<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[X] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO SECTION 240.14a-11(c) OF SECTION 240.14a-12
THE EASTERN COMPANY
-----------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DONALD E. WHITMORE, JR.
-------------------------------------------------
(NAME OF PERSON(s) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] $125 PER EXCHANGE ACT RULES 0-11(c)(1)(ii), 14a-6(i)(1), OR 14a-6(j)(2)
[ ] $500 PER EACH PARTY TO THE CONTROVERSY PURSUANT TO EXCHANGE ACT RULE
14a-6(i)(3).
[ ] 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: NOT
APPLICABLE
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES: NOT
APPLICABLE
3) PER UNIT PRICE OF OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11;* NOT APPLICABLE
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION: NOT APPLICABLE
* SET FORTH THE AMOUNT ON WHICH THE FILING FEE IS CALCULATED AND STATE
HOW IT WAS DETERMINED.
[ ] CHECK THE 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,
OF THE FORM OF SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID: NOT APPLICABLE
2) FORM SCHEDULE OF REGISTRATION STATEMENT NO.: NOT APPLICABLE
3) FILING PARTY: NOT APPLICABLE
4) DATE FILED: NOT APPLICABLE
<PAGE> 2
THE EASTERN COMPANY
112 Bridge Street
Naugatuck, CT 06770
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 26, 1995
The Annual Meeting of the stockholders of The Eastern Company (the Company) will
be held at the office of the Company, 112 Bridge Street, Naugatuck, Connecticut
06770, on Wednesday, the twenty-sixth day of April, 1995 at eleven o'clock in
the a.m., local time, for the following purposes:
1. To elect two (2) directors.
2. To adopt the 1995 Executive Stock Incentive Plan.
3. To approve the appointment by the Board of Directors of Ernst & Young LLP
as independent auditors to audit the books and accounts for the current
fiscal year.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed February 24, 1995, as the record date for the
determination of the common stockholders entitled to notice of, and to vote at,
this Annual Meeting or any adjournment thereof. In order that you may be
represented at the meeting, please date, vote, sign, and mail promptly the
enclosed proxy for which a postpaid return envelope is provided. If you attend
the meeting and desire to vote in person, your proxy will not be used.
All stockholders are cordially invited to attend the meeting, and the management
looks forward to seeing you there.
By order of the Board of Directors,
Donald E. Whitmore, Jr.
Secretary
March 20, 1995
<PAGE> 3
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies
by the Company to be voted at the Annual Meeting of stockholders to be held on
April 26, 1995. Shares represented by proxies properly signed and returned will
be voted at the meeting. If a choice is specified in the proxy, the shares
represented by the proxy will be voted in accordance with the specifications
made. If no choice is specified, the shares represented by the proxy will be
voted "FOR" the election of two directors, "FOR" the approval of the 1995
Executive Stock Incentive Plan and "FOR" the approval of the appointment of the
auditors. Any proxy may be revoked at any time before it is voted. The Company
is not aware of any matters other than those set forth herein which will be
presented for action at the Annual Meeting. If other matters should be
presented, the persons named in the proxy intend to vote such proxies in
accordance with their best judgment.
The cost of solicitation of proxies will be borne by the Company. This
solicitation by mail to the Company's stockholders (including this proxy
statement and the enclosed proxy) began on approximately March 20, 1995. In
addition to this solicitation by mail, officers and regular employees of the
Company and its subsidiaries may make solicitation by mail, telephone or
personal interviews, and arrangement may be made with companies, brokerage
firms, and others to forward proxy material to their principals. The Company
will defray the expenses of such additional solicitations.
Holders of common stock of record at the close of business on February 24, 1995,
are entitled to vote at the meeting. On that date there were 2,775,085 shares of
common stock outstanding, each share being entitled to one vote.
The following table sets forth, as of February 24, 1995, certain information
with respect to the amount of the Company's outstanding securities beneficially
held by the directors and officers of the Company as a group.
<TABLE>
<S>
<C> <C>
Amount/Nature Percent
of Beneficial of
Title of Class Ownership Class
Common, No par value 390,614(1) 13.5%
</TABLE>
(1) Reported shareholdings include 1,791 shares (less than .1% of the
outstanding stock) owned by or in trust for a director's or an officer's
spouse, and in which all beneficial interest has been disclaimed by the
director or the officer. Directors and officers have sole voting and investment
powers as to 388,823 shares (13.4% of the outstanding stock). Also included
are stock options for 124,793 shares deemed exercised solely for purposes of
showing beneficial ownership by such group.
-1-
<PAGE> 4
The following table sets forth, as of February 24, 1995, certain information
with respect to any person who is known to the Company to be the beneficial
owner of more than five percent (5%) of the Company's outstanding securities.
<TABLE>
<S> <C> <C> <C>
Amount/Nature Percent
Name/Address of of Beneficial of
Title of Class Beneficial Owner Ownership Class
Common, No Bank of Boston Connecticut 287,250 (1) 9.9%
par value or one of its nominees
81 West Main Street
Waterbury, CT 06702
Common, No Dimensional Fund 203,400 (2) 7.0%
par value Advisors, Inc.
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
Common, No The First National Bank of 178,726 6.2%
par value Boston or one of its nominees
100 Federal Street
Boston, MA 02110
</TABLE>
(1) Bank of Boston Connecticut holds 287,250 of these shares as Trustee under
The Eastern Company pension plans for salaried and for hourly employees. The
Trustee has exclusive authority and discretion to manage and control the assets
of these respective funds and to exercise the right to vote shares of the
Company's common stock held in these funds.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 203,400 shares of Eastern
Company stock as of February 24, 1995, all of which are held in portfolios of
DFA Investment Dimensions Group Inc., a registered open-end investment company,
or the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, for all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
STOCKHOLDER PROPOSAL
Any stockholder who intends to present a proposal at the 1996 Annual Meeting
of stockholders and desires that it be included in the Company's proxy material
must submit to the Company a copy of the proposal on or before November 20,1995.
-2-
<PAGE> 5
1. ELECTION OF TWO DIRECTORS
Unless otherwise specified on the proxy, it is intended that the persons
named in the proxy will vote your stock for two nominees to fill directorships
for three-year terms which expire in 1998. Mr. Charles W. Henry and Mr. Donald
E. Whitmore, Jr. are current directors whose terms expire in 1995. Mr. Michael
G. Sendzimir is not running for re-election due to retirement. No one is being
nominated to replace Mr. Sendzimir since the number of Directors has been
reduced from ten (10) to nine (9) by action taken by the Board of Directors on
February 8, 1995 per authority under the corporate by-laws. If, for any reason,
any of these nominees is not a candidate when the election occurs, it is
intended that such proxies will be voted for any substituted nominees. However,
this is not expected to occur. Approval of this resolution requires the
affirmative vote of a majority of the voting power of the shares represented at
the meeting which are entitled to vote on this matter. Directors will hold
office for the term for which they are elected and until their respective
successors are duly elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
TO ELECT THESE TWO DIRECTORS
The names of the nominees for directors and of the directors whose terms
continue after the meeting, together with certain information regarding them,
are as follows:
NOMINATED FOR ELECTION AT 1995 ANNUAL MEETING
FOR A THREE YEAR TERM EXPIRING 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 24, of
The Company Other Directorships Since 1995 (1) Class
#Charles W. Henry, 45 Partner 1989 13,750 .5%
Director Kernan & Henry
Waterbury, CT
(Attorneys)
Gager & Henry 1976-1990
(Attorneys)
Donald E. Whitmore, Jr. 59 Vice President, 1980 35,376 1.2%
Director and Vice President, Treasurer and Secretary
Treasurer and Secretary of of the Company
the Company
</TABLE>
-3-
<PAGE> 6
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 24, of
The Company Other Directorships Since 1995 (1) Class
John Everets, Jr. 48 Chairman of H.P.S.C. Inc. 1993 11,250 .4%
Director Boston, MA (Expires 1996)
(Financial Services)
Chairman and Co-Owner
Richardson Co. Inc.
1990-1993
Executive Vice President
Advest Inc. 1987-1990
Director:
H.P.S.C. Inc.
Ole K. Imset, 59 Director of Manufacturing 1991 11,550 .4%
Director Allen Bradley (Expires 1997)
Rockwell International
Manchester, New Hampshire
(Manufacturing
Electronics)
*#+Leonard F. Leganza, 64 Financial and Business 1981 14,250 .5%
Director Consultant (Expires 1996)
Farmington, CT
Director:
American Medical
Management Inc.
*+Russell G. McMillen, 76 Chairman of the Company 1959 119,256 4.1%
Director and (Expires 1996)
Chairman of
the Company
*+David C. Robinson, 52 President of the Robinson 1990 22,050 .8%
Director Company, Waterbury, CT (Expires 1996)
(Employee Benefit
Consultants)
Director:
Engineered Sintering and
Plastics Inc.
*Stedman G. Sweet, 58 President and Chief 1976 74,994 2.6%
Director and President Executive Officer (Expires 1997)
of the Company of the Company
Director:
Centerbank
Hubbard Hall, Inc.
#Donald S. Tuttle III, 46 Account Executive and 1988 11,850 .4%
Director Vice President, Paine (Expires 1997)
Webber, Middlebury, CT
(Stock Broker)
</TABLE>
* Members of the Executive Committee.
# Members of the Audit Committee.
+ Members of the Compensation Committee.
(1) Reported shareholdings include, in certain cases, shares owned by or in
trust for a director's or nominee's spouse, and in which all beneficial interest
has been disclaimed by the director or the nominee. Also, included, in certain
cases, are stock options, which are deemed exercised solely for purposes of
showing beneficial ownership.
The Nominees who presently are directors and all directors whose terms
continue after the meeting were elected to their present terms of office by
stockholders.
-4-
<PAGE> 7
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
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the American Stock Exchange. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company, the
Company believes that during the period ended December 31, 1994, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
BOARD AND COMMITTEE STRUCTURE
The Company's Board of Directors has three standing committees, an Executive
Committee, an Audit Committee and a Compensation Committee. During 1994 the
Board of Directors had four (4) meetings.
The Executive Committee, acting with full authority of the Board of Directors,
approved minutes, monthly operating reports, capital expenditures, banking
matters, and other matters requiring immediate attention. Executive Committee
meetings are generally scheduled for each month in which there is no Directors'
Meeting. During 1994, six (6) Executive Committee Meetings were held.
The Audit Committee is responsible for reviewing and planning the scope of the
audit of the Company as well as the review of the financial statements and the
results of such audit. During 1994 there were two (2) meetings of the Audit
Committee.
The Compensation Committee, responsible for management compensation and all
related matters, and selecting the employees to be granted stock options, had
two (2) meetings in 1994.
Non-employee directors receive $3,000 per year plus $700 for each meeting
attended. Each non-employee member of the Executive Committee received an
additional $1,000 per year plus $700 for each Committee meeting attended. Each
non-employee member of the Audit and Compensation Committees received an
additional $700 for each Committee meeting attended. Mr. Leganza, in a
consulting capacity, received $4,580.10 for services and reimbursable expenses.
-5-
<PAGE> 8
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The members of the Compensation Committee are Russell G. McMillen, Chairman,
and outside directors Leonard F. Leganza, David C. Robinson, and Michael G.
Sendzimir. The Committee is responsible for setting compensation, the Executive
Bonus Plan, stock options and all related matters. The Compensation Committee
met twice in 1994.
The executive compensation program of the Company has been designed to:
Support a pay for performance policy that differentiates in compensation based
upon corporate, business unit and individual performance.
Motivate key senior officers to achieve strategic business initiatives and
reward them for their achievement.
Provide compensation opportunities which are in line with those offered by
comparable companies, thus allowing the Company to compete for and retain
talented executives who are critical to the Company's long-term success.
Align the interests of executives with the long-term interests of stockholders
through award opportunities that can result in the ownership of common stock.
At present, the executive compensation program is comprised of salary, annual
cash incentive opportunities and long-term incentive opportunities in the form
of stock options.
As an executive's level of responsibility increases, a greater portion of that
individual's potential total compensation opportunity is in the form of the
Executive Bonus Plan that is tied to individual plant and overall corporate
profit objectives and stock options which are intended to increase the
motivation for an interest in the Company's long-term success as measured by the
Company's share price and book value per share.
Effective January 3, 1994 the Compensation Committee increased the salary paid
to Mr. Stedman G. Sweet, President and Chief Executive Officer by 3.1% based
upon the level of achievement in line with the Company's executive compensation
program.
Russell G. McMillen---Leonard F. Leganza---David C. Robinson
Michael G. Sendzimir
-6-
<PAGE> 9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Russell G. McMillen is a Director and Chairman of the Company. Although Mr.
McMillen served on the Company's Compensation Committee, he did not participate
in any decisions regarding his own compensation or benefits provided to him as
an officer of the Company. During the three years ended in 1994 Mr. McMillen
was not awarded any increase in compensation or benefits.
The following Summary Compensation Table includes Stedman G. Sweet, President
and Chief Executive Officer, Russell G. McMillen, Chairman and Donald E.
Whitmore, Jr., Vice President/Chief Financial Officer, the only three executive
officers of The Eastern Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS
<TABLE>
<CAPTION>
Other
Annual Restricted Payouts- All Other
Name and Compensation Stock Options/ LTIP Compensation
Principal Position Year Salary Bonus ($) Award(s)($) SARs(#) Payouts($) ($)
- - ----------------------- ---- ---------- ------ -------- -------- -------- ------- ------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stedman G. Sweet, 1994 198,000 60,265 1,562 - - - -
CEO & President 1993 192,000 64,493 1,406 - - - -
1992 187,355(1) 64,227 1,203 - - - -
Russell G. McMillen, 1994 140,000 - 781 - - - 130,830(3)
Chairman 1993 140,000 - 703 - - - 130,830
1992 142,692(1) - 601 - - - 130,830
Donald E. Whitmore, Jr., 1994 122,500 23,086 1,562 - - - 730(2)
V/P, Treas. & Sec'y 1993 119,000 21,960 1,406 - - - -
1992 115,581(1) 27,100 1,203 - - - -
</TABLE>
(1) Note: 1992 salary includes 53 weeks, 1994 and 1993 52 weeks.
(2) Mr. Sweet and Mr. Whitmore participated in the Company's 401(k) program and
received Company contributions under the provisions of the plan.
(3) Mr. McMillen is receiving benefits under the joint and one-half survivor
option of the Company's Pension Plan, amounting to $130,830 annually, since he
reached age 70.5, in 1988, and was required under ERISA to start receiving his
accrued benefits.
-7-
<PAGE> 10
STOCK PERFORMANCE GRAPH
The following graph sets forth the Company's cumulative Total Shareholder Return
(TSR) based upon an initial $100 investment made on December 31, 1989 (i.e.
stock appreciation plus dividends during the past five years) compared to the
Wilshire 5000 Index and the S&P Manufacturing Diversified Index. The Company is
a manufacturer of locks and diversified hardware engineered for use in industry,
underground mining and construction. Consequently while the S&P Manufacturing
Diversified Index being used for comparison is a standard index most closely
related to the Company, it does not completely represent the Company's products
or market applications. The Wilshire 5000 is a market index made up of 5,000
publicly-traded companies, including those having both large and small
capitalization.
CUMULATIVE TOTAL RETURN CHART
Based on reinvestment of $100 beginning December 31, 1989
<TABLE>
Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Eastern Company $100 $107 $83 $102 $121 $135
Wilshire 5000 $100 $94 $126 $137 $153 $153
S&P Manufacturing $100 $99 $122 $132 $16 $166
(Diversified Ind) Index
</TABLE>
-8-
<PAGE> 11
EMPLOYMENT AGREEMENTS
Mr. Sweet and Mr. Whitmore each have an Employment Agreement with the Company
through April 30, 1996. These Employment Agreements include basic annual
compensation and benefits under the Company's other employee benefit programs.
Mr. Sweet's and Mr. Whitmore's agreements also specifically include continued
participation in the Company's Executive Bonus Plan. If the Company breaches
its obligations to an executive during the term of the agreement, then the
executive must be paid an amount equal to the sum of the executive's annual
salary, his total compensation for the preceding fiscal year, and the amount of
the benefits he would have earned under the Executive Bonus Plan (if any).
However, if the executive's employment is terminated after a change in control
of the Company, this amount cannot exceed 2.99 times his compensation averaged
over the preceding five calendar years.
RETIREMENT BENEFITS
The Company maintains a pension plan for salaried employees. Under the plan,
the amount of a member's annual normal retirement benefit is equal to 1% of
total annual compensation applicable to each year of service and the sum of one
half of one percent (0.5%) of average annual compensation plus one half of one
percent (0.5%) of average annual compensation in excess of $10,000, multiplied
by years of service not in excess of thirty (30). Average annual compensation
means the average of the member's annual compensation for the five (5)
consecutive calendar years prior to retirement which result in the highest
average.
Presently Messrs. McMillen, Sweet and Whitmore have 53, 34 and 29 years of
service, respectively. The estimated annual retirement benefits payable to
benefits are based on the five year certain form of annuity.
Mr. McMillen has a Deferred Compensation Agreement under which the Company will
pay him or his surviving spouse, upon his retirement from the Company, or death
as the case may be, $2,561 per month for 180 months. In addition, in the event
that a single person or entity or group of persons acting in concert acquire
more than 50% of the shares of capital stock of the Company entitled to vote at
all meetings of shareholders, then unless Mr. McMillen is a member of such group
or a participant in such entity, the benefits payable under this agreement shall
immediately become due and payable in full on demand by Mr. McMillen or, if he
is not living, by his spouse if she is then living.
The Company has adopted an unfunded supplemental retirement plan (the SERP) for
the benefit of Mr. Sweet. Under the terms of the SERP, Mr. Sweet will be
entitled to receive a monthly retirement benefit equal to the excess of: (a) the
benefit he would have received under the Company's qualified pension plan,
determined without regard to the limitations on benefits imposed by the Internal
Revenue Code; over (b) the benefit to which he is actually entitled under the
Company's qualified pension plan,
-9-
<PAGE> 12
subject to the limitations on benefits imposed by the Internal Revenue Code.
The monthly retirement benefit under the SERP will begin upon Mr. Sweet's
retirement at or after reaching age 65. The benefit may also begin on an
earlier date, at a reduced amount. The benefit will be paid as an annuity
over Mr. Sweet's life, with 60 monthly payments guaranteed. However, if Mr.
Sweet is married at the time benefits start, the benefits will be actuarially
adjusted and will be paid over the joint lives of Mr. Sweet and his wife.
The SERP also provides for the payment of benefits in the event of Mr.
Sweet's death or disability.
The Company has adopted an unfunded deferred compensation plan (the "DCP") for
the benefit of Mr. Sweet. Under the terms of the DCP, Mr. Sweet will receive
deferred compensation of $5,000 per month for a period of 180 consecutive
months. These amounts will be payable if Mr. Sweet retires upon reaching age
65, or if he retires with the consent of the Company after reaching age 65. In
addition, if the Company and Mr. Sweet agree, Mr. Sweet may retire prior to age
65 and may commence to receive the deferred compensation at that time. The DCP
also provides for the payment of the deferred compensation in the event of Mr.
Sweet's death prior to his termination of employment.
SIP PLAN
The Company maintains a savings and investment plan (the SIP Plan) for salaried
employees. A salaried employee who is participating in the SIP Plan may execute
a salary reduction agreement requiring the Company to reduce his or her taxable
earnings by an amount of from 1% to 18% (but not in excess of $9,240 for
reduction contribution which did not exceed 4% of his or her earnings. An
employee is fully vested in his or her salary reduction contributions and the
earnings on those contributions. An employee will become vested in any matching
contributions, and the earnings thereon, over a period of years, with full
vesting after completing five years of service. Employees who are participating
in the SIP Plan may direct that their account balances be invested in either a
bond fund, a stock fund, a money market fund, an Eastern common stock fund, or
in more than one such investment fund in multiples of 10%.
-10-
<PAGE> 13
EXECUTIVE BONUS PLAN
The Company maintains an Executive Bonus Plan under which both executive
officers and Group Vice Presidents and divisional managers may earn annual cash
bonuses in amounts up to 50% of their base salaries. For each 1% by which
corporate pre-tax earnings exceed 6% of corporate net worth, a 2% bonus is
earned with a maximum of 25% being earned when corporate pre-tax earnings reach
18.37% of corporate net worth. The Corporate Vice President/Chief Financial
Officer's bonus, based on corporate pre-tax earnings, is limited to a maximum of
25% of base salary. A divisional manager generally may earn up to an additional
25% bonus calculated in the same manner but on the basis of divisional pre-tax
earn and net worth, and corporate executives and Group Vice Presidents may earn
an additional bonus calculated in this manner but based on the portion of
their base salaries allocated to each division.
STOCK OPTIONS
On April 27, 1983, the stockholders approved the Incentive Stock Option Plan
(the "1983 Plan"), which by its terms expired on February 9, 1993. No
additional options may be granted under the 1983 Plan. However, options
previously granted remain exercisable in accordance with their terms.
On April 26, 1989, the stockholders approved The Eastern Company 1989 Executive
Stock Incentive Plan (the "1989 Plan"), which by its terms will expire either on
February 7, 1999 or upon any earlier termination date established by the Board
of Directors. The 1989 Plan authorizes the granting of stock options to purchase
shares of common stock, no-par value, of the Company. Under the 1989 Plan,
incentive stock options may be granted to salaried officers and other key
employees of the Company and its subsidiary corporations. The 1989 Plan also
provides for the grant of non-qualified stock options to purchase 11,250 shares
of common stock to each non-employee director of the Company upon his or her
first election as a director. The total amount of such common stock which may
be issued under options granted under this 1989 Plan shall not exceed in the
aggregate 240,000 shares.
The purchase price of the shares subject to each option granted under the 1983
and 1989 Plans may not be less than the fair market value of the shares on the
date of grant. Stock options may not be granted under the 1983 and 1989 Plans
to any employee who owns more than 10 percent (10%) of the Company's voting
stock at the time of such grant. Incentive stock options must be exercised by
an optionee within ten (10) years and non-qualified stock options must be
exercised within ten (10) years and one (1) month, after being granted.
Moreover, options may not be exercised more than three (3) months after
termination of employment or service as a director (except in the case of death,
disability or a director's retirement after age sixty-five (65), in which event
the option may be exercised within twelve (12) months after death, disability or
the director's retirement after age sixty-five (65) ).
-11-
<PAGE> 14
On February 8, 1995, the board of directors approved The Eastern Company 1995
Executive Stock Incentive Plan (the "1995 Plan"). The 1995 Plan is being
submitted to the stockholders for their approval at the Annual Meeting. See
Item 2 on page 13.
No stock options were granted to the three executive officers of The Eastern
Company during 1994. Mr. Sweet exercised an option for 10,950 shares of the
Company stock on February 23, 1994 at a price of $9.08 per share. Based on a
market price of $15.75 per share the realized value was $73,037. Mr. Whitmore
exercised an option for 6,000 shares of the company stock on May 3, 1994 at a
price of $9.08 per share. Based on a market price of $16.125 per share the
realized value was $42,270. There are no stock appreciation rights (SAR)
programs in place. The following table reflects unexercised stock options for
these three individuals.
OPTION EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR Value
<TABLE>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)(1)
Share
Acquired on Value 1) Exercisable 1) Exercisable
Name Exercise(#) Realized($) 2) Unexercisable 2) Unexercisable
- - ------------------ --------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stedman G. Sweet 10,950 73,037 1) 24,000 1) 87,000
CEO & President 2) 6,000 2) 21,750
Russell G. McMillen 0 0 1) 10,950 1) 42,924
Chairman 2) - 2) -
Donald Whitmore, Jr. 6,000 42,270 1) 15,000 1) 55,260
Vice President, 2) 3,000 2) 10,875
Treasurer & Secretary
</TABLE>
(1)--Based on the fair market value of the common stock on January 1, 1995 of
$13.00 per share and the option exercise prices ranging from $9.08 to $9.375 per
share.
-12-
<PAGE> 15
2.-ADOPTION OF EXECUTIVE STOCK INCENTIVE PLAN
Subject to stockholder approval, the board of directors on February 8, 1995
adopted The Eastern Company 1995 Executive Stock Incentive Plan (the "1995
Plan"). If the 1995 Plan is approved by the shareholders at the Annual
Meeting, it will become effective as of April 26, 1995 and will expire by
its terms on February 8, 2005 or upon any earlier termination date
established by action of the board of directors. Approval of the 1995
Plan by the stockholders requires the affirmative vote of a majority of the
votes cast on this matter at the
Annual Meeting.
The aggregate number of shares of common stock, no par value, of the Company
(the "Common Stock") which may be subject to awards granted under the 1995
Plan may not exceed 250,000 shares. Notwithstanding the above, the maximum
number of shares available for the grant of awards under the 1995 Plan, the
shares subject to outstanding awards, and the purchase price of such shares
will be proportionately adjusted in the event of changes in the Company's
capital structure or any reorganization of the Company.
On March l, 1995, the fair market value of the Common Stock was $13.50 per
share.
Employee Awards:
The 1995 Plan authorizes the grant of incentive stock options and non-qualified
stock options to purchase shares of Common Stock and the grant of shares of
restricted stock. Under the 1995 Plan, incentive stock options, non-qualified
stock options and restricted stock may be granted to salaried officers and other
key employees of the Company, whether or not such employees are also serving as
directors of the Company. As of March l, 1995, approximately nine (9) salaried
officers and other key employees were eligible to participate in the 1995 Plan.
With respect to the grant of stock options and shares of restricted stock to
employees, an incentive compensation committee (the "Committee") will be
appointed by the board of directors to administer the 1995 Plan. The Committee
will consist of not less than three non-employee directors. Subject to the
express provisions of the 1995 Plan, the Committee will select the
employees to be awarded stock options and/or shares of restricted
stock, will determine the number of shares subject to each award, will
determine the time or times when each award will be granted, and will
determine the time or times when each stock option may be exercised and
when the restrictions on any shares of restricted stock will lapse.
The Committee will have full power and authority to interpret and
administer the 1995 Plan with respect to the issuance of awards to
employees. While no employees have yet been selected to receive awards
under the 1995 Plan, it is intended that certain officers, including
those identified in the Executive Compensation section, will
participate in the 1995 Plan, and it is possible that they or other
employees will receive 5% or more of such awards.
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(a) Stock Options:
Incentive stock options may not be granted under the 1995 Plan to any employee
who owns more than ten percent (10%) of the Company's voting stock at the time
of such grant. However, this restriction will not apply if the purchase price
of the shares subject to such incentive stock option equals at least one hundred
ten percent (110%) of the fair market value of the shares at the time of the
grant of the option and the option is not exercisable after the expiration of
five years from the date it is granted.
The purchase price of the shares of Common Stock subject to each
incentive stock
option granted to an employee may not be less than the fair market value of the
shares on the date of grant. The purchase price of the shares of Common Stock
subject to each non-qualified stock option granted to an employee will be
established by the Committee at the time of the grant of the option.
Options will not be considered to be incentive stock options to the extent that
the fair market value of the shares of Common Stock with respect to which the
options are first exercisable during any calendar year (determined as of the
date of grant of the options) exceeds $100,000. Therefore, if incentive stock
options are granted under the 1995 Plan, the incentive stock options will be
treated as non-qualified stock options to the extent that the fair market
value of the Common Stock with respect to which the incentive stock options
are first exercisable during any calendar year (determined as of the date of
grant of the incentive stock options) exceeds $100,000. No such limitation
applies to the grant of non-qualified stock options.
If an employee wishes to exercise an option in whole or in part, he or she
must deliver to the Company the purchase price of each share to be acquired,
payable either in cash, or by transferring to the Company previously-acquired
shares of Common Stock having an aggregate fair market value equal to the
purchase price, or by a combination of cash and such shares. However, if:
(a) an optionee delivers previously-acquired shares of Common Stock to the
Company upon exercise of an option; (b) such shares are "statutory option
stock" (as defined in Section 424(c)(3)(B) of the Internal Revenue Code of
1986, as amended); and (c) such shares were previously acquired by the
optionee by the exercise of statutory stock options granted by the Company,
then the date of payment with such shares must be at least two years from the
date of grant of the statutory stock options and the optionee must have held
the statutory option stock for at least one year.
The term of any stock options granted to employees under the 1995 Plan will
expire on the date determined by the Committee. However, in no event may the
term of an incentive stock option granted to an employee expire later than
ten years from the date it is granted. No option may be exercised, either in
whole or in part, after its term has expired. Moreover, in addition to these
conditions, options granted pursuant to the 1995 Plan must be exercised
within three months following the termination of employment of the optionee.
The three month period is extended to one year if the termination is due to
permanent and total disability, or if the optionee terminates employment at
or after reaching age sixty-five (65). If the termination is due to the
optionee's death, or if the optionee dies within the three month or one year
period following his or her termination, the options may be exercised by the
optionee's executors, administrators or heirs within the one year period
following the optionee's death. Options are not transferable except by will
or the laws of descent and distribution.
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An employee who is granted an incentive stock option will not be subject to
Federal income tax at the time of grant or upon exercise of the option, and the
Company will not be entitled to a tax deduction by reason of the grant or the
exercise of the option, provided no disposition of the shares acquired upon
exercise of the option is made by the optionee within two years from the date of
the grant nor within one year after the transfer of the shares to the optionee.
In the event the above holding periods are met, gain or loss on the subsequent
sale of the shares will generally be capital gain or loss. In the event the
above holding periods are not met, the excess of the shares' fair market value
on the exercise date over the option price is considered taxable compensation to
the employee (limited, however, in the event of a sale, to the excess of the
sales price over the option price). Any remaining gain realized on the
disposition of the shares is taxable to the employee as capital gain. The
Company is entitled to a tax deduction for the amount taxable to the employee
as compensation (subject to the limitation on deductibility for excessive
employee remuneration). If an employee exercises an incentive stock option
and makes payment therefor with shares of the Company's common stock, the
employee should consult his tax advisor to determine if he must recognize gain
or loss at the time of exercise. If payment is made with shares acquired by
the employee through the exercise of statutory stock options and with respect
to which the above holding periods are not met, the employee will be subject
to tax on those shares as described above.
In the case of non-qualified stock options, the optionee will realize
compensation income at the time of exercise of the option to the extent of the
excess of the fair market value of the Common Stock at the time of exercise
over the option price. Subsequent appreciation or depreciation in the value
of the stock is taxed as capital gain or loss. Moreover, upon exercise of a
non-qualified stock option, the Company may deduct an amount equal to the
compensation income realized by the optionee upon exercise of the option
(subject to the limitation on deductibility for excessive employee
remuneration).
(b) Restricted Stock:
The 1995 Plan authorizes the grant of restricted stock to employees. The
Committee determines the restrictions which will apply to the stock and
whether the employee must pay an amount to acquire the stock. The committee
can set the required payment at any amount (including zero). The required
amount may be paid at any time, but no later than sixty (60) days after the
date on which the restrictions lapse.
Upon the later of the date of grant of the restricted stock or the payment of
the required amount (if any), the Company will issue a stock certificate for
the shares of restricted stock and the employee will thereafter have the
rights of a shareholder (subject to the applicable restrictions). While the
stock is subject to restrictions, any certificates issued will be held by the
Secretary of the Company, along with a stock power endorsed in blank by the
employee. Following the lapse of the restrictions, new certificates will be
issued to the employee free and clear of all restrictions.
If an employee terminates employment, any shares of restricted stock then
subject to restrictions will be forfeited. However, if the termination is due
to death or disability, the restrictions will lapse upon the employee's death
or disability and the stock will be transferred to the employee (or his or her
successor) free and clear of all restrictions. The Committee can also provide
that any applicable restrictions will lapse on the occurrence of any other
event which it deems to be appropriate.
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Awards of restricted stock are generally not taxable to an employee until the
restricted stock is no longer subject to a substantial risk of forfeiture. An
employee may elect under Section 83(b) of the Code, however, to have an amount
equal to the difference between the fair market value of the stock on the date
of grant and the employee's cost taxed as ordinary compensation income at the
time of grant, with any future appreciation taxed as capital gain. In the
absence of such an election, upon the lapse of any applicable restrictions, an
employee will recognize ordinary compensation income to the extent that the
fair market value of the Common Stock on the date the restrictions lapse
exceeds the employee's cost. Subsequent appreciation in the value of the
restricted stock is taxable as capital gain to the employee. To the extent
that the employee recognizes ordinary compensation income, the Company will
generally receive a corresponding tax deduction (subject to the limitation on
deductibility for excessive employee remuneration).
Non-employee Director Awards:
The 1995 Plan also provides for the grant of non-qualified stock options to
each non-employee director of the Company who is first elected to the board of
directors on or after the date on which the shareholders approve the 1995
Plan. Any current director of the Company who is reelected to a consecutive
term of office will not be granted any additional non-qualified stock options
under the 1995 Plan. Therefore, no individual who is a nominee for election
to the board of directors at the Annual Meeting will be granted any non-
qualified stock options under the 1995 Plan.
With respect to those non-employee directors who will first be elected to the
board of directors after the adoption of the 1995 Plan, the 1995 Plan provides
that non-qualified stock options to purchase 11,250 shares of Common Stock
will automatically be granted to each such director. These options will be
granted on the first day of the calendar month following the date of the
director's election. No non-employee director who is reelected to consecutive
terms of office will be granted an option upon his reelection. However, a
non-employee director who is reelected to a non-consecutive term of office
which begins after the adoption of the 1995 Plan will be granted a non-
qualified stock option to purchase 11,250 shares of Common Stock. The
Secretary of the Company will perform all of the ministerial duties necessary
to effectuate the issuance of non-qualified stock options to non-employee
directors. However, the Secretary cannot exercise any discretion regarding
the administration of the granting of such options to non-employee directors.
The purchase price of the shares of Common Stock subject to each non-qualified
stock option granted to a non-employee director will equal the fair market
value of the shares on the date of grant.
If a non-employee director wishes to exercise a non-qualified stock option in
whole or in part, he or she must deliver to the Company the purchase price of
each share to be acquired, payable either in cash, or by transferring to the
Company previously-acquired shares of Common Stock having an aggregate fair
market value equal to the purchase price, or by a combination of cash and such
shares.
The term of a non-qualified stock option granted to a non-employee director
will expire ten years and one month from the date it is granted. No option
may be exercised, either in whole or in part, after its term has expired.
Moreover, in addition to these conditions, options granted to non-employee
directors pursuant to the 1995 Plan must be exercised within three months
following the termination of the
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optionee's service as a member of the board of directors. The three
month period is extended to one year if the termination is due to permanent
and total disability, or if the optionee terminates service as a non-employee
director at or after reaching age sixty-five (65). If the termination is due
to the optionee's death, or if the optionee dies within the three month or one
year period following his or her termination, the options may be exercised by
the optionee's executors, administrators or heirs within the one year period
following the optionee's death. Options are not transferable except by will
or the laws of descent and distribution.
In the case of non-qualified stock options granted to non-employee directors,
the optionee will realize compensation income at the time of exercise of the
option to the extent of the excess of the fair market value of the Common
Stock at the time of exercise over the option price. Subsequent appreciation
or depreciation in the value of the stock is taxed as capital gain or loss.
Moreover, upon exercise of a non-qualified stock option, the Company may
deduct an amount equal to the compensation income realized by the optionee
upon exercise of the option.
Other Provisions of the 1995 Plan:
The board may amend, suspend or discontinue the 1995 Plan, but may not,
without the prior approval of the Company's shareholders, make any amendment
which operates to: (a) abolish the Committee, change the qualification of its
members or withdraw its authority to interpret or administer the 1995 Plan as
regards the issuance of stock options and shares of restricted stock to
employees; (b) make any material change in the class of eligible employees or
non-employee directors under the 1995 Plan; (c) increase the total number of
shares for which awards may be granted under the 1995 Plan, except as
otherwise permitted in the event of a change in the Company's capitalization;
(d) extend the term of the 1995 Plan or the maximum option period; or (e)
decrease the minimum incentive stock option price or the non-qualified stock
option price for non-employee directors. In addition, the board may not, more
than once every six months, amend those provisions of the 1995 Plan which
relate to the eligibility of non-employee directors to receive non-qualified
stock options and the purchase price of those options.
The shareholders' adoption of the 1995 Plan will have no impact on the grant
of stock options to employees under The Eastern Company Incentive Stock Option
Plan (which was approved by the shareholders of the Company at their meeting
held on April 27, 1983) (the "1983 Plan") or under The Eastern Company 1989
Executive Stock Incentive Plan (which was approved by the shareholders of the
Company at their meeting held on April 26, 1989) (the "1989 Plan").
Therefore, stock options may still be granted to employees pursuant to the
terms of these plans, subject to the limitations set forth therein. However,
upon the adoption of the 1995 Plan, non-employee directors of the Company will
no longer be eligible to receive non-qualified stock options under the terms
of the 1989 Plan. The 1983 Plan does not permit the grant of stock options to
directors.
The foregoing is a brief summary of some of the provisions of The Eastern
Company 1995 Executive Stock Incentive Plan and is qualified in its entirety
by the text of the 1995 Plan, a copy of which is attached hereto as Exhibit
"A". Reference to such exhibit should be made for a more complete description
of the 1995 Plan.
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The board of directors of the Company believes that the growth and success of
the Company can be enhanced by the proper use of stock option and restricted
stock incentives for present and future key employees of the Company. In
addition, stock option incentives for non-employee directors will assist the
Company by encouraging qualified individuals to become members of the board of
directors of the Company. It is anticipated that the 1995 Plan will motivate
the optionees to achieve significant gains in the Company's operating results
through appropriate long-term strategies, planning and implementation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF
THE EASTERN COMPANY 1995 EXECUTIVE STOCK INCENTIVE PLAN.
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3.-APPOINTMENT OF INDEPENDENT AUDITORS
Audit services of Ernst & Young LLP for the fiscal year ending December 31,
1994 included an audit of the consolidated financial statements of the Company
and its subsidiaries; assistance and consultations in connection with filing
the Form 10-K annual report with the Securities and Exchange Commission;
consultation on financial accounting and reporting matters; and meeting with
the Audit Committee.
All audit services provided by Ernst & Young LLP in 1994, which were similar
to the audit services provided in prior years, were approved in advance of the
work being performed.
The Board of Directors desire to continue the services of this firm for the
current fiscal year. Accordingly, the management will recommend at the
meeting that the stockholders approve the appointment by the Board of
Directors of the firm of Ernst & Young LLP to audit the accounts of the
Company and its subsidiaries for the current year. Approval of this
resolution requires the affirmative vote of a majority of the voting power of
the shares represented at the meeting which are entitled to vote on this
matter.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will have an opportunity to speak as well as respond to questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
TO APPOINT INDEPENDENT AUDITORS
4. OTHER BUSINESS
It is not intended to present to the meeting any business other than the
election of directors and the proposals referred to in this statement. The
management knows of no other matters which will be presented for action at the
Annual Meeting.
By order of the Board of Directors,
Donald E. Whitmore, Jr.
Secretary
March 20, 1995
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EXHIBIT 'A'
THE EASTERN COMPANY
1995 EXECUTIVE STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to promote the interests of The
Eastern Company and its shareholders by providing a method whereby executives
and other key employees of the Company may become owners of the Company's
common stock by the exercise of Incentive Stock Options or Non-qualified Stock
Options or the grant of shares of Restricted Stock, and thereby increase their
proprietary interest in the Company's business, encourage them to remain in
the employ of the Company and increase their personal interest in its
continued success and progress. In addition, another purpose of the Plan is
to promote the interests of the Company by providing a method whereby non-
employee directors of the Company may become owners of the Company's common
stock by the exercise of Non-qualified Stock Options, and thereby encourage
qualified individuals to become members of the Board of Directors of the
Company.
2. Definitions. As used herein, the following terms shall have the following
meanings:
(a) Award shall mean the grant of an Incentive Stock Option, a Non-qualified
Stock Option or Restricted Stock as authorized by Section 4.
(b) Award Agreement shall mean an agreement described in Section 7 of the Plan
which is entered into between the Company and an Employee or a Non-
employee Director and which sets forth the terms, conditions and limitations
applicable to an Award granted hereunder.
(c) Board shall mean the board of directors of The Eastern Company.
(d) Code shall mean the Internal Revenue Code of 1986, as amended.
(e) Committee shall mean the Incentive Compensation Committee of the Board or
any successor committee with substantially the same responsibilities.
(f) Company shall mean The Eastern Company and each "parent or subsidiary
corporation" of The Eastern Company (as those terms are defined in Section 424
of the Code).
(g) Disability shall mean the inability of an Employee or Non-employee
Director to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death and which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months, as defined in Section
22(e)(3) of the Code.
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(h) Eastern Common Stock shall mean the common stock, no par value, of The
Eastern Company.
(I) Employee shall mean an employee of the Company.
(j) Fair Market Value shall mean the reported price at which Eastern Common
Stock was last traded on the day on which such value is to be determined (or,
if there are no reported trades on such day, the last previous day on which
there was a reported trade).
(k) Incentive Stock Option shall mean a Stock Option which complies with all
of the requirements for incentive stock options set forth in Section 422 of
the Code and which may be issued pursuant to Section 6.1.
(l) Non-employee Director shall mean a director of The Eastern Company who is
not an Employee.
(m) Non-qualified Stock Option shall mean a Stock Option which does not
comply with all of the requirements for incentive stock options set forth in
Section 422 of the Code and which may be issued pursuant to Section 6.1 or
Section 6.3.
(n) Restricted Stock shall mean shares of Eastern Common Stock which have
certain restrictions attached to the ownership thereof and which may be issued
pursuant to Section 6.2.
(o) Stock Option shall mean a right granted pursuant to the Plan to purchase
a specified number of shares of Eastern Common Stock at a specified price
during a specified period of time. Stock Options may be either Incentive
Stock Options or Non-qualified Stock Options.
3. Administration.
(a) In order to administer the issuance of Awards to Employees pursuant to
the Plan, there shall be a Committee which is appointed by the Board and which
consists of not less than three non-employee directors of the Company, each of
whom shall be a "disinterested person" as defined in Rule 16b-3 promulgated by
the Securities and Exchange Commission, as it may be amended from time to
time. Subject to the express provisions of the Plan, the Committee shall
select the Employees to be granted Awards, shall determine the number of
shares subject to each Award, shall determine the time or times when each
Award will be granted, shall determine the time or times within which any
Stock Options may be exercised or any restrictions on shares of Restricted
Stock may lapse, and shall determine the form and content of the Award
Agreements (including, but not limited to, such terms, conditions and
limitations as the Committee may deem to be required by applicable law).
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The Committee shall have full power and authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time
to time be issued or adopted by the Board, to interpret the provisions of the
Plan and administer the issuance of Awards to Employees under the Plan. All
decisions of the Committee hereunder shall be either by the affirmative vote
of a majority of the members of the Committee at a meeting called for such
purpose or by a writing signed by all of the members of the Committee.
Subject to any applicable provisions of the Company's bylaws, all such
decisions shall be final and binding on all persons including the Company, its
shareholders, employees and optionees.
(b) In order to administer the issuance of Non-qualified Stock Options to
Non-employee Directors pursuant to the Plan, the Secretary of the Company
shall take all steps necessary or desirable to carry out the provisions of the
Plan. Subject to the express provisions of the Plan, the Secretary of the
Company shall issue Non-qualified Stock Options to Non-employee Directors at
the time or times set forth in, and in accordance with the terms of, the Plan,
and shall determine the form and content of the Award Agreements (including,
but not limited to, such terms, conditions and limitations as the Secretary
shall deem to be required by the Plan or applicable law). Notwithstanding
anything else herein to the contrary, the Secretary of the Company shall
exercise no discretion regarding the administration of the grant of Non-
qualified Stock Options to Non-employee Directors, the eligibility of Non-
employee Directors to participate in the Plan, the time when Non-qualified
Stock Options shall be granted to such Non-employee Directors, the number of
shares subject to such Non-qualified Stock Options, the option price, or the
term of such options.
4. Eligibility.
(a) The Employees who shall be eligible to participate in the Plan and
receive Incentive Stock Options, Non-qualified Stock Options and/or shares of
Restricted Stock shall consist of those salaried officers and other key
employees (whether or not directors) of the Company who are selected by the
Committee.
More than one Award may be granted to the same Employee. An Award intended as
an Incentive Stock Option shall not be granted under this Plan to an Employee
who, at the time of such grant, owns (actually and constructively) more than
ten percent (10%) of the Eastern Common Stock unless the purchase price of the
shares subject to such Incentive Stock Option is at least one hundred ten
percent (110%) of the fair market value of the shares at the time of the
granting of the Incentive Stock Option and the Incentive Stock Option is not
exercisable after the expiration of five (5) years from the date it is
granted.
(b) Each Non-employee Director of the Company who is first elected to the
Board on or after the date on which this Plan is approved by the shareholders
of the Company shall automatically be granted, on the first business day of
the calendar month following his election, a Non-qualified Stock Option to
purchase 11,250 shares of Eastern Common Stock. Notwithstanding anything else
herein to the contrary,
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a Non-employee Director elected to consecutive terms of office
shall not be granted a Non-qualified Stock Option upon his reelection.
However, a Non-employee Director elected to non-consecutive terms of office
shall be granted a Non-qualified Stock Option upon his reelection following
the period during which he was not a member of the Board.
The Non-qualified Stock Options granted to a Non-employee Director of the
Company under the terms of this Plan shall be in lieu of any Non-qualified
Stock Options which the Non-employee Director may be eligible to receive under
the terms of The Eastern Company 1989 Executive Stock Incentive Plan (the
"1989 Plan"). On and after the date of adoption of this Plan, no Non-
qualified Stock Options will be granted to any Non-employee Directors under
the terms of the 1989 Plan.
5. Shares Subject to the Plan. The shares subject to the Awards granted
under this Plan shall be authorized but unissued shares, or treasury shares,
of Eastern Common Stock. The total amount of Eastern Common Stock which may
be issued under Awards granted under this Plan shall not exceed in the
aggregate 250,000 shares. If an Award lapses, expires, terminates, ceases to
be exercisable or is forfeited in whole or in part, or if any stock acquired
pursuant to any Award (other than one intended as an Incentive Stock Option)
is reacquired by the Company without the payment of consideration, the shares
subject to but not issued under such Award or so reacquired shall be available
for the grant of other Awards.
6. Awards. Awards may include those described in this Section 6.
6.1 Stock Options for Employees.
(a) The purchase price of the shares subject to each Incentive Stock
Option granted to an Employee shall not be less than one hundred percent
(100%) of the Fair Market Value of Eastern Common Stock at the time of the
granting of the Stock Option. The purchase price of the shares subject to
each Non-qualified Stock Option granted to an Employee shall be established by
the Committee at the time of the granting of the Non-qualified Stock Option.
(b) The term of a Stock Option granted to an Employee shall expire on such
date as is determined by the Committee; provided, however, that no Incentive
Stock Option shall be exercisable in whole or in part after ten years from the
date it is granted.
Each Stock Option granted under this Plan may be exercised only during the
continuation of the optionee's employment with the Company, except as provided
in Section 6.1(c) hereof. The Committee may, in its discretion, provide that
a Stock Option granted to an Employee may not be exercised in whole or in part
for any period or periods of time specified by the Committee.
An Employee's exercise of a Non-qualified Stock Option shall not affect the
exercise of any Incentive Stock Option.
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(c) Any Stock Option, the period of which has not theretofore expired,
shall terminate at the time of the death of the optionee, or at the time of
the termination for any reason of his employment with the Company, and no
shares may thereafter be issued pursuant to such Stock Option; provided,
however, that, subject to the condition that no Incentive Stock Option may be
exercised in whole or in part after ten years from the date it is granted:
(I) upon such a termination of employment (other than by death), the
optionee may, within three months after the date of such termination, exercise
such Stock Option in whole or in part; provided, however, that: (A) if such
termination is due to Disability, such three month period shall be extended to
one year; and (ii) if an optionee terminates employment due to retirement at
or after attaining age sixty-five (65), such three month period shall be
extended to one year; and
(ii) upon the death of any optionee either prior to such a termination
of employment, or within the three month or one year period referred to in (i)
above, such optionee's estate or the person or persons to whom such optionee's
rights under the Stock Option are transferred by will or the laws of descent
and distribution may, within one year after the date of such optionee's death,
exercise such Stock Option in whole or in part.
(d) The purchase price of each share shall, at the time of exercise of any
Stock Option, be paid in full in cash, or with previously acquired shares of
Eastern Common Stock having an aggregate fair market value at such time equal
to the purchase price, or in cash and such shares. Notwithstanding the above,
in connection with the exercise of an Incentive Stock Option, payment with
shares of Eastern Common Stock which constitute "statutory option stock" (as
defined in Section 424(c)(3)(B) of the Code) and which were previously
acquired by the optionee by the exercise of options granted under the Plan or
any other stock option plan shall be permitted only if the date of such
payment is at least two years from the date of grant of the options under the
Plan or such other stock option plan and such shares were held by the optionee
for at least one year.
(e) Upon the exercise of a Stock Option, a certificate or certificates
representing the shares of Eastern Common Stock so purchased shall be
delivered to the person entitled thereto.
(f) An optionee shall have no rights as a shareholder with respect to
shares subject to his Stock Option until such shares are issued to him and are
fully paid, and no adjustment will be made for dividends or other rights for
which the record date is prior thereto.
(g) Each Stock Option granted under this Plan shall by its terms be non-
transferable by the optionee other than by will or the laws of descent and
distribution and, during the lifetime of the optionee, be exercisable only by
him.
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6.2 Restricted Stock for Employees.
(a) Restricted Stock are shares of Eastern Common Stock that are issued to
an Employee and are subject to such terms, conditions and restrictions as the
Committee deems appropriate. Such terms, conditions and restrictions may
include, but are not limited to, restrictions upon the sale, assignment,
transfer or other disposition of the Restricted Stock. The Committee may
provide for the lapse of any such terms, conditions and restrictions, or may
waive any such terms, conditions or restrictions, based on such factors or
criteria as the Committee may determine.
(b) If an Employee receives a grant of Restricted Stock, and if the
Employee desires to accept such grant, then the Employee shall pay to the
Company, in cash, an amount determined by the Committee. In the event of the
grant of Restricted Stock representing issued shares of Eastern Common Stock
or shares of Eastern Common Stock having no par value, such amount may be
greater than or equal to zero. In the event of the grant of Restricted Stock
representing authorized but unissued shares of Eastern Common Stock having a
par value, such amount shall not be less than the par value of the shares of
Restricted Stock so granted. Such amount may be paid at any time prior to the
sixtieth (60th) day following the lapse of the restrictions applicable to the
shares of Restricted Stock.
(c) After receipt of any payment required by the Committee in connection
with the grant of shares of Restricted Stock, or as of the date of grant of
shares of Restricted Stock if no such payment is required, then the Company
shall issue to the Employee a certificate or certificates representing the
shares of Restricted Stock so granted. The certificates shall be imprinted
with a legend stating that the shares of Eastern Common Stock represented
thereby may not be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of except in accordance with the terms of this Plan, and
each transfer agent of the Eastern Common Stock shall be informed of such
restrictions. In aid of such restrictions, the Employee shall, immediately upon
receipt of the certificate or certificates, deposit such certificate or
certificates (together with a stock power or instrument of transfer
appropriately endorsed in blank) with the Secretary of the Company to be held
in escrow. In the event the restrictions applicable to such shares of
Restricted Stock lapse, the certificate or certificates shall be delivered to
the Employee free and clear of all such restrictions. In the event the shares
of Restricted Stock are forfeited, the certificate or certificates shall be
delivered to the Company.
(d) Upon issuance of a certificate or certificates representing shares of
Restricted Stock in accordance with the provisions of Section 6.2(c), the
Employee shall thereupon be deemed to be a shareholder with respect to all of
the shares of Eastern Common Stock represented by such certificate or
certificates. The Employee shall thereafter have, with respect to such shares
of Restricted Stock, all of the rights of a shareholder of the Company
(including the right to vote the shares of Restricted Stock and the right to
receive any cash or stock dividends on such Restricted Stock).
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(e) In the event that an Employee terminates his employment with the
Company, then any shares of Restricted Stock still subject to restrictions on
the date of such termination of employment shall automatically be forfeited;
provided, however, that, upon the termination of an Employee's employment due
to death or Disability, all restrictions applicable to shares of Restricted
Stock in which such Employee has rights at the time of his death or Disability
shall lapse and the shares of Restricted Stock shall be issued to such
Employee (or the person or persons to whom such Employee's rights under the
Restricted Stock are transferred by will or the laws of descent and
distribution) free of all restrictions and freely transferable.
(f) Each share of Restricted Stock granted under this Plan shall by its
terms be non-transferable by the Employee, other than by will or the laws of
descent and distribution, until the restrictions applicable to such shares
have lapsed. While shares of Restricted Stock remain subject to restrictions,
all rights with respect to such shares shall be exercisable during an
Employee's lifetime only by him.
6.3 Non-qualified Stock Options for Non-employee Directors.
(a) The purchase price of the shares subject to each Non-qualified Stock
Option granted to a Non-employee Director shall be one hundred percent (100%)
of the Fair Market Value of Eastern Common Stock at the time of the granting
of the Stock Option.
(b) The term of a Non-qualified Stock Option granted to a Non-employee
Director shall expire ten years and one month from the date it is granted.
Each Non-qualified Stock Option granted to a Non-employee Director under
this Plan may be exercised only during the continuation of the optionee's
service as a Non-employee Director, except as provided in Section 6.3(c)
hereof. A Non-qualified Stock Option granted to a Non-employee Director may
be exercised in whole at any time, or in part from time to time, during its
term.
(c) Any Non-qualified Stock Option granted to a Non-employee Director, the
period of which has not theretofore expired, shall terminate at the time of
the death of the optionee, or at the time of the termination of his service as
a member of the Board, and no shares may thereafter be issued pursuant to such
Stock Option; provided, however, that, subject to the condition that no Non-
qualified Stock Option granted to a Non-employee Director may be exercised in
whole or in part after ten years and one month from the date it is granted:
(i) upon such a termination of service as a director (other than by
death), the optionee within three months after the date of such termination,
exercise such Stock Option in whole or in part; provided, however, that: (A)
if such termination is due to Disability, such three month period shall be
extended to one year; and (ii) if an optionee terminates service as a director
at or after attaining age sixty-five (65), such three month period shall be
extended to one year with respect to any Non-qualified Stock Options granted
to the optionee as the result of his service as a Non-employee Director; and
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(ii) upon the death of any optionee either prior to such a termination
of service as a director, or within the three month or one year period
referred to in (i) above, such optionee+s estate or the person or persons to
whom such optionee's rights under the Non-qualified Stock Option are
transferred by will or the laws of descent and distribution may, within one
year after the date of such optionee's death, exercise such Non-qualified
Stock Option in whole or in part.
(d) The purchase price of each share shall, at the time of exercise of any
Non-qualified Stock Option, be paid in full in cash, or with previously
acquired shares of Eastern Common Stock having an aggregate fair market value
at such time equal to the purchase price, or in cash and such shares.
(e) Upon the exercise of a Non-qualified Stock Option, a certificate or
certificates representing the shares of Eastern Common Stock so purchased
shall be delivered to the person entitled thereto.
(f) An optionee shall have no rights as a shareholder with respect to
shares subject to his Non-qualified Stock Option until such shares are issued
to him and are fully paid, and no adjustment will be made for dividends or
other rights for which the record date is prior thereto.
(g) Each Non-qualified Stock Option granted to a Non-employee Director
under this Plan shall by its terms be non-transferable by the optionee other
than by will or the laws of descent and distribution and, during the lifetime
of the optionee, be exercisable only by him.
7. Award Agreements. Each Award granted under this Plan shall be evidenced
by an Award Agreement setting forth the number of shares of Eastern Common
Stock subject to the Award, and such other terms and conditions applicable to
the Award as are required by or are consistent with the terms of the Plan. By
acceptance of an Award, each Employee or Non-employee Director (as the case
may be) thereby agrees to such terms and conditions and to the terms of this
Plan pertaining thereto.
8. Term of Plan. This Plan shall terminate ten years after the date of its
approval by the shareholders of the Company or its adoption by the Board,
whichever date is earlier, or upon any earlier termination date established by
action of the Board, and no Awards shall be granted thereafter. Such
termination shall not affect the validity of any Awards then outstanding.
9. Exercise of Awards.
(a) The exercise of any Award shall be by written notice to the Committee
which shall contain the following statement:
"By virtue of my position with The Eastern Company, I have access to the
kind of financial and other information about The Eastern Company as would
be contained in a registration statement filed under the Securities Act of
1933"+
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<PAGE> 30
(b) In the absence of an effective registration statement under the
Securities Act of 1933, as amended, (the "Act") at the time of the grant of an
Award, each Employee or Non-employee Director (as the case may be), by
accepting the Award, represents and agrees for himself, his estate and his
transferees by will or under the laws of descent and distribution that all
shares of stock acquired pursuant thereto shall be acquired for investment and
not with a view to further distribution or for purposes of resale. Exercise
of any Award shall be by written notice which, in the absence of an effective
registration statement under the Act, shall contain a statement in
substantially the following form:
"I am acquiring these shares for my own account for investment and not with
a view toward distribution in a manner which would require registration
under the Securities Act of 1933, and I do not presently have any reason to
anticipate any change in my circumstances or other particular occasion or
fact which would cause me to sell the shares being acquired. I agree that
the certificates representing these shares, in the absence of such an
effective registration statement, may be marked with a legend reading as
follows:
'The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred, pledged or hypothecated in the
absence of an effective registration statement for the shares under the
Securities Act of 1933 or an opinion of counsel to the Company that
registration is not required under said Act.'''
To the extent required by the securities laws, all shares acquired pursuant
to any Award shall be marked with the foregoing legend.
10. Adjustment of Shares Subject to Award and Exercise Price.
(a) Subject to any required action by the Company's shareholders, the
number of shares of Eastern Common Stock subject to each outstanding Award,
and the exercise price per share thereof in each such Award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Eastern Common Stock resulting from a subdivision or consolidation
of shares or the payment of a stock dividend (but only on such common stock)
or any other increase or decrease in the number of such shares effected
without receipt of full consideration by the Company.
(b) Subject to any required action by the Company's shareholders, the
aggregate number of shares of Eastern Common Stock subject to this Plan shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Eastern Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on such
common stock) or any other increase or decrease in the number of such shares
effected without receipt of full consideration by the Company.
(c) Subject to any required action by the Company's shareholders, if the
Company shall be the surviving corporation in any reorganization or
consolidation, each outstanding Award shall pertain to and apply to the
securities to which a holder of the number of shares of Eastern Common Stock
subject to the Award would have been entitled as a result of such
reorganization or consolidation.
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(d) In the event of a change in Eastern Common Stock, as presently
constituted, which is limited to a change of all of its authorized shares into
the same number of shares with par value or with a different par value or
without par value, the shares resulting from any such change shall be deemed
to be the common stock subject to the Plan.
(e) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board whose
determination in that respect, including any determination of the value of
consideration received for shares, shall be final, binding and conclusive;
provided, however, that no Incentive Stock Option granted pursuant to this
Plan shall be adjusted in a manner that causes the Stock Option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
11. Amendments and Discontinuance. The Board may amend, suspend or
discontinue the Plan, but may not, without the prior approval of the Company's
shareholders, make any amendment which operates: (a) to abolish the
Committee, change the qualification of its members or withdraw its authority
to interpret or administer the Plan as regards the issuance of Awards to
Employees; (b) to make any material change in the class of eligible Employees
or Non-employee Directors under the Plan; (c) to increase the total number of
shares for which Awards may be granted under the Plan except as permitted by
the provisions of Section 10 hereof; (d) to extend the term of the Plan; (e)
to extend the maximum Incentive Stock Option period or to change the Non-
qualified Stock Option period for Non-employee Directors; or (f) to decrease
the minimum Incentive Stock Option price or to change the Non-qualified Stock
Option price for Non-employee Directors.
Notwithstanding the above, however, in no event may the Board amend any of
the following provisions of the Plan more than once every six months (other
than to comply with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules thereunder); (a) the
provisions of Section 4(b) of the Plan designating those Non-employee
Directors who will be granted Non-qualified Stock Options under the Plan, the
date on which the options will be granted, and the number of shares subject to
the options; and (b) the provisions of Section 6.3 setting the purchase price
of the shares subject to the Non-qualified Stock Options.
12. Continuance of Employment. Neither the Plan nor the granting of any
Award hereunder shall impose any obligation to continue the employment of any
Employee by the Company or retain any Non-employee Director as a member of the
Board.
13. Tax Withholding. The Company shall have the power to withhold, or
require an optionee to remit to the Company, an amount sufficient to satisfy
Federal, state and local withholding tax requirements on any Award granted
under the Plan. To the extent permissible under applicable tax, securities
and other laws, the Company may, in its sole discretion, permit the Employee
or the Non-employee Director (as the case may be) to satisfy a tax withholding
requirement by directing the Company to apply shares of Eastern Common Stock
to which he is entitled as a result of the exercise of a Stock Option or the
lapse of restrictions on shares of Restricted Stock.
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14. Required Notifications by Optionee. If any optionee shall dispose of
shares of Eastern Common Stock issued pursuant to the exercise of an Incentive
Stock Option under the circumstances described in Section 421(b) of the Code
(whereby the optionee makes a disqualifying disposition of the shares before
expiration of the applicable holding periods), then such optionee shall notify
the Company of such disqualifying disposition within ten days of the
disposition.
15. Limits of Liability.
(a) Any liability of the Company to any Employee or Non-employee Director
with respect to an Award shall be based solely upon the contractual
obligations created by the Plan and the Award Agreement.
(b) Neither the Company, nor any member of the Board or the Committee, nor
any other person participating in the determination of any question under the
Plan or the interpretation, administration or application of the Plan, shall
have any liability to any party for any action taken or not taken, in good
faith, under the Plan.
16. Governing Law. The Plan, and all Award Agreements hereunder, shall be
construed in accordance with the laws of the State of Connecticut.
17. Effective Date. The Plan shall become effective only if and when
approved by the Company's shareholders at their annual meeting to be held on
April 26, 1995.
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