THE EASTERN COMPANY
112 Bridge Street
P.O. Box 460
Naugatuck, CT 06770-0460
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 22, 1998
The Annual Meeting of shareholders of The Eastern Company ("Eastern" or the
"Company") will be held on April 22, 1998 at 10:30 a.m., local time, at the
office of the Company, 112 Bridge Street, Naugatuck, Connecticut 06770-0460, for
the following purposes:
1. To elect two directors.
2. To approve the appointment by the Board of Directors of Ernst & Young
LLP as independent auditors to audit the consolidated financial
statements for the current fiscal year.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed February 27, 1998 as the record date for the
determination of common shareholders entitled to notice of, and to vote at the
Annual Meeting or any adjournment thereof.
Your vote is very important. Whether or not you plan to attend the Annual
Meeting, we urge you to sign, date and return the enclosed white proxy card
promptly in the postpaid return envelope that is provided. If you attend the
meeting and desire to vote in person, your proxy will not be used.
All shareholders are cordially invited to attend the meeting, and management
looks forward to seeing you there.
By order of the Board of Directors,
Donald E. Whitmore, Jr.
Secretary
March 20, 1998
<PAGE>
PROXY STATEMENT
of
THE EASTERN COMPANY
for the Annual Meeting of Shareholders
To Be Held on April 22, 1998
This proxy statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of The Eastern Company ("Eastern" or the
"Company") for use at the 1998 Annual Meeting of Shareholders and at any
adjournment thereof. This proxy statement is first being furnished to
shareholders on or about March 20, 1998.
GENERAL INFORMATION REGARDING VOTING AT THE ANNUAL MEETING
The Board has fixed the close of business on February 27, 1998 as the record
date ("Record Date") for determining the shareholders entitled to notice of, and
to vote at, the Annual Meeting. On the Record Date, there were 2,603,434
outstanding shares of Eastern common stock ("Common Shares") with each Common
Share entitled to one vote.
The presence, in person or by proxy, of holders of a majority of the voting
power of the Common Shares entitled to vote at the Annual Meeting is necessary
to constitute a quorum.
Shares represented by Eastern's proxy card will be voted at the Annual Meeting,
either in accordance with the directions indicated on the proxy card, or, if no
directions are indicated, in accordance with the recommendations of the Board
contained in this Proxy Statement and on the form of proxy. If a proxy is signed
and returned without specifying choices, the Common Shares represented thereby
will be voted (1) FOR the proposal to elect Messrs. Henry and Whitmore to the
Board of Directors and (2) FOR the appointment of independent auditors. The
Company is not aware of any matters other than those set forth herein which will
be presented for action at the Annual Meeting. If other matters should be
presented, the persons named in the proxy intend to vote such proxies in
accordance with their best judgment.
A shareholder may revoke the appointment of a proxy by making a later
appointment or by giving notice of revocation to The Eastern Company, 112 Bridge
Street, P.O. Box 460, Naugatuck, CT 06770-0460. Attendance at the Annual Meeting
does not in itself revoke the appointment of a proxy; however, it may be revoked
by giving notice in open meeting. A revocation made during the Annual Meeting
after the polls have been closed will not affect the previously taken vote.
- 1 -
<PAGE>
Solicitation of Proxies
The cost of solicitation of proxies will be borne by the Company. This
solicitation by mail to the Company's shareholders (including this proxy
statement and the enclosed proxy) began on approximately March 20, 1998. In
addition to this solicitation by mail, officers and regular employees of the
Company and its subsidiaries may make solicitation by mail, telephone or
personal interviews, and arrangements may be made with companies, brokerage
firms, and others to forward proxy material to their principals. The Company
will defray the expenses of such additional solicitations.
Voting at the Annual Meeting
A plurality of the votes duly cast is required for the election of directors.
Each of the other matters to be acted upon at the Annual Meeting will be
approved if the votes cast in favor of the matter exceed the votes cast opposing
the matter.
Under Connecticut law, an abstaining vote is considered to be present but is not
deemed to be a vote cast. As a result, abstentions and broker "non-votes" are
not included in the tabulation of the voting results on the election of
directors or the other matters to be acted on at the Annual Meeting, each of
which requires the approval of a plurality or majority of the votes cast, and
therefore do not have the effect of votes in opposition in such tabulations. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner. Broker "non-votes" and shares as to
which a shareholder abstains are included for purposes of determining whether a
quorum is present at the Annual Meeting.
The Board of Directors recommends voting:
FOR the election of Messrs. Henry and Whitmore as directors.
FOR the appointment of Ernst & Young LLP as independent auditors.
- 2 -
<PAGE>
Item No. 1
ELECTION OF DIRECTORS
At the meeting, two directors will be elected to serve for three-year terms
which expire in 2001 and until their successors are elected and qualified.
Charles W. Henry and Donald E. Whitmore, Jr., current directors whose terms
expire in 1998, are nominees for election at the meeting.
Unless otherwise specified in your proxy, the persons with power of substitution
named in the proxy card will vote your shares FOR the Company's nominees named
below. If any of such nominees are unable or unwilling to accept nomination, the
proxies will be voted for the election of such other persons as may be
recommended by the Nominating Committee of the Board of Directors. The Board of
Directors, however, has no reason to believe that any of the Company's nominees
will be unavailable for election at the Annual Meeting. Approval of this
resolution requires the affirmative vote of a plurality of the votes duly cast
by the shares represented at the meeting which are entitled to vote on the
matter.
The Board of Directors recommends a vote FOR the election of Messrs. Henry and
Whitmore as directors.
The biographical information set forth below with respect to each director's
present principal occupation, business and other affiliations, and beneficial
ownership of equity securities of the Company has been furnished by the
director. Unless otherwise indicated, each director has been employed in the
principal occupation or employment listed for at least the past five years.
COMPANY NOMINEES FOR ELECTION AT THE 1998 ANNUAL MEETING
FOR A THREE-YEAR TERM EXPIRING IN 2001
<TABLE>
<CAPTION>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 27, of
The Company Other Directorships Since 1998 Class
<S> <C> <C> <C> <C>
Charles W. Henry, 48 Partner 1989 32,065 1.1%
Director #*+= Kernan & Henry
Waterbury, CT
Donald E. Whitmore, Jr., 62 Executive Vice President, Chief 1980 43,236 1.5%
Director and Executive Vice Financial Officer and Secretary
President, Chief Financial of the Company
Officer and Secretary
of the Company
</TABLE>
- 3 -
<PAGE>
CONTINUING DIRECTORS
(TERMS TO EXPIRE IN 1999)
<TABLE>
<CAPTION>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 27, of
The Company Other Directorships Since 1998 Class
<S> <C> <C> <C> <C>
John W. Everets, 51 Chairman of H.P.S.C. Inc. 1993 27,154 1.0%
Director # Boston, MA
(Financial Services)
Chairman and Co-Owner
Richardson Co. Inc. 1990-1993
Director: H.P.S.C. Inc.
Crown/Northcorp Inc.
Dairymart
Leonard F. Leganza, 67 President and Chief Executive 1981 59,960 2.2%
Director and President and Officer of the Company
Chief Executive Officer Financial and Business
of the Company *= Consultant
Farmington, CT
Russell G. McMillen, 79 Retired Chairman of the Company 1959 124,574 4.5%
Director *+=
David C. Robinson, 55 President of The Robinson 1990 38,268 1.4%
Director *+= Company, Waterbury, CT
Director: Engineered Sinterings
and Plastics Inc.
</TABLE>
CONTINUING DIRECTOR
(TERM TO EXPIRE IN 2000)
<TABLE>
<CAPTION>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 27, of
The Company Other Directorships Since 1998 Class
<S> <C> <C> <C> <C>
Donald S. Tuttle III, 49 Vice President and Account Executive, 1988 29,309 1.1%
Director # Paine Webber, Middlebury, CT
</TABLE>
* Members of the Executive Committee
# Members of the Audit Committee
+ Members of the Compensation Committee
= Members of the Nominating Committee
- 4 -
<PAGE>
Item No. 2
APPOINTMENT OF INDEPENDENT AUDITORS
The services of Ernst & Young LLP for the fiscal year ending January 3, 1998
included an audit of the consolidated financial statements of the Company and
its subsidiaries; assistance and consultations in connection with filing the
Form 10-K annual report with the Securities and Exchange Commission;
consultation on financial accounting and reporting matters; and meetings with
the Audit Committee of the Board of Directors.
All audit services provided by Ernst & Young LLP in 1997, which were similar to
the audit services provided in prior years, were approved by the Audit Committee
in advance of the work being performed.
The Board of Directors recommends continuing the services of this firm for the
current fiscal year. Accordingly, the Board of Directors will recommend at the
meeting that the shareholders approve the appointment of the firm of Ernst &
Young LLP to audit the consolidated financial statements of the Company for the
current year.
The proposal to appoint Ernst & Young LLP as independent auditors will be
approved if at the Annual Meeting at which a quorum is present, the votes cast
in favor of the proposal exceed the votes cast opposing the proposal.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will have an opportunity to make a statement if they desire to do so, as well as
respond to questioning.
The Board of Directors recommends a vote FOR the appointment of Ernst & Young
LLP as independent auditors.
- 5 -
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL SHAREHOLDERS
The following table sets forth information, as of February 27, 1998 (unless a
different date is specified in the notes to the table), with respect to (a) each
person known by the Board of Directors of the Company to be the beneficial owner
of more than 5% of the Company's outstanding Common Shares, (b) each current
director of the Company, (c) each of the Named Officers (as hereinafter defined)
and (d) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and nature
of beneficial Percent of
Shareholder ownership (a) class (b)
<S> <C> <C>
Bank Boston, NA as trustee under The 216,854 7.8%
Eastern Company Pension Plan for Salaried Employees (c)
81 West Main Street
Waterbury, CT 06702
Dimensional Fund Advisors, Inc. (d) 145,200 5.2%
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
The First National Bank of Boston or one of its nominees 145,972 5.3%
100 Federal Street
Boston, MA 02110
Millbrook "Group" (e) 178,400 6.5%
Millbrook Capital Management Inc. (e)
MMI Investments, L.L.C. (e)
John S. Dyson (e)
John W. Everets 27,154 1.0%
Charles W. Henry 32,065 1.1%
Leonard F. Leganza 59,960 2.2%
Russell G. McMillen 124,574 4.5%
David C. Robinson 38,268 1.4%
Donald S. Tuttle, III 29,309 1.1%
Donald E. Whitmore, Jr. 43,236 1.5%
All directors and executive officers as a group (7 persons) 354,566 (f) 12.8%
</TABLE>
- 6 -
<PAGE>
(a) The Securities and Exchange Commission has defined "beneficial owner" of a
security to include any person who has or shares voting power or investment
power with respect to any such security or who has the right to acquire
beneficial ownership of any such security within 60 days. Unless otherwise
indicated, (i) the amounts owned reflect direct beneficial ownership, and (ii)
the person indicated has sole voting and investment power. Amounts shown include
the number of Common Shares subject to outstanding options under the Company's
stock option plans that are exercisable within 60 days. Reported shareholdings
include, in certain cases, shares owned by or in trust for a director's or
nominee's spouse, and in which all beneficial interest has been disclaimed by
the director or the nominee.
(b) The percentages shown are calculated on the basis that outstanding shares
include Common Shares subject to outstanding options under the Company's stock
option plans that are exercisable by directors and officers within 60 days.
(c) Reported shareholdings as of January 30, 1998. Bank Boston, NA as trustee of
the salaried pension plan, will vote the Common Shares held in this trust.
(d) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 145,200 Common Shares as of
December 31, 1997, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in series of
the DFA Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
(e) According to Amendment No. 7 to Millbrook's Schedule 13D, filed on November
24, 1997, both Millbrook, MMI and Mr. Dyson are a member of a "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934. The
group owned a total of 178,400 or 6.4% of the Company's Common Shares as of
February 25, 1998.
(f) Directors and Executive Officers have sole voting and investment powers as
to 354,566 shares (12.8% of the outstanding stock). Also included are stock
options for 166,800 shares deemed exercised solely for purposes of showing
beneficial ownership by such group.
- 7 -
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the American Stock Exchange. Directors, officers and greater-than-10%
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) reports that they file. Based solely on its review
of copies of such reports filed with the SEC since January 1997, or written
representations from certain reporting persons that no such reports were
required for those persons, the Company believes that all persons subject to the
reporting requirements of Section 16(a) have filed the required reports on a
timely basis, with the exception of one report which was filed late by Charles
W. Henry relating to a sale of the Company's common shares.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has four standing committees: an Executive
Committee, an Audit Committee, a Compensation Committee and a Nominating
Committee. During 1997, the Board of Directors had nine (9) meetings. During
1997 each Director attended at least 75 percent or more of those meetings and
the meetings of committees on which he served with the exception of Mr. Ole K.
Imset, a former Director of the Company. Mr. Imset attended fewer than 75% of
the aggregate number of Board and committee meetings during 1997 because of a
serious illness that resulted in his death in November, 1997.
Executive Committee. The Executive Committee, acting with full authority of the
Board of Directors, approves minutes, monthly operating reports, capital
expenditures, banking matters, and other issues requiring immediate attention.
Executive Committee meetings are generally scheduled for each month in which
there is no Directors' Meeting. During 1997, three (3) Executive Committee
Meetings were held.
Audit Committee. The Audit Committee is responsible for reviewing and planning
the scope of the audit as well as reviewing the Company's financial statements
and the results of such audit. During 1997, two (2) Audit Committee Meetings
were held.
Compensation Committee. The Compensation Committee is responsible for management
compensation and all related matters, as well as selecting the employees to be
granted stock options. It had four (4) meetings in 1997.
Nominating Committee. The Nominating Committee which is responsible for making
recommendations to the Board of Directors as to board size and to nominate
prospective candidates to serve as Directors, did not meet in 1997. The
Nominating Committee will consider candidates recommended by other Directors and
in writing from shareholders.
- 8 -
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following information relates to annual and long-term compensation for
services to the Company in all capacities for the fiscal years ended January 3,
1998, December 28, 1996 and December 30, 1995 of those persons who, at January
3, 1998 were (i) the Chief Executive Officer and the retired Chief Executive
Officer and (ii) the only other
executive officer of the Company (collectively the "Named Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Other Restricted Securities
Name and Principal Annual Shares Underlying LTIP All Other
Position as of Salary (1) Bonus (2) Compensation Awards Options/SARs Payouts Compensation
January 3, 1998 Year ($) ($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard F. Leganza 1997 $147,808(3) $118,246 $1,552 ----- ----- ----- $ 565(4)
Director, 1996 ----- ----- ----- ----- ----- ----- -----
President and CEO 1995 ----- ----- ----- ----- ----- ----- -----
Stedman G. Sweet 1997 $ 91,269(5) $ 56,000 $1,232 ----- ----- ----- $266,876(4)(5)
Retired Director, 1996 $210,000 $1,556 ----- ----- ----- $ 1,500(4)
President and CEO 1995 $205,000 $ 60,120 $1,544 ----- ----- ----- $ 1,180(4)
Donald E. Whitmore, Jr. 1997 $137,596(6) $110,077 $1,556 $134,063(7) ----- ----- $ 1,376(4)
Director, Executive 1996 $130,500 ----- $1,556 ----- ----- ----- $ 1,305(4)
Vice President, 1995 $127,000 $ 21,844 $1,544 ----- ----- ----- $ 1,270(4)
CFO and Secretary
</TABLE>
(1) 1997 consisted of 53 weeks. Salaries were paid on that basis.
(2) Bonuses are reported in the year earned. Payment is normally made the
following year.
(3) Mr. Leganza became President and Chief Executive Officer on April 23,
1997 at an annual salary of $210,000.
(4) Mr. Leganza, Mr. Sweet and Mr. Whitmore participated in the company's
401(k) program and received company contributions under the provisions
of the plan.
(5) Mr. Sweet retired as Director, President and Chief Executive Officer on
April 23, 1997. As part of his pre-existing benefit package Mr. Sweet
received one year's base salary. Upon taking early retirement, Mr.Sweet
began to receive $1,015.87 per month under an existing Deferred
Compensation Plan and $1,472.88 per month under an existing
Supplemental Employee Retirement Plan. In addition Mr. Sweet is
receiving benefits under the 100% joint and survivor option of the
Company's Salaried Employees' Retirement Plan amounting to $6,423.74
monthly.
(6) Mr. Whitmore has been an Executive Officer of the Company since 1977.
(7) Mr. Whitmore was granted 7,500 shares of restricted shares on December
16, 1997. The fair market value of the Company Common Shares on the
date of the grant of the restricted stock was $17.875. In general the
restrictions will lapse on December 28, 2002. However, the restrictions
on the shares may lapse on earlier dates if certain performance goals
based on the earnings per share of the Company Common Shares are
achieved. The restrictions will also lapse in the event an unfriendly
change in control occurs. The fair market value of the restricted stock
as of January 3,1998 was $19.75 per share or $148,125 in total.
Dividends are paid on shares of restricted stock.
- 9 -
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired on Value at FY-End(#) at FY-End ($) (i)
Name Exercise (#) Realized ($) All Exercisable All Exercisable
<S> <C> <C> <C> <C>
Leonard F. Leganza ___ ___ 56,250 $264,413
CEO & President
Stedman G. Sweet 15,000 $94,688 (ii) ___ ___
Retired CEO
& President
Donald E. Whitmore, Jr. 5,000 $41,875 (iii) 10,000 $103,750
Executive Vice President,
CFO and Secretary
</TABLE>
(i) Based on the fair market value of the Company Common Shares on January 3,
1998 of $19.75 per share and the option exercise prices ranging from $9.08 to
$17.875 per share. (ii) Based on the fair market value of the Company Common
Shares on July 15, 1997 of $15.687 per share and the option exercise price of
$9.375 per share. (iii)Based on the fair market value of the Company Common
Shares on November 24, 1997 of $17.75 per share and the option exercise price of
$9.375 per share
PENSION PLANS
Retirement Benefits
The Company maintains a pension plan for salaried employees. Under the plan, the
amount of a member's annual normal retirement benefit is equal to one percent
(1%) of total annual compensation applicable to each year of service and the sum
of one half of one percent (0.5%) of average annual compensation plus one half
of one percent (0.5%) of average annual compensation in excess of $10,000,
multiplied by years of service not in excess of thirty (30). Average annual
compensation means the average of the member's annual compensation for the five
(5) consecutive calendar years prior to retirement which result in the highest
average.
As of January 3, 1998, Mr. Leganza had less than one year of service and was not
entitled to any benefits under the plan. As of January 3, 1998, Mr. Whitmore had
32 years of service. The estimated annual retirement benefit payable to Mr.
Whitmore is $72,603. This benefit is based on the five year certain form of
annuity. Mr. Sweet, the former President and Chief Executive Officer of the
Company, retired on April 23, 1997 and on July 1, 1997 began receiving monthly
benefits of $6,423.74 under the plan. This benefit is payable under the 100%
joint and survivor form of annuity.
- 10 -
<PAGE>
SIP Plan
The Company maintains a savings and investment plan (the "SIP Plan") for
salaried employees. A salaried employee who is participating in the SIP Plan may
execute a salary reduction agreement requiring the Company to reduce his or her
taxable earnings by an amount of from 1% to 18% (but not in excess of $9,500 for
calendar year 1997), and to contribute that amount to the SIP Plan. If an
employee executes such a salary reduction agreement, the Company will make a
matching contribution to the SIP Plan on behalf of the employee. For 1997 the
matching contribution equaled 25% of that portion of an employee's salary
reduction contribution which did not exceed 4% of his or her earnings. An
employee is fully vested in his or her salary reduction contributions and the
earnings on those contributions. An employee will become vested in any matching
contributions, and the earnings thereon, over a period of years, with full
vesting after completing five years of service or upon reaching age 65.
Employees who are participating in the SIP Plan may direct that their account
balances be invested in one or more investment options offered under the plan.
EXECUTIVE INCENTIVE PLAN
During 1997, the Executive Officers were eligible, under the 1997 Executive
Incentive Plan, to earn unlimited incentives exclusively based on corporate net
per share earnings. The Treasurer's incentive was subject to a 25% maximum of
base pay. All other Vice Presidents and Division Managers were eligible to earn
unlimited incentives with a portion of their incentive based on corporate per
share earnings. The major portion of their incentive was based on their
division's or group's return on investment ("ROI"). Once the division's ROI
reached 8%, an incentive was earned at 4.29% of base salary for each 1% increase
in ROI.
Effective for 1998, the Executive Incentive Plan has been modified. The
corporate officers, including the President, Executive Vice President and
Treasurer, may receive an incentive subject to a maximum of base pay of 82%, for
the President and Executive Vice President and a maximum of 50% of base pay for
the Treasurer. The incentive is tied exclusively to corporate earnings per
share. All other Vice Presidents and Division Managers will earn a portion of
their incentive based on corporate net per share earnings, subject to a maximum
of 8.2% of base pay. The majority of their incentive, with an unlimited
potential, will be based on achieving their respective division or group
targets.
STOCK OPTIONS
On April 27, 1983, the shareholders approved the Incentive Stock Option Plan
(the "1983 Plan"), which by its terms expired on February 9, 1993. No additional
options may be granted under the 1983 Plan. However, options previously granted
remain exercisable in accordance with their terms.
On April 26, 1989, the shareholders approved The Eastern Company 1989 Executive
Stock Incentive Plan (the "1989 Plan"), which by its terms will expire either on
February 7, 1999 or upon any earlier termination date established by the Board
of Directors. The 1989 Plan authorizes the granting of stock options to purchase
shares of common stock, no-par value, of the Company. Under the 1989 Plan,
incentive stock options may be granted to salaried officers and other key
employees of the Company and its subsidiary corporations. The total amount of
such common stock which may be issued under options granted under this 1989 Plan
shall not exceed in the aggregate 240,000 shares.
- 11 -
<PAGE>
On April 26, 1995, the shareholders approved The Eastern Company 1995
Executive Stock Incentive Plan (the "1995 Plan"), which by its terms will
expire either on February 8, 2005 or upon any earlier termination date
established by the Board of Directors. The 1995 Plan authorizes the granting of
incentive stock options and non-qualified stock options to purchase shares of
common stock and the granting of shares of restricted stock. The Compensation
Committee of the Company's Board of Directors will determine the restrictions
which will apply to shares of restricted stock granted under the 1995 Plan.
Awards may be granted to salaried officers and other key employees of the
Company, whether or not such employees are also serving as directors of the
Company. The 1995 Plan also provides for the grant of non-qualified stock
options to purchase 11,250 shares of common stock to each non-employee director
of the Company upon his or her first election as a director. The total amount
of such common stock which may be issued under awards granted under the 1995
Plan shall not exceed in the aggregate 250,000 shares.
On September 17, 1997 the Compensation Committee adopted The Eastern Company
1997 Directors Stock Option Plan (the "1997 Plan") which by its terms will
expire either on September 16, 2007 or upon any earlier termination date
established by the Board of Directors. The 1997 Plan authorizes the granting of
non-qualified stock options to purchase shares of common stock to the
non-employee directors of the Company. The total amount of such common stock
which may be issued under options granted under the 1997 Plan shall not exceed
in the aggregate 150,000 shares.
The purchase price of the shares subject to each option granted under the 1983
and 1989 Plans and each incentive stock option granted under the 1995 Plan may
not be less than the fair market value of the shares on the date of grant. The
purchase price of shares subject to non-qualified stock options granted under
the 1995 and 1997 Plans, and the price which must be paid to acquire a share of
restricted stock granted under the 1995 Plan, will be set by the Compensation
Committee of the Company's Board of Directors. All non-qualified stock options
granted to date have required a purchase price equal to 100% of the fair market
value of the common stock on the date of the grant.
Incentive stock options generally may not be granted under the 1983, 1989 or
1995 Plans to any employee who owns more than ten percent (10%) of the Company's
voting stock at the time of such grant. Incentive stock options must be
exercised within ten years, and non-qualified stock options must be exercised
within ten years and one month, after being granted. Moreover, options may not
be exercised more than three months after termination of employment or
termination of service as a director, except in the case of death or disability,
in which event the option may be exercised within one year after death or
disability. Under the 1995 and 1997 Plans, the three month period is also
extended to one year for an optionee who terminates employment or terminates
service as a director at or after reaching age sixty-five (65).
Option/SAR and Long-term Incentive Plan Tables. The following table contains
certain information relating to the grants of stock options, the exercise of
stock options and the grant of long-term incentive awards during the fiscal year
ended January 3, 1998. The company has no stock appreciation rights (SAR)
programs in place. Options/SAR Grants in Last Fiscal Year (1997)
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
INDIVIDUAL GRANTS for Option Term (1)
Number of Percent of
Securities Total Option/SARs
underlying Granted to Exercise or
Option/SAR Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Leonard F. Leganza 20,000 $14.875 09/16/07 187,128 474,215
25,000 $17.875 12/15/07 281,084 712,319
45,000 75.0%
Stedman G. Sweet N/A N/A N/A N/A N/A N/A
Donald E. Whitmore, Jr. N/A N/A N/A N/A N/A N/A
</TABLE>
Note (1): The potential value of the options is based on the assumption that the
value of the Company's Common Shares increased by 5 percent and 10 percent,
compounded annually, in each year of the ten year term of the option. It is not
intended to forecast the possible future appreciation, if any, of the Company's
Common Shares.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company ("Outside Director") is paid
a director's fee for his services at the rate of $3,000 per year (plus an
additional $1,000 if a member of the Executive Committee), as well as an
attendance fee of $700 per meeting attended. All annual retainer fees and
meeting fees paid to non-employee members of the Board of Directors of the
Company are paid in Common Shares of the Company rather than in cash in
accordance with the Directors Fee Program adopted by the shareholders on March
26, 1997.
On September 17, 1997 each director who was not an employee of the Company was
granted an option to acquire 15,000 Common Shares at an exercise price of
$14.875, the fair market value of the Common Shares at the date of grant.
- 13 -
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Mr. Whitmore has an Employment Agreement with the Company through April 30,1998.
This Employment Agreement includes basic annual compensation and benefits under
the Company's other employee benefit programs. Mr. Whitmore's agreement also
specifically includes continued participation in the Company's Executive
Incentive Plan. If the Company breaches its obligations to Mr. Whitmore during
the term of the agreement, then he must be paid an amount equal to the sum of
his annual salary at the then-current annual rate, and the amount of the
benefits he would have earned under the Executive Incentive Plan (if any). If
his employment is terminated after a change in control of the Company, then he
must be paid an amount equal to his total compensation for the prior fiscal year
in addition to the amount payable for ordinary breach by the Company. The total
amount received after a change of control, however, may not exceed 2.99 times
his average annual compensation over the preceding five calendar years.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The members of the Compensation Committee are Mr. McMillen, director and former
Chairman of the Company, and outside directors Charles W. Henry and David C.
Robinson. The Committee is responsible for setting compensation, the Executive
Incentive Plan, stock options and all related matters. Mr. Ole K. Imset, an
outside director, was a member of the Compensation Committee until his death in
November 1997. Mr. Leonard F. Leganza, formerly an outside director and
currently President and Chief Executive Officer of the Company was a member of
the Compensation Committee before he assumed his current position. The
Compensation Committee met four (4) times in 1997.
The executive compensation program of the Company has been designed to:
Support a pay for performance policy that differentiates in compensation
based upon corporate, business unit and individual performance.
Motivate key management personnel to achieve strategic business initiatives
and reward them for their achievement.
Provide compensation opportunities which are in line with those offered by
comparable companies, thus allowing the Company to compete for and retain
talented executives who are critical to the Company's long-term success.
Align the interests of executives with the long-term interests of
shareholders through award opportunities that can result in the ownership
of common stock.
At present, the executive compensation program is comprised of
salary, annual cash incentive opportunities and long-term incentive
opportunities in the form of stock options and restricted stock. As an
executive's level of responsibility increases, a greater portion of that
individual's potential total compensation opportunity is in the form of the
Executive Incentive Plan. This is tied to individual plant and overall corporate
profit objectives and stock options and restricted stock which are intended to
increase the motivation for the Company's long-term success as measured by the
Company's share price and book value per share. Effective December 30, 1996, the
Compensation Committee increased the salary paid to Mr. Donald E. Whitmore, Jr.,
Vice President and Chief Financial Officer, by 3.4% based upon the level of
achievement in line with the Company's executive compensation program.
Russell G. McMillen Charles W. Henry David C. Robinson
- 14 -
<PAGE>
SHAREHOLDER RETURN PERFORMANCE INFORMATION
The following graph sets forth the Company's cumulative Total Shareholder Return
based upon an initial $100 investment made on December 31, 1992 (i.e., stock
appreciation plus dividends during the past five fiscal years) compared to the
Wilshire 5000 Index and the S&P Manufacturing Diversified Index. The Company
manufactures and markets a broad range of locks, latches, fasteners and other
security hardware that meets the diverse security and safety needs of industrial
and commercial customers. Consequently, while the S&P Manufacturing Diversified
Index being used for comparison is a standard index most closely related to the
Company, it does not completely represent the Company's products or market
applications. The Wilshire 5000 is a market index made up of 5,000
publicly-traded companies, including those having both large and small
capitalization.
[BAR GRAPH OF CUMULATIVE TOTAL RETURN APPEARS HERE]
<TABLE>
<CAPTION>
Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97
<S> <C> <C> <C> <C> <C> <C>
Eastern Company $100 $119 $133 $130 $145 $224
Wilshire 5000 $100 $111 $111 $152 $184 $241
S&P Manufacturing $100 $121 $126 $177 $244 $290
(Diversified Ind) Index
</TABLE>
- 15 -
<PAGE>
ADDITIONAL INFORMATION
Any shareholder who intends to present a proposal at the 1999 Annual Meeting of
shareholders and desires that it be included in the Company's proxy material
must submit to the Company a copy of the proposal on or before November 19,
1998.
FORM 10-K ANNUAL REPORT
A copy of the corporation's annual report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended January 3, 1998
will be furnished without charge to shareholders upon written request directed
to Donald E. Whitmore, Jr., Secretary, The Eastern Company, 112 Bridge Street,
P.O. Box 460, Naugatuck, Connecticut 06770-0460.
OTHER BUSINESS
Under Connecticut law, no business other than the general purpose or purposes
stated in the notice of meeting may be transacted at an annual meeting of
shareholders. If any matter within the general purposes stated in the notice of
meeting but not specifically discussed herein comes before the meeting or any
adjournment thereof, the persons named in the enclosed proxy will vote upon such
matter in accordance with their best judgment.
This Proxy Statement and the above Notice are sent by order of the Board of
Directors.
Donald E. Whitmore, Jr.
Secretary
March 20, 1998
- 16 -
SKU# 0389-PS-98
<PAGE>
PROXY
THE EASTERN COMPANY
112 Bridge Street, Naugatuck, CT 06770
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints John W. Everets, David C. Robinson and
Donald S. Tuttle, III, or any one or more of them, true and lawful attorneys
and agents, with power of substitution for the undersigned in his name, place
and stead, to vote at the Annual Meeting of Shareholders of The Eastern Company
on April 22, 1998 and any adjournments thereof, all shares of common stock of
said Company which the undersigned would be entitled to vote, if then personally
present, as specified on the reverse side of this card on proposals 1 and 2 and
in their discretion on all other matters coming before the meeting.
(Important - To be signed and dated on reverse side)
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
[X] Please mark
votes as in
this example
This proxy will be voted as directed by the stockholder but if no choice is
specified, it will be voted FOR proposals 1 and 2.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1 and 2.
- --------------------------------------------------------------------------------
1. Election of Directors for 3-year terms:
Nominees: C. Henry, D. Whitmore, Jr.
[_] FOR [_] WITHHELD
BOTH FROM BOTH
NOMINEES NOMINEES
[_] ___________________________________________
For both nominees except as noted above
FOR AGAINST ABSTAIN
2. Approval of the appoint- [_] [_] [_]
ment of auditors (Ernst &
Young LLP).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARK HERE FOR ADDRESS CHANGE AND NOTE
AT LEFT [_]
Two Signatures Needed if Held Jointly.
(IMPORTANT - FILL IN DATE)
Please sign names(s) exactly as it appears hereon. When signing as attorney,
executor, trustee or in other representative capacity, state in full title.
Signature:________________ Date:_______ Signature:________________ Date:_______
