<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:
-------------------------------------------------------------------------
(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 26, 1999
----------------
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 26, 1999, 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 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 11, 1999 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 17, 1999
<PAGE>
[LOGO OF CERADYNE, INC.]
3169 Redhill Avenue
Costa Mesa, California 92626
----------------
ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 26, 1999
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 26, 1999, 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
17, 1999.
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.
VOTING SHARES AND VOTING RIGHTS
The close of business on June 11, 1999 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 8,058,814 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 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
1
<PAGE>
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 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" and broker
non-votes have no legal effect on the election of directors under Delaware
law.
The following table sets forth information as of June 1, 1999, 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>
Amount and
Nature of Percent
Beneficial of
Name of Beneficial Owner Ownership(1) Class
------------------------ ------------ -------
<S> <C> <C>
Joel P. Moskowitz 1,163,110 14.4%
3169 Redhill Avenue
Costa Mesa, CA 92626
Ford Motor Company 1,207,299 15.0%
The American Road
Dearborn, MI 48121
Dimensional Fund Advisors, Inc. 466,000(2) 5.8%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
Leonard M. Allenstein 115,000(3) 1.4%
Richard A. Alliegro 24,500(4) *
Earl E. Conabee 24,834(5) *
Dr. Peter Beardmore -- --
Gerhart D. DeBoer 10,000(6) *
Frank Edelstein 45,400(7) *
Donald A. Kenagy 15,595(8) *
Melvin A. Shader 28,000(9) *
Milton L. Lohr 25,000(10) *
David P. Reed 53,667(11) *
Howard F. George 15,557(12) *
All current executive 1,520,663(13) 18.9%
officers and directors as a
group (12 persons above)
</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) Based on information contained in a statement on Schedule 13G dated
February 11, 1999, 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.
2
<PAGE>
(3) Includes 25,000 shares subject to options held by Mr. Allenstein which
are currently exercisable or will become exercisable within 60 days of
June 1, 1999.
(4) Includes 20,000 shares subject to options held by Mr. Alliegro which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(5) Includes 3,400 shares subject to options held by Mr. Conabee which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(6) Includes 10,000 shares subject to options held by Mr. DeBoer which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(7) Includes 27,500 shares subject to options held by Mr. Edelstein which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(8) Includes 14,800 shares subject to options held by Mr. Kenagy which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(9) Includes 15,000 shares subject to options held by Dr. Shader which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(10) Includes 25,000 shares subject to options held by Mr. Lohr which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(11) Includes 34,200 shares subject to options held by Mr. Reed which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(12) Includes 15,000 shares subject to options held by Mr. George which are
currently exercisable or will become exercisable within 60 days of June
1, 1999.
(13) Includes 189,900 shares subject to options which are currently
exercisable or will become exercisable within 60 days of June 1, 1999.
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 1999 Annual Meeting and will hold office
until the 2000 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 June 1, 1999 is set forth in the
table under "Voting Shares and Voting Rights" above.
<TABLE>
<CAPTION>
Year First
Elected
Name Age Present Position With the Company Director
---- --- --------------------------------- ----------
<S> <C> <C> <C>
Joel P. Moskowitz 60 Chairman of the Board, President and 1967
Chief Executive Officer
Leonard M. Allenstein 60 Director 1983
Richard A. Alliegro 68 Director 1992
Peter Beardmore 62 Director 1996
Frank Edelstein 73 Director 1984
Milton L. Lohr 73 Director 1986
Melvin A. Shader 73 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 currently 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.
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 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.
Frank Edelstein has served on the Board of Directors of the Company since
1984. Mr. Edelstein has been a Vice President of Stone Creek Capital, Inc. (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. He held that position until May 1989 and was re-
elected as a director of the Company in July 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. He 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. 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.
Information Regarding the Board of Directors and its Committees
The Board of Directors of the Company held four meetings during 1998. Each
director attended at least 75% of the aggregate of all meetings of the Board
and its committees on which he served during 1998.
5
<PAGE>
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. Beardmore,
Edelstein, Shader and Lohr met once during 1998. 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.
Beardmore, Edelstein, Alliegro, Shader and Lohr, acted by written consent once
during 1998. The Stock Option Committee is composed of Mr. Moskowitz and Dr.
Beardmore. This committee, which acted by written consent four times during
1998, 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 1998, a fee
of $500 per month plus $1,000 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 table shows certain information concerning the compensation of
the Chief Executive Officer and the five other most highly compensated
executive officers of the Company whose aggregate compensation for services in
all capacities rendered during the year ended December 31, 1998 exceeded
$100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
---------------- -------------
Securities
Underlying
Name and Options
Principal Position Year Salary Bonus (# of Shares)
------------------ ---- -------- ------- -------------
<S> <C> <C> <C> <C>
Joel P. Moskowitz 1998 $228,191 -- --
Chairman of the Board, 1997 212,988 $19,976 --
Chief Executive Officer 1996 196,145 35,584 --
and President
David P. Reed 1998 $121,295 -- 10,000
Vice President 1997 118,056 $24,594 13,500
1996 109,734 26,566 --
Howard F. George 1998 $101,062 -- 5,000
Vice President 1997 94,300 $ 6,210 --
1996 90,000 6,984 25,000
Earl E. Conabee 1998 $101,220 -- 4,000
Vice President 1997 96,731 -- 2,000
1996 93,144 -- --
Donald A. Kenagy 1998 $103,142 -- 4,000
Vice President 1997 98,411 -- 2,000
1996 94,384 -- --
Gerhart D. DeBoer (1) 1998 $102,270 -- 5,000
Vice President 1997 36,705 -- 20,000
</TABLE>
- --------
(1)Mr. DeBoer's employment with the Company commenced in September 1997.
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
employment agreement was amended on May 3, 1999 to extend the term for two
years, to July 2001. 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' base annual
salary was increased to $215,000, and was further increased to $230,000
effective February, 1998. Effective February 9, 1999, the annual base salary
was further increased to $242,000. 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.
7
<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, 1998. 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 Option
Granted to Exercise Term(2)
Options Granted Employees in Price Expiration -----------------------
Name (# of Shares)(1) Fiscal Year ($/share) Date 5% ($) 0% ($)
- ---- ---------------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Moskowitz -- -- -- -- -- --
David P. Reed 5,000 3.9% $3.781 1/27/08 $ 11,895 $ 30,145
5,000 3.9% 3.500 9/04/08 11,000 27,900
Howard F. George 5,000 3.9% 3.500 9/04/08 11,000 27,900
Earl E. Conabee 2,000 1.6% 5.813 3/10/08 7,314 18,534
2,000 1.6% 3.500 9/04/08 4,400 11,160
Donald A. Kenagy 2,000 1.6% 5.813 3/10/08 7,314 18,534
2,000 1.6% 3.500 9/04/08 4,400 11,160
Gerhart D. DeBoer 5,000 3.9% 3.781 1/27/05 7,695 17,945
</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, except for
Mr. DeBoer, whose options have a term of seven years and become
exercisable in two 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.
8
<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, 1998 by the Named Executive
Officers, the number of shares covered by both exercisable and unexercisable
options as of December 31, 1998 and the value of unexercised in-the-money
options held by the Named Executive Officers as of December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
No. of Unexercised Options In-the-Money Options
Shares at Fiscal Year-End at 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 7,000 $19,250 33,200 24,800 $38,125 $3,375
Howard F. George -- -- 15,000 15,000 -- --
Earl E. Conabee 5,000 13,750 3,400 5,600 2,625 --
Donald A. Kenagy 10,000 27,500 4,400 6,600 6,500 1,875
Gerhart D. DeBoer -- -- 10,000 15,000 -- --
</TABLE>
- --------
(1) Based upon the closing price of the Common Stock on December 31, 1998, as
reported by the Nasdaq National Market ($3.625 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, 1998, 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 COMMITTEESOF 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
five-member Compensation Committee of the Board of Directors. Each member of
the Compensation Committee is a
9
<PAGE>
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.
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 1998 reflected the Compensation Committee's commitment to coordinating pay
with Company and individual performance. In establishing specific compensation
levels for the executive officers in 1998, 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 of $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 1998. 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 1998 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. There were no bonuses awarded in 1998.
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
10
<PAGE>
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.
<TABLE>
<S> <C> <C> <C>
Members of the Compensation Members of the Stock Option
Committee Committee
-------------------------------------- ------------------------------------
Peter Beardmore Richard A. Alliegro Joel P. Moskowitz Peter Beardmore
Frank Edelstein Melvin A. Shader
Milton L. Lohr
</TABLE>
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 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, 1998, Ford has contributed to the
Company, on a cost sharing basis, a total of $4.5 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.
11
<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 (SEC 3200-3299 U.S. Companies, stone, clay, glass, and concrete
products) from December 31, 1993 to December 31, 1998:
Comparison of Five Year Cumulative Total Returns
Performance Graph for
Ceradyne, Inc.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 12/1993 12/1994 12/1995 12/1996 12/1997 12/1998
____________________________ _______ _______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C> <C>
Ceradyne, Inc. 100.0 86.4 206.8 272.7 143.2 131.8
Nasdaq Stock Market (US Companies) 100.0 97.8 138.3 170.0 208.5 293.8
NASDAQ Stocks (SIC 3200-3299 US Companies) 100.0 97.6 99.4 125.8 126.4 103.7
Stone, clay, glass, and concrete products
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1993.
12
<PAGE>
GENERAL
Independent Accountants
The Board of Directors has selected Arthur Andersen LLP as independent
public accountants to audit the financial statements of the Company for the
1999 calendar year. Representatives of Arthur Andersen LLP 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 2000 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 12, 2000, 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 17, 1999
13
<PAGE>
[LOGO OF CERADYNE, INC.]
This Proxy is Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders July 26, 1999
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 26, 1999 at 10:00 a.m. local time and at any adjournment
thereof.
-----------
See Reverse
Side
-----------
<PAGE>
v Please Detach and Mail in the Envelope Provided v
- --------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example
<TABLE>
<S> <C> <C> <C> <C>
1. Election FOR WITHHELD NOMINEES: 2. In their discretion, the Proxies are authorized to vote upon such
of [_] [_] Joel P. Moskowitz other business as may properly come before the meeting.
Directors Leonard M. Altenstein
Richard A. Alliegro This Proxy confers discretionary authority to circulate and
For, except vote withheld from the Peter Beardmore distribute votes for any or all of the nominees named above for
following nominee(s): Frank Edelstein which the authority to vote has not been withheld.
Milton L. Lohr
(Instruction: To withhold authority Melvin A. Shader This proxy, when properly executed, will be voted in the manner
to vote for any individual directed herein. If no direction is made, this Proxy will be
nominee write that nominee's name voted FOR election of directors.
on the space provided below.)
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.
</TABLE>
