SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 28, 1996 Commission File Number 0-599
THE EASTERN COMPANY
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330020
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State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
112 Bridge Street, Naugatuck, Connecticut 06770
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)729-2255
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997.
Common Stock, No Par Value - $37,661,734
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Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 28, 1997
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Common Stock, No Par Value 2,764,164
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 annual report to shareholders (fiscal year ended December
28, 1996) are incorporated by reference into Parts I and II.
Portions of the annual proxy statement dated February 28, 1997 are
incorporated by reference into Part III.
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PART I
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ITEM 1 BUSINESS
(a) General Development of Business
The business of the Registrant is the manufacturing and/or purchasing
and sale of a diversified line of products from four operations and four
wholly-owned subsidiaries. The Registrant maintains seven physical locations.
The Registrant has a wide range of security products or items used to
close and fasten, in the electronic and industrial markets, retail,
transportation, and mining industries. Typical items include heavy-duty
hinges, multi-point latching devices, dial and keyless combination locks,
multi-circuit switch locks, padlocks, lock cylinders, mine roof fasteners,
contract castings and keys.
The Registrant is promoting growth by expanding present product lines,
and developing new products. In addition, desirable outside product lines,
similar to those recently purchased, which complement present lines and/or
companies, may be acquired if they generally fit management's expertise in
marketing or manufacturing.
Approximately one third of our 1996 capital expenditure budget was
spent on new tooling for the production of new products introduced at all
operations throughout the year. The remaining expenditures were for normal
replacement of equipment, improvements in productive efficiency and the
expansion of existing capacity.
Products are sold to original equipment manufacturers or distributors
through a distribution channel consisting of in-house salesmen, outside sales
representatives and distributors. Sales efforts are concentrated on in-house
sales personnel where greater representation of our diverse product lines can
be promoted across a variety of markets.
(b) Narrative Description of Business
The Registrant's operations consist of a single business segment -
security products. Security products are used to close, lock or secure
equipment used in the industrial, transportation, and mining industries.
Competitive conditions follow the national economic trend.
The Registrant sells its products in specialized diverse security
markets. Although service, quality and price are major criteria for servicing
these markets, the continued introduction of new and improved products is
vital for maintaining and increasing market share. During 1996 new handles,
locking mechanisms and hinges were manufactured and sold to the transportation
industry. A number of these products are being modified for use in the
railroad industry. Successful introduction of a tool box lock to the
industrial and vehicular markets have expanded our customer base and help
offset the cyclical decline in the tractor trailer markets. Continued
investment in the development of keyless locks resulted in the introduction of
a new keyless cam switch lock for the computer industry.
The decline for engineered fasteners used in the underground mining
industry is being replaced by new business being obtained in the contract
casting market. Additionally, Eastern acquired certain assets of Excel Mining
Systems which significantly strengthened our position as the primary supplier
to this market, which the company anticipates will increase sales to the
mining industry over the coming year.
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The Registrant's facilities have the ability to engineer new products
for existing and new customers to meet the ever changing requirements in the
markets in which it competes. The Registrant has worked with many customers to
develop products to meet specific applications. Examples of this are the new
keyless cam locks for the computer industry, a recessed handle mechanism for a
gym locker manufacturer and the combination of the Registrant's Warlock
patents with technology that allows end-users to change key combinations
without removing the locks.
Raw materials and outside services were readily available from domestic
sources during 1996 and are expected to be readily available in 1997 and the
foreseeable future.
Patent protection for the various product lines is fairly limited, but
is sufficient to enhance competitive positions. Foreign sales and license
agreements are not significant.
The Registrant's business is not seasonal.
Customer lists for all operating locations are broad-based
geographically and by markets and sales are not highly concentrated by
customer. No customer accounted for 10% or more of the Registrant's
consolidated revenue for the year ended December 28, 1996.
The Registrant continues to maintain a strong balance sheet with
working capital at a stable level through strong management control on
receivables and inventories.
Quick response to customer orders is becoming more important.
Consequently investments in additional inventories are made on a selective
basis to meet the rapid delivery requirements of our customers.
The dollar amount of the levels of orders in the Registrant's backlog
is believed to be firm as of fiscal year ended December 28, 1996 at
$5,317,000, as against $6,466,000 at December 30, 1995.
The Registrant encounters competition in all of its product areas. The
Registrant has been successful in dealing with this competition by offering
high quality diversified products with the flexibility of meeting customer
needs on a timely basis. This is accomplished by effectively using its
internal engineering resources, cost effective manufacturing capabilities,
expanding product lines, national distributors and in house sales personnel
targeted to niche markets.
Research and development expenditures in 1996 were $142,000 and
represented less than 1% of gross revenues. In 1995 and 1994 they were
$353,000 and $372,000, respectively. The projects involved mine roof
fasteners, and other malleable iron products, transportation and industrial
hardware, and locking device hardware.
Total lease obligations of the Registrant, including buildings, autos
and trucks and miscellaneous office equipment, for each of the next five years
are $280,000, $283,000, $287,000, $289,000 and $289,000. In 1996, lease costs
were $275,000.
The average number of employees in 1996 was 494.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
The Registrant includes four separate operating divisions located
within the United States and a wholly-owned Canadian subsidiary located in
Tillsonburg, Ontario, Canada, a wholly-owned Taiwanese subsidiary located in
Taipei, Taiwan, a wholly-owned subsidiary in Hong Kong and a wholly-owned
subsidiary in Mexico.
The Canadian, Taiwanese, Hong Kong and Mexican subsidiaries' revenue
and assets are not significant. Substantially all other revenues are derived
from customers located in the United States.
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ITEM 2 PROPERTIES
The executive offices of the Registrant are located in Naugatuck,
Connecticut in the two story 8,000 square foot administrative building.
All of the Registrant's properties are owned or leased and while being
fully utilized are adequate to satisfy current requirements. All of the
Registrant's properties have the necessary flexibility to cover any long-term
expansion requirements.
The Eberhard Manufacturing Division in Strongsville, Ohio owns 9.6
acres of land and a building containing 95,000 square feet, located in an
industrial park. The building is steel frame, one-story, having curtain walls
of brick, glass and insulated steel panel. The building has one high bay in
which two units of automated warehousing are located. This facility's plant
capacity is adequate to satisfy current requirements. However, the extensive
acreage and plant design provides for flexibility in expansion requirements.
The Eberhard Hardware Manufacturing, Ltd., a wholly-owned Canadian
subsidiary in Tillsonburg, Ontario, owns land and a building containing 21,000
square feet in an industrial park. The building is steel frame, one-story,
having curtain walls of brick, glass and insulated steel panel. It is
particularly suited for light fabrication, assembly and warehousing and is
adequate for long-term expansion requirements.
The Frazer and Jones Division in Solvay, New York, owns land and
buildings containing 179,000 square feet constructed for foundry use. These
facilities are well adapted to handle the division's current and future
casting requirements.
The Illinois Lock Division leases land and a building containing 44,000
square feet in Wheeling, Illinois. The building is brick and located in an
industrial park. The five year option was exercised and the lease was extended
five years from July 1, 1995 to June 30, 2000 under favorable terms.
The CCL Security Products Division is located in New Britain,
Connecticut where 26,000 square feet of a building is leased. The four storied
building is of brick and stone construction. A monthly lease is in place.
The Sesamee Mexicana, subsidiary is leasing 1,950 square feet of a
block building located in an industrial park in Lerma, Mexico on an open-end
basis.
The World Lock Co. Ltd., subsidiary leases a brick and concrete
building containing 7,870 square feet and is located in Taipei, Taiwan. The
lease was extended three years from April 15, 1995 to April 15, 1998 under
favorable terms.
All owned properties are free and clear of any encumbrances.
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ITEM 3 LEGAL PROCEEDINGS
In April 1988, Murtha Enterprises Inc. and related parties
(collectively "Murtha"), as the result of a February 1987 suit (docket number
N-87-52 PCD) brought by the U. S. Environmental Protection Agency (the "EPA")
and others, concerning the Beacon Heights and Laurel Park landfills,
instituted third-party actions against approximately 200 companies or
individuals including the Registrant. The underlying suit against Murtha was
settled with EPA and the other parties and the Consent Decree has been
approved by the Court.
On September 22, 1988, the EPA filed a complaint against the Registrant
and seven other defendants seeking recovery of present and future response
costs incurred by the United States in connection with the Beacon Heights
landfill. The complaint alleged total damages of approximately $1.8 million
($1.3 million actual and $.5 million future). On October 31, 1988 the court
consolidated the EPA action against the Registrant with the other cases under
docket number N-87-52 (PCD).
By complaint dated September 6, 1990, the Beacon Heights Coalition (the
"Beacon Coalition"), a group of parties who have entered into a consent order
with EPA, instituted a direct action against the Registrant and approximately
400 other named parties concerning the Beacon Heights landfill. The Beacon
Coalition claimed that these defendants generated or transported hazardous
substances disposed of at the Beacon Heights landfill, and are therefore
responsible for a share of the Beacon Coalition's response costs.
The Registrant has filed answers to both the EPA Complaint and the
Beacon Coalition Complaint.
In March 1991, a Laurel Park Coalition which did not include the
Registrant entered into Consent Decree and Administrative Order by Consent
with the EPA and the State of Connecticut to remediate the Laurel Park
landfill. The Consent Decree has been approved by the Court.
In May 1991, EPA and the State of Connecticut ("State") each filed a
complaint against the Registrant and three other defendants seeking recovery
of present and future response costs incurred in connection with the Laurel
Park landfill. The EPA claims costs in excess of $1.8 million and the state
claims costs in excess of $2.5 million. On July 1, 1991, the court
consolidated these actions against the Registrant with the other cases under
docket number N-87-52 (PCD). The Registrant filed answers to both of these
complaints.
By order dated February 8, 1994, the court granted a motion filed by
Registrant for judgment on the pleadings against EPA and the state with
respect to each of their claims against Registrant. By motions dated February
22, 1994 and February 23, 1994, EPA and the state respectively moved for
reconsideration of the court's order, which motions were denied.
By order dated February 8, 1994, the court permitted the Laurel Park
Coalition to file a complaint against eight parties including the Registrant,
which claims were to be assigned for trial if the Coalition files a complaint.
On June 24, 1994 , the Registrant settled all claims with both the
Beacon Heights Coalition and the Laurel Park Coalition and the respective
complaints against the Registrant on behalf of the Coalitions were dismissed
by stipulation. No complaints are now pending in the U.S. District Court
involving the Registrant.
On March 17, 1995, the U.S. District Court entered a final judgement in
the consolidated proceedings (docket number N-87-52(PCD)) which included the
granting of Registrant's motion for judgement on the pleadings. As a result of
this judgement, no complaints were then pending in the U.S. District Court
involving the Registrant.
On April 17, 1995, the State filed its notice of appeal from this final
judgement with the U.S. District Court. On May 10, 1995, EPA filed its notice of
appeal from the judgement.
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On November 1, 1996 the U.S. Court of Appeals for the Second Circuit
reversed the District Court ruling dismissing EPA and State of Connecticut
environmental claims against the Registrant and environmental claims by the
Laurel Park and Beacon Heights Coalitions against numerous defendants. The Court
of Appeals remanded the case to the U.S. District Court in Connecticut for
further proceedings. The governmental lawsuits, brought after governmental
settlements with the Coalitions, seek to recover remediation costs of the
governments unreimbursed by the Coalition settlements or the settlement with the
owner/operator in connection with the Laurel Park and Beacon Heights landfills.
The EPA has claimed that the Registrant and five other defendants (two corporate
and three individual) are responsible for an aggregate of $4.2 million in
remediation costs with respect to the Beacon Heights landfill and that the
Registrant and one other corporate defendant are responsible for an aggregate of
$2.5 million in remediation costs with respect to the Laurel Park landfill;
Connecticut has claimed that the Registrant and one other defendant are
responsible for an aggregate of $80,000 in remediation costs with respect to the
Laurel Park landfill. The Registrant intends to continue to vigorously contest
any liability relating to these governmental claims. The Registrant would also
pursue its rights of contribution against the other defendants in the event of
any liability, which the Registrant expects would significantly reduce any
liability imposed. In addition, it would file claims against its insurance
carriers.
In its decision, the Second Circuit also reversed the U.S. District
Court's dismissal of numerous actions brought by the Beacon Heights and Laurel
Park Coalitions against non-settling parties. These Coalitions assumed full
responsibility for cleaning up the two landfill sites and, as noted above, the
Registrant has settled with both Coalitions with respect to liability at these
sites in 1994. It is believed that many of the defendants in the pending
Coalition actions and certain other persons who have not been sued by the
governments have a responsibility for remediation cost and may be brought into
these actions as co-defendants with the Registrant. The Registrant intends to
resist the EPA and State claims and if necessary bring these other persons into
the action to share the costs of reimbursements to the governments if ultimately
imposed.
On or about December 12, 1996, NRS Carting Company and Zollo Drum
Company, Inc., defendants to the Coalitions' actions but not to the governments'
actions, petitioned the Court of Appeals for rehearing relative to the Court's
decision regarding successor liability. As a result, the Court of Appeals has
not yet entered judgment as to any of the matters addressed in its November 1,
1996 decision, including its decision relative to the Registrant. Although the
filing of the petition for rehearing has meant a delay in entry by the Court of
Appeals of its judgment, any proceedings by the Court of Appeals regarding the
issue of successor liability is not expected to impact the merits of the
governments' actions against the Registrant.
The Registrant will continue to vigorously pursue its legal interest in
this matter. The Registrant believes that these actions will not have a
materially adverse impact on the Registrant's consolidated financial position,
operating results or liquidity.
The Registrant was involved in two actions with MMI Investments, LLC
("MMI"). The first action, filed on or about August 15, 1996, was captioned MMI
Investments, LLC vs. The Eastern Company, Docket number CV 96-134473 ("MMI's
action"). The second action, filed on or about September 9, 1996, was captioned
The Eastern Company vs. MMI Investments, LLC, docket number CV 96-134839
("Eastern's action"). The two actions were consolidated before the Connecticut
Superior Court for the Judicial District of Waterbury at Waterbury.
In MMI's action, MMI sought an order of mandamus from the Court to
compel the Registrant to turn over a copy of its shareholder list to MMI.
In the Eastern action, the Registrant sought to enjoin MMI (purporting
to represent 10% of the Registrant's shares) from calling or attempting to call
a special meeting of the Registrant's shareholders on the grounds that (A) its
request did not comport with the threshold requirement under Connecticut law and
the Registrant's bylaws that the request be made by holders of at least 35% of
the Registrant's shares and (B) the purported purposes submitted by MMI for the
special meeting were improper. The Registrant also sought declaratory relief
regarding these two issues.
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On December 3, 1996, the Connecticut Superior Court issued a decision
enjoining MMI from calling a special meeting pursuant to any request for the
call of such a meeting made prior to that date by MMI. The court held that the
written request of holders of at least 35% of Eastern's shares was required
under Connecticut law to call a special meeting of shareholders. The court
permitted MMI to inspect the Registrant's shareholder list. The Registrant and
MMI each filed an appeal of the court's decision, which appeals were withdrawn
on January 21, 1997.
There are no other material legal proceedings, other than ordinary routine
litigation incidental to the business, to which either the Registrant or any of
its subsidiaries is a party of or which any of their property is the subject.
ITEM 4 SUBMISSION OF MATTERS TO SHAREHOLDERS
None
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PART II
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ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The portion of the 1996 Annual Report to Shareholders appearing on page
24 under the heading "Common Stock Market Prices and Dividends" is
incorporated herein by reference.
ITEM 6 SELECTED FINANCIAL DATA
The financial data on page 21 of the 1996 Annual Report to
Shareholders, captioned "1996 - 1992 Summary of Operations" is incorporated
herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following portions of the 1996 Annual Report to Shareholders are
incorporated herein by reference:
(a) All of the material in the President's Letter found on pages 2 and
3 of the Annual Report.
(b) All of the material on pages 22 and 23 under the heading
Management's Discussion and Analysis of Financial Condition and
Results of Operations".
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and its
subsidiaries and report of independent auditors included on pages 10 to 20 of
the Annual Report to Shareholders for the fiscal year ended December 28, 1996
are incorporated herein by reference as follows:
(a) Consolidated Balance Sheets -- December 28, 1996 and December 30,
1995.
(b) Consolidated Statements of Income -- Fiscal years ended December
28, 1996, December 30, 1995 and December 31, 1994.
(c) Consolidated Statements of Shareholders' Equity -- Fiscal years
ended December 28, 1996, December 30, 1995 and December 31,
1994.
(d) Consolidated Statements of Cash Flows -- Fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994.
(e) Notes to Consolidated Financial Statements -- December 28, 1996,
December 30, 1995 and December 31, 1994.
With respect to Quarterly Results of Operations there are incorporated
herein by reference the following additional portions of the 1996 Annual
Report to Shareholders:
(a) The portion of the 1996 Annual Report to Shareholders appearing
on page 24 under the heading "Quarterly Results of Operations" is
incorporated herein by reference.
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(b) Paragraphs 5 and 15 under the caption "Results of Operations" on
pages 22 and 23.
(c) Five paragraphs on page 23 under the caption "Impact of Inflation
and Changing Prices."
With respect to stock options, the Registrant notes that stock options
did not have a materially dilutive effect on net income per share for the
fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994.
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve Stock
Options, the information appearing on pages 11, 14, 16, 17, 18 and 19.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
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ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
regulation 14A since the close of its fiscal year, which involve the election
of Directors, the information appearing on pages 3 through 4 of said proxy
statement, being the portion captioned "1. Election of Three Directors". The
Registrant's only Executive Officers are Stedman G. Sweet, President and Chief
Executive Officer and Donald E. Whitmore, Jr., Vice President, Secretary,
Treasurer and Chief Financial Officer.
ITEM 11 EXECUTIVE COMPENSATION
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve the election
of Directors, the information appearing on pages 13 through 19 of said proxy
statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve the security
ownership of certain beneficial shareholders, the information appearing on
pages 9 and 11 through 12 of said proxy statement.
(b) There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve the security
ownership of management, the information appearing on pages 9 through 12 of
said proxy statement.
(c) Changes in Control
Not Applicable.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Not applicable
(b) There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission
pursuant to Regulation 14A since the close of its fiscal year,
which involve the Election of Directors, the information
appearing on pages 3 and 4 of said proxy Statement, being the
portion captioned "1. Election of Three Directors".
(c) Not applicable.
(d) Not applicable.
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PART IV
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ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1 and 2. The response to this portion of Item 14 is
submitted as a separate section of this report
appearing on page 14.
3. Exhibits
(3) Restated Certificate of Incorporation dated August 14, 1991
is incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1991 and the Registrant's Form 8-K filed on February 13,
1991. Amended and restated bylaws dated July 29, 1996 is
incorporated by reference to the Registrant's Form 8-K filed
on July 29, 1996.
(4) (a) Letter to all shareholders of the Registrant, dated
September 20, 1991 describing the Registrant's redemption of
shareholders Purchase Rights dated August 29, 1986 and the
issuance of a new Purchase Rights dividend distribution;
"Summary of Rights to Purchase Common Stock," as enclosed
with said letter to shareholders are incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
(b) Rights Agreement entered into between the Registrant and The
First National Bank of Boston, dated as of September 16,
1991 incorporated by reference to the Registrant's Form 8-K
filed on September 16, 1991.
(c) The First Amendment dated as of November 11, 1992 to the
Rights Agreement dated as of September 16, 1991 between The
Eastern Company and The First National Bank of Boston is
incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993.
(10) (a) Employment Agreement dated May 1, 1996 with Stedman G.
Sweet is attached beginning on page 29.
(b) Employment Agreement dated May 1, 1996 with Donald E.
Whitmore, Jr. is attached beginning on page 34.
(c) Amendment to the Deferred Compensation Agreement with
Russell G. McMillen dated May 1, 1988 is incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988. The Deferred
Compensation Agreement with Russell G. McMillen dated
October 28, 1980 and amended on March 27, 1986 is
incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1987.
(d) Deferred Compensation Agreement dated May 30, 1996 with
Stedman G. Sweet is attached beginning on page 39.
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(e) Supplemental Retirement Plan dated August 16, 1994 with
Stedman G. Sweet is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
(f) The Eastern Company 1995 Executive Stock Incentive Plan
dated as of February 7, 1997 incorporated by reference to
the Registrant's Form S-8 filed on February 7, 1997.
(g) The Eastern Company Directors Fee program dated as of
February 7, 1997 incorporated by reference to the
Registrant's Form S-8 filed on February 7, 1997.
(11) Statement Re: Computation of Per Share Earnings is attached
on page 47.
(13) 1996 Annual Report to Shareholders attached hereto on page
49.
(21) List of subsidiaries as follows:
Eberhard Hardware Mfg. Ltd., a private corporation
organized under the laws of the Province of Ontario,
Canada.
World Lock Co. Ltd., a private corporation
organized under the laws of Taiwan (The Republic of
China).
Sesamee Mexicana, Subsidiary, a private corporation
organized under the laws of Mexico.
World Security Industries Co. Ltd., a private
corporation organized under the laws of Hong Kong.
(23) Consent of independent auditors attached hereto beginning on
page 15.
(99) Financial Statements and Supplemental Schedules and report
of independent auditors for the period ended December 31,
1996 and 1995, and period from May 1, 1994 (inception of
plan) to December 31, 1994 of The Eastern Company Savings
and Investment Plan is attached beginning on page 18.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the last
quarter of the fiscal year ended December 28, 1996.
(c) The required Exhibits are listed in (a) 3. above.
(d) Financial statement schedules.
The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page
17.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, The Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated March 26, 1997 THE EASTERN COMPANY
/s/ Donald E. Whitmore, Jr.
By---------------------------------------
Donald E. Whitmore, Jr.
Director, Vice President, Treasurer,
Secretary and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Stedman G. Sweet
- --------------------------------------- March 26, 1997
Stedman G. Sweet
Director, President
and Chief Executive Officer
/s/ Donald E. Whitmore, Jr.
- --------------------------------------- March 26, 1997
Donald E. Whitmore, Jr.
Director, Vice President, Treasurer,
Secretary and Chief Financial Officer
/s/ John W. Everets
- --------------------------------------- March 26, 1997
John W. Everets
Director
/s/ Charles W. Henry
- --------------------------------------- March 26, 1997
Charles W. Henry
Director
/s/ Ole K. Imset
- --------------------------------------- March 26, 1997
Ole K. Imset
Director
/s/ Leonard F. Leganza
- --------------------------------------- March 26, 1997
Leonard F. Leganza
Director
/s/ Russell G. McMillen
- --------------------------------------- March 26, 1997
Russell G. McMillen
Director
/s/ David C. Robinson
- --------------------------------------- March 26, 1997
David C. Robinson
Director
/s/ Donald S. Tuttle, III
- --------------------------------------- March 26, 1997
Donald S. Tuttle, III
Director
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The Eastern Company and Subsidiaries
Form 10-K-Item 14 (a) (1) and (2)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of The Eastern Company and
subsidiaries and report of independent auditors, included in the annual report
of the registrant to its shareholders for the fiscal year ended December 28,
1996 are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets - December 28, 1996 and December 30, 1995
Consolidated Statements of Income - Fiscal years ended December 28,
1996, December 30, 1995 and December 31, 1994.
Consolidated Statements of Shareholders' Equity - Fiscal years
ended December 28, 1996, December 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows - Fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
The following financial statement schedule of The Eastern Company and
subsidiaries is included in Item 14 (d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted.
14
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-k)
of The Eastern Company of our report dated January 31, 1997, included in the
1996 Annual Report to Shareholders of The Eastern Company.
Our audits also included the financial statement schedule of The Eastern Company
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-29452) pertaining to The Eastern Company 1983 Stock
Option Plan, the Registration Statement (Form S-8 No. 2-86285) pertaining to The
Eastern Company 1989 Stock Option Plan, the Registration Statement (Form S-8 No.
333-79324) pertaining to The Eastern Company Savings and Investment Plan, the
Registration Statement (Form S-8 No. 333-21349) pertaining to The Eastern
Company 1995 Executive Stock Incentive Plan, and the Registration Statement
(Form S-8 No. 333-21351) pertaining to The Eastern Company Directors Fee program
of our report dated January 31, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of The Eastern Company.
/s/ ERNST & YOUNG LLP
Hartford, Connecticut ERNST & YOUNG LLP
March 24, 1997
15
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-79324) pertaining to The Eastern Company Savings and Investment Plan
of our report dated February 6, 1997 with respect to the financial statements
and schedule of The Eastern Company Savings and Investment Plan included in this
Annual Report (Form 10-K) as Exhibit 99 for the fiscal year ended December 28,
1996.
/s/ ERNST & YOUNG LLP
Hartford, Connecticut ERNST & YOUNG LLP
March 24, 1997
16
<PAGE>
<TABLE>
<CAPTION>
The Eastern Company and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Description (1) (2)
Balance at Beginning Charged to Costs Charged to Other Deductions - Balance at End
of Period and Expenses Accounts-Describe Describe of Period
<S> <C> <C> <C> <C>
Fiscal year ended December 28, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $501,000 $251,881 $185,881(a) $567,000
Fiscal year ended December 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $330,000 $261,687 $90,687(a) $501,000
Fiscal year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $363,320 $120,000 $153,320(a) $330,000
(a) Uncollectible accounts written off, net of recoveries
</TABLE>
17
<PAGE>
The Eastern Company Savings
and Investment Plan
(Exhibit (99) to Form 10-K)
Financial Statements
and Supplemental Schedule
Years ended December 31, 1996 and 1995, and Period from
May 1, 1994 (inception of plan) to December 31, 1994
Contents
Report of Independent Auditors..............................19
Financial Statements
Statements of Assets Available for Benefits.................20
Statements of Changes in Assets Available for Benefits......21
Notes to Financial Statements...............................23
Supplemental Schedule
Schedule of Investments.....................................27
18
<PAGE>
Report of Independent Auditors
Plan Administrator of
The Eastern Company Savings and Investment Plan
We have audited the accompanying statements of assets available for benefits of
The Eastern Company Savings and Investment Plan (the "Plan") as of December 31,
1996 and 1995, and the related statements of changes in assets available for
benefits for the years ended December 31, 1996 and 1995, and the period from May
1, 1994 (inception of plan) to December 31, 1994. Our audits also included the
supplemental schedule of investments as of December 31, 1996 and 1995. These
financial statements and supplemental schedule are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan at December
31, 1996 and 1995, and the changes in assets available for benefits for the
years ended December 31, 1996 and 1995, and the period from May 1, 1994 to
December 31, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, the related supplemental schedule of investments, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
The fund information in the financial statements is presented for purposes of
additional analysis rather than to present the assets available for benefits and
changes in assets available for benefits of each fund. The fund information has
been subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.
Hartford, Connecticut /s/ERNST & YOUNG LLP
February 6, 1997 Ernst & Young LLP
19
<PAGE>
<TABLE>
<CAPTION>
The Eastern Company Savings and Investment Plan
Statements of Assets Available for Benefits
Fund Information
Daily Growth and Eastern
Participant Dividend Income Income Common
Loan Fund Trust Fund Fund Fund Stock Fund Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Assets
Investments:
The Eastern Company
Common Stock $ 128,817 $ 128,817
Mutual funds $ 71,530 $ 134,105 $ 710,784 1,133 917,552
Participant loans
receivable $ 3,099 3,099
---------- ----------- ---------- ------------ ----------- --------------
Total investments 3,099 71,530 134,105 710,784 129,950 1,049,468
Contributions receivable:
Employee 482 1,325 5,731 1,061 8,599
Employer 276 751 3,250 603 4,880
Contribution receivable
from (payable to)
other funds (23,970) 4,423 14,368 5,179 -
---------- ------------ ---------- ------------ ----------- ------------
Assets available for
benefits $ 3,099 $ 48,318 $ 140,604 $ 734,133 $ 136,793 $ 1,062,947
========== ============ ========== ============ =========== =============
December 31, 1995
Assets
Investments:
The Eastern Company
Common Stock $ 83,080 $ 83,080
Mutual funds $ 57,635 $ 92,640 $ 382,333 10,269 542,877
Participant loans
receivable $ 5,337 5,337
---------- ------------ ---------- ------------ ----------- ------------
Total investments 5,337 57,635 92,640 382,333 93,349 631,294
Contributions receivable:
Employee 605 1,455 5,127 1,578 8,765
Employer 341 814 2,873 885 4,913
Contribution receivable
from (payable to)
other funds (25,293) 3,719 25,109 (3,535) -
---------- ------------ ---------- ------------ ----------- ------------
Assets available for
benefits $ 5,337 $ 33,288 $ 98,628 $ 415,442 $ 92,277 $ 644,972
========== ============ ========== ============ =========== ============
See accompanying notes.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
The Eastern Company Savings and Investment Plan
Statements of Changes in Assets Available for Benefits
Fund Information
Daily Growth and Eastern
Participant Dividend Income Income Common
Loan Fund Trust Fund Fund Fund Stock Fund Total
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1996
Investment income:
Dividends $ 3,130 $ 7,266 $ 54,469 $ 4,104 $ 68,969
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments (2,271) 46,662 7,923 52,314
------------ ---------- ------------ ----------- -------------
3,130 4,995 101,131 12,027 121,283
Contributions:
Employee 13,622 44,187 201,676 33,187 292,672
Employer 2,413 7,354 30,460 5,750 45,977
------------ ---------- ------------ ----------- -------------
16,035 51,541 232,136 38,937 338,649
Benefits paid to
participants (1,010) (14,140) (22,480) (3,595) (41,225)
Loan default $ (732) (732)
Interfund transfers (1,506) (3,125) (420) 7,904 (2,853) -
--------- ------------ ---------- ------------ ----------- -------------
Net increase (2,238) 15,030 41,976 318,691 44,516 417,975
Assets available for
benefits
Beginning of year 5,337 33,288 98,628 415,442 92,277 644,972
--------- ------------ ---------- ------------ ----------- -------------
End of year $ 3,099 $ 48,318 $ 140,604 $ 734,133 $ 136,793 $ 1,062,947
========= ============ ========== ============ =========== =============
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Fund Information
Daily Growth and Eastern
Participant Dividend Income Income Common
Loan Fund Trust Fund Fund Fund Stock Fund Total
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1995
Investment income:
Dividends $ 1,860 $ 4,003 $ 20,890 $ 1,547 $ 28,300
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments 6,291 50,196 (6,811) 49,676
------------ ---------- ------------ ------------ ------------
1,860 10,294 71,086 (5,264) 77,976
Contributions:
Employee 16,789 56,564 187,704 57,441 318,498
Employer 3,237 8,147 29,655 8,704 49,743
------------ ---------- ------------ ----------- ------------
20,026 64,711 217,359 66,145 368,241
Benefits paid to
participants (3,528) (7,621) (11,616) (1,362) (24,127)
Interfund transfers $ 5,337 857 (6,187) 5,208 (5,215) -
---------- ------------ ----------- ------------ ------------ ------------
Net increase 5,337 19,215 61,197 282,037 54,304 422,090
Assets available for
benefits
Beginning of year - 14,073 37,431 133,405 37,973 222,882
---------- ------------ ---------- ------------ ----------- ------------
End of year $ 5,337 $ 33,288 $ 98,628 $ 415,442 $ 92,277 $ 644,972
========== ============ ========== ============ =========== ============
See accompanying notes
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
The Eastern Company Savings and Investment Plan
Statements of Changes in Assets Available for Benefits
Fund Information
Daily Growth and Eastern
Dividend Income Income Common
Trust Fund Fund Fund Stock Fund Total
<S> <C> <C> <C> <C> <C>
Period from May 1, 1994
(inception of plan) to
December 31, 1994 Investment income:
Dividends $ 181 $ 545 $ 3,873 $ 265 $ 4,864
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments (563) (5,690) (2,710) (8,963)
------------ ---------- ------------ ----------- ------------
181 (18) (1,817) (2,445) (4,099)
Contributions:
Employee 10,920 32,100 117,788 35,764 196,572
Employer 1,737 5,349 18,069 5,254 30,409
------------ ---------- ------------ ----------- ------------
12,657 37,449 135,857 41,018 226,981
Interfund transfers 1,235 (635) (600) -
------------ ---------- ------------ ----------- ------------
Net increase and assets
available for benefits
at end of period $ 14,073 $ 37,431 $ 133,405 $ 37,973 $ 222,882
============ ========== ============ =========== ============
</TABLE>
23
<PAGE>
The Eastern Company Savings and Investment Plan
Notes to Financial Statements
December 31, 1996
1. Description of Plan
The Eastern Company Savings and Investment Plan (the "Plan") is a defined
contribution plan of The Eastern Company (the "Company"). The following
description of the Plan provides only general information. Participants should
refer to the Plan document for a more complete description of the Plan's
provisions.
General
The Plan was established by the Company effective May 1, 1994. The Plan covers
all full-time United States salaried employees of the Company who have worked at
least 35 hours per week during a consecutive six-month period. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
Contributions
Participants may contribute between 1% and 18% of their compensation up to the
maximum allowed by the Internal Revenue Code. The Company makes matching
contributions on the first 4% of participant contributions based on the
published annual report after-tax return on investment. The Company's match was
25% in 1996, 1995, and 1994.
Participant Accounts
Each participant's account is credited with the participant's contributions and
allocations of (a) the Company's contributions and (b) Plan earnings.
Allocations are based on participant earnings or account balances, as defined.
Forfeited balances of terminated participants' nonvested accounts are used to
reduce future Company contributions ($4,783 and $1,436 at December 31, 1996 and
1995, respectively).
Vesting
Participants are immediately vested in their voluntary contributions. Vesting in
the Company contribution portion of their accounts plus actual earnings thereon
is based on years of continuous service. A participant is 20% vested after three
years of service, 40% vested after four years and 100% vested after five years
of credited service.
24
<PAGE>
The Eastern Company Savings and Investment Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
Investment Options
Upon enrollment in the Plan, a participant may direct contributions in 10%
increments to any of four investment options as follows:
<TABLE>
<CAPTION>
Number of Participants
December 31
Name of Fund Description of Fund 1996 1995 1994
- ------------ ------------------- ----------------------------
<S> <C> <C> <C> <C>
Daily Dividend Trust Funds are invested in money
Fund market instruments 39 42 41
Income Fund Funds are invested in a diversified
portfolio of fixed-income securities 66 71 72
Growth and Income Funds are invested primarily in
Fund common stocks 132 135 132
Eastern Common Stock Funds are invested in Common
Fund Stock of The Eastern Company 64 71 69
</TABLE>
Participants may elect to change their investment options quarterly.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum of $50,000 or 50% of their account balance. Loan transactions are
treated as a transfer from (to) the investment fund to (from) the loan fund.
Loan terms range from 1-5 years or up to 10 years for the purchase of a primary
residence. The loans are secured by the balance in the participant's account and
bear interest at the prime rate (as published in the Wall Street Journal) plus
one percent, or such other rate as may be determined by the Plan Administrator
to be a reasonable rate of interest.
Payment of Benefits
On termination of service, a participant may receive a lump-sum amount equal to
the vested value of his or her account, or upon death, the participant's
beneficiary may elect to receive annual installments over a two-year period.
25
<PAGE>
The Eastern Company Savings and Investment Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
As of December 31, 1996 and 1995, there were no assets allocated but not yet
paid to participants who had withdrawn from the Plan.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100 percent vested in their accounts.
2. Significant Accounting Policies
The preparation of the accompanying financial statements requires the use of
estimates. Actual results could differ from those estimates.
Investments in mutual funds and the Company's Common Stock are stated at fair
value as estimated by reference to quoted market prices.
Administrative expenses of the Plan are paid by the Company.
3. Investments
Plan investments that represent 5 percent or more of the Plan's assets are as
follows:
December 31
1996 1995
-----------------------
Mutual funds:
Daily Dividend Trust Fund $ 71,530 $ 57,635
Income Fund 134,105 92,640
Growth and Income Fund 710,784 382,333
The Eastern Company Common Stock 128,817 83,080
------------ ------------
$ 1,045,236 $ 615,688
============ ============
26
<PAGE>
The Eastern Company Savings and Investment Plan
Notes to Financial Statements (continued)
3. Investments (continued)
The Plan's investments appreciated (depreciated) in value as follows:
December 31
1996 1995 1994
----------------------------------------
Mutual funds $ 44,391 $ 56,487 $ (6,253)
The Eastern Company Common Stock $ 7,923 (6,811) (2,710)
------------ ---------- -----------
$ 52,314 $ 49,676 $ (8,963)
============ ========== ===========
4. Income Tax Status
The Plan is qualified under the applicable section of the Internal Revenue Code
and, as such, is not subject to income tax under present tax laws. The Plan
Administrator is not aware of any course of action or series of events that have
occurred which might adversely affect the Plan's qualified status.
5. Transactions with Parties-in-Interest
The Eastern Common Stock Fund is one of the available investment options within
the Plan. This fund invests in the Common Stock of The Eastern Company. At
December 31, 1996 and 1995, the Plan owned 9,722 shares valued at $128,817 and
6,782 shares valued at $83,080, respectively.
27
<PAGE>
The Eastern Company Savings and Investment Plan
Schedule of Investments
Balance Held at Close of Value of
Period. Number of Each Item
Shares-Principal Amount at Close of
of Bonds and Notes Period
Name of Issuer and Title of Issue
- ------------------------------------------------------------------------------
December 31, 1996
Putnam-Daily Dividend Trust Fund 71,529.530 Units $ 71,530
Putnam-Income Fund 19,212.765 Units 134,105
Putnam-Growth and Income Fund 39,842.172 Units 710,784
New England Securities-Money Market Fund 1,132.770 Units 1,133
The Eastern Company-Common Stock 9,722 Shares 128,817
Participant Loans 3,099
------------------
$1,049,468
==================
December 31, 1995
Putnam-Daily Dividend Trust Fund 57,635.190 Units $ 57,635
Putnam-Income Fund 12,866.710 Units 92,640
Putnam-Growth and Income Fund 23,806.547 Units 382,333
New England Securities-Money Market Fund 10,269.000 Units 10,269
The Eastern Company-Common Stock 6,782 Shares 83,080
Participant Loans 5,337
------------------
$ 631,294
==================
28
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 1st day of May, 1996, between
THE EASTERN COMPANY, a Connecticut corporation with its principal place of
business located in Naugatuck, Connecticut, (hereinafter the "Company") and
STEDMAN G. SWEET, an individual residing at 31 Woodbury Road, Watertown,
Connecticut 06795, (hereinafter the "Employee").
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, on the terms and conditions hereinafter set
forth.
2. Term. The Term of this Agreement shall begin on May 1, 1996 and
shall continue for a period of two (2) years ending at 11:59 p.m. on April 30,
1998. Notwithstanding the foregoing, on May 1, 1997 and on each following May 1
thereafter, this Agreement shall be automatically extended for an additional
period of one (1) year. In no event, however, will the Term of this Agreement
extend beyond May 1, 2002 which is the Employee's Normal Retirement Date under
the Salaried Employees' Retirement Plan of The Eastern Company.
3. Compensation. The Company will pay to the Employee as compensation
for Employee's services hereunder an annual salary of not less than Two Hundred
Ten Thousand Dollars ($210,000.00) payable in equal installments on each pay
date for full time employees of the Company. In addition, the Company shall also
reimburse the Employee for all reasonable expenses necessarily incurred by
Employee in the performance of Employee's duties hereunder. The Employee's
salary shall be reviewed by the appropriate committee of the Board of Directors
of the Company at the same time as salaries of other executives are reviewed and
nothing in this Agreement shall be deemed to prohibit an increase in the annual
salary of the Employee if such committee so recommends and the Board of
Directors approves.
(a) During the term of this Agreement, including any renewal period,
for each fiscal year of the Company, the Employee shall have the opportunity to
earn and receive bonus incentive compensation as he may become entitled to
receive under The Eastern Company Amended and Restated Executive Incentive
Compensation Plan in effect on the date hereof (the "Incentive Plan"). It is
expressly understood and agreed, however, that after April 30, 1998, the Company
shall have the right to modify, substitute or terminate said Incentive Plan,
including, without limitation, the goals by which bonuses will be calculated and
earned.
(b) In the event that the Company breaches its obligations under this
Agreement, including, without limitation, the obligation to continue the
employment of the Employee until the termination date, then the Company shall
pay to the Employee, as liquidated damages: (a) a sum equal to his annual salary
at the then current annual rate; and (b) any compensation which would have been
payable to the Employee under the Company's Incentive Plan (or any substitute
plan) for the then current fiscal year prorated to the date his employment
terminates.
(c) In the event that the employment of the Employee is terminated as a
result of a change of control of the Company (as defined in Section 9 below)
then the Company shall pay to the Employee as liquidated damages: (i) a sum
equal to his annual salary at the then current annual rate; (ii) a sum equal to
his total compensation for the prior fiscal year of the Company; and (iii) any
compensation which would have been payable to the Employee under the Company's
Incentive Plan (or any substitute plan) had he continued in the employment of
the Company until after the close of the then current fiscal year. All payments
under this paragraph, however, will be subject to the limitations set forth in
Schedule A attached hereto and made a part hereof.
4. Duties. The Employee is engaged as the President and Chief Executive
Officer of the Company and to perform such other duties as may from time to time
be required of Employee by the Board of Directors of the Company, subject to
Section 5. The Employee agrees to serve as a member of the Board of Directors if
elected by the shareholders and as a member of the board of directors of any
subsidiary or affiliated corporation if appointed, without any additional
compensation.
5. Extent of Services. During the continuation of Employee's employment
pursuant to this Agreement the Employee shall devote his full time during
regular business hours to the business of the Company, and shall use his best
29
<PAGE>
endeavors to promote its interests and welfare. The Employee shall report to the
Board of Directors of the Company and he will carry out such duties consistent
with his position as may be reasonably assigned or delegated to him by the
Directors. The Company will not change the Employee's place of employment from
its main office in Naugatuck, Connecticut, nor change his duties so as to
necessitate a change in residence to another state, without his consent.
6. Additional Benefits. In addition to the compensation provided for in
Section 3 hereof, the Deferred Compensation Agreement for the Chief Executive
Officer of The Eastern Company as amended and restated on May , 1996, and the
Supplemental Retirement Plan for the Chief Executive Officer of The Eastern
Company dated August 16, 1994, shall remain in full force and effect, and the
Company will provide the Employee with the benefits of all its employee benefit
programs for full time executive officers of the Company including, without
limitation, any pension, profit sharing, 401(k), stock options, medical and life
insurance coverages provided to active and retired employees, together with such
additions thereto as may from time to time be made, participation to be upon the
same terms and conditions as generally relate to such full time executive
officers. It is expressly understood and agreed, however, that the Company shall
have the right to modify or substitute for any or all of such programs, provided
that the Employee will be entitled to benefits under any modified or substituted
programs which are at least as beneficial to the Employee as the programs in
effect on the commencement date of the term hereof. The Employee shall also be
entitled to a vacation each year in accordance with existing Company policy (but
in no event less than four (4) weeks) and such other holiday and similar rights
and privileges as are enjoyed generally by such full time executive officers.
7. Consent to Insurance Procedures. The Employee agrees that the
Company may from time to time apply for and take out in its own name and at its
own expense such life, health, accident or other insurance upon the Employee as
the Company may deem necessary or advisable to protect its interests hereunder.
The Employee agrees to submit to any medical or other examination necessary for
such purpose and to assist and cooperate with the Company in procuring such
insurance. The Employee agrees that Employee shall have no right, title or
interest in and to such insurance whether presently existing or hereafter
procured.
8. Nondisclosure. Employee will not, during Employee's employment or
thereafter: (i) disclose to any person, or permit any person to have access to,
any information or knowledge (including, without limitation, customer lists,
price data, marketing information, and, in addition, any information of any
present or prospective customer or consultant of the Company for whom the
Company holds information in confidence), whether patentable or not, relating to
the Company's business, manufacturing methods, tooling, processes, techniques,
products or research, obtained by Employee while in the employ of the Company,
and whether prepared by the Employee or others, to the extent such information
or knowledge constitutes Confidential Information as defined below; (ii) use any
such Confidential Information except for the Company's benefit; or (iii) copy
any papers or other records or remove them from the Company property, except as
may be necessary in the performance of Employee's duties hereunder. The Employee
agrees that information and knowledge shall be deemed Confidential Information,
unless it: (i) is already known to the Employee at the time of Employee's
receipt thereof and the Employee can demonstrate such knowledge by Employee's
written records; (ii) is or becomes publicly known through no wrongful act of
the Employee; (iii) is approved for release by written authorization of the
Company; or (iv) is not proprietary in nature, or sensitive with respect to the
Company's business or likely to aid and assist a competitor.
9. Covenant Not to Compete. Employee agrees that: (a) during the term
of Employee's employment by the Company, and (b) in the event a Change in
Control has not occurred, for the one (1) year period immediately following the
termination of such employment (such period not to include any period of
violation or period of time required for litigation to enforce this covenant),
Employee will not, without the prior written consent of the Company, render
services directly or indirectly (whether as an officer, director, consultant,
partner or otherwise) to any Conflicting Organization in any portion of the
United States or any other country in which the products of the Company are
30
<PAGE>
actively marketed or where one or more offices of the Company is now or
hereafter located (the "Territory"), except that the Employee may accept
employment with a Conflicting Organization whose business is diversified and
which, as to part of its business, is not a Conflicting Organization, provided
that the Company, prior to the Employee's accepting such employment, shall
receive from such Conflicting Organization and from the Employee written
assurances satisfactory to the Company that the Employee will not render
services directly or indirectly in connection with any Conflicting Product. The
one (1) year post-termination non-competition period set forth herein shall not
apply in the event a Change in Control has occurred.
(a) The term "Change in Control" shall mean a change in ownership or
effective control of the Company or a change in ownership of a substantial
portion of the assets of the Company. Whether or not a change in control has
occurred will be determined in conformity with the requirements of Section
280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated pursuant thereto.
(b) The term "Conflicting Organization," as used herein means any
individual or organization who or which is engaged in research on, or
development, production, assembly, processing, marketing or selling of, a
Conflicting Product. The term "Conflicting Product", as used herein, means any
product, process or service of any individual or organization, other than the
Company, its parent, affiliated or subsidiary companies, which competes, or
would compete, with a significant product with respect to which the Employee, in
the course or as a result of Employee's employment by the Company, acquires or
has access to Confidential Information, as defined in Section 8 above.
(c) It is understood that in any new employment, the Employee may use
his ordinary skill and non-confidential knowledge, even though said skill and
non-confidential knowledge may have been gained at the Company.
(d) In addition, the Employee shall not, during the term of his
employment and (in the event a Change in Control has not occurred) for one (1)
year thereafter, hold directly or indirectly an interest in any business which
is competitive with the business of the Company without the permission of the
Board of Directors. A stock ownership of five percent (5%) or less of a business
shall not be such an "interest" contemplated hereunder.
10. Assignment of Inventions. Employee assigns, and will promptly
disclose and assign, to the Company exclusively, all inventions, discoveries,
improvements, devices, tools, machines, apparatus, appliances, designs,
software, practices, processes, methods, formulae, products, trade secrets and
the like (hereinafter collectively called "inventions"), whether or not
patentable, directly or indirectly useful in or related to the Company's
business, which Employee shall make, originate, conceive or reduce to practice,
either solely or jointly with others, during the term of Employee's employment
by the Company; and Employee further agrees that during and after the term of
Employee's employment, without charge to the Company but at the Company's
expense, Employee will execute, acknowledge and deliver any and all papers and
take any other reasonable actions necessary or helpful for the Company to obtain
patents for its own benefit on said inventions in any and all countries or to
otherwise protect and secure the Company's interests in said inventions; said
patents, applications for patents and inventions to remain the property of the
Company whether patented or not.
11. Company Property. Employee recognizes, further, that all tools,
equipment and parts and all drawings, blueprints, software, access codes, data,
records, reports, notes, compilations, other recorded matter, and copies or
reproductions thereof, relating to the Company's operations, activities or
business, made or received by Employee during any period of Employee's
employment with the Company are and shall be the property of the Company
exclusively, and Employee will keep the same at all times subject to its control
and, unless the Company otherwise consents in writing, will surrender the same
at the termination of Employee's employment, if not before.
12. Remedies for Breach. In the event of Employee's breach or
threatened breach of any provision of Sections 8 through 11 hereof, the Company
shall be entitled to an injunction restraining Employee from such breach.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it, including the recovery of damages from Employee.
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<PAGE>
13. Severance Provision. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein. If, moreover, any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be excessively broad as to time, duration, geographical scope, activity
or subject, it shall be construed, by limiting and reducing it, so as to be
enforceable to the fullest extent compatible with the applicable law as it shall
then appear.
14. Disability Termination. If the Employee shall at any time be
incapacitated by illness from rendering services of the character contemplated
hereby for six (6) consecutive calendar months the Company may terminate this
Agreement thereafter upon giving not less than sixty (60) days prior written
notice to the Employee of its intention to do so and specifying said termination
date. If the Employee shall have resumed his duties hereunder prior to the
expiration of such sixty (60) day period, such notice of termination shall be
deemed of no force or effect and this Agreement shall continue in full force as
though such notice of termination had not been given. Upon termination of this
Agreement under this Section 14, all of the respective obligations of the
Company and the Employee under this Agreement shall terminate, except those
obligations which would continue after expiration of the term of this Agreement
had it continued until such date.
15. Non-Waiver. This Agreement may be amended, modified, superseded or
terminated, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
Employee and the Company, or, in the case of a waiver, by or on behalf of the
party or parties waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by any party of any
conditions, or of any breach of any term, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed to be
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of any breach of any other term, covenant,
representation or warranty.
16. Binding Effect. This Agreement and the rights and obligations
hereunder shall inure to the benefit of, and be binding upon, the heirs,
executors, administrators and assigns of the Employee and the Company's
successors and assigns; but this Agreement shall not be assignable by either
party without the consent of the other.
17. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
Employee's residence in the case of the Employee or to its principal office in
the case of the Company.
18. Entire Agreement. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. This Agreement may not be modified or amended other than by an
agreement in writing and signed by the parties hereto. This Agreement replaces
and supercedes the existing Employment Agreement between the parties.
19. Applicable Law. This Agreement shall be interpreted in accordance
with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 30th day of May, 1996, effective as of May 1, 1996.
THE EASTERN COMPANY
/s/ Stedman G.Sweet /s/ Russell G. McMillen
- ---------------------------------- By--------------------------------
Stedman G.Sweet Russell G. McMillen
Chairman
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<PAGE>
SCHEDULE A
In the event that payments become due under Section 3 hereof because of
termination which is the result of a "change in control" as used for purposes of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then
the present value of all payments to be made to the Employee following such
change in control (after taking into account other payments included within said
Section 280G) shall not exceed 2.99 times the average of the annual compensation
which was payable to the Employee by the Company (or any corporation affiliated
with the Company ("Affiliate") within the meaning of Section 1504 of the Code)
and includable in his gross income for Federal income tax purposes for the five
calendar years (the "Base Period") preceding the calendar year in which a change
in control of the Company occurred. Such average shall be determined in
accordance with any temporary or final regulations promulgated under Section
280G(d) of the Code. Compensation payable to the Employee by the Company (or an
Affiliate) shall include every type and form of compensation includible in his
gross income in respect of his employment by the Company (or an Affiliate),
including compensation income recognized as a result of the exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G(d) of
the Code.
33
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 1st day of May, 1996, between
THE EASTERN COMPANY, a Connecticut corporation with its principal place of
business located in Naugatuck, Connecticut, (hereinafter the "Company") and
DONALD E. WHITMORE, JR., an individual residing at 99 Deerbrooke Circle,
Southington, Connecticut 06489, (hereinafter the "Employee").
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, on the terms and conditions hereinafter set
forth.
2. Term. The Term of this Agreement shall begin on May 1, 1996 and
shall continue for a period of two (2) years ending at 11:59 p.m. on April 30,
1998. Notwithstanding the foregoing, on May 1, 1997 and on each following May 1
thereafter, this Agreement shall be automatically extended for an additional
period of one (1) year. In no event, however, will the Term of this Agreement
extend beyond May 1, 2000 which is the Employee's Normal Retirement Date under
the Salaried Employees' Retirement Plan of The Eastern Company.
3. Compensation. The Company will pay to the Employee as compensation
for Employee's services hereunder an annual salary of not less than One Hundred
Thirty Thousand Five Hundred Dollars ($130,500.00) payable in equal installments
on each pay date for full time employees of the Company. In addition, the
Company shall also reimburse the Employee for all reasonable expenses
necessarily incurred by Employee in the performance of Employee's duties
hereunder. The Employee's salary shall be reviewed by the appropriate committee
of the Board of Directors of the Company at the same time as salaries of other
executives are reviewed and nothing in this Agreement shall be deemed to
prohibit an increase in the annual salary of the Employee if such committee so
recommends and the Board of Directors approves.
(a) During the term of this Agreement, including any renewal period,
for each fiscal year of the Company, the Employee shall have the opportunity to
earn and receive bonus incentive compensation as he may become entitled to
receive under The Eastern Company Executive Incentive Compensation Plan adopted
on the date hereof (the "Incentive Plan"). It is expressly understood and
agreed, however, that after April 30, 1998, the Company shall have the right to
modify, substitute or terminate said Incentive Plan, including, without
limitation, the goals by which bonuses will be calculated and earned.
(b) In the event that the Company breaches its obligations under this
Agreement, including, without limitation, the obligation to continue the
employment of the Employee until the termination date, then the Company shall
pay to the Employee, as liquidated damages: (a) a sum equal to his annual salary
at the then current annual rate; and (b) any compensation which would have been
payable to the Employee under the Company's Incentive Plan (or any substitute
plan) for the then current fiscal year prorated to the date his employment
terminates.
(c) In the event that the employment of the Employee is terminated as a
result of a change of control of the Company (as defined in Section 9 below)
then the Company shall pay to the Employee as liquidated damages: (i) a sum
equal to his annual salary at the then current annual rate; (ii) a sum equal to
his total compensation for the prior fiscal year of the Company; and (iii) any
compensation which would have been payable to the Employee under the Company's
Incentive Plan (or any substitute plan) had he continued in the employment of
the Company until after the close of the then current fiscal year. All payments
under this paragraph, however, will be subject to the limitations set forth in
Schedule A attached hereto and made a part hereof.
4. Duties. The Employee is engaged as the Vice President and Chief
Financial Officer of the Company and to perform such other duties as may from
time to time be required of Employee by the Board of Directors of the Company,
subject to Section 5. The Employee agrees to serve as a member of the Board of
Directors if elected by the shareholders and as a member of the board of
directors of any subsidiary or affiliated corporation if appointed, without any
additional compensation.
5. Extent of Services. During the continuation of Employee's employment
pursuant to this Agreement the Employee shall devote his full time during
regular business hours to the business of the Company, and shall use his best
endeavors to promote its interests and welfare. The Employee shall report to the
Board of Directors of the Company and he will carry out such duties consistent
with his position as may be reasonably assigned or delegated to him by the
Directors. The Company will not change the Employee's place of employment from
its main office in Naugatuck, Connecticut, nor change his duties so as to
necessitate a change in residence to another state, without his consent.
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<PAGE>
6. Additional Benefits. In addition to the compensation provided for in
Section 3 hereof, the Company will provide the Employee with the benefits of all
its employee benefit programs for full time executive officers of the Company
including, without limitation, any pension, profit sharing, 401(k), stock
options, medical and life insurance coverages provided to active and retired
employees, together with such additions thereto as may from time to time be
made, participation to be upon the same terms and conditions as generally relate
to such full time executive officers. It is expressly understood and agreed,
however, that the Company shall have the right to modify or substitute for any
or all of such programs, provided that the Employee will be entitled to benefits
under any modified or substituted programs which are at least as beneficial to
the Employee as the programs in effect on the commencement date of the term
hereof. The Employee shall also be entitled to a vacation each year in
accordance with existing Company policy (but in no event less than four (4)
weeks) and such other holiday and similar rights and privileges as are enjoyed
generally by such full time executive officers.
7. Consent to Insurance Procedures. The Employee agrees that the
Company may from time to time apply for and take out in its own name and at its
own expense such life, health, accident or other insurance upon the Employee as
the Company may deem necessary or advisable to protect its interests hereunder.
The Employee agrees to submit to any medical or other examination necessary for
such purpose and to assist and cooperate with the Company in procuring such
insurance. The Employee agrees that Employee shall have no right, title or
interest in and to such insurance whether presently existing or hereafter
procured.
8. Nondisclosure. Employee will not, during Employee's employment or
thereafter: (i) disclose to any person, or permit any person to have access to,
any information or knowledge (including, without limitation, customer lists,
price data, marketing information, and, in addition, any information of any
present or prospective customer or consultant of the Company for whom the
Company holds information in confidence), whether patentable or not, relating to
the Company's business, manufacturing methods, tooling, processes, techniques,
products or research, obtained by Employee while in the employ of the Company,
and whether prepared by the Employee or others, to the extent such information
or knowledge constitutes Confidential Information as defined below; (ii) use any
such Confidential Information except for the Company's benefit; or (iii) copy
any papers or other records or remove them from the Company property, except as
may be necessary in the performance of Employee's duties hereunder. The Employee
agrees that information and knowledge shall be deemed Confidential Information,
unless it: (i) is already known to the Employee at the time of Employee's
receipt thereof and the Employee can demonstrate such knowledge by Employee's
written records; (ii) is or becomes publicly known through no wrongful act of
the Employee; (iii) is approved for release by written authorization of the
Company; or (iv) is not proprietary in nature, or sensitive with respect to the
Company's business or likely to aid and assist a competitor.
9. Covenant Not to Compete. Employee agrees that: (a) during the term
of Employee's employment by the Company, and (b) in the event a Change in
Control has not occurred, for the two (2) year period immediately following the
termination of such employment (such period not to include any period of
violation or period of time required for litigation to enforce this covenant),
Employee will not, without the prior written consent of the Company, render
services directly or indirectly (whether as an officer, director, consultant,
partner or otherwise) to any Conflicting Organization in any portion of the
United States or any other country in which the products of the Company are
actively marketed or where one or more offices of the Company is now or
hereafter located (the "Territory"), except that the Employee may accept
employment with a Conflicting Organization whose business is diversified and
which, as to part of its business, is not a Conflicting Organization, provided
that the Company, prior to the Employee's accepting such employment, shall
receive from such Conflicting Organization and from the Employee written
assurances satisfactory to the Company that the Employee will not render
services directly or indirectly in connection with any Conflicting Product. The
two (2) year post-termination non-competition period set forth herein shall not
apply in the event a Change in Control has occurred.
(a) The term "Change in Control" shall mean a change in ownership or
effective control of the Company or a change in ownership of a substantial
portion of the assets of the Company. Whether or not a change in control has
occurred will be determined in conformity with the requirements of Section
280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated pursuant thereto.
(b) The term "Conflicting Organization," as used herein means any
individual or organization who or which is engaged in research on, or
35
<PAGE>
development, production, assembly, processing, marketing or selling of, a
Conflicting Product. The term "Conflicting Product", as used herein, means any
product, process or service of any individual or organization, other than the
Company, its parent, affiliated or subsidiary companies, which competes, or
would compete, with a significant product with respect to which the Employee, in
the course or as a result of Employee's employment by the Company, acquires or
has access to Confidential Information, as defined in Section 8 above.
(c) It is understood that in any new employment, the Employee may use
his ordinary skill and non-confidential knowledge, even though said skill and
non-confidential knowledge may have been gained at the Company.
(d) In addition, the Employee shall not, during the term of his
employment and (in the event a Change in Control has not occurred) for two (2)
years thereafter, hold directly or indirectly an interest in any business which
is competitive with the business of the Company without the permission of the
Board of Directors. A stock ownership of five percent (5%) or less of a business
shall not be such an "interest" contemplated hereunder.
10. Assignment of Inventions. Employee assigns, and will promptly
disclose and assign, to the Company exclusively, all inventions, discoveries,
improvements, devices, tools, machines, apparatus, appliances, designs,
software, practices, processes, methods, formulae, products, trade secrets and
the like (hereinafter collectively called "inventions"), whether or not
patentable, directly or indirectly useful in or related to the Company's
business, which Employee shall make, originate, conceive or reduce to practice,
either solely or jointly with others, during the term of Employee's employment
by the Company; and Employee further agrees that during and after the term of
Employee's employment, without charge to the Company but at the Company's
expense, Employee will execute, acknowledge and deliver any and all papers and
take any other reasonable actions necessary or helpful for the Company to obtain
patents for its own benefit on said inventions in any and all countries or to
otherwise protect and secure the Company's interests in said inventions; said
patents, applications for patents and inventions to remain the property of the
Company whether patented or not.
11. Company Property. Employee recognizes, further, that all tools,
equipment and parts and all drawings, blueprints, software, access codes, data,
records, reports, notes, compilations, other recorded matter, and copies or
reproductions thereof, relating to the Company's operations, activities or
business, made or received by Employee during any period of Employee's
employment with the Company are and shall be the property of the Company
exclusively, and Employee will keep the same at all times subject to its control
and, unless the Company otherwise consents in writing, will surrender the same
at the termination of Employee's employment, if not before.
12. Remedies for Breach. In the event of Employee's breach or
threatened breach of any provision of Sections 8 through 11 hereof, the Company
shall be entitled to an injunction restraining Employee from such breach.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it, including the recovery of damages from Employee.
13. Severance Provision. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein. If, moreover, any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be excessively broad as to time, duration, geographical scope, activity
or subject, it shall be construed, by limiting and reducing it, so as to be
enforceable to the fullest extent compatible with the applicable law as it shall
then appear.
14. Disability Termination. If the Employee shall at any time be
incapacitated by illness from rendering services of the character contemplated
hereby for six (6) consecutive calendar months the Company may terminate this
Agreement thereafter upon giving not less than sixty (60) days prior written
notice to the Employee of its intention to do so and specifying said termination
date. If the Employee shall have resumed his duties hereunder prior to the
expiration of such sixty (60) day period, such notice of termination shall be
deemed of no force or effect and this Agreement shall continue in full force as
though such notice of termination had not been given. Upon termination of this
Agreement under this Section 14, all of the respective obligations of the
Company and the Employee under this Agreement shall terminate, except those
obligations which would continue after expiration of the term of this Agreement
had it continued until such date.
36
<PAGE>
15. Non-Waiver. This Agreement may be amended, modified, superseded or
terminated, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
Employee and the Company, or, in the case of a waiver, by or on behalf of the
party or parties waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by any party of any
conditions, or of any breach of any term, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed to be
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of any breach of any other term, covenant,
representation or warranty.
16. Binding Effect. This Agreement and the rights and obligations
hereunder shall inure to the benefit of, and be binding upon, the heirs,
executors, administrators and assigns of the Employee and the Company's
successors and assigns; but this Agreement shall not be assignable by either
party without the consent of the other.
17. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
Employee's residence in the case of the Employee or to its principal office in
the case of the Company.
18. Entire Agreement. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. This Agreement may not be modified or amended other than by an
agreement in writing and signed by the parties hereto. This Agreement replaces
and supercedes the existing Employment Agreement between the parties.
19. Applicable Law. This Agreement shall be interpreted in accordance
with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 30th day of May, 1996, effective as of May 1, 1996.
THE EASTERN COMPANY
/s/ Donald E. Whitmore, Jr. /s/ Stedman G. Sweet
- -------------------------------- ----------------------------------------
By
Donald E. Whitmore, Jr. Stedman G. Sweet
President & Chief Executive Officer
37
<PAGE>
SCHEDULE A
In the event that payments become due under Section 3 hereof because of
termination which is the result of a "change in control" as used for purposes of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then
the present value of all payments to be made to the Employee following such
change in control (after taking into account other payments included within said
Section 280G) shall not exceed 2.99 times the average of the annual compensation
which was payable to the Employee by the Company (or any corporation affiliated
with the Company ("Affiliate") within the meaning of Section 1504 of the Code)
and includable in his gross income for Federal income tax purposes for the five
calendar years (the "Base Period") preceding the calendar year in which a change
in control of the Company occurred. Such average shall be determined in
accordance with any temporary or final regulations promulgated under Section
280G(d) of the Code. Compensation payable to the Employee by the Company (or an
Affiliate) shall include every type and form of compensation includable in his
gross income in respect of his employment by the Company (or an Affiliate),
including compensation income recognized as a result of the exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G(d) of
the Code.
38
<PAGE>
AMENDED AND RESTATED
DEFERRED COMPENSATION AGREEMENT
FOR THE CHIEF EXECUTIVE OFFICER OF
THE EASTERN COMPANY
Table of Contents
Page
ARTICLE 1 DESIGNATION AND PURPOSE
1.1 Designation 41
1.2 Purpose 41
ARTICLE 2 DEFINITIONS 41
ARTICLE 3 DEFERRED BENEFITS
3.1 Amount of Deferred Benefits 42
3.2 Payment of Deferred Benefits 42
ARTICLE 4 DEATH BENEFITS
4.1 Amount of Death Benefits 42
ARTICLE 5 TERMINATION OF EMPLOYMENT
5.1Vested Benefits 42
5.2Prorata Vested Benefits 42
ARTICLE 6 OTHER PROVISIONS
6.1 Funding 43
6.2 Other Plan Benefits 43
6.3 Consent to Insurance Procedures 43
6.4 Benefits Not Assignable 43
6.5 Assumption of Agreement by Successor 44
ARTICLE 7 TERMINATION OF BENEFIT PAYMENTS
7.1 Termination of Benefit Payments 44
ARTICLE 8 ADMINISTRATION
8.1 Administrator 44
8.2 Powers of Administrator 44
8.3 Facility of Payment 44
39
<PAGE>
ARTICLE 9 BENEFIT CLAIMS PROCEDURE
9.1 Claims for Benefits 45
9.2 Request for Review of Denial 45
9.3 Decision on Review of Denial 45
ARTICLE 10 AMENDMENT AND TERMINATION
10.1 Right to Amend 45
10.2 Right to Terminate 45
ARTICLE 11 MISCELLANEOUS
11.1 Titles are for Reference Only 45
11.2 Construction 45
11.3 No Contract 46
11.4 Spouse's Rights 46
40
<PAGE>
AMENDED AND RESTATED
DEFERRED COMPENSATION AGREEMENT
FOR THE CHIEF EXECUTIVE OFFICER OF
THE EASTERN COMPANY
The Eastern Company, a Connecticut corporation having its principal
office at 112 Bridge Street, Naugatuck, CT 06770 (hereinafter "Company"), does
hereby amend and restate the deferred compensation agreement with its chief
executive officer dated August 16, 1994 on the terms and conditions hereinafter
set forth:
ARTICLE 1
DESIGNATION AND PURPOSE
1.1 Designation. The Agreement is designated the "Deferred Compensation
Agreement for the Chief Executive Officer of The Eastern Company".
1.2 Purpose. Under the direction and leadership of its chief executive
officer, the Company has shown substantial growth in size and earnings. The
purpose of this Agreement is to assure the Company that its chief executive
officer will remain with the Company and continue his direction and leadership
by providing him with deferred compensation benefits.
ARTICLE 2
DEFINITIONS
When used herein, each of the words and phrases defined hereinafter
shall have the following meaning unless a different meaning is clearly required
by the context of the Agreement.
2.1 "Agreement" shall mean the Deferred Compensation Agreement for the
Chief Executive Officer of The Eastern Company set forth herein and in all
subsequent amendments hereto.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3 "Company" shall mean The Eastern Company and any successor to any
such entity which assumes the obligations of this Agreement by execution of a
written agreement adopting this Agreement.
2.4 "Deferred Benefit" shall mean a monthly benefit of five thousand
dollars ($5,000), payable for a period of one hundred eighty (180) consecutive
months.
2.5 "Executive" shall mean Stedman G. Sweet, the chief executive
officer of the Company.
2.6 "Spouse" shall mean the person who is legally married to the
Executive on the earlier of his date of death or the date of his Termination of
Employment.
2.7 "Termination of Employment" shall mean termination of employment
with the Company and all affiliates of the Company, whether voluntarily or
involuntarily, including death.
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<PAGE>
ARTICLE 3
DEFERRED BENEFITS
3.1 Amount of Deferred Benefits. If the Executive retires upon reaching
age sixty-five (65) (or under certain other circumstances described in Article 5
below) he shall be entitled to receive the Deferred Benefit hereunder.
3.2 Payment of Deferred Benefits. Upon the Executive's retirement at
age sixty-five (65) (or under certain other circumstances described in Article 5
below), the Company shall commence payment of the Deferred Benefit described in
Section 3.1 (and defined in Section 2.4) as of the date of his Termination of
Employment. Such benefit shall be payable in monthly payments for a period of
one hundred eighty (180) consecutive months. Earlier payment of vested benefits
will commence as provided in Article 5 below.
ARTICLE 4
DEATH BENEFITS
4.1 Amount of Death Benefits.
(a) In the event of Termination of Employment of the Executive by his
death, the Executive's surviving Spouse shall receive the Deferred Benefit. If,
however, the Executive has not attained age sixty-five (65) at the time of
Termination of Employment by death, then the surviving spouse shall only receive
a reduced Deferred Benefit in the amount of twenty five hundred dollars
($2,500.00) per month. The Deferred Benefit shall commence on the first day of
the month following the Executive's death and shall be payable for a period of
one hundred eighty (180) consecutive months. If the Executive's surviving Spouse
dies prior to the payment of one hundred eighty (180) consecutive monthly
payments, all further payments shall cease.
(b) In the event the Executive dies after the payment of the Deferred
Benefit has commenced pursuant to Section 3.2 or Section 5.1 but before the
receipt of one hundred eighty (180) consecutive monthly payments, the balance of
said payments shall be paid to the Executive's surviving Spouse. If the
Executive's surviving Spouse dies prior to the payment of an aggregate of one
hundred eighty (180) monthly payments to the Executive and his surviving Spouse,
all further payments shall cease.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 Vested Benefits. The Executive shall be entitled to receive a
reduced Deferred Benefit under this Agreement if he incurs a Termination of
Employment before he reaches age sixty-five (65). The reduced Deferred Benefit
shall be calculated on the basis of a twenty-five hundred dollars ($2,500.00)
monthly benefit adjusted in accordance with Section 5.2 below. When the
Executive reaches age sixty-five (65) without a Termination of Employment having
occurred, the Deferred Benefit shall be fully vested and paid in accordance with
Section 3.2 above.
5.2 Prorata Vested Benefits. In the event that the Termination of
Employment occurs prior to reaching age sixty-five (65) then the reduced
Deferred Benefit shall be adjusted by multiplying each monthly payment by a
fraction, the numerator of which is the number of months (or portion thereof)
which have elapsed since August 1, 1994 to the effective date of the Termination
of Employment and the denominator of which is eighty-four (84). The resulting
amount shall be the adjusted reduced Deferred Benefit.
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<PAGE>
ARTICLE 6
OTHER PROVISIONS
6.1 Funding.
(a) It is the intention of the Company, the Executive, his surviving
Spouse, and each other party to the Agreement that the arrangements hereunder be
unfunded for tax purposes and for purposes of Title I of ERISA. The rights of
the Executive and his surviving Spouse shall be solely those of a general
unsecured creditor of the Company. The Agreement constitutes a mere promise by
the Company to make benefit payments in the future.
(b) Any trust which may be created by the Company and any assets which
may be held by the trust to assist the Company in meeting its obligations under
the Agreement will conform to the terms of the model trust described in Revenue
Procedure 92-64 issued by the Internal Revenue Service (or any successor
thereto).
(c) The Company may direct that payments be made before they would
otherwise be due if, based on a change in the Federal tax or revenue laws, a
published ruling or similar announcement issued by the Internal Revenue Service,
a regulation issued by the Secretary of the Treasury, a decision by a court of
competent jurisdiction involving the Executive or his Spouse or a closing
agreement made under Section 7121 of the Code that is approved by the Internal
Revenue Service and involved the Executive or his Spouse, the Company determines
that the Executive or his Spouse has or will recognize income for Federal income
tax purposes with respect to amounts that are or will be payable under the
Agreement before they are to be paid. Amounts so paid shall then be used as an
offset to the benefits, if any, thereafter payable hereunder.
6.2 Other Plan Benefits. Nothing in this Agreement shall prevent the
Executive from receiving, in addition to any amounts he may be entitled to
receive under this Agreement, any amounts which may be distributable to him at
any time under the terms of any qualified employee benefit plan or any other
non-qualified or incentive plan or arrangement of the Company which is now in
effect or which may hereafter be adopted.
6.3 Consent to Insurance Procedures. In order to be eligible for
benefits hereunder, the Executive must agree that the Company may from time to
time apply for and take out in its own name and at its own expense such life,
health, accident or other insurance upon the Executive as the Company may deem
necessary or advisable to protect its interests hereunder. The Executive must
also agree to submit to any medical or other examination necessary for such
purpose and to assist and cooperate with the Company in procuring such
insurance. The Executive and his surviving Spouse must also agree that they
shall have no right, title or interest in and to such insurance whether
presently existing or hereafter procured.
6.4 Benefits Not Assignable. Except as required by law, the right of
the Executive or his surviving Spouse to any benefit or payment under the
Agreement: (a) shall not be subject to voluntary or involuntary anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Executive or his surviving Spouse; (b) shall not
be considered an asset of the Executive or his surviving Spouse in the event of
any divorce, insolvency or bankruptcy; and (c) shall not be subject to
attachment, execution, garnishment, sequestration or other legal or equitable
process. In the event that the Executive or his surviving Spouse who is
receiving or is entitled to receive benefits under the Agreement attempts to
assign, transfer or dispose of such right, or if an attempt is made to subject
said right to such process, such assignment, transfer, disposition or process
shall, unless otherwise required by law, be null and void.
43
<PAGE>
6.5 Assumption of Agreement by Successor. The Company shall not merge
or consolidate with any other corporation or sell substantially all of its
assets to another entity unless and until such corporation or entity shall
expressly assume the duties of the Company set forth herein.
ARTICLE 7
TERMINATION OF BENEFIT PAYMENTS
7.1 Termination of Benefit Payments. In the event that the Executive
engages, either directly or indirectly in any manner or capacity, as advisor,
principal, agent, partner, officer, director, employee or otherwise, in any
business which is competitive with the business of the Company (except with the
written consent of the Company), then the Executive's right to future benefit
payments under this Agreement shall terminate. The failure of the Executive to
satisfy this condition within ninety (90) days after receipt of written
notification by the Company of any such failure shall result in the forfeiture
of all rights to subsequent benefit payments under this Agreement, but shall not
give rise to any claim for the return of, or result in the forfeiture of, any
such payments theretofore made or accrued.
Notwithstanding the above, however, the foregoing shall not prohibit
the Executive from owning stock or other securities of any such competitive
business, provided such ownership interest constitutes a relatively
insubstantial percentage of the total outstanding stock or securities of such
competitor, the Executive in fact does not have the power to control or direct
the management or policies of such competitor, and the Executive does not serve
in any of the capacities recited in this Section 7.1 with respect to such
competitor, except with the written consent of the Company.
ARTICLE 8
ADMINISTRATION
8.1 Administrator. The board of directors of the Company shall have the
responsibility for the administration of the Agreement. The board of directors
may, by written instruction, designate one or more persons to carry out any
specified responsibilities under the Agreement and may, in the same manner,
revoke such delegation of responsibilities; provided, however, that in no event
may the board of directors appoint the Executive to carry out any administrative
responsibilities under the Agreement. Upon the designation of such a person or
persons and the delegation of such responsibilities to him or them, all
references in this Agreement to "Administrator" shall be deemed to refer to such
person or persons.
8.2 Powers of Administrator. The Administrator shall have such
authority and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following:
(a) to construe and interpret the Agreement, decide all questions
of eligibility for and determine the amount and time of payment of any
benefits hereunder;
(b) to prescribe procedures to be followed by the Executive and his
surviving Spouse for filing applications for benefits;
(c) to prepare and distribute information explaining the Agreement;
and
(d) to appoint or employ individuals to assist in the
administration of the Agreement and any other agents it deems advisable,
including legal counsel (who may be counsel for the Company).
8.3 Facility of Payment. Whenever, in the Administrator's opinion, a
person entitled to receive any payment of a benefit or installment thereof
44
<PAGE>
hereunder is under a legal disability or is incapacitated in any way so as to be
unable to manage his financial affairs, the Administrator may issue directions
that payments shall be made to another person for his benefit, or the
Administrator may direct that payments be applied for the benefit of such person
in such manner as the Administrator considers advisable. Any payment of a
benefit or installment thereof in accordance with the provisions of this Section
8.3 shall be a complete discharge of any liability for the making of such
payment under the provisions of the Agreement.
ARTICLE 9
BENEFIT CLAIMS PROCEDURE
9.1 Claims for Benefits. Any claim for benefits under the Agreement
shall be made in writing to the Administrator. If such claim for benefits is
wholly or partially denied, the Administrator shall, within thirty (30) days
after receipt of the claim, notify the claimant of the denial of the claim. Such
notice of denial: (a) shall be in writing; (b) shall be written in a manner
calculated to be understood by the claimant; and (c) shall contain (i) the
specific reason or reasons for denial of the claim, (ii) a specific reference to
the pertinent provisions of the Agreement upon which the denial is based, (iii)
a description of any additional material or information necessary to perfect the
claim, along with an explanation of why such material or information is
necessary, and (iv) an explanation of the claim review procedure.
9.2 Request for Review of Denial. Within sixty (60) days after the
receipt by the claimant of a written notice of denial of the claim, or such
later time as shall be deemed reasonable taking into account the nature of the
benefit subject to the claim and any other attendant circumstances, the claimant
may file a written request with the Administrator that it conduct a full and
fair review of the denial of the claim for benefits.
9.3 Decision on Review of Denial. The Administrator shall deliver to
the claimant a written decision on the claim within thirty (30) days after
receipt of the aforesaid request for review, except that if there are special
circumstances (such as the need to hold a hearing) which require an extension of
time for processing, the aforesaid thirty (30) day period shall be extended to
sixty (60) days. Such decision shall: (a) be written in a manner calculated to
be understood by the claimant; (b) include the specific reason or reasons for
the decision; and (c) contain a specific reference to the pertinent provisions
of the Agreement upon which the decision is based.
ARTICLE 10
AMENDMENT AND TERMINATION
10.1 Right to Amend. This Agreement may be altered, changed or amended
only by a writing signed by the Executive and the Company.
10.2 Right to Terminate. This Agreement may be terminated only by a
writing signed by the Executive and the Company.
ARTICLE 11
MISCELLANEOUS
11.1 Titles are for Reference Only. The titles in this Agreement are
for reference only. In the event of a conflict between a title and the content
of a section, the content of the section shall control.
11.2 Construction. The provisions of the Agreement shall be
interpreted, construed and administered in accordance with the laws of the State
of Connecticut.
45
<PAGE>
11.3 No Contract. This Agreement shall not be deemed a contract of
employment with the Executive, nor shall any provision hereof restrict the right
of the Company or any of its subsidiaries to terminate the Executive's
employment.
11.4 Spouse's Rights. Wherever the rights of the Executive are stated
or limited in the Agreement, his Spouse shall be bound thereby.
IN WITNESS WHEREOF, the undersigned has executed this Agreement at
Naugatuck, Connecticut on the 30th day of May, 1996.
THE EASTERN COMPANY
By /s/ Russell G. McMillen
--------------------------
Its Chairman
ACCEPTED AND AGREED TO:
/s/ Stedman G. Sweet
-------------------------
Stedman G. Sweet
46
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11 -- Statement Re: Computation of Per Share Earnings
Fiscal Year Ended
December 28 December 30 December 31
1996 1995 1994
PRIMARY
<S> <C> <C> <C>
Average shares outstanding 2,698,774 2,771,840 2,771,842
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 38,506 41,737 59,985
---------- ---------- ----------
Total 2,737,280 2,813,577 2,831,827
========== ========== ==========
Income From Continuing Operations $ 879,817 $2,747,142 $2,437,401
========== ========== ==========
Net Income $ 879,817 $2,490,498 $2,642,740
========== ========== ==========
Income From Continuing
Operations per Share $ 0.32 $ 0.98 $ 0.86
========== ========== ==========
Net Income per Share $ 0.32 $ 0.89 $ 0.93
========== ========== ==========
Fully Diluted
Average shares outstanding 2,698,774 2,771,840 2,771,842
Net effect of dilutive stock options
based on the treasury stock method using
the year-end market price, if
higher than average market price 38,506 41,737 59,985
---------- ---------- ----------
Total 2,737,280 2,813,577 2,831,827
========== ========== ==========
Income From Continuing Operations $ 879,817 $2,747,142 $2,437,401
========== ========== ==========
Net Income $ 879,817 $2,490,498 $2,642,740
========== ========== ==========
Income From Continuing
Operations per Share $ 0.32 $ 0.98 $ 0.86
========== ========== ==========
Net Income per Share $ 0.32 $ 0.89 $ 0.93
========== ========== ==========
</TABLE>
47
<PAGE>
(This Page Intentionally Left Blank)
48
<PAGE>
The Eastern Company
Annual Report 1996
[FRONT COVER]
49
<PAGE>
[INSIDE FRONT COVER]
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $57,853,669 $59,351,783
Income Before Income Taxes From Continuing Operations 1,527,012 4,274,623
Income (Loss):
Continuing Operations 879,817 2,747,142
Discontinued Operations -- (256,644)
Net Income 879,817 2,490,498
Income (Loss) Per Share:
Continuing Operations .33 .99
Discontinued Operations -- (.09)
Net Income .33 .90
Dividends Per Share .46 .46
Book Value Per Share 10.88 10.75
Working Capital Per Share 5.47 6.22
Current Ratio 2.91 to 1 3.92 to 1
Capital Expenditures 2,915,041 3,319,663
Depreciation and Amortization 2,952,876 2,628,319
Return on Shareholders' Equity 3% 8%
Number of Employees 494 489
Number of Stockholders 881 731
Per Share data based on the weighted average number of outstanding shares during
each year.
</TABLE>
50
<PAGE>
[GRAPH IN TABULAR FORM]
SALES
(in millions of dollars)
1992 1993 1994* 1995* 1996
- -------- -------- -------- -------- --------
$60,060 $52,546 $58,381 $59,352 $57,854
*Reclassified to reflect discontinued operation
[GRAPH IN TABULAR FORM]
EARNINGS
(per share)
1992* 1993 1994 1995 1996
- -------- -------- -------- -------- --------
1.10 1.01 .95 .90 .33
*Total per share earnings excluding cumulative effects of accounting changes.
[GRAPH IN TABULAR FORM]
ANNUAL DIVIDENDS
(per share)
1992* 1993 1994 1995 1996
- -------- -------- -------- -------- --------
.45 .46 .46 .46 .46
[GRAPH IN TABULAR FORM]
Shareholders' Equity
(per share)
1992* 1993 1994 1995 1996
- -------- -------- -------- -------- --------
9.77 10.33 10.77 10.75 10.88
Cash Dividends Rates and Stock Splits 1996-1967
1992 -- 9.5% increase
1991 -- 12.5% increase,
50% stock dividend
1988 -- 12% increase,
2 for 1 split
1987 -- $1.00 year-end extra
1984 -- 43% increase
1982 -- 50% decrease
1979 -- 11% increase
1977 -- 14% increase,
3 for 2 split
1976 -- 27% increase, plus
20 cent year-end extra
1975 -- 30 cent year-end extra
1974 -- 25% increase, plus
11 cent year-end extra
1973 -- 10% increase,
5 for 4 split
1972 -- 4% increase
1970 -- 3% increase,
3 for 2 split
1967 -- 17% increase
PAGE 1 OF ANNUAL REPORT
51
<PAGE>
To Our Shareholders:
It has been an active year for The Eastern Company. We continue to implement our
strategic plan to build long-term value for shareholders with the expectation
that these initiatives will significantly increase our operating profit for
1997. In addition, we continue to fight off a hostile takeover attempt, which
the Board unanimously concluded was not in the best interest of Eastern's
shareholders.
Earnings for 1996 were $880,000, or $.33 per share, on sales of
$57,854,000. Earnings would have been $.50 per share without the cost of
fighting the takeover attempt. Last year's earnings were $2,490,000, or $.90 per
share on sales of $59,352,000.
We have implemented a number of growth initiatives to position Eastern
with greater strength for 1997 and the future and to offset last year's expected
declines in two of our major markets--underground mining and trucks and
trailers. They are:
Purchase of a Complementary Product Line
To compensate for the contraction of the underground mining market, we
purchased from Excel Mining Systems certain assets associated with a line
of expansion fasteners. The acquisition of these assets has significantly
strengthened our position as the primary supplier to this market. We are
redesigning and tooling some of these products to make them compatible
with our manufacturing processes. With the addition of this product line
to our current product offering, we anticipate increased sales to the
mining industry over the coming year.
Expansion of our Contract Casting Business
Our expansion into contract casting continues on schedule and is expected
to contribute significantly to Eastern's improved performance in 1997. We
have successfully responded to customers' needs by providing castings with
custom specifications. New controls are now in place to monitor the
different quality requirements for a diverse range of product
applications.
Introduction of New Products
Our ability to engineer new products for existing and new markets
continues to serve as a major platform from which to grow our businesses.
Approximately one-third of our 1996 capital budget was spent on new
production tools, resulting in new products being introduced at all our
locations throughout the year.
We tooled and delivered new handles, locking mechanisms and hinges to
the truck trailer manufacturers. We are currently modifying a number of
PAGE 2 OF ANNUAL REPORT
52
<PAGE>
these products for use in the railroad industry. Tool box locks were
introduced to both industrial and vehicular applications. New keyless cam
switch locks utilizing parts manufactured on our new plastic injection
machine were produced for the computer industry. A two-year design
collaboration with a gym locker manufacturer has paid off with the
development of a recessed handle mechanism to meet their specific
application. Eastern's partnership with another vendor combines their
patents with our high security Warlock(R) patents, a merging of technology
that enables end-users in the gaming and vending markets to change key
combinations without the expense of removing locks.
Building on Successful Integration of Previously Acquired Product Lines
Product lines acquired over the last few years have been successfully
integrated into existing facilities and will serve as a basis for further
product development. We are tooling two new products for our PrestoLock(R)
line of keyless padlocks, which will expand our offerings to the
promotional and weapons security markets. The contract stamping business
purchased last year has served as a catalyst for obtaining new business in
the appliance industry.
After the first full year of operation at our newly established
Mexican distributorship we operated close to break-even. As a result of
our marketing efforts, we expect our position in this market to continue
to grow and become profitable this year.
As part of our efforts to maximize long-term value, in 1996 the Board of
Directors retained an investment banking firm to serve as financial advisor for
reviewing the company's strategic opportunities. The Board unanimously concluded
that the current direction of growth -- through design, manufacturing and
marketing a wide range of security products -will enhance shareholder value.
With a strong balance sheet, the Board remains committed to acquiring
stand-alone businesses that complement our product lines and expertise. To date
we have evaluated a number of companies, and we will continue to aggressively
pursue acquisitions as an avenue of growth.
With the payment of our 226th consecutive dividend, the Board voted its
confidence that Eastern's longer term prospects continue to be positive. For
this we wish to thank our talented and dedicated employees, our capable and
active directors, and you, our shareholders, for the strong support shown our
company over the last year.
Finally, special mention must go to Russ McMillen, who in 1996 retired
from active employment after 50 years of dedicated service. We are grateful for
his many contributions.
Stedman G. Sweet
President and Chief Executive Officer
PAGE 3 OF ANNUAL REPORT
53
<PAGE>
Padlocks
Probably the best known lock of all time is the padlock. Its usage has
grown along with society's ever-changing and increased demand for improved
security. The Eastern Company is a major producer of padlocks that come in all
sizes, shapes and levels of security. Traditional key-activated padlocks now
share the market with an increasing number of combination (or keyless) versions.
The demand for keyless padlocks has grown, because these mechanisms offer an
alternative to the age-old problems of lost, stolen or unauthorized duplication
of keys.
Eastern's Sesamee(R) and PrestoLock(R) brands are well known to the
industrial and commercial markets. Among traditional uses are padlocks used for
personal lockers, tool boxes, sheds and gates.
Marketing and advertising of padlocks must be broad and diverse in order
to gain exposure to the many targeted consumer end-uses. Keyless padlocks for
the growing soft luggage industry are an example of our efforts to expand into
new markets. Another area is the firearms industry with our new line of keyless
trigger and cable locks which will help prevent the unauthorized firing of
revolvers, rifles, and shotguns.
PAGE 4 OF ANNUAL REPORT
54
<PAGE>
[PHOTO OF KEYLESS COMBINATION PADLOCKS AND VARIOUS COMPANY BROCHURES]
PAGE 5 OF ANNUAL REPORT
55
<PAGE>
[PHOTO OF MINE ROOF FASTENER, KEYED LOCK, AND VARIOUS COMPANY BROCHURES]
PAGE 6 OF ANNUAL REPORT
56
<PAGE>
Fasteners and Latches
Security fasteners are the critical anchoring component used to support
roofs in underground coal mines. A mine utilizing this system of support
typically uses one of these devices for every four and one half tons of coal
produced.
Eastern's Frazer & Jones division is the dominant producer in this
industry. Ongoing product development and on-site testing are important to meet
the ever-changing requirements of its customers and retain its leading position
in the market.
To enter into the contract casting business at this location, production
capacity was recently expanded at this highly efficient foundry operation. The
sales and marketing functions are performed in-house.
Security hardware has long been a traditional core product line of The
Eastern Company. This includes latches, locks, hinges and handles designed and
produced for the truck body industry. Other product lines of these latching
devices are engineered and produced for a wide variety of industrial end-use
applications.
Marketing and advertising for security hardware are targeted for
multiple audiences. The sales function is performed by direct in-house personnel
and by national and international stocking distributors.
PAGE 7 OF ANNUAL REPORT
57
<PAGE>
Keyed Locks
Four of The Eastern Company's locations design and manufacture diverse
lines of locks requiring keys. Keyed locks come in many shapes, sizes and levels
of security. Most of these locks are custom engineered to meet specific security
applications. In order to conform to today's demands, these locks must provide a
variety of options such as keyed alike, keyed random, master keyed and grand
master keyed. The varying levels of security are achieved by utilizing a wide
selection of internal mechanisms such as wafer or pin tumblers combined with
many keyway configurations.
The ever increasing, high-security demands of the gaming and vending
equipment industry have recently led to our introduction of the Warlock(R). This
lock design has two unusual features. It requires a specially machined key with
patented precision indentations on its sides -- as opposed to serrations which
are used on the edges of conventional keys. The other feature is the ability for
the Warlock to be re-keyed without the time consuming removal of the lock
itself.
A combination of trade show activity and print advertising has resulted
in the successful launch of the Warlock.
Most of Eastern's keyed cylinder locks are marketed to original
equipment manufacturers.
PAGE 8 OF ANNUAL REPORT
58
<PAGE>
[PHOTO OF KEYED LOCKS AND VARIOUS COMPANY BROCHURES]
PAGE 9 OF ANNUAL REPORT
59
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 28, 1996 and December 30, 1995
1996 1995
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents ........................................................ $ 2,269,031 $ 1,521,361
Accounts receivable, less allowances of $567,000 in 1996 and $501,000 in 1995 .... 7,018,961
7,810,742
Inventories:
Raw materials and component parts ....................................... 5,034,184 5,467,095
Work in process ......................................................... 2,564,546 2,617,431
Finished goods .......................................................... 3,299,097 3,708,350
----------- ----------
10,897,827 11,792,876
Prepaid expenses ................................................................. 1,469,155 1,311,732
Deferred income taxes ............................................................ 818,000 698,600
----------- ----------
Total Current Assets ...................................................................... 22,472,974 23,135,311
Property, Plant and Equipment
Land ............................................................................. 228,064 228,091
Buildings ........................................................................ 3,761,466 3,743,154
Machinery and equipment .......................................................... 21,971,513 21,119,431
Accumulated depreciation (deduction) ............................................. (12,074,420) (11,405,013)
----------- -----------
13,886,623 13,685,663
Other Assets
Goodwill, less accumulated amortization of $43,583 in 1996 and $35,861 in 1995 ... 21,530
29,251
Patents, technology, licenses and trademarks, less accumulated
amortization of $682,773 in 1996 and $454,061 in 1995 .................. 2,023,034
1,012,463
Prepaid pension cost ............................................................. 4,017,397 3,069,066
Other assets ..................................................................... 70,676 158,345
----------- -----------
6,132,637 4,269,125
$ 42,492,234 $ 41,090,099
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ................................................................. $ 2,396,582 $ 3,004,297
Accrued compensation and withholdings ............................................ 859,701 908,297
Accrued expenses ................................................................. 823,560 863,749
Short-term borrowings ............................................................ 3,500,000 1,000,000
Current portion of long-term debt ................................................ 130,980 119,313
----------- -----------
Total Current Liabilities ................................................................. 7,710,823 5,895,656
Deferred income taxes ..................................................................... 2,389,800 2,237,900
Long-term debt ............................................................................ 224,415 339,856
Accrued postretirement benefits ........................................................... 2,812,690 2,810,003
Shareholders' Equity
Voting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares
Nonvoting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares
Common Stock, no par value:
Authorized: 25,000,000 shares
Issued: 2,716,214 shares in 1996 and 2,696,284 shares
in 1995; excluding 610,987 shares held in treasury ............. 8,272,614
8,017,738
Retained earnings ................................................................ 21,765,893 22,127,407
Unearned compensation ............................................................ (200,938) --
Accumulated translation adjustments (deduction) .................................. (483,063) (338,461)
----------- -----------
Total Shareholders' Equity ................................................................ 29,354,506 29,806,684
----------- -----------
$ 42,492,234 $ 41,090,099
============ ============
See notes to consolidated financial statements.
PAGE 10 OF ANNUAL REPORT
60
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
Fiscal Years Ended December 18, 1996, December 30, 1995 and December 31, 1994
1996 1995 1994
<S> <C> <C> <C>
Net Sales ................................................................. $ 57,853,669 $ 59,351,783 $ 58,380,982
Other income .............................................................. 88,191 274,054 242,472
----------- ----------- -----------
57,941,860 59,625,837 58,623,454
Costs and expenses:
Cost of products sold ............................................ 45,173,447 45,236,910 44,739,987
Selling and administrative ....................................... 11,025,975 10,041,833 9,920,911
Interest ......................................................... 215,426 72,471 97,173
----------- ---------- -----------
56,414,848 55,351,214 54,758,071
----------- ---------- ----------
Income before income taxes from
continuing operations ............................................ 1,527,012 4,274,623 3,865,383
Income taxes .............................................................. 647,195 1,527,481 1,427,982
----------- --------- ---------
Income from continuing operations ......................................... 879,817 2,747,142 2,437,401
Discontinued operations:
(Loss) income from operations of discontinued segment, net of
(income tax credit) income taxes of $(63,300) in 1995 and
$108,700 in 1994 ....................................... -- (173,582) 205,339
Loss on disposal of discontinued segment,
net of (income tax credit) of $(1,400) .................. -- (83,062) --
Net Income ................................................................ $ 879,817 $ 2,490,498 $ 2,642,740
=========== ============ ============
Per Share Data:
Income from continuing operations ................................ $ .33 $ .99 $ .88
Discontinued operations .......................................... -- (.09) .07
---------- ------------ ------------
Net Income ....................................................... $ .33 $ .90 $ .95
=========== ============ ============
See notes to consolidated financial statements.
</TABLE>
PAGE 11 OF ANNUAL REPORT
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<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
Accumulated
Common Retained Unearned Translation
Stock Earnings Compensation Adjustments
<S> <C> <C> <C> <C>
Balances at January 1, 1994 ........................ $ 8,873,121 $ 19,545,655 -- $ (35,719)
Net income ................................... -- 2,642,740 -- --
Cash dividends declared, $.46 per share ...... -- (1,275,909) -- --
Purchase of 12,620 shares of Common Stock
for treasury ........................ (202,042) -- -- --
Issuance of 37,037 shares of Common Stock
upon the exercise of stock options... 338,313 -- -- --
Currency translation adjustment .............. -- -- -- (42,702)
----------- ---------- -------- ---------
Balances at December 31, 1994 ...................... 9,009,392 20,912,486 -- (78,421)
Net income ................................... -- 2,490,498 -- --
Cash dividends declared, $.46 per share....... -- (1,275,577) -- --
Purchase of 90,051 shares of Common Stock
for treasury ........................ (1,096,164) -- -- --
Issuance of 11,250 shares of Common Stock
upon the exercise of stock options... 104,510 -- -- --
Currency translation adjustment .............. -- -- -- (260,040)
----------- ---------- -------- ---------
Balances at December 30, 1995 ...................... 8,017,738 22,127,407 -- (338,461)
Net income ................................... -- 879,817 -- --
Cash dividends declared, $.46 per share ...... -- (1,241,331) -- --
Issuance of 3,000 shares of Common Stock
upon the exercise of stock options... 28,125 -- -- --
Issuance of 1,930 shares of Common Stock......
for directors' fees ................. 25,813 -- -- --
Issuance of 15,000 shares of Common Stock
for restricted stock awards ......... 200,938 -- $ (200,938)
Currency translation adjustment .............. -- -- -- (144,602)
----------- ---------- -------- -------
Balances at December 28, 1996 ...................... $ 8,272,614 $ 21,765,893 $ (200,938) $(483,063)
============ ============ ============= ==========
( ) Deduction.
See notes to consolidated financial statements.
</TABLE>
PAGE 12 OF ANNUAL REPORT
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<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Fiscal Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
1996 1995 1994
Operating Activities
<S> <C> <C> <C>
Net Income ................................................... $ 879,817 $ 2,490,498 $ 2,642,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............. 2,952,876 2,628,319 2,452,598
Loss on sales of equipment and other assets 9,780 5,580 21,688
Provision for doubtful accounts ............ 251,881 261,687 120,000
Deferred income taxes ...................... 32,500 264,700 710,000
Issuance of Common Stock for directors' fees 25,813 -- --
Changes in operating assets and liabilities:
Accounts receivable ............... 534,741 1,573,707 (1,504,405)
Inventories ....................... 882,531 (2,280,056) 1,623,872
Prepaid expenses .................. (159,412) 1,059,465 (717,224)
Prepaid pension cost .............. (948,332) (110,704) (381,704)
Other assets ...................... (1,178,406) (217,508) (167,758)
Accounts payable .................. (854,183) (208,235) 652,333
Accrued expenses .................. 40,987 237,120 (1,671,133)
----------- ----------- ----------
Net cash provided by operating activities .................... 2,470,593 5,704,573 3,781,007
Investing Activities
Purchases of property, plant and equipment ................... (2,915,041) (3,319,663) (2,849,926)
Proceeds from sales of equipment and other assets ............ 13,600 69,559 3,600
----------- ----------- -----------
Net cash used by investing activities ........................ (2,901,441) (3,250,104) (2,846,326)
Financing Activities
Proceeds from line of credit ................................. 2,500,000 1,000,000 2,000,000
Payments on line of credit ................................... -- (1,400,000) (600,000)
Proceeds from issuance of long-term debt ..................... -- 210,468 --
Principal payments on long-term debt ......................... (102,373) (1,060,000) (1,060,000)
Proceeds from sales of Common Stock .......................... 28,125 104,510 338,313
Purchases of Common Stock for treasury ....................... -- (1,096,164) (202,042)
Dividends paid ............................................... (1,241,331) (1,275,577) (1,275,909)
----------- ----------- ----------
Net cash provided (used) by financing activities ............. 1,184,421 (3,516,763) (799,638)
Effect of exchange rate changes on cash ...................... (5,903) (26,589) (4,797)
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents ......... 747,670 (1,088,883) 130,246
Cash and cash equivalents at beginning of year ............... 1,521,361 2,610,244 2,479,998
----------- ----------- ----------
Cash and cash equivalents at end of year ..................... $ 2,269,031 $ 1,521,361 $ 2,610,244
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
PAGE 13 OF ANNUAL REPORT
63
<PAGE>
Notes to Consolidated Financial Statements December 28, 1996, December 30, 1995
and December 31, 1994
1. Operations
The operations of The Eastern Company (the Company) consist of a single business
segment-security products. Security products are used to close, lock or support
equipment used in the industrial, transportation or mining industries. Sales are
made to customers primarily in North America. Ongoing credit evaluations are
made of customers for which collateral is generally not required. Allowances for
credit losses are provided; such losses have been within management's
expectations.
2. Discontinued Operations
In 1995, the Company sold the business and substantially all assets (customer
list, property and inventories) of its construction segment; the Company
retained accounts receivable. At December 28, 1996 and December 30, 1995
accounts receivable before allowances include $329,152 and $582,627,
respectively, related to the discontinued construction segment. Adequate
allowances have been provided for potential losses. Statements of income reflect
the discontinuance of this segment. Net sales of the construction segment were
$3,400,389 in 1995 and $7,640,141 in 1994.
3. Accounting Policies
Estimates and Assumptions
The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fiscal Year
The Company's year ends on the Saturday nearest to December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All intercompany accounts and
transactions are eliminated.
Foreign Currency
Translation For foreign operations, balance sheet accounts are translated at the
current year-end exchange rate; income statement accounts are translated at the
average exchange rate for the year. Resulting translation adjustments are made
directly to a separate component of shareholders' equity-"accumulated
translation adjustments". Foreign currency exchange gains and losses are not
material in any year.
Cash Equivalents
Highly liquid investments purchased with a maturity of three months or less are
considered cash equivalents.
Inventories
Inventories are valued generally at the lower of cost, determined by the
last-in, first-out (LIFO) method, or market. Current cost exceeded the LIFO
carrying value by approximately $2,894,000 at December 28, 1996 and $2,998,000
at December 30, 1995.
Property, Plant and Equipment and Related Depreciation
Property, plant and equipment are stated on the basis of cost. Depreciation
($2,688,305 in 1996, $2,358,722 in 1995 and $2,211,561 in 1994) is computed
generally using the straight-line method based on the estimated useful lives of
the assets.
Intangibles
Patents are amortized using the straight-line method over the lives of the
patents. Technology and licenses are generally amortized on a straight-line
basis over periods ranging from five to 17 years. Goodwill is being amortized
over periods ranging from five to 20 years.
Product Development Costs
Product development costs, charged to expense as incurred, were $142,358 in
1996, $353,425 in 1995 and $371,575 in 1994.
Per Share Data
Advertising Costs The Company expenses advertising costs as incurred.
Advertising costs were $597,877 in 1996, $525,850 in 1995 and $600,916 in 1994.
PAGE 14 OF ANNUAL REPORT
64
<PAGE>
4. Contingency
In 1996, the United States Court of Appeals reversed a 1995 District Court
ruling relating to environmental complaints against the Company. The Company is
vigorously contesting the decision. Management believes, based on the available
facts and the advice of legal counsel, that the future cost associated with this
matter will not have a material effect on the Company's financial statements.
5. Debt
Debt consists of:
Non-interest bearing note due in yearly installments of
$60,000 through January 7, 1999 $180,000 $ 240,000
Non-interest bearing note due in yearly installments of
$27,761 in 1997 and $67,860 in 1998 95,621 118,547
Note payable due in installments of $43,219 in 1997
and $36,555 in 1998 plus interest at 11% 79,774 100,622
------- --------
355,395 459,169
Less current portion 130,980 119,313
------- -------
$224,415 $339,856
======== ========
Interest paid was $174,325 in 1996, $107,466 in 1995 and $136,128 in 1994.
The Company has available a $5,000,000 line of credit. Borrowings against the
line were $3,500,000 at December 28, 1996; such borrowings bear interest at
6.785%. In connection with this line of credit and the Company's cash management
program, compensating balances (approximately $500,000 at December 28, 1996) are
required to be maintained.
6. Stock Rights
At December 28, 1996 there were 2,716,214 stock rights outstanding. Each right
may be exercised to purchase one share of the Company's Common Stock at an
exercise price of $35, subject to adjustment to prevent dilution. The rights
generally become exercisable ten days after an individual or group acquires 10%
of the Company's outstanding common shares or after commencement or announcement
of an offer for 10% or more of the Company's Common Stock. The stock rights,
which do not have voting privileges, expire on October 15, 2001, and may be
redeemed by the Company at a price of $.01 per right at any time prior to their
expiration or the acquisition of 10% of the Company's Common Stock. In the event
that the Company were acquired in a merger or other business combination
transaction, provision shall be made so that each holder of a right shall have
the right to receive, upon exercise thereof at the then current exercise price,
that number of shares of common stock of the surviving company which at the time
of such transaction would have a market value of two times the exercise price of
the right.
7. Stock Options and Awards
The Company has three incentive stock option plans for officers and other key
employees, and nonemployee directors: 1983, 1989, and 1995. Under the 1983 and
1989 plans, options may be granted to the participants to purchase shares of
Common Stock at prices not less than 100% of the fair market value of the stock
on the dates the options are granted. Under the 1995 plan, options may be
granted to the participants to purchase shares of Common Stock with restrictions
at prices determined by the Incentive Compensation Committee (the "Committee")
of the Company's Board of Directors. Restricted stock awards may also be granted
to participants under the 1995 plan with restrictions determined by the
Committee. Compensation expense for stock options for the aforementioned plans
is recognized under the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Compensation expense for restricted stock awards granted
is recognized when earned based on the achievement of targeted annual operating
results through December 31, 2000. No compensation expense related to stock
options and awards was required to be recognized in 1996, 1995, or 1994.
PAGE 15 OF ANNUAL REPORT
65
<PAGE>
7. Stock Options (continued)
At December 28, 1996, 29,640 shares of the Company's unissued Common Stock were
reserved for options under its 1983 Incentive Stock Option Plan. Changes in
stock options under this plan follow:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 40,590 $9.27 59,840 $9.29 87,610 $9.25
Exercised .................... -- -- (11,250) $9.29 (19,770) $9.09
Forfeited .................... (10,950) $9.08 (8,000) $9.375 (8,000) $9.375
------- ------ ------
Outstanding, end of year ..... 29,640 $9.34 40,590 $9.27 59,840 $9.29
======= ======= =======
Exercisable, end of year:
At $9.08 ............ 3,000 13,950 17,200
At $9.375 ........... 26,640 26,640 34,820
Unexercisable, end of year:
At $9.375 ........... -- -- 7,820
</TABLE>
At December 28, 1996, 177,803 shares of the Company's unissued Common Stock were
reserved for options under its 1989 Incentive Stock Option Plan. Changes in
stock options under this plan follow:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 124,203 9.99 124,203 9.99 141,470 9.89
Exercised .................... (3,000) 9.375 -- -- (17,267) 9.18
------- ------- -------
Outstanding, end of year ..... 121,203 10.00 124,203 9.99 124,203 9.99
======= ======= =======
Exercisable, end of year:
At 9.08 ............. 33,750 33,750 33,750
At 9.375 ............ 53,703 56,703 42,523
At 11.00 ............ 11,250 11,250 11,250
At 12.25 ............ 11,250 11,250 11,250
At 12.50 ............ 11,250 11,250 11,250
Unexercisable, end of year:
At 9.375 ............ -- -- 14,180
</TABLE>
At December 28, 1996, 250,000 shares of the Company's unissued Common Stock were
reserved for options and restricted stock awards under its 1995 Incentive Stock
Option Plan. No stock options were granted during 1996. Restricted stock awards
were granted under this plan as follows:
1996
Stock Awards
Granted 15,000
Outstanding, end of year 15,000
======
Weighted average fair value at grant date $13.40
PAGE 16 OF ANNUAL REPORT
66
<PAGE>
8. Income Taxes
Deferred income taxes are provided on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and those for
income tax reporting purposes. Deferred income tax liabilities (assets) relate
to:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Property, plant and equipment ......................... $1,949,000 $ 1,883,200 $ 1,901,900
Pension accruals ...................................... 1,571,300 1,470,400 1,192,100
Other ................................................. 129,800 146,500 199,800
---------- ---------- ----------
Total deferred income tax liabilities ............... 3,650,100 3,500,100 3,293,800
Other postretirement benefits ......................... (1,099,700) (1,104,300) (1,147,800)
Inventories ........................................... (291,000) (208,400) (308,100)
Allowance for doubtful accounts ....................... (179,600) (229,700) (121,700)
Accrued compensation .................................. (271,700) (253,100) (217,400)
Other ................................................. (236,300) (165,300) (224,200)
---------- ---------- ----------
Total deferred income tax assets ........ .......... (2,078,300) (1,960,800) (2,019,200)
---------- ---------- ----------
Net deferred income tax liabilities ................... $1,571,800 $1,539,300 $1,274,600
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Income before income taxes from continuing operations consists of:
1996 1995 1994
<S> <C> <C> <C>
Domestic .............................................. $1,476,346 $4,089,932 $3,636,179
Foreign .......... .................................... 50,666 184,691 229,204
---------- ---------- ----------
$1,527,012 $4,274,623 $3,865,383
========== ========== ==========
Income taxes follow: 1996 1995 1994
Current:
Federal ............................................. $ 525,000 $1,011,900 $ 590,100
Foreign ............................................. 35,795 49,681 5,182
State ............................................... 53,900 122,600 107,800
Deferred .............................................. 32,500 343,300 724,900
--------- ---------- ----------
$ 647,195 $1,527,481 $1,427,982
========== ========== ==========
</TABLE>
A reconciliation of income taxes computed using the U.S. federal statutory rate
to those reflected in continuing operations follows:
<TABLE>
<CAPTION>
1996 1995 1994
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Income taxes using U.S. federal
statutory rate ..................................... $ 519,200 34% $ 1,453,400 34% $ 1,314,100 34%
State income taxes, net of federal benefit ........... 31,700 2 75,500 2 153,700 4
U.S. tax on foreign income ........................... 39,100 2 (13,100) - (72,700) (2)
Other-net ............................................ 57,195 4 11,681 - 32,882 1
----------- --- ----------- --- ----------- ---
$ 647,195 42% $ 1,527,481 36% $ 1,427,982 37%
=========== === =========== === =========== ===
</TABLE>
Total income taxes paid were $476,441 in 1996, $955,398 in 1995 and $1,556,664
in 1994.
United States income taxes have not been provided on the undistributed earnings
of foreign subsidiaries ($1,481,500 at December 28, 1996) because such earnings
are intended to be reinvested abroad indefinitely or repatriated only when
substantially free of such taxes.
PAGE 17 OF ANNUAL REPORT
67
<PAGE>
9. Leases
The Company leases certain equipment and buildings under operating lease
arrangements. Certain leases contain renewal options for periods ranging from
one to ten years. Future minimum payments under operating leases with initial or
remaining terms in excess of one year during each of the next five years follow:
1997 $ 279,581
1998 283,492
1999 287,403
2000 288,543
2001 288,563
----------
$1,427,582
==========
Rent expense for all operating leases was $274,606 in 1996, $259,379 in 1995 and
$241,695 in 1994.
10. Employee Retirement Benefits
The Company has noncontributory defined benefit pension plans covering most U.S.
employees. Plan benefits are generally based upon age at retirement, years of
service and, for its salaried plan, the level of compensation. The Company funds
the annual contributions required by applicable regulations. The Company also
sponsors an unfunded nonqualified supplemental retirement plan that provides an
officer with benefits in excess of limits imposed by federal tax law. U.S.
salaried employees and most employees of the Company's Canadian subsidiary are
covered by defined contribution plans. A summary of the components of income
under the Company's employee retirement benefit plans follows:
1996 1995 1994
Service cost-benefits earned during
the period $ 611,268 $ 548,618 $ 574,369
Interest cost on projected benefit
obligation 1,681,527 1,603,636 1,599,953
Actual return on plan assets (2,331,708) (2,206,195) (1,966,649)
Net amortization and deferral (137,037) (152,746) (486,695)
Defined contribution plans expense 54,877 58,421 31,755
Supplemental retirement plan expense 45,681 46,403 45,038
--------- ---------- -----------
$ (75,392) $ (101,863) $ (202,229)
========== =========== ===========
Assumptions used in accounting for pensions were: 1996 1995 1994
Weighted average discount rates 7.5% 7.5% 7.5%
Rates of increase in compensation levels 4.25% 4.25% 4.25%
Expected long-term rates of return on assets 8.5% 8.5% 8.5%
PAGE 18 OF ANNUAL REPORT
68
<PAGE>
Based on the latest actuarial information available, the following table sets
forth the funded status of the Company's defined benefit plans at September 30:
<TABLE>
<CAPTION>
1996 1995
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefit obligation ............................. $ 23,273,991 $ 22,628,034
============ ============
Accumulated benefit obligation ........................ $ 23,516,362 $ 22,954,008
============ ============
Projected benefit obligation .......................... $ 24,072,918 $ 23,630,844
============ ============
Plan assets at fair value ............................... $ 29,333,576 $ 27,833,156
============ ============
Excess of plan assets over projected benefit obligation . $ 5,260,658 $ 4,202,312
Unrecognized prior service cost ......................... 100,044 183,190
Unrecognized net loss ................................... 700,920 1,006,400
Unrecognized transition asset ........................... (2,042,974) (2,273,250
Adjustment required to recognize intangible pension asset (1,251) (49,586)
------------ ------------
Prepaid pension cost .................................... $ 4,017,397 $ 3,069,066
============ ============
</TABLE>
All of the plans' assets at December 28, 1996 are invested in listed stocks and
bonds and pooled investment funds, including Common Stock of the Company having
a market value of $3,806,062 at that date.
11. Postretirement Health Care and Life Insurance Benefits
The Company provides health care and life insurance for substantially all
retired salaried employees in the United States. The status of the Company's
postretirement health care and life insurance benefit plans at year-end follows:
<TABLE>
<CAPTION>
1996 1995
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees .............................................. $1,604,781 $1,757,402
Fully eligible active plan participants ............... 1,115,822 1,168,567
--------- ----------
2,720,603 2,925,969
Plan assets at fair value ............................. 726,134 635,288
--------- ----------
Excess of accumulated postretirement benefit obligation
over plan assets .................................... 1,994,469 2,290,681
Unrecognized prior service cost ....................... 227,767 248,856
Unrecognized net gain ................................. 590,454 270,466
---------- ----------
Accrued postretirement benefits ....................... $2,812,690 $2,810,003
========== ==========
</TABLE>
Plan assets are invested in a pooled insurance fund.
A summary of the components of postretirement health care and life insurance
benefit expense follows:
1996 1995 1994
Service cost-benefits earned during the period $ 92,583 $ 85,932 $ 79,442
Interest cost ................................ 211,415 217,668 245,132
Actual return on plan assets ................. (58,683) (50,907) (38,505)
Net amortization and deferral ................ (21,089) (21,089) -
--------- --------- --------
Net postretirement benefit expense ........... $224,226 $231,604 $286,069
======== ======== ========
PAGE 19 OF ANNUAL REPORT
69
<PAGE>
11. Postretirement Health Care and Life Insurance Benefits (continued)
The life insurance cost trend rate is expected to remain at 4.5%. The health
care cost trend rate for participants retiring after January 1, 1991 is nil; no
increase in that rate is expected because of caps placed on benefits. The health
care cost trend rate for participants who retired prior to January 1, 1991 is
also nil; that rate is expected to increase to 4.5% in the year 2000. A one
percentage point increase in the assumed health care cost trend rate would have
increased the accumulated benefit obligation by $225,877 at December 28, 1996
and increased the net periodic postretirement benefit expense for 1996 by
$32,418. A weighted average discount rate of 7.5% was used to determine the
accumulated benefit obligation at the end of both 1996 and 1995. A return of 9%
on plan assets was used for both 1996 and 1995.
12. Financial Instruments
The carrying values of financial instruments (cash and cash equivalents,
accounts receivable, accounts payable, and debt) as of December 28, 1996
approximate fair value. Market value was based on cash flows and current market
conditions.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
The Eastern Company
We have audited the accompanying consolidated balance sheets of The Eastern
Company as of December 28, 1996 and December 30, 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Eastern
Company at December 28, 1996 and December 30, 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 28, 1996, in conformity with generally accepted accounting
principles.
Hartford, Connecticut
January 31, 1997
PAGE 20 OF ANNUAL REPORT
70
<PAGE>
<TABLE>
<CAPTION>
1996-1992 Summary of Operations
Income Statement Items (in thousands)
<S> <C> <C> <C> <C> <C>
Year ............................. 1996 1995 1994o 1993o 1992ss.+
Net Sales ........................ $ 57,854 $ 59,352 $ 58,381 $ 52,546 $ 60,060
Cost of Products Sold ............ 45,173 45,237 44,740 39,242 46,079
Depreciation and
Amortization ..................... 2,953 2,628 2,453 2,322 2,237
Interest Expense ................. 215 72 97 144 220
Income Before Taxes .............. 1,527 4,275 3,865 4,464 4,955
Taxes on Income .................. 647 1,528 1,428 1,634 1,918
Income (Loss):
Continuing
Operations .............. 880 2,747 2,437 2,830 3,037
Discontinued
Operations .............. -- (257) 206 (64) --
Net Income .............. 880 2,490 2,643 2,766 3,037
Dividends ........................ 1,241 1,276 1,276 1,265 1,240
Balance Sheet Items (in thousands)
Year ............................. 1996 1995 1994 1993 1992+
Inventory ........................ $ 10,898 $ 11,793 $ 9,531 $ 11,193 $ 10,680
Working Capital .................. 14,762 17,240 17,834 17,708 17,126
Plant Assets Net ................. 13,887 13,686 12,954 12,416 13,164
Total Assets ..................... 42,492 41,090 41,883 40,459 40,203
Shareholders' Equity ............. 29,355 29,807 29,843 28,383 26,926
Capital Expenditures ............. 2,915 3,320 2,850 1,446 1,585
Long-Term Obligations ............ 224 340 240 1,300 2,000
Per Share Data
Year ............................. 1996 1995 1994o 1993o 1992+
Income (Loss)
Continuing
Operations .............. $ .33 $ .99 $ .88 $ 1.03 $ 1.10
Discontinued
Operations .............. -- (.09) .07 (.02) --
Net Income .............. $ .33 $ .90 $ .95 $ 1.01 $ 1.10ss.
Dividends ........................ .46 .46 .46 .46
Shareholders' Equity ............. 10.88 10.75 10.77 10.33 9.77
Average Shares
Outstanding ...................... 2,698,774 2,771,840 2,771,842 2,748,312 2,755,507
</TABLE>
o Reclassified to reflect discontinued operations - Thompson Materials
1994 and 1993.
+ Fiscal Year 1992 comprised 53 weeks - all other years were 52
weeks.
ss. 1992 excludes the cumulative effect of accounting changes for
postretirement benefits and income taxes of $1,475,000 or $.53 per share.
PAGE 21 OF ANNUAL REPORT
71
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
On July 16, 1996 Millbrook Capital Management Inc. made an unsolicited
conditional proposal to acquire The Eastern Company in a highly leveraged
transaction at a price of $15 a share. The Eastern Company Board of Directors
unanimously rejected this proposal. Subsequently, the Company incurred
substantial legal and professional expenses (Defense Costs).
Eastern expects to incur additional Defense Costs in 1997.
Despite a difficult start in the first quarter of 1996 The Eastern Company was
able in each of the following three consecutive quarters, to increase operating
profits before deducting Defense Costs.
Income from continuing operations, after taking into account the costs relating
to the leveraged buyout attempt, decreased 68% in 1996 to $880,000 or $.33 per
share from $2,747,000 or $.99 per share in 1995. Compared to 1994 it was down
64% from the $2,437,000 or $.88 per share earnings level. Total 1996 net income
of $880,000 or $.33 per share versus $2,490,000 or $.90 per share in 1995 and
$2,643,000 or $.95 per share in 1994 was down 65% and 67% respectively. Net
earnings in 1996 before Defense Costs would have been approximately $1,336,000
or $.50 per share.
Other income in 1996 was $88,000 versus $274,000 in 1995 and $242,000 in 1994.
Other income was lower in 1996 compared with 1995 which was the final year of a
five year agreement in which the Company received commissions for sales of
certain malleable products of the former Alloy Foundries division.
Cash provided by operating activities of $2,471,000 together with $2,500,000 in
short-term debt was sufficient to cover capital expenditures, debt repayment,
the purchase of certain assets from Excel Mining Systems, operating needs and
dividends.
In 1995 the Company sold substantially all the assets (excluding the accounts
receivable) of the construction segment (the Thompson Materials division). The
1995 after-tax loss from the discontinued operations was $257,000 or $.09 per
share.
Results of Operations
1996 net sales of $57,854,000 decreased $1,498,000 or 3% and $527,000 or 1%,
respectively, from the 1995 $59,352,000 and 1994 $58,381,000 levels. New
products and price increases each contributing 2% were insufficient to overcome
a 7% decrease in volume for the year. Sales of custom locks and various
mechanisms in the industrial and vehicular market areas increased. New products
included the patented keyless Gun Blok, new malleable castings products, a
variety of vehicular and industrial cabinetry hardware and hardware components
for the appliance industry.
Lower demand for the Company's heavy hardware
continued throughout most of the year. Aggressive marketing and product
development programs have increased business in the utility body and vehicular
accessories markets, which offset a significant portion of the cyclical decline
in the tractor trailer markets. Sales of custom locks remained strong. Hardware
components for the appliance industry offered by the Company's Canadian
subsidiary, Eberhard Hardware Manufacturing Limited, continued to be strong as
well.
Weak demand for the Company's expansion shells product line used in the
mining industry was offset by new malleable casting products manufactured by the
Frazer & Jones division. In addition, in August 1996 the Company entered into a
long-term agreement to supply engineered mine roof fasteners to Excel Mining
Systems, the country's largest manufacturer of mine roof bolts. This agreement
will ensure the Company's position as the largest and lowest cost producer of
proprietary fasteners used in underground mining in North America.
The Company's net total income decreased $1,610,000 or 65% from the 1995 level
and $1,763,000 or 67% from the 1994 level due to lower sales, higher costs of
products sold, decreased other income, Defense Costs associated with the hostile
takeover attempt, and the discontinuance of the Thompson Materials division.
Fourth quarter 1996 earnings from continuing operations were $226,000 or $.09
per share on sales of $14,246,000 versus $507,000 or $.18 per share on sales of
$13,527,000 in the fourth quarter of 1995 and $704,000 or $.25 per share on
sales of $14,744,000 in 1994. Earnings in the fourth quarter 1996 would have
been $.22 per share excluding the costs of fighting the takeover attempt. Also
affecting the 1996 fourth quarter was the planned reduction in inventory
resulting in lower overhead absorption. Cost of products sold was 75.7% in the
fourth quarter of 1996 versus 76.5% in the fourth quarter of 1995 and 75% in the
fourth quarter of 1994. Cost of products sold in the fourth quarter 1996 was
lower than the fourth quarter 1995 because of increased sales and product mix.
Volume, price increases and new products contributed 1%, 3% and 2%,
respectively, in increased sales. Cost of products sold was slightly higher in
the fourth quarter 1996 versus 1994 because of lower sales and a reduction of
inventories.
Selling and administrative expenses were higher in the fourth quarter 1996
versus a year ago because of Defense Costs. Without these Defense Costs, fourth
quarter 1996 selling and administrative expenses would have been down 7% versus
the fourth quarter 1995.
The cost of products sold was 78.1%, 76.2% and 76.6% of net sales for 1996, 1995
and 1994, respectively. The cost of products sold in 1996 was adversely affected
by increased first quarter costs related to production problems, since resolved,
that occurred in the contract malleable casting business. It was also affected
by product mix notably the down-turn in the Company's heavy hardware business
servicing the transportation industry and the weak demand for expansion shells
used in the mining industry. As a result of lower levels of production, overhead
was under absorbed early in the year. Improved productivity of contract casting
products occurred as the year progressed. Affecting the cost of products sold in
1994 was higher tooling and conversion costs associated with the contract
casting business.
The Company continues to seek methods for improving margins by concentrating on
profitable products, operating efficiencies and broadening product lines. The
Eastern Company's facilities have the capability to respond quickly and
efficiently to the changing requirements in the many security products' markets
where it competes. The purchase of certain assets associated with a line of
expansion fasteners from Excel Mining Systems together with the expansion of the
contract castings business will improve efficiencies, and better utilize
capacity capabilities in 1997 at the Company's Frazer & Jones facility.
The Company will continue to benefit in 1997 from its ability to engineer new
products for existing and new markets. For example, new handles, locking
mechanisms and hinges have been developed for the truck trailer manufacturers
PAGE 22 OF ANNUAL REPORT
72
<PAGE>
with applications in the railroad industry for a number of these new products.
Further, tool box locks are being produced for the industrial and vehicular
markets. Also, a new keyless cam switch lock utilizing parts manufactured in the
Company's new plastic injection molding machine has been developed for the
computer industry.
Product lines acquired over the last few years should continue to enhance
operating results for the future. For example, the previously purchased Presto
line of keyless padlocks has been expanded through new tooling to include
additional products for the promotional and firearm security markets. The
contract stamping business purchased last year is growing with additional
business in the appliance industry. The newly established Mexican
distributorship is expected to grow as a result of the Company's continued
marketing efforts.
In 1996, research and development costs were $142,000 versus $353,000 in 1995
and $372,000 in 1994. The 1996 expenditures related to projects involving mine
roof fasteners, transportation and industrial hardware, and locking device
hardware.
The 1996 selling and administrative expenses increased $984,000 or 10% from the
1995 level. The 1996 selling and administrative expenses increased $1,105,000 or
11% from the 1994 level. Included in the 1996 selling and administrative
expenses were Defense Costs associated with the leveraged buyout attempt.
Without these Defense Costs 1996 selling and administrative expenses increased
$277,000 or 3% and $398,000 or 4%, respectively, from the 1995 and 1994 levels.
These increases were due to higher marketing expenses associated with new
products and normal cost increases.
Interest costs in 1996 were $215,000 versus $72,000 in 1995 and $97,000 in 1994
associated with increased short-term borrowing in 1996.
The effective income tax rates in 1996, 1995 and 1994 were 42%, 36% and 37%,
respectively. The 1996 increase was due to higher taxes related to foreign
operations.
Each year's fourth quarter earnings are affected by year-end adjustments to
estimated accruals. In 1996 such adjustments for continuing operations decreased
income by $.02 per share versus an increase in income of $.15 per share in 1995
and $.12 per share in 1994. The fourth quarter 1996 Defense Costs were not
included in the $.02 abnormal adjustment total.
Liquidity and Sources of Capital
The Company's balance sheet continues to be strong with a ratio of current
assets to current liabilities of 2.9 at the end of 1996 compared to 3.9 at the
end of 1995. Working capital continues at a healthy level. Accounts receivable
decreased $535,000 primarily because of aggressive collection efforts. Average
day's sales in accounts receivable were 48 and 53 days, respectively, for 1996
and 1995. The allowance for doubtful accounts increased $66,000. The present
$567,000 allowance balance adequately provides for potential uncollectible
accounts. Inventories decreased $883,000 and inventory turns, based on cost of
products sold were 4.1 in 1996 versus 3.8 in 1995 resulting from planned
inventory reduction to improve cash flow and strengthen financial condition.
Continued efforts are underway to further control inventory levels, improve
collection of accounts receivable and generate cash flow.
The Company's strong balance sheet is expected to enable the Company to take
advantage of opportunities for expansion through acquisitions.
During 1996 the Company increased its short-term line of credit balance by $2.5
million primarily to purchase certain technology from Excel Mining Systems and
to pay for Defense Costs.
Current financial resources, including anticipated funds from operations, are
expected to be adequate to service operating needs, capital additions, and
dividends for the next year. Confidence in significant improvement in
profitability and cash flow in 1997 has resulted in a $500,000 pay down of the
$3,500,000 short-term borrowing. Additional reductions of short-term debt
throughout the year are anticipated.
Additions to property, plant and equipment totaled $2,915,000 in 1996 versus
$3,320,000 in 1995. In addition to normal replacement of equipment, 1996 capital
expenditures included the continuation of projects to upgrade and recondition
equipment, expand capacity, improve efficiency and satisfy environmental
requirements. During the three years ended December 28, 1996 the Company has
invested over $9 million for additions to property, plant and equipment,
committing these resources for the purpose of such long-term benefits as
increasing market share in new and existing product lines. The 1997 capital
expenditures are expected to be below the $2.6 million level of depreciation.
Expenditures will be primarily for normal equipment replacement and tooling for
new products. The Company feels that funds generated internally should be
sufficient to finance the capital expenditure program.
Impact of Inflation and Changing Prices
Inflation continues to affect operating results only moderately. Nevertheless,
the Company is continually seeking ways to cope with its impact. To the extent
permitted by competition, the Company passes on increased costs by increasing
sales prices over time. Price increases were 2% in 1996 and 4% in 1995.
The Company uses the LIFO method of accounting for its U.S. inventories. Under
this method, the cost of products reported in the financial statements
approximates current cost and thus reduces distortion in reporting income due to
increasing costs.
The charges to operations for depreciation represent the allocation of
historical costs incurred in prior years, and are significantly less than those
based on the current cost of productive capacity being consumed. Provisions for
depreciation are generally computed using the straight-line method based on the
estimated useful lives of the assets.
Approximately 51% of the Company's properties have been acquired over the last
five years and have a remaining useful life ranging from one year for equipment
to twenty years for structures.
Assets acquired in prior years will be replaced at higher costs over many years.
Although these new assets will result in higher depreciation charges, in many
cases there will be operating savings due to technological improvements.
Note: The preceding information contains statements which reflect the Company's
current expectations regarding its future operating performance and
achievements. Actual results may differ. The Company is not obligated to update
or revise the aforementioned statements for new developments.
PAGE 23 OF ANNUAL REPORT
73
<PAGE>
<TABLE>
<CAPTION>
Quarterly Results of Operations (unaudited)
Quarter
1996 First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net Sales ............................ $ 14,541,552 $ 15,351,036 $ 13,715,095 $ 14,245,986 $ 57,853,669
Gross Profit ......................... 2,424,003 3,234,595 3,557,046 3,464,578 12,680,222
Selling and administrative expenses... 2,691,835 2,658,140 2,800,803 2,875,197 11,025,975
Net (Loss) Income .................... $ (202,161) $ 376,703 $ 479,429 $ 225,846 $ 879,817
Net (Loss) Income Per Share .......... $ (0.07) $ 0.13 $ 0.18 $ 0.09 $ 0.33
</TABLE>
<TABLE>
<CAPTION>
Quarter
1995
First* Second* Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net Sales ............................ $ 16,415,632 $ 15,030,421 $ 14,379,195 $ 13,526,535 $ 59,351,783
Gross Profit ......................... 4,270,637 3,482,823 3,184,350 3,177,063 14,114,873
Selling and administrative expenses... 2,678,023 2,503,518 2,339,522 2,520,770 10,041,833
Income from Continuing Operations .... $ 1,043,356 $ 595,061 $ 601,524 $ 507,201 $ 2,747,142
Discontinued Operations .............. (83,687) (12,031) (142,506) (18,420) (256,644)
Net Income ........................... $ 959,669 $ 583,030 $ 459,018 $ 488,781 $ 2,490,498
Income (Loss) Per Share:
From Continuing Operations .. $ 0.38 $ 0.21 $ 0.22 $ 0.18 $ 0.99
Discontinued Operations ..... (0.03) -- (0.06) -- (0.09)
Net Income .................. $ 0.35 $ 0.21 $ 0.16 $ 0.18 $ 0.90
</TABLE>
* Reclassified to reflect discontinued operations in August 1995.
Corporate Notes
Common Stock Market Prices and Dividends
The Company's Common Stock is traded on the American Stock Exchange (ticker
symbol EML). The approximate number of record holders of the Company's Common
Stock at December 28, 1996 was 881.
High and low stock prices and dividends for the last two years were:
1996 1995
Cash Cash
Sales Price Dividends Sales Price Dividends
Quarter High Low Declared High Low Declared
First $13 $11 5/8 $.11 1/2 $15 3/8 $12 3/4 $.11 1/2
Second 13 1/2 11 .11 1/2 15 1/2 13 5/8 .11 1/2
Third 14 1/2 11 1/4 .11 1/2 13 5/8 12 1/4 .11 1/2
Fourth 13 7/8 12 7/8 .11 1/2 12 7/8 11 .11 1/2
The Company expects to continue its policy of paying regular cash dividends.
However, there is no assurance of future dividends, because they are dependent
on future earnings, capital requirements, and financial conditions.
At the end of December 1996, 225 consecutive quarterly dividends had been paid.
10-K
A copy of the Company's 10-K report is available free of charge to stockholders
of record upon written request.
Independent Auditors
Ernst & Young LLP,
Hartford, Connecticut
Transfer Agent and Registrar
Boston EquiServe, L.P.,
Boston, Massachusetts
General Office
112 Bridge Street, P.O. Box 460 Naugatuck, CT 06770
For financial inquiries, call (203) 729-2255.
The Common Stock of The Eastern Company is traded on the American Stock
Exchange. Trading Symbol EML.
The Eastern Company has a Dividend Reinvesting Program which enables
stockholders to purchase additional shares with no brokerage commisions or
service charges. A new feature permits non-shareholders to purchase their
initial shares-also with no commissions or service charges. Interested investors
should phone The Eastern Company's program administrator, Boston EquiServe L.P.
at 1-800-633-3455 to receive a brochure.
PAGE 24 OF ANNUAL REPORT
74
<PAGE>
Officers and Executives
STEDMAN G. SWEET
President and Chief Executive Officer
DONALD E. WHITMORE, JR.
Vice President, Treasurer and Secretary
STEVEN G. SANELLI
Vice President
RAYMOND L. WRIGHT
Vice President, Managing Director of
Frazer & Jones Division
FRANK J. BREKER
Group Manager, Managing Director of
Eberhard Manufacturing Division,
Sesamee Mexicana, Subsidiary
ROBERT G. ALEXANDER
Managing Director of Eberhard Hardware
Manufacturing, Ltd., Subsidiary
ROGER CHANG
Managing Director of
World Lock Co. Ltd.
World Security Industries Co. Ltd.,
Subsidiaries
THOMAS D. MELKUS
Managing Director of CCL
Security Products Division
BRIAN D. REED
Managing Director of
Illinois Lock Co., Division
Board of Directors
JOHN W. EVERETSss.
Chairman of H.P.S.C. Inc.
Boston, Massachusetts
CHARLES W. HENRY* ++
Partner of Kernan & Henry
Waterbury, Connecticut
OLE K. IMSET
Director of Manufacturing
Allen Bradley, Rockwell International
Manchester, New Hampshire
LEONARD F. LEGANZA* ss.++
Financial and Business Consultant
Farmington, Connecticut
RUSSELL G. MCMILLEN* ++
Retired Chairman of the Company
DAVID C. ROBINSON* ++
President of The Robinson Co.
Waterbury, Connecticut
STEDMAN G. SWEET*++
President and Chief Executive Officer
of the Company
DONALD S. TUTTLE, IIIss.
Account Executive and Vice President
Paine Webber
Middlebury, Connecticut
DONALD E. WHITMORE, JR.
Vice President, Treasurer and Secretary
of the Company
* Members of the Executive Committee
Members of the Compensation Committee
ss. Members of the Audit Committee
++ Members of the Nominating Committee
PAGE 75 OF ANNUAL REPORT
75
<PAGE>
Back cover Page
The Eastern
Company
P.O. Box 460
Naugatuck, Connecticut 06770
Security Products Group
CCL Security Products Division
New Britain, Connecticut
Custom locks
Eberhard Manufacturing Division
Cleveland, Ohio
Transportation and industrial hardware
Eberhard Hardware Manufacturing, Ltd., Subsidiary
Tillsonburg, Ontario, Canada
Transportation and industrial hardware
Frazer & Jones Division
Syracuse, New York
Mine roof fasteners; Contract castings
The Illinois Lock Company Division
Wheeling, Illinois
Custom locks
Sesamee Mexicana, Subsidiary
Lerma, Mexico
Industrial hardware
World Lock Co. Ltd., Subsidiary
World Security Industries Co. Ltd., Subsidiary
Taipei, Taiwan, Hong Kong
Custom locks
[BACK COVER OF ANNUAL REPORT]
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ARTICAL 5 FIN. DATA SCHEDULE FOR FORM 10-K
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<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
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<ALLOWANCES> 567000
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<CGS> 45173447
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