<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 (No fee required)
For the transition period from___________ to___________
Commission File No. 0-13059
CERADYNE, INC.
--------------
(Exact name of Registrant as specified in its charter)
Delaware 33-0055414
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3169 Red Hill Avenue, Costa Mesa, California 92626
--------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 714-549-0421
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value (based on the closing price at which stock was sold)
of the voting shares held by non-affiliates of the registrant as of March 5,
1998 was $35,096,587.
As of March 5, 1998, the number of shares of the registrant's Common Stock
outstanding was 7,963,459.
DOCUMENTS INCORPORATED BY REFERENCE: None
1
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
----------------------------------------------
Information regarding executive officers of the Company is included in Part
I of this report.
The Directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joel P. Moskowitz..... 58 Chairman of the Board, President and
Chief Executive Officer
Leonard M. Allenstein. 59 Director
Richard A. Alliegro... 67 Director
Peter Beardmore....... 61 Director
Frank Edelstein....... 72 Director
Milton L. Lohr........ 72 Director
Melvin A. Shader...... 72 Director
</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 serves as Chairman of the Board and Chief
Executive Officer of the Company, which positions he has held since 1983. Mr.
Moskowitz currently serves on the Board of Trustees of Alfred University. 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.
Leonard M. Allenstein has served on the Board of Directors of the Company
since 1983. Mr. Allenstein has been a private investor and businessman for more
than the past five years. Mr. Allenstein was a founder and general partner of
Bristol Restaurants, which owns and operates restaurants in the Southern
California area, from 1978 until December 1986.
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 the 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.
2
<PAGE>
Frank Edelstein has served on the Board of Directors of the Company since
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 Co. 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 Undersecretary of Defense
for Acquisitions, and thereafter was re-elected as a director of the Company in
July 1989 after leaving that position in May 1989. Mr. Lohr is currently the
President of Defense Development Corporation, a defense-related research and
development company. Mr. Lohr previously held the position of Senior Vice
President of Titan Systems, a defense-related research and development company,
from 1986 to 1988, and 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,
and currently serves 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 has served on the Board of Directors of the Company since
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. Dr. Shader had been with TRW, Inc. since 1970. From 1969
to 1970, Dr. Shader was Director of Planning in the Information Network Division
of Computer Sciences Corp. and from 1954 to 1968, he was an executive with
International Business Machines Corp.
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. Officers serve at the discretion of the Board of Directors
except for Mr. Moskowitz, who serves pursuant to a five-year employment
agreement which expires in July 1999.
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, 1997, its
officers, directors and greater than ten percent beneficial owners complied with
all Section 16(a) filing requirements.
3
<PAGE>
Item 11. Executive Compensation
----------------------
Summary Compensation Table
- --------------------------
The following table shows certain information concerning the
compensation of the Chief Executive Officer and two other executive officers of
the Company whose aggregate compensation for services in all capacities rendered
during the year ended December 31, 1997 exceeded $100,000 (collectively, the
"Named Executive Officers"):
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Securities
Name & Annual Compensation Underlying
- ------ ------------------- Options
Principal Position Year Salary Bonus (# of Shares)
- ------------------ ---- ------ ----- -------------
<S> <C> <C> <C> <C>
Joel P. Moskowitz 1997 $212,988 $19,976 -
Chairman of the 1996 196,145 35,584 -
Board, Chief 1995 169,329 - -
Executive Officer
and President
David P. Reed 1997 $118,056 $24,594 13,500
Vice President 1996 109,734 26,566 -
1995 105,136 10,734 5,000
Howard F. George 1997 $ 94,300 $ 6,210 -
Vice President/(1)/ 1996 90,000 6,984 10,000
</TABLE>
______________
/(1)/ Mr. George's employment with the Company commenced in December 1995.
4
<PAGE>
Option Grants in Last Fiscal Year
- ---------------------------------
The following table sets forth certain information concerning grants of
options to each of the Named Executive Officers during the year ended December
31, 1997. In addition, in accordance with the rules and regulations of the
Securities and Exchange Commission, the following table sets forth the
hypothetical gains or "option spreads" that would exist for the options. Such
gains are based on assumed rates of annual compound stock appreciation of 5% and
10% from the date on which the options were granted over the full term of the
options. The rates do not represent the Company's estimate or projection of
future Common Stock prices, and no assurance can be given that any appreciation
will occur or that the rates of annual compound stock appreciation assumed for
the purposes of the following table will be achieved.
<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 (# of Shares)/(1)/ Fiscal Year ($/Share) Date 5%($) 10%($)
- ---- ------------------ ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Moskowitz - - - - - -
David P. Reed 8,500 6.1% 7.250 2/24/07 38,755 98,214
5,000 3.6% 4.375 5/23/07 13,757 34,863
Howard F. George - - - - - -
</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 vests 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.
5
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
- --------------------------------------------------------------------------
Values
- ------
The following table sets forth certain information regarding option
exercises during the year ended December 31, 1997 by the Named Executive
Officers, the number of shares covered by both exercisable and unexercisable
options as of December 31, 1997 and the value of unexercised in-the-money
options held by the Named Executive Officers as of December 31, 1997:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
No. of Shares Unexercised Options at Fiscal Year-End Fiscal Year-End /(1)/
Acquired on Value -------------------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------- -------- ----------------- ------------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Moskowitz - - - - - -
David P. Reed - - 36,700 23,300 - -
Howard F. George - - 10,000 15,000 - -
</TABLE>
/(1)/ Based upon the closing price of the Common Stock on December 31, 1997, as
reported by the Nasdaq National Market ($3.938 per share).
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. Effective February 10, 1997,
Mr. Moskowitz's base annual salary was increased to $215,000, and was further
increased to $228,000 effective February, 1998. 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.
Compensation of Directors
- -------------------------
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 1997, 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.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Board of Directors has established Audit, Compensation and Stock Option
Committees. The Compensation Committee's function is to review and make
recommendations to the Board regarding executive officers' compensation. This
committee is composed of Messrs. Beardmore, Edelstein, Alliegro, Shader and
Lohr. The Audit Committee meets with the Company's independent accountants to
review the Company's financial condition and internal accounting controls. This
committee is composed of Messrs. Edelstein, Beardmore, Shader and Lohr. The
Stock Option Committee is composed of Mr. Moskowitz and Dr. Beardmore. This
committee administers the Company's 1994 Stock Incentive Plan and the 1995
Employee Stock Purchase Plan. Dr. Beardmore is serving as Ford's representative
on the Board of Directors.
7
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth information as of March 5, 1998, regarding the
beneficial ownership of the common stock of the Company by (i) each person or
group 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 of the Company,
(iii) each of the executive officers named in the Summary Compensation Table,
and (iv) all current executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership/(1)/ of Class
---------------- ------------------------- --------
<S> <C> <C>
Joel P. Moskowitz 1,163,110 14.6%
3169 Redhill Avenue
Costa Mesa, CA 92626
Ford Motor Company 1,207,299 15.2%
The American Road
Dearborn, MI 48121
Dimensional Fund Advisors, Inc. 414,300 /(2)/ 5.2%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
Leonard M. Allenstein 105,000 /(3)/ 1.3%
Richard A. Alliegro 14,500 /(4)/ *
Dr. Peter Beardmore -0- -
Frank Edelstein 22,400 /(5)/ *
Melvin A. Shader 18,000 /(6)/ *
Milton L. Lohr 15,000 /(7)/ *
David P. Reed 43,417 /(8)/ *
Howard F. George 10,000 /(9)/ *
All current executive 1,440,163 /(10)/ 18.1%
officers and directors as a
group (12 persons including the
persons named above)
</TABLE>
8
<PAGE>
* 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)/ Based on information contained in a statement on Schedule 13G dated
February 6, 1998, as filed with the Securities and Exchange Commission.
As stated in such Schedule 13G, all shares are held on behalf of advisory
clients of Dimensional Fund Advisors, Inc., which disclaims beneficial
ownership of such shares.
/(3)/ Includes 15,000 shares subject to options held by Mr. Allenstein which
are currently exercisable.
/(4)/ Includes 10,000 shares subject to options held by Mr. Alliegro which are
currently exercisable.
/(5)/ Includes 17,500 shares subject to options held by Mr. Edelstein which are
currently exercisable.
/(6)/ Includes 5,000 shares subject to options held by Dr. Shader which are
currently exercisable.
/(7)/ Includes 15,000 shares subject to options held by Mr. Lohr which are
currently exercisable.
/(8)/ Includes 36,700 shares subject to options held by Mr. Reed which are
currently exercisable, or will become exercisable within 60 days of March
5, 1998.
/(9)/ Includes 10,000 shares subject to options held by Mr. George which are
currently exercisable, or will become exercisable within 60 days of March
5, 1998.
/(10)/ Includes 135,600 shares subject to options held by such persons which are
currently exercisable, or will become exercisable within 60 days of March
5, 1998.
9
<PAGE>
Item 13. Certain Relationships and Related 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 a
portfolio of 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, 1997, Ford has contributed to the
Company, on a cost sharing basis, a total of $4.2 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, Chief Executive Officer and President 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.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
CERADYNE, INC.
By: /s/ Howard F. George April 29, 1998
--------------------------------------- --------------
Howard F. George Date
Vice President, Finance
Chief Financial Officer
10
