THE EASTERN COMPANY
112 Bridge Street
P.O. Box 460
Naugatuck, CT 06770-0460
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 26, 2000
-----------------------
The Annual Meeting of shareholders of The Eastern Company ("Eastern" or
the "Company") will be held on April 26, 2000 at 11:00 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 of the Company and its subsidiaries 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 25, 2000 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 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,
Amanda Gordon
Assistant Secretary
March 15, 2000
<PAGE>
PROXY STATEMENT
of
THE EASTERN COMPANY
for the Annual Meeting of Shareholders
To Be Held on April 26, 2000
The Board of Directors of The Eastern Company ("Eastern" or the "Company")
is furnishing this proxy statement in connection with its solicitation of
proxies for use at the 2000 Annual Meeting of Shareholders and at any
adjournment thereof. This proxy statement is first being furnished to
shareholders on or about March 15, 2000.
GENERAL INFORMATION REGARDING VOTING AT THE ANNUAL MEETING
The Board has fixed the close of business on February 25, 2000 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 3,656,817
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. Robinson and Tuttle
to the Board of Directors and (2) FOR the appointment of Ernst & Young LLP as
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 15, 2000. 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. Robinson and Tuttle 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 2003 and until their successors are elected and qualified.
Mr. David C. Robinson and Mr. Donald S. Tuttle III, current directors whose
terms expire in 2000, 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.
Robinson and Tuttle as directors.
Each director has furnished the biographical information set forth below
with respect to his present principal occupation, business and other
affiliations, and beneficial ownership of equity securities of the Company.
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 2000 ANNUAL MEETING
FOR A THREE-YEAR TERM EXPIRING IN 2003
<TABLE>
<CAPTION>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 25, of
The Company Other Directorships Since 2000 Class
----------- ------------------- ----- ---- -----
<S> <C> <C> <C> <C>
David C. Robinson, 57 President 1990 87,286 2.1%
Director 1,2,3,4,5 The Robinson Company
Waterbury, CT
(Employee Benefit Specialists)
Director: Engineered Sinterings &
Plastics Inc.
Donald S. Tuttle III, 51 Vice President Investments 1988 75,386 1.8%
Director 1,2,3,4,5 Paine Webber
Middlebury, CT
(Investment Firm)
</TABLE>
3
<PAGE>
Continuing Director (Term to Expire 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 25, of
The Company Other Directorships Since 2000 Class
----------- ------------------- ----- ---- -----
<S> <C> <C> <C> <C>
Charles W. Henry, 50 Partner 1989 75,587 1.8%
Director 1,2,3,4,5 Kernan & Henry
Waterbury, CT
(Law Firm)
</TABLE>
Continuing Director (Term to Expire in 2002)
<TABLE>
<CAPTION>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 25, of
The Company Other Directorships Since 2000 Class
----------- ------------------- ----- ---- -----
<S> <C> <C> <C> <C>
John W. Everets, 53 Chairman and CEO 1993 70,479 1.7%
Director 2,3,4,5 H.P.S.C. Inc.
Boston, MA
(Financial Services)
Director: H.P.S.C. Inc.
Dairymart
Leonard F. Leganza, 69 President and CEO 1981 186,758 4.6%
Director, President and The Eastern Company
Chief Executive Officer Naugatuck, CT
of the Company 1,4 Financial and Business Consultant
Farmington, CT
Director: American Republican, Inc.
<FN>
1 Member of the Executive Committee
2 Member of the Compensation Committee
3 Member of the Audit Committee
4 Member of the Nominating Committee
5 Member of the Pension Trust Committee
</FN>
</TABLE>
4
<PAGE>
Item No. 2
APPOINTMENT OF INDEPENDENT AUDITORS
The services of Ernst & Young LLP for the fiscal year ended January 1,
2000 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 for 1999, 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 25, 2000
(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>
Fleet National Bank as trustee under The 325,282 8.9%
Eastern Company Pension Plan for Salaried Employees (c)
100 Federal Street
Boston, MA 02110
Dimensional Fund Advisors, Inc. (d) 198,300 5.4%
1299 Ocean Avenue, Suite 650
Santa Monica, CA 90401
Fleet Boston Corporation or one of its nominees (e) 215,647 5.9%
100 Federal Street
Boston, MA 02110
Salomon, Smith, Barney (f) 235,834 6.4%
333 West 34th Street
New York, NY 10001
John W. Everets 70,479 1.7%
Charles W. Henry 75,587 1.8%
Leonard F. Leganza 186,758 4.6%
David C. Robinson 87,286 2.1%
John L. Sullivan III 29,765 0.7%
Donald S. Tuttle III 75,386 1.8%
Russell G. McMillen (g) 216,461 5.3%
Donald E. Whitmore, Jr. (h) 48,818 1.2%
All directors and executive officers as a group (8 persons) 790,540(i) 19.3%
6
<PAGE>
<FN>
(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 for the directors and executive officers 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 the directors and officers within 60 days.
(c) Reported shareholdings as of February 23, 2000. The Eastern Company,
in accordance with its fiduciary responsibilities, will provide Fleet Boston
Corporation, as trustee of the salaried pension plan, with voting instructions
for the Common Shares held in this trust.
(d) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 198,300 Common
Shares per a Schedule 13G filed as of February 2, 2000, 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, for all of
which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(e) Reported shareholdings per a Schedule 13G filed February 14, 2000.
(f) Reported shareholdings as of January 31, 2000.
(g) Emeritus Director of the Company.
(h) Mr. Whitmore resigned as Director, Executive Vice President, Chief
Financial Officer and Secretary on July 2, 1999.
(i) Directors and Executive Officers (including the Emeritus Director)
have sole voting and investment powers as to 790,540 shares (19.3% of the
outstanding stock). Also included are stock options for 444,800 shares deemed
exercised solely for purposes of showing beneficial ownership by such group.
</FN>
</TABLE>
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 1999, 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has five standing committees: an
Executive Committee, an Audit Committee, a Compensation Committee, a Nominating
Committee and a Pension Trust Committee. During 1999, the Board of Directors had
seven (7) meetings. During 1999 each Director attended at least 75 percent or
more of those meetings and the meetings of committees on which he served.
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 when necessary. During
1999, one (1) Executive Committee Meeting was held.
Audit Committee. The Audit Committee is responsible for reviewing the plan
and scope of the audit, the Company's audited financial statements and other
audit matters. During 1999, two (2) Audit Committee Meetings were held.
Compensation Committee. The Compensation Committee is responsible for
establishing management compensation and all related matters, as well as
selecting the employees to be granted stock options. One (1) Compensation
Committee Meeting was held in 1999.
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, met once (1) in 1999. The
Nominating Committee will consider candidates recommended by other Directors, as
well as candidates recommended in writing by shareholders in accordance with the
procedure set forth in the company's by-laws. In general, a shareholder must
provide such written notice not less than 60 or more than 90 days prior to April
26, 2001.
Pension Trust Committee. The Pension Trust Committee is responsible for
reviewing the investment policy and performance of the Salaried Employees
Retirement Plan of The Eastern Company, The Eastern Company Pension Plan for
Hourly-Rated Employees of the Eberhard Manufacturing Company Division, The
Eastern Company Pension Plan for Hourly-Rated Employees of the Frazer & Jones
Company Division and The Eastern Company Savings and Investment Plan. The
Pension Trust Committee met once (1) in 1999.
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 1,
2000, January 2, 1999 and January 3, 1998 of those persons who, at January 1,
2000 were (i) the Chief Executive Officer; (ii) the Vice President and Treasurer
(the only other executive officer of the Company at the end of the fiscal year
ended January 1, 2000); and (iii) the resigned Executive Vice President and
Chief Financial Officer (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 (3)
January 1, 2000 Year ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard F. Leganza, 69 1999 $250,000 $162,500 -- -- 55,000 -- $ 4,649
Director, President and 1998 $225,000 $184,500 -- -- 45,000 -- $ 4,649
CEO 1997 $147,808(4) $118,246 -- -- 67,500 -- $ 1,729
John L. Sullivan III, 47 1999 $113,942(5) $ 78,000 -- -- 22,500 -- $ 3,947
Vice President and 1998 $ 95,150 $ 47,500 -- -- -- -- $ 3,346
Treasurer 1997 $ 86,058 $ 14,343 -- -- 7,500 -- $ 2,268
Donald E. Whitmore, Jr., 64 1999 $140,000 $ 45,500 -- -- -- -- $ 5,311
Resigned Director, 1998 $140,000 $114,800 -- -- -- -- $ 5,227
Executive Vice 1997 $137,596 $110,077 -- $134,063(7) -- -- $ 3,822
President, CFO and
Secretary(6)
<FN>
(1) 1998 and 1999 consisted of 52 weeks, while 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) All Other Compensation includes matching Company 401(k) contributions and
term life insurance premiums in excess of $50,000
(4) Mr. Leganza became President and Chief Executive Officer on April 23, 1997
at an annual salary of $210,000.
(5) Mr. Sullivan became Vice President and Treasurer on January 2, 2000.
Prior to that he was the Corporate Controller and Treasurer of the Company.
(6) Mr. Whitmore resigned as Director, Executive Vice President, Chief Financial
Officer and Secretary on July 2, 1999.
(7) Mr. Whitmore was granted 7,500 shares of restricted stock on December 16,
1997. The fair market value of the common shares on the date of grant of
restricted stock was $17.875. Dividends were paid on the shares of restricted
stock. Upon Mr. Whitmore's resignation as Director, Executive Vice President,
Chief Financial Officer and Secretary, these restricted shares were forfeited.
</FN>
</TABLE>
9
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired on Value at FY-End(#) at FY-End ($) (i)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Leonard F. Leganza 16,875 $181,913(ii) 167,500 -- $403,838 --
President & CEO
John L. Sullivan III -- -- 28,300 (iv) 1,700(iv) $31,538 --
Vice President &
Treasurer
Donald E. Whitmore, Jr. 7,500 $67,500(iii) 3,000 -- $28,125 --
Resigned Executive
Vice President, CFO
and Secretary
<FN>
(i) Based on the fair market value of the Company Common Shares on January 1,
2000 of $15.625 per share and the option exercise prices ranging from $9.92 to
$18.50 per share.
(ii) Based on the fair market value of the Company Common Shares on May 15,
1999 of $16.833 per share and the option exercise price of $6.053 per share.
(iii) Based on the fair market value of the Company Common Shares on December
16, 1999 of $15.25 per share and the option exercise price of $6.25 per share.
(iv) The exercise price of 10,800 exercisable options and 1,700 unexercisable
options exceeds $15.625, the fair market value of the Company Common Stock on
January 1, 2000.
</FN>
</TABLE>
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 1, 2000, Messrs. Leganza, Sullivan and Whitmore had 2, 23
and 34 years of service respectively. The estimated annual retirement benefits
payable to Messrs. Leganza, Sullivan and Whitmore are $9,833, $62,904 and
$72,603 respectively. These benefits are based on the five year certain form of
annuity.
10
<PAGE>
The Company has adopted an unfunded supplemental employee retirement plan
(the "SERP") for the benefit of Mr. Leganza. Under the terms of the SERP, Mr.
Leganza will receive a monthly retirement benefit equal to the excess of: (a)
the benefit he would be entitled to receive under the Company's qualified
pension plan, based on the assumption that Mr. Leganza was fully vested under
the plan and without regard to the limitations on benefits imposed by the
Internal Revenue Code; over (b) the benefit which he is actually entitled to
receive under the Company's qualified pension plan, subject to the plan's
vesting schedule and the limitations on benefits imposed by the Internal Revenue
Code. The monthly retirement benefit under the SERP will begin at the time of
Mr. Leganza's termination of employment. The benefit will be paid as an annuity
over Mr. Leganza's life, with 60 monthly payments guaranteed. However, if Mr.
Leganza is married at the time benefits start, his benefits will be actuarially
adjusted and will be paid over his life with the provision that, at the time of
his death, 50% of the amount payable to him during his lifetime will be paid to
his surviving spouse for the remainder of her lifetime. The SERP also provides
for the payment of benefits in the event of Mr. Leganza's death or disability
while employed.
SIP Plan
The Company maintains a savings and investment plan (the "SIP Plan") for
eligible employees. An eligible 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
$10,000 for calendar year 1999), 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 1999 the
matching contribution equaled 50% 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, 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 1999 the Executive Incentive Plan was modified to include higher
targeted earnings' levels. The President and the Vice President and Treasurer
were eligible to receive an incentive bonus subject to a maximum of 100% of base
pay with the actual amount of the bonus being based on the performance of the
Company during 1999. All group Vice Presidents and Division Managers were
eligible to earn a portion of their incentive bonus based on corporate earnings
per share subject to a maximum of 8.2% of base pay. The rest of their incentive
bonus, with unlimited potential, was based on achieving their respective
division or group earnings targets. Due to his resignation in July of 1999, Mr.
Whitmore, the former Executive Vice President, earned 50% of the incentive bonus
to which he would have been entitled.
Effective for 2000, the President and the Vice President and Treasurer may
receive an incentive subject to a maximum of 100% of base pay. All group Vice
Presidents and Division Managers will earn their incentive bonus, with unlimited
potential, based on achieving their respective division or group earnings
targets.
11
<PAGE>
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 expired on
February 7, 1999. No additional options may be granted under the 1989 Plan.
However, options previously granted remain exercisable in accordance with their
terms.
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 16,875 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 375,000 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 on December 15, 1999, the Board of
Directors approved an increase in the total number of shares of common stock
which may be issued under options granted under the 1997 Plan from 225,000
shares to 325,000 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 1995 Plan
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. Non-qualified stock options granted to non-employee directors
must be exercised within ten years and one month after being granted;
non-qualified stock options granted to employees must be exercised within the
period established by the Compensation Committee. 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).
12
<PAGE>
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 1, 2000. The company has no stock appreciation rights
(SAR) programs in place.
Options/SAR Grants in Last Fiscal Year (1999)
<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 55,000 28.2% $15.25 12/15/09 527,485 1,336,751
John L. Sullivan III 12,500 11.5% 18.50 7/21/09 145,432 368,553
10,000 15.25 12/15/09 95,906 243,046
------
22,500
Donald E. Whitmore, Jr. N/A N/A N/A N/A N/A N/A
<FN>
(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.
(2) All of the options are exercisable, except that 1,700 of the options granted
to Mr. Sullivan with an exercise price of $18.50 are not exercisable until
January 1, 2001.
</FN>
</TABLE>
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 $8,000 ($10,000 per
year effective in 2000) as well as $1,000 for each directors' meeting and $700
for each committee 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 December 15, 1999, each Outside Director was granted an option to
acquire 12,500 Common Shares at an exercise price of $15.25 per share, 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
The Company has adopted an unfunded deferred compensation arrangement (the
"DCA") for the benefit of Mr. Leganza. The DCA will expire on September 9, 2001.
Under the DCA, Mr. Leganza will be entitled to receive severance benefits from
the Company at the time of his termination of employment if specified conditions
are satisfied. The amount of the severance benefits will depend on whether or
not certain performance goals have been achieved and whether or not a change in
control of the Company has occurred. If a change in control of the Company has
occurred and certain performance goals have been achieved, Mr. Leganza will
receive a lump sum severance benefit equal to the sum of 2.0 times his annual
base salary plus his incentive bonus payments for the two preceding years. Mr.
Leganza will also receive a supplemental severance benefit payable in
installments over a five year period, up to the limits on severance benefits
imposed by the Internal Revenue Code. On the other hand, if the conditions for
the payments described above have not been met but certain other performance
goals have been achieved (whether or not a change in control of the Company has
occurred), Mr. Leganza will receive a lump sum severance benefit. The amount of
the severance benefit will vary, depending on the performance goals that have
been achieved, but will not exceed the amount of the lump sum severance benefit
described above.
Should an unfriendly change in control of the Company take place, John L.
Sullivan III is guaranteed to receive a lump sum payment equal to one full year
of his annual base salary.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
All non-employee members of the Board of Directors are members of the
Compensation Committee. In reviewing and overseeing the Company's compensation
programs, the Compensation Committee adheres to a compensation philosophy which
provides executive compensation programs that are designed to:
Attract and retain key executives crucial to the long-term success of
the Company.
Reward executives for the achievement of operational and strategic
objectives.
Compensate executives commensurate with each executive's performance,
experience and responsibilities.
Align the interests of executives with the long-term interest of
shareholders through award opportunities that can result in the
ownership of common stock.
As a means of implementing these compensation philosophies and objectives,
the Company's compensation program for executives consists of base salary,
participation in the Company's incentive compensation program and participation
in the employee stock incentive programs. The base salaries are determined by
evaluating the executives' responsibilities and their individual performance, as
well as the competitive environment. Participation in the incentive compensation
program is at the discretion of the Compensation Committee. Awards under the
incentive compensation program to Company executives are based upon achieving
targeted operating earnings goals linked to overall corporate goals. The
Compensation Committee believes that the employee stock incentive programs
provide executives, who have substantial responsibility for the management and
growth of the Company, with the opportunity to increase their ownership in the
Company, thereby more closely aligning the best interests of the shareholders
and the executives.
Effective January 3, 1999, the Compensation Committee increased the salary
paid to Leonard F. Leganza, President and Chief Executive Officer, by 11% based
upon his level of achievement in line with the Company's executive compensation
program. In connection with Mr. Sullivan's assumption of additional duties
following the resignation of the former Executive Vice President and Chief
Financial Officer, the Compensation Committee increased the salary paid to John
L. Sullivan III by 14%, effective May 30, 1999.
John W. Everets Charles W. Henry David C. Robinson Donald S. Tuttle III
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, 1994 (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 the 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.
(CHART OF CUMULATIVE TOTAL RETURN APPEARS HERE)
<TABLE>
<CAPTION>
Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99
<S> <C> <C> <C> <C> <C> <C>
Eastern Company $100 $98 $109 $168 $222 $210
Wilshire 5000 $100 $136 $165 $217 $268 $331
S&P(R)Manufacturing $100 $141 $194 $231 $268 $329
(Diversified) Index
</TABLE>
15
<PAGE>
ADDITIONAL INFORMATION
Any shareholder who intends to present a proposal at the 2001 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
15, 2000. Any shareholder who intends to present a proposal at the 2001 Annual
Meeting but does not wish that the proposal be included in the Company's proxy
material must provide notice of the proposal to the Company, in accordance with
the terms of the Company's by-laws, no earlier than January 26, 2001 and no
later than February 25, 2001.
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 1, 2000
will be furnished without charge to shareholders upon written request directed
to John D. Dibble, Director of Investor Relations, 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.
Amanda Gordon
Assistant Secretary
March 15, 2000
16
<PAGE>
PROXY
THE EASTERN COMPANY
112 Bridge Street, Naugatuck, CT 06770-0460
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Charles W. Henry and John W. Everets,
or any one or more of them, true and lawful attorneys and agents, with the 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 26, 2000
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.
THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER BUT IF NO CHOICE IS
SPECIFIED, IT WILL BE VOTED FOR PROPOSALS 1 AND 2.
(Continue and to be signed on the other side)
<PAGE>
Please Detach and Mail in the Envelope Provided
- -------------------------------------------------------------------------------
[X] Please mark your
votes as in
this example.
The Board of Directors recommends a vote FOR proposals 1 and 2.
1. Election of Directors for 3-year terms:
Nominees: D.C. Robinson and D.S. Tuttle III
[ ] FOR [ ] WITHHELD
BOTH FROM
NOMINEES NOMINEES
[ ] ___________________________________________________
For both nominees except as noted above.
2. Approval of the appointment of auditors FOR AGAINST ABSTAIN
(Ernst & Young LLP) [ ] [ ] [ ]
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature______________________ _________________________ Dated _______ 2000
Signature if held jointly
NOTE:(This Proxy should be dated, signed by the shareholder(s) exactly as his or
her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity ie. attorney, executor, trustee or
in other representative capacity, should so indicate. If shares are held
by joint tenants or as community property, both shareholders should sign.)
