matters
properly come before the meeting, the persons named as proxies will vote on
them in accordance with their best judgment.
Stockholders are requested to date, sign and return the enclosed proxy to
make certain that their shares will be voted at the meeting. Any proxy given
may be revoked by the stockholder at any time before it is voted by delivering
written notice of revocation to the Secretary of the Company, by filing with
him a proxy bearing a later date, or by attendance at the meeting and voting
in person. All proxies properly executed and returned will be voted in
accordance with the instructions specified thereon. If no instructions are
specified, proxies will be voted FOR the election as directors of the seven
nominees below, and FOR approval of proposal 2.
VOTING SHARES AND VOTING RIGHTS
The close of business on June 20, 1997 has been fixed as the record date for
stockholders entitled to notice of and to vote at the meeting. As of that
date, there were 7,923,655 shares of Common Stock of the Company outstanding
and entitled to vote, the holders of which are entitled to one vote per share.
The presence at the meeting, in person or by proxy, of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum for the
transaction of business.
In the election of directors, a stockholder may cumulate his or her votes
for one or more candidates, but only if such candidate's or candidates' names
have been placed in nomination prior to the voting and the stockholder has
given notice at the meeting, prior to the voting, of his or her intention to
cumulate votes. If
1
<PAGE>
any one stockholder has given such notice, all stockholders may cumulate their
votes for the candidates in nomination. If the voting for directors is
conducted by cumulative voting, each share will be entitled to a number of
votes equal to the number of directors to be elected, which votes may be cast
for a single candidate or may be distributed among two or more candidates in
such proportions as the stockholder thinks fit. The seven candidates receiving
the highest number of affirmative votes will be elected. If no such notice is
given, there will be no cumulative voting, which means a simple majority of
the shares voting may elect all of the directors.
Proxies marked "withheld" as to any director or "abstain" as to a particular
proposal, and broker non-votes, will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business. However,
proxies marked "withheld" have no legal effect on the election of directors
under Delaware law. Proxies marked "abstain" as to a particular proposal will
be counted in the tabulation of the votes cast, and will have the same effect
as a vote "against" that proposal. Broker non-votes will not be counted in
determining the total number of votes cast on proposal 2, and, therefore, will
have no effect on whether that proposal is approved.
The following table sets forth information as of March 5, 1997, regarding
the beneficial ownership of the Common Stock of the Company by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the directors and nominees
for director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table, and (iv) all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
------------------------ ------------ -------
<S> <C> <C>
Joel P. Moskowitz 1,163,110 14.7%
3169 Redhill Avenue
Costa Mesa, CA 92626
Ford Motor Company 1,207,299 15.3%
The American Road
Dearborn, MI 48121
Leonard M. Allenstein 105,000(2) 1.3%
Richard A. Alliegro 14,500(3) *
Peter Beardmore -- --
Frank Edelstein 22,400(4) *
Melvin A. Shader 18,000(5) *
Milton L. Lohr 20,000(6) *
David P. Reed 36,867(7) *
All current executive officers and directors as a
group (14 persons including the persons named
above) 1,406,777(8) 17.8%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise noted, the beneficial owners have sole voting and
investment powers with respect to the shares indicated, subject to
community property laws where applicable.
2
<PAGE>
(2) Includes 15,000 shares subject to options held by Mr. Allenstein which are
currently exercisable.
(3) Includes 10,000 shares subject to options held by Mr. Alliegro which are
currently exercisable.
(4) Includes 17,500 shares subject to options held by Mr. Edelstein which are
currently exercisable.
(5) Includes 5,000 shares subject to options held by Dr. Shader which are
currently exercisable.
(6) Includes 20,000 shares subject to options held by Mr. Lohr which are
currently exercisable.
(7) Includes 30,400 shares subject to options held by Mr. Reed which are
currently exercisable, or exercisable within 60 days after March 5, 1997.
(8) Includes 125,300 shares subject to options held by such persons which are
currently exercisable or exercisable within 60 days after March 5, 1997.
3
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 1)
In accordance with the bylaws of the Company, the number of directors
constituting the Board of Directors is currently fixed at seven. All seven
directors are to be elected at the 1997 Annual Meeting and will hold office
until the 1998 Annual Meeting and until their respective successors are
elected and have qualified. It is intended that the persons named in the
enclosed proxy will, unless such authority is withheld, vote for the election
of the seven nominees proposed by the Board of Directors, all of whom are
presently directors of the Company. In the event that any of them should
become unavailable prior to the Annual Meeting, the proxy will be voted for a
substitute nominee or nominees designated by the Board of Directors, or the
number of directors may be reduced accordingly. If additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them according to the cumulative voting rules to assure
the election of as many of the nominees listed below as possible. In such
event, the specific nominees to be voted for will be determined by the proxy
holders. All of the nominees named below have consented to being named herein
and to serve if elected.
Set forth below are the names and ages of the nominees for election to the
Board of Directors, the present position with the Company of each nominee, the
year each nominee was first elected a director of the Company, the principal
occupation of each nominee, directorships held with other public companies,
and additional biographical data. The beneficial ownership of the Company's
Common Stock by each of the nominees as of March 5, 1997 is set forth in the
table under "Voting Shares and Voting Rights" above.
<TABLE>
<CAPTION>
YEAR FIRST
PRESENT POSITION WITH THE ELECTED
NAME AGE COMPANY DIRECTOR
---- --- ------------------------- ----------
<S> <C> <C> <C>
Joel P. Moskowitz 58 Chairman of the Board, Chief 1967
Executive Officer and President
Leonard M. Allenstein 58 Director 1983
Richard A. Alliegro 66 Director 1992
Peter Beardmore 60 Director 1996
Frank Edelstein 71 Director 1984
Milton L. Lohr 71 Director 1986
Melvin A. Shader 71 Director 1984
</TABLE>
Joel P. Moskowitz co-founded the Company's predecessor in 1967. He served as
President of the Company from 1974 until January 1987 and from September 1987
to the present. Mr. Moskowitz also serves as Chairman of the Board and Chief
Executive Officer of the Company, which positions he has held since 1983.
Mr. Moskowitz obtained a B.S. in Ceramic Engineering from Alfred University in
1961 and an M.B.A. from the University of Southern California in 1966. Mr.
Moskowitz is a member of the Board of Trustees of Alfred University.
Leonard M. Allenstein became a director of the Company in 1983. Mr.
Allenstein has been a private investor and businessman for more than the past
five years. He was a founder and general partner of Bristol Restaurants, which
owns and operates restaurants in the Southern California area, from 1978 until
December 1986.
4
<PAGE>
Richard A. Alliegro has served on the Board of Directors of the Company
since 1992. Mr. Alliegro retired from Norton Company in 1990 after 33 years,
where his last position was Vice President, Refractories and Wear, for
Norton's Advanced Ceramics operation. He served as President of Lanxide
Manufacturing Co., a subsidiary of Lanxide Corporation, from May 1990 to
February 1993. Mr. Alliegro currently is the owner of AllTec Consulting, Inc.,
a ceramic technology consulting firm. Mr. Alliegro obtained B.S. and M.S.
degrees in Ceramic Engineering from Alfred University in 1951 and 1952,
respectively, and serves as a member of the Board of Trustees of that
university.
Dr. Peter Beardmore is director of the Chemical and Physical Sciences
Laboratory of Ford Motor Company. He has been associated with Ford since 1966.
Dr. Beardmore has a B. MET. in metallurgy from the University of Sheffield,
and a Ph.D. in Metallurgy from the University of Liverpool. Dr. Beardmore was
elected to the Board of Directors of the Company in 1996.
Frank Edelstein became a director of the Company in 1984. Mr. Edelstein has
been a Vice President of Gordon + Morris Group (a spinoff of Kelso & Company),
an investment banking firm, since November 1986. From 1979 to November 1986 he
was Chairman of the Board of International Central Bank & Trust company, which
was acquired by Continental Insurance Company in July 1983. Mr. Edelstein is
currently a director of Arkansas Best Corp., and IHOP Corp.
Milton L. Lohr served as a director of the Company from 1986 until October
1988, when he resigned to accept a position as Deputy Under Secretary of
Defense for Acquisitions. He held that position until May 1989, and was re-
elected as a director of the Company in July 1989. Presently, Mr. Lohr is
President of Defense Development Corporation, a defense-related research and
development company. Previously Mr. Lohr was Senior Vice President of Titan
Systems, a defense-related research and development company, from 1986 to
1988. He was founder and President of Defense Research Corporation, a defense
consulting firm, from 1983 to 1986. Mr. Lohr served from 1969 to 1983 as
Executive Vice President of Flight Systems, Inc., a firm engaged in aerospace
and electronic warfare systems. Mr. Lohr has over thirty-five years experience
in government positions and aerospace and defense management. His activities
include serving as a panel member of the President's Science Advisory
Committee, a member of the Office of the Secretary of Defense, Army Science
Board, as well as other ad hoc government related assignments.
Melvin A. Shader became a director of the Company in 1984. Dr. Shader
retired in 1991 from TRW, Inc., where he was Vice President, Business
Development, and Vice President, International, at the Space and Defense
Sector of TRW, Inc. He had been with that company since 1970. From 1969 to
1970, he was Director of Planning in the Information Network Division of
Computer Sciences Corporation. From 1954 to 1968, Dr. Shader was an executive
with IBM.
5
<PAGE>
Directors are elected annually and hold office until the next annual meeting
of stockholders and until their successors have been elected and qualified.
The Company has agreed to nominate a representative of Ford for election as a
director pursuant to an agreement made in March 1986, pursuant to which
agreement Ford acquired a total of 1,207,299 shares of the Company's Common
Stock. Joel P. Moskowitz and members of his family have agreed to vote a
portion of their shares of the Company's Common Stock, if necessary, for the
election of Ford's nominee. Dr. Peter Beardmore is Ford's current
representative.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company held four meetings during 1996. Each
director attended at least 75% of the aggregate of all meetings of the Board
and its committees on which he served during 1996.
The Board of Directors has established Audit, Compensation and Stock Option
Committees. The Audit Committee meets with the Company's independent
accountants to review the Company's financial condition and internal
accounting controls. This committee, which is composed of Messrs. Edelstein,
Shader and Lohr met once during 1996. The Compensation Committee's function is
to review and make recommendations to the Board regarding executive officers'
compensation. This committee, which is composed of Messrs. Edelstein,
Alliegro, Shader and Lohr, acted by written consent once during 1996. The
Stock Option Committee is composed of Mr. Moskowitz and Dr. Beardmore. This
committee, which acted by written consent twice during 1996, administers the
Company's 1983 Stock Option Plan, the Company's 1994 Stock Incentive Plan, and
the 1995 Employee Stock Purchase Plan. The Company does not have a standing
nominating committee.
Directors are paid fees for their services on the Board of Directors in such
amounts as are determined from time to time by the Board. During 1996, a fee
of $500 per month plus $1000 for each Board meeting attended was paid to each
non-employee director other than the Ford representative, Dr. Beardmore, who
did not receive a fee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows certain information
concerning the compensation of the Chief Executive Officer and the only other
executive officer of Ceradyne whose aggregate compensation for services in all
capacities rendered to Ceradyne during the year ended December 31, 1996
exceeded $100,000:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#)
------------------ ---- ---------- --------- ------------
<S> <C> <C> <C> <C>
Joel P. Moskowitz 1996 $196,145 $ 35,584 --
Chairman of the Board, 1995 169,329 -- --
Chief Executive Officer 1994 150,909 -- --
and President
David P. Reed 1996 $109,734 26,566 --
Vice President 1995 105,136 10,734 5,000
1994 103,278 -- 10,000
</TABLE>
6
<PAGE>
EMPLOYMENT AGREEMENT
In July 1994, the Company entered into a five year employment agreement with
Mr. Moskowitz, pursuant to which he will serve as Chairman of the Board of
Directors, Chief Executive Officer and President of the Company. The agreement
provides for a base salary at the rate of $175,000 per year; however, Mr.
Moskowitz voluntarily agreed to accept a reduced salary at the rate of
$150,000 per year through March 31, 1995 to aid the Company in its cost-
cutting efforts. His annual base salary was reinstated to $175,000 as of April
1, 1995, and was increased to $200,000 effective February 12, 1996, and to
$215,000 effective February 10, 1997. Under the agreement, if Mr. Moskowitz'
employment is terminated by the Company (other than as a result of death,
incapacity or for "good cause" as defined in the agreement) or if Mr.
Moskowitz elects to resign for "good reason" (as defined in the agreement),
Mr. Moskowitz will be entitled to receive severance pay in an amount equal to
his annual base salary, at the rate in effect on the date of termination,
payable on normal pay dates for the remainder of the term of the agreement.
"Good reason" includes a "change in control" of the Company, a removal of Mr.
Moskowitz from any of his current positions with the Company without his
consent, or a material change in Mr. Moskowitz' duties, responsibilities or
status without his consent. A "change in control" of the Company shall be
deemed to occur if (1) there is a consolidation or merger of the Company where
the Company is not the surviving corporation and the shareholders prior to
such transaction do not continue to own at least 80% of the common stock of
the surviving corporation, (2) there is a sale of all or substantially all of
the assets of the Company, (3) the stockholders approve a plan for the
liquidation or dissolution of the Company, (4) any person becomes the
beneficial owner, directly or indirectly, of 30% or more of the Company's
outstanding Common Stock, or (5) if specified changes in the composition of
the Company's Board of Directors occur.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning stock options granted
during the year ended December 31, 1996 to the executive officers named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME (NO. OF SHARES)(1) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ------------------ ------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Moskowitz -- -- -- -- -- --
David P. Reed -- -- -- -- -- --
</TABLE>
- --------
(1) The per share exercise price of all options granted is the fair market
value of the Company's Common Stock on the date of grant. Options have a
term of 10 years and become exercisable in five equal installments, each
of which accrues at the end of each year after the grant date.
(2) The potential realizable value is calculated from the exercise price per
share, assuming the market price of the Company's Common Stock appreciates
in value at the stated percentage rate from the date of grant to the
expiration date. Actual gains, if any, are dependent on the future market
price of the Common Stock.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information concerning exercises of options
during the year ended December 31, 1996 by the executive officers named in the
Summary Compensation Table and the value of such officer's unexercised options
at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(/1/)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Moskowitz -- -- -- -- -- --
David P. Reed 3,000 $14,625 30,800 15,700 $152,218(1) $71,413(1)
</TABLE>
- --------
(/1/) Based upon the closing price of the Common Stock on December 31, 1996, as
reported by the NASDAQ National Market ($7.50 per share).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1996, its
officers, directors and greater than ten percent beneficial owners complied
with all Section 16(a) filing requirements.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The following Report on Executive Compensation shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
The Compensation Committee. Executive compensation decisions are made by the
four-member Compensation Committee of the Board of Directors. Each member of
the Compensation Committee is a non-employee director. The Compensation
Committee reviews compensation programs and policies, monitors the performance
and compensation of executive officers, and other key employees and makes
appropriate recommendations and reports to the Board of Directors. All
executive compensation decisions made by the Compensation Committee are
reviewed by the entire Board of Directors, except for decisions regarding
awards under the 1994 Stock Incentive Plan, which are administered by the
Stock Option Committee.
Compensation Policies. The Company maintains a compensation program designed
to attract and retain highly qualified executives and to motivate management.
The Company's compensation philosophy, as reflected in its compensation and
benefit arrangements, is that an executive's "at risk" compensation should be
tied directly to his or her contribution to the Company's success in achieving
performance objectives and that compensation incentives should align executive
officers' and shareholders' interests.
8
<PAGE>
The Company's executive compensation program consists of three main
components: (1) base salary, (2) bonus, and (3) long-term incentives in the
form of stock options. Bonuses and stock options constitute the "at risk"
portion of the compensation program. The compensation of executive officers
for 1996 reflected the Compensation Committee's commitment to coordinating pay
with Company and individual performance. In establishing specific compensation
levels for the executive officers in 1996, the Compensation Committee
considered information provided by the Company's Chief Executive Officer, Mr.
Joel P. Moskowitz.
At the present time none of the compensation payable to the executive
officers is subject to limitation under Section 162M of the Internal Revenue
Code (which limits the deductibility of compensation to $1 million per
executive, per year).
Salaries. The general policy of the Compensation Committee is to establish
executive base salaries that are (i) competitive and consistent with those
provided to others holding similar positions in industry, and (ii) consistent
with each executive's actual and expected contributions to the Company's
short-term and long-term success. The Board of Directors, acting on the
Compensation Committee's recommendation, increased Mr. Moskowitz's base salary
in 1996. The increase reflected the Compensation Committee's and the Board of
Directors' assessment of his performance in light of the Company's performance
in the prior fiscal year as compared to its annual budget as approved by the
Board of Directors. Salary increases for the other senior executives effected
during 1996 were based on similar considerations including individual
performance and position tenure.
Bonus Awards. Bonuses paid to executive officers are based primarily on a
targeted percentage of net income before taxes, and in part on discretionary
factors determined by the Compensation Committee based on the individual
performance of each executive.
Stock Options. Stock options are periodically granted to executive officers
and other key employees under the Company's 1994 Stock Incentive Plan (the
"Plan"). The Plan is administered by the Stock Option Committee of the Board
of Directors, which consists of the Chief Executive Officer and one other
director, neither of whom participates in the Plan. Stock options are viewed
as a form of long-term compensation and are intended to enable the Company to
obtain and retain competent personnel who will contribute to the Company's
success by their ability, ingenuity and industry and to provide incentives to
the participating officers and other key employees that are linked directly to
increases in stockholder value and should therefore inure to the benefit of
the stockholders. In determining the size of each stock option grant, the
Stock Option Committee evaluates several factors including primarily the
executive's actual and potential contributions to the Company's long-term
success, and, to a lesser extent, the amount of options currently held by the
executive for whom an option grant is being considered. Stock options are
granted at the fair market value of the Company's stock on the date of grant
and generally vest over a period of five years.
MEMBERS OF THE COMPENSATION COMMITTEE MEMBERS OF THE STOCK OPTION COMMITTEE
Frank Edelstein Richard A. Alliegro Joel P. Moskowitz Peter Beardmore
Melvin A. Shader Milton L. Lohr
9
<PAGE>
CERTAIN TRANSACTIONS
On March 11, 1986, the Company sold 526,316 shares of its Common Stock to
Ford Motor Company ("Ford") at a price of $19.00 per share, for a total
purchase price of $10,000,000. At the same time, the Company and Ford created
a new corporation, Ceradyne Advanced Products, Inc. ("CAPI"), and entered into
agreements involving a broad-based technology transfer, licensing and joint
development program. Under the agreements, Ford contributed technology and
more than 80 United States and foreign patents relating to technical ceramics
to CAPI in exchange for 80% of CAPI's capital stock, and Ceradyne acquired the
remaining 20% of CAPI in exchange for $200,000. The technology and patents
contributed by Ford were developed in the Ford research laboratories over a
15-year period. Under the March 11, 1986 agreements, the Company was granted
an option to acquire Ford's 80% interest in CAPI in exchange for an additional
680,983 shares of Ceradyne Common Stock, which the Company exercised effective
February 12, 1988. As a result, Ceradyne now owns 100% of CAPI and Ford owns a
total of 1,207,299 shares of the Company's Common Stock. The Company and Ford
also entered into a joint development agreement which includes a commitment by
Ford to contribute up to $5,000,000, on a matching value basis with Ceradyne,
for the development by Ceradyne of technical ceramic products oriented towards
the automotive market. Through December 31, 1996, Ford has contributed to the
Company, on a cost sharing basis, a total of $3.6 million in cash and
equipment under this joint development program.
So long as Ford continues to own 5% or more of the Company's outstanding
Common Stock, Ceradyne has agreed to use its best efforts to cause one person
designated by Ford to be elected a member of the Ceradyne Board of Directors
and, under certain circumstances in the event the Company issues additional
shares of its Common Stock in a public or private transaction, to permit Ford
to purchase, at the same price and terms upon which sold by the Company in
such transaction, additional shares of Ceradyne Common Stock to enable Ford to
maintain its percentage ownership of the Company.
In connection with the sale of stock to Ford, Joel P. Moskowitz, Chairman of
the Board and Chief Executive Officer of the Company, and members of his
immediate family agreed to vote shares of the Company's Common Stock owned by
them in favor of the election of Ford's nominee to the Board of Directors.
However, they may first vote that number of shares that is necessary to assure
the election of Joel P. Moskowitz as a director of the Company, and any shares
that are not necessary to assure the election of Mr. Moskowitz and a Ford
nominee to the Board of Directors may be voted by them without restriction.
10
<PAGE>
COMPANY STOCK PERFORMANCE GRAPH
The following graph denotes a comparison of the cumulative total return to
stockholders of the Company, the Nasdaq Stock Market (U.S. Companies), and the
Nasdaq stocks (SIC 3200-3299 U.S. Companies, stone, clay glass and concrete
products) from December 31, 1991 to December 31, 1996:
Comparison of Five Year Cumulative Total Returns
Performance Graph for
Ceradyne, Inc.
<TABLE>
<CAPTION>
Measurement Period Nasdaq
(Fiscal Year Covered) Ceradyne, Inc. Stock Market NASDAQ Stocks
- --------------------- -------------- ------------ -------------
<S> <C> <C> <C>
Measurement Pt- 12/31/91 100.0 100.0 100.0
FYE 12/31/92 60.6 116.4 167.4
FYE 12/31/93 66.7 133.6 252.0
FYE 12/30/94 57.6 130.6 245.9
FYE 12/29/95 137.9 184.7 250.6
FYE 12/31/96 181.8 227.1 316.8
</TABLE>
11
<PAGE>
AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
(PROPOSAL 2)
The Board of Directors has approved, subject to stockholder approval, an
amendment to the 1994 Stock Incentive Plan (the "1994 Plan") to increase the
number of shares of Common Stock authorized for issuance thereunder from
450,000 to 550,000. Presently, there are available for issuance under the 1994
Plan approximately 52,000 shares of Common Stock. The additional 100,000
shares will be reserved for future use by being offered to existing or new
directors and employees who meet the qualifications for participation in the
Plan. The Board of Directors believes that the proposed amendment to increase
the number of shares of Common Stock authorized under the Plan is necessary to
continue the effectiveness of the 1994 Plan in achieving the Company's
objective to attract and retain the services of qualified persons upon whose
judgment, initiative and efforts the successful conduct and development of the
Company's business largely depends, by providing them with an opportunity to
participate in the ownership of the Company and thereby have an interest in
the success and increased value of the Company.
The following table sets forth information with respect to options granted
under the 1994 Plan to the persons designated during the year ended December
31, 1996.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE* NUMBER OF SHARES
----------------- ------------- ----------------
<S> <C> <C>
Joel P. Moskowitz
Chairman of Board,
Chief Executive Officer
and President.................................. -- --
David P. Reed
Vice President................................. -- --
All Current Executive Officers as a Group ...... -- --
Non-Employee Director Group..................... -- --
Non-Executive Officer Employee Group (23 per-
sons).......................................... $7.375 20,000
</TABLE>
- --------
* This figure represents the exercise price of the options, which is equal to
the fair market value of the shares of Common Stock at the date of grant of
the option. As of June 20, 1997, the market value of the Company's Common
Stock as reported by the NASDAQ Stock Market was $4.50 per share.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of shares of Common Stock
present or represented and entitled to vote at the Annual Meeting is required
to approve the adoption of the amendment to the 1994 Plan, assuming the
presence of a quorum.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS
PROPOSAL.
12
<PAGE>
DESCRIPTION OF THE 1994 PLAN
The following description of the 1994 Plan is qualified in its entirety by
reference to the 1994 Plan. A copy of the 1994 Plan will be available at the
Annual Meeting and can also be obtained by a shareholder making a written
request to the Company's Secretary.
The 1994 Plan provides that options may be granted to employees, officers
and directors (including non-employee officers and directors), consultants and
other service providers of the Company and of any present or future subsidiary
of the Company. As of June 20, 1997, approximately 250 persons were eligible
to participate in the 1994 Plan. Options can be granted for the purchase of up
to 550,000 shares of Common Stock, subject to stockholder approval of the
Amendment. The 1994 Plan provides for appropriate adjustments in the number
and kind of shares subject to the 1994 Plan and to outstanding options in the
event of stock splits, stock dividends or certain other similar changes in the
capital structure of the Company. Options may be granted either as "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or as nonqualified stock options.
The 1994 Plan is administered by the Stock Option Committee (the
"Committee") of the Board of Directors, which selects the recipients of
options. The Committee also determines the number of shares, the exercise
price, the term, any conditions on exercise, the consequences of any
termination of employment, and other terms of each option. The term of options
may not exceed ten years form the date of grant (five years in the case of an
incentive stock option granted to a person who owns more than 10% of the
combined voting power of all classes of stock of the Company). The option
exercise price may not be less than 100% of fair market value per share of the
Common Stock on the date of grant (110% of fair market value in the case of an
incentive stock option granted to a person who owns more than 10% of the
combined voting power of all classes of stock of the Company). There is no
restriction as to the maximum number of options that may be granted to any
optionee, except that the aggregate fair market value of the Common Stock
(determined as of the date of grant) with respect to which incentive stock
options granted under the 1994 Plan and any other plan of the Company become
exercisable for the first time by any optionee during any calendar year may
not exceed $100,000.
The option price is payable in full upon exercise, and payment may be made
in cash, or in the discretion of the Committee by delivery of shares of Common
Stock (valued at their fair market value at the time of exercise), the
optionee's promissory note in a form and on terms acceptable to the Committee,
the cancellation of indebtedness of the Company to the optionee, the waiver of
compensation due or accrued to the optionee for services rendered, a "same day
sale" commitment from the optionee and a broker-dealer that is a member of the
National Association of Securities Dealers, Inc. ("NASD Dealer") whereby the
optionee irrevocably elects to exercise the option and to sell a portion of
the shares so purchased to pay for the exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such shares to forward the exercise
price to the Company, "margin" commitment from the optionee and an NASD Dealer
whereby the optionee irrevocably elects to exercise the option and to pledge
the shares purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
exercise price to the Company, or by any combination of the foregoing methods
of payment.
Options granted under the 1994 Plan may not be transferred by an optionee
other than by will or by the laws of descent and distribution.
13
<PAGE>
The Board of Directors has the right at any time to terminate or amend the
1994 Plan, but no such action may terminate options already granted or
otherwise affect the rights of any optionee under an outstanding option
without the optionee's consent. Unless sooner terminated by the Board of
Directors, the 1994 Plan will terminate on April 11, 2004.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed,
and may vary from locality to locality.
Incentive Stock Options. There is no taxable income to an employee when an
incentive stock option is granted to him or when that option is exercised;
however, generally the amount by which the fair market value of the shares at
the time of exercise exceeds the option price will be included in the
optionee's alternative minimum taxable income upon exercise. If stock received
on exercise of an incentive option is disposed of in the same year the option
was exercised, and the amount realized is less than the stock's fair market
value at the time of exercise, the amount includable in alternative minimum
taxable income does not exceed the amount realized on the sale or exchange of
the stock, less the taxpayer's basis in such stock. Gain realized by an
optionee upon sale of stock issued on exercise of an incentive stock option is
taxable as long-term capital gain, and no tax deduction is available to the
Company, unless the optionee disposes of the shares within two years after the
date of grant of the option or within one year after the date of exercise. In
such event the difference between the option exercise price and the fair
market value of the shares on the date of the optionee's exercise will be
taxed at ordinary income rates, and, subject to Section 162(m) of the Code,
which limits the deductibility of compensation in excess of $1,000,000 per
executive officer, the Company will be entitled to a deduction to the extent
the employee must recognize ordinary income.
Nonqualified Stock Options. The recipient of a nonqualified stock option
will not realize taxable income upon the grant of the option, nor will the
Company then be entitled to any deduction. Generally, upon exercise of
nonqualified stock options the optionee will realize ordinary income and,
subject to Section 162(m) of the Code, the Company will be entitled to a
deduction in an amount equal to the difference between the option exercise
price and the fair market value of the stock at the date of exercise. The
Company will be required to withhold taxes on the ordinary income realized by
an optionee upon exercise of nonqualified stock options in order to be
entitled to the tax deduction. An optionee's basis for the stock for purposes
of determining his gain or loss on his subsequent disposition of the shares
generally will be the fair market value of the stock on the date of exercise
of the nonqualified stock option.
14
<PAGE>
GENERAL
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Arthur Andersen & Co. as independent
public accountants to audit the financial statements of the Company for the
1997 calendar year. Representatives of Arthur Andersen & Co. will be present
at the Annual Meeting to respond to appropriate questions and will be given an
opportunity to make a statement if they so desire.
STOCKHOLDER PROPOSALS AND ADVANCE NOTICE PROCEDURES
The federal proxy rules (SEC Rule 14a-8) specify the requirements for
inclusion of stockholder proposals in the Company's Proxy Statement for the
Annual Meeting of Stockholders. Stockholders who wish to have proposals
included in the Company's Proxy Statement for action at the 1998 Annual
Meeting must submit their proposals in writing to the Secretary of the Company
at the address set forth on the first page of this Proxy Statement so that
they are received by the Secretary no later than February 24, 1998, and must
also comply with the other requirements set forth in SEC Rule 14a-8.
If a stockholder desires to bring business before the meeting which is not
the subject of a proposal properly submitted in accordance with SEC Rule 14a-
8, the stockholder must follow procedures outlined in the Company's Bylaws.
The Bylaws provide that a stockholder entitled to vote at the meeting may make
nominations for the election of directors or may propose that other business
be brought before the meeting only if (a) such nominations or proposals are
included in the Company's Proxy Statement or otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (b) the
stockholder has delivered written notice to the Company (containing certain
information specified in the Bylaws) not less than 60 days nor more than 90
days prior to the date of the meeting. However, if the Company has given less
than 70 days advance notice or public disclosure of the date the meeting is to
be held, written notice of a nomination or proposal to be submitted by a
stockholder at the meeting will be timely if it has been received by the
Company not later than the 10th business day following the date on which
notice of the meeting is mailed or the meeting date is otherwise publicly
disclosed.
A copy of the full text of the Bylaw provisions containing the advance
notice procedures described above may be obtained upon written request to the
Secretary of the Company.
EXPENSES OF SOLICITATION
The cost of soliciting the enclosed form of proxy will be borne by the
Company. In addition, the Company will reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Directors,
officers and regular employees of the Company may, without additional
compensation, also solicit proxies either personally or by telephone, telegram
or special letter.
Howard F. George
Secretary
June 23, 1997
15
<PAGE>
[LOGO OF CERADYNE, INC.]
This Proxy is Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders July 28, 1997
The undersigned hereby appoints Joel P. Moskowitz and Howard F. George, and
each of them, as Proxies, with full power of substitution, to vote the shares of
Ceradyne, Inc. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of Ceradyne, Inc. to be held at
the Sheraton Hotel, located at 4545 MacArthur Blvd., Newport Beach, California
92660, on Monday, July 28, 1997 at 10:00 a.m. local time and at any adjournment
thereof.
<PAGE>
Please date, sign and mail your proxy card back as soon as possible!
Annual Meeting of Stockholders
CERADYNE, INC.
July 28, 1997
Please Detach and Mail in the Envelope Provided
[X] Please mark your votes
as in this example.
1. Election FOR WITHHELD Nominees:
of [_] [_] Joel P. Moskowitz
Directors: Leonard M. Allenstein
Richard A. Alliegro
For, except vote withheld from the following Peter Beardmore
nominee(s): Frank Edelstein
(Instruction: To withhold authority to vote Milton L. Lohr
for any individual nominee write that nominee's Melvin A. Shader
name on the space provided below.)
- ----------------------------------------------- FOR AGAINST ABSTAIN
2. Approve amendment to the Company's 1994 Stock [_] [_] [_]
Incentive Plan.
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy confers discretionary authority to cumulate and distribute votes
for any or all of the nominees named above for which the authority to vote
has not been withheld.
This proxy, when properly executed, will be voted in the manner directed herein.
If no direction is made, this Proxy will be voted FOR election of directors and
FOR proposal 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE__________________ DATE_____ SIGNATURE___________________ DATE_____
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
