UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Soliciting Material under Section 240.14a-12
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The Eastern Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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THE EASTERN COMPANY
112 Bridge Street
P.O. Box 460
Naugatuck, CT 06770-0460
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 29, 2020
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The Annual Meeting of Shareholders of The Eastern Company (“Eastern” or the “Company”) will be held on April 29, 2020 at 11:00 a.m., local time, at the office of the Company, 112 Bridge Street,
Naugatuck, Connecticut 06770-0460, for the following purposes:
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1.
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To elect seven directors.
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2.
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To approve and adopt The Eastern Company 2020 Stock Incentive Plan.
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To cast a nonbinding advisory vote to approve the compensation of the named executive officers.
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To ratify the Audit Committee’s recommendation and the Board of Directors’ appointment of Fiondella, Milone & LaSaracina LLP as the independent registered public accounting firm to audit the consolidated financial statements of the
Company and its subsidiaries for fiscal year 2020.
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To transact such other business as may properly come before the annual meeting of shareholders or any adjournment thereof.
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The Board of Directors has fixed March 2, 2020 as the record date for the determination of 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 of shareholders or any adjournment thereof, we urge you to submit your proxy as promptly as possible. If you attend
the annual meeting and vote in person before your proxy is exercised, your proxy will be deemed revoked and will not be used.
All shareholders are cordially invited to attend the annual meeting of shareholders or any adjournment thereof, and management looks forward to seeing you there.
By order of the Board of Directors,
Theresa P. Dews
Secretary
March 5, 2020
PROXY STATEMENT
of
THE EASTERN COMPANY
for the Annual Meeting of Shareholders
To Be Held on April 29, 2020
The Board of Directors of The Eastern Company (“Eastern,” the “Company,” “we,” “us” or “our”) is furnishing this proxy statement in connection with its solicitation of proxies for use at the 2020
Annual Meeting of Shareholders and at any adjournment thereof (the “Annual Meeting”). This proxy statement is first being furnished to shareholders on or about March 5, 2020.
GENERAL INFORMATION REGARDING VOTING AT THE ANNUAL MEETING
The Board of Directors of Eastern (the “Board”) has fixed the close of business on March 2, 2020 as the record date for determining the shareholders entitled to notice of, and to vote at, the Annual
Meeting. On the record date, there were 6,240,705 outstanding shares of Eastern common stock, no par value (“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.
If you grant a proxy to the persons named on Eastern’s proxy card, the Common Shares represented by your proxy 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 card. If a proxy is signed and returned without specifying choices, the Common
Shares represented thereby will be voted (1) “FOR ALL” on the proposal to elect: Mr. Fredrick D. DiSanto, Mr. John W. Everets, Mr. Charles W. Henry, Mr. Michael A. McManus, Jr., Mr. James A. Mitarotonda, Mrs.
Peggy B. Scott and Mr. August M. Vlak to the Board, each for a one-year term and until their successors have been duly elected and qualified; (2) FOR the approval and adoption of The Eastern Company 2020 Stock
Incentive Plan; (3) FOR the approval, on an advisory basis, of the compensation of the named executive officers; and (4) FOR the proposal to ratify the appointment of
Fiondella, Milone & LaSaracina LLP as the Company’s independent registered public accounting firm for the Company’s 2020 fiscal year. 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.
If you submit a proxy and then wish to change your vote, you will need to revoke the proxy that you have submitted. A shareholder may revoke his or her proxy at any time before it is exercised by
voting in person at the Annual Meeting or by timely delivery of a properly executed, later-dated proxy card or a written revocation of his or her proxy. A later-dated proxy card or written revocation must be received before the Annual Meeting by the
Corporate Secretary of the Company, at 112 Bridge Street, P.O. Box 460, Naugatuck, CT 06770-0460, or it must be delivered to the Corporate Secretary of the Company at the Annual Meeting before proxies are exercised. You may also revoke your proxy by
submitting a new proxy via the Internet at www.proxyvote.com or by telephone, no later than 11:59 p.m. Eastern Time on April 28, 2020. Attendance at the Annual Meeting does not, without further action, revoke the appointment of a proxy;
however, your proxy may be revoked either by giving notice of revocation or voting in person at the Annual Meeting before your proxy is exercised.
The Common Shares are listed under the ticker symbol “EML” on The NASDAQ Stock Market LLC (“NASDAQ”).
Solicitation of Proxies
The cost of solicitation of proxies will be borne by the Company. On approximately March 5, 2020, we mailed a Notice of internet availability of Proxy Materials advising our shareholders that they
could view all of the proxy materials online or request a paper or e-mail copy of the proxy materials. This online access format expedites the delivery of materials, reduces printing and postage costs and reduces the environmental impact of our
Annual Meeting.
How to Request a Paper or E-mail Copy of the Proxy Materials
You may receive a paper or e-mail copy of the proxy materials free of charge by requesting a copy through one of the following methods:
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1) BY INTERNET:
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www.proxyvote.com
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2) BY TELEPHONE:
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1-800-579-1639
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3) BY E-MAIL:
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sendmaterial@proxyvote.com
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Voting at the Annual Meeting
Except in the case of a contested election, directors will be elected by a majority of the votes cast by the shares entitled to vote in the election of directors at the annual meeting of shareholders
at which a quorum is present. Consequently, a nominee will be elected as a director if the votes cast for the nominee’s election as a director exceed the votes cast against such nominee’s election as a director. However, in a contested election,
directors will be elected by a plurality of the votes cast at the annual meeting of shareholders. An election will be considered to be contested if, as of the record date for the annual meeting of shareholders, there are more nominees for election
to the Board than there are positions on the Board to be filled by election at the annual meeting. Because the election of directors at this year’s Annual Meeting is not a contested election, a nominee for election as a director at the Annual
Meeting will be elected if the votes cast for the nominee exceed the votes cast against the nominee.
If a director is subject to reelection in an uncontested election by a majority of the votes cast, but a majority of the votes are cast against his or her reelection, then the Board will request that
the director tender his or her resignation. The Board will nominate for election or reelection as a director only those candidates who agree to tender, promptly following the annual meeting of shareholders at which they are elected or reelected as a
director, irrevocable resignations that will be effective upon: (a) their failure to receive the required vote at the annual meeting of shareholders at which they face reelection; and (b) the acceptance of such resignation by the Board. In
addition, the Board will fill vacancies on the Board and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of resignation tendered by other directors. If an incumbent
director fails to receive the required vote for reelection, the Board will act on an expedited basis to determine whether to accept or reject the director’s resignation. A director whose resignation is under consideration must abstain from
participating in any decision regarding that resignation.
Each matter to be acted upon at the Annual Meeting other than the election of directors will be approved if the votes cast in favor of the matter exceed the votes cast opposing the matter, assuming a
quorum is present.
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. An abstaining vote or a broker “non-vote” is considered to be present for purposes of determining a quorum 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 for the election of directors or the other matters to be acted on at the Annual Meeting, each of which requires the approval of a majority of the votes cast, and therefore do not
have the effect of votes of opposition in such tabulations.
The Board recommends voting:
“FOR ALL” on the proposal to elect Mr. Fredrick D. DiSanto, Mr. John W. Everets, Mr. Charles W. Henry, Mr. Michael A. McManus,
Jr., Mr. James A. Mitarotonda, Mrs. Peggy B. Scott and Mr. August M. Vlak as directors.
FOR the approval and adoption of The Eastern Company 2020 Stock Incentive Plan.
FOR the approval of the compensation of the named executive officers.
FOR the ratification of the appointment of Fiondella, Milone & LaSaracina LLP as the Company’s independent registered public accounting firm for the 2020 fiscal year.
Item No. 1
ELECTION OF DIRECTORS
At the Annual Meeting, seven directors will be elected to serve for one-year terms, which expire in 2021 or until a successor is duly elected and qualified. Mr. Fredrick D. DiSanto, Mr. John W.
Everets, Mr. Charles W. Henry, Mr. Michael A. McManus, Jr., Mr. James A. Mitarotonda, Mrs. Peggy B. Scott and Mr. August M. Vlak, are the Company’s nominees for election at the Annual Meeting. All nominees are current directors whose terms expire in
2020.
Unless otherwise specified in your proxy, the persons with power of substitution named in the proxy card will vote your Common Shares “FOR ALL” of the
Company’s nominees. If a nominee is unable or unwilling to accept nomination, the proxies will be voted for the election of such other person as may be recommended by the Board. However, the Board has no reason to believe that the Company’s nominees
will be unavailable for election at the Annual Meeting. Approval of this resolution requires the affirmative vote of a majority of the votes duly cast by the Common Shares represented at the Annual Meeting that are entitled to vote on the matter.
The Board recommends a vote “FOR ALL” on the proposal to elect Mr. Fredrick D. DiSanto, Mr. John W. Everets, Mr. Charles W.
Henry, Mr. Michael A. McManus, Jr., Mr. James A. Mitarotonda, Mrs. Peggy B. Scott and Mr. August M. Vlak as directors.
Each director has furnished the biographical information set forth below with respect to his or her present principal occupation, business and other affiliations. Information regarding each
director’s beneficial ownership of equity securities of the Company is provided under “Security Ownership” in this proxy statement. 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 2020 Annual Meeting
For a one-year term expiring in 2021
Fredrick D. DiSanto, age 58, is the Chairman and Chief Executive Officer of The Ancora Group, a holding company that oversees three investment advisors, and
has served in such capacities since 2014 and 2006, respectively. Mr. DiSanto was the President and Chief Operating Officer of Maxus Investment Group from 1998 until December of 2000. In January 2001, after Maxus Investment Group was sold to Fifth
Third Bank, Mr. DiSanto served as Executive Vice President and Manager of Fifth Third Bank’s Investment Advisor Division.
Mr. DiSanto is an experienced public company director and has knowledge and background in finance, strategic planning, governance and international business. He currently serves as a director for
Regional Brands, Inc. and Alithya Group Inc. and previously served on the respective Boards of Directors of Axia Net Media Corporation and LNB Bancorp, Inc.
Mr. DiSanto has served as a director of the Company since 2016. Mr. DiSanto is Chairman of the Audit Committee and also serves on the Nominating and Governance Committees.
John W. Everets, age 73, has been a Partner in Arcturus Capital LLC, Boston since 2016. Mr. Everets was the Chairman and Chief Executive Officer of SBM
Financial in Portland, Maine, from May 2010 until October 2016. Mr. Everets was also Chairman and Chief Executive Officer of The Bank of Maine from May 2010 until October 2016. Mr. Everets’ directorships at public companies in the past five years
include Independent Director at Medallion Bank (since 2019), Medallion Financial Corp. (since 2017) and The Bank of Maine (2010 to 2015), which merged into Camden National Bank. Mr. Everets also serves on the Board of Directors of Newman’s Own
Foundation. Mr. Everets is a former director of Financial Security Assurance, FSA, Dairy Mart and The Martin Currie Business Trust Edinburgh.
Mr. Everets has served as a director of the Company since 1993 and brings to the Board extensive knowledge of the Company’s business. Mr. Everets serves on the Audit and Nominating and Corporate
Governance Committees.
Charles W. Henry, age 70, is an attorney and partner with the law firm Henry & Federer, LLP located in Woodbury, Connecticut.
Mr. Henry brings to the Board extensive knowledge of the Company’s business. Mr. Henry’s independent legal expertise is valuable to the Company if, and when, matters of law or regulation arise in the
normal course of the Company’s business. His law firm does not provide any services to the Company.
Mr. Henry has served as a director of the Company since 1989. Mr. Henry serves on the Compensation, Executive, Nominating and Corporate Governance and the Environment, Health and Safety Committees.
Michael A. McManus, Jr., age 77, is the former Chairman, President and Chief Executive Officer of Misonix, Inc., a publicly traded medical device company. Mr.
McManus previously served as President of New York Bankcorp, a New York Stock Exchange company, until its sale in 1998. Earlier, he served as President of Jamcor Pharmaceuticals, as a Vice President of strategic planning at Pfizer, and as an
executive vice president of MacAndrews and Forbes, Revlon, Inc., and Pantry Pride.
Mr. McManus is an experienced public company director and has expertise in financial matters, sales and marketing, strategic acquisitions, government relations
and international business matters. Mr. McManus’ public company directorships in the past five years include director of Novavax, Inc., a vaccine company (since 1998). He previously served on the respective
Boards of Directors of the Communications Satellite Corporation, Arrhythmia Research Technology, Inc., National Wireless Holdings, American Home Mortgage, A. Schulman, Inc. and Guest Services, Inc.
Mr. McManus has been a director of the Company since 2015. Mr. McManus is the Chairman of the Company’s Compensation Committee and also serves on the Audit, Environment, Health and Safety and
Executive Committees.
James A. Mitarotonda, age 65, has served as the Chairman of the Board, President and Chief Executive Officer of Barington Capital Group, L.P., an investment
firm, since 1991. Mr. Mitarotonda is an experienced public company director. Mr. Mitarotonda currently serves as director of OMNOVA Solutions Inc., where he has been a member of the Board since 2015. Over the past five years, Mr. Mitarotonda has
also served as a director of The Pep Boys – Manny, Moe & Jack from 2006 to 2016 and was Chairman of the Board from 2008 - 2009; A. Shulman, Inc. from 2005 to 2018; Ebix, Inc. for a portion of 2015; and Avon Products, Inc. from 2018 - 2020. Mr.
Mitarotonda also served as a director of Barington/Hilco Acquisition Corp. from 2015 to 2018, where he was Chairman of the Board from 2015 to 2017. Mr. Mitarotonda serves as a member of the Board of Trustees for Queens College.
Mr. Mitarotonda has served as a director of the Company since 2015. The Board appointed Mr. Mitarotonda to serve as Chairman of the Board effective January 2016. Mr. Mitarotonda is the Chairman of
the Nominating and Corporate Governance Committee and the Executive Committee, and he also serves on the Compensation Committee.
Peggy B. Scott, age 68, has been the Chairperson of the Board of Cleco Corporate Holdings LLC (NASDAQ: CNL), a public utility holding company, since April
2016. She also served as Interim Chief Executive Officer of Cleco Group LLC and Cleco Corporate Holdings LLC from February 2017 until January 2018.
Previously, Mrs. Scott served as the Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer of Blue Cross Blue Shield of Louisiana (BCBS) from 2005 to 2015, and as
Chief Strategy Officer from 2005-2012, overseeing growth strategies and operational performance in challenging markets. Prior to working at BCBS, Mrs. Scott served as Executive Vice President of U.S. and International Operations and Chief Financial
Officer at Pan-American Life Insurance guiding operations in seven foreign countries. She also was Executive Vice President of Corporate Operations and Chief Financial Officer at Novant Health and General Health. Earlier, Mrs. Scott was an office
Managing Partner with Deloitte, a global public accounting firm, advising diverse companies, including manufacturers and industrial companies.
Mrs. Scott has served as a director with Health Insurance Innovations, Inc. (NASDAQ: HIIQ) since May 2019. She has also been a director of the Blue Cross Blue Shield of Louisiana Foundation, since
2006, and former Chairperson and President. She serves on the Advisory Board of ClearData Networks, Inc. and Health Catalyst Capital Management LLC.
Mrs. Scott was elected as a director of the Company at the last Annual Meeting, which was held on May 1, 2019. She is the Chairperson of the Company’s Environment, Health and Safety Committee and
also serves on the Audit and Compensation Committees. Mrs. Scott is a Certified Public Accountant (CPA) and also Certified in Valuations (ABV and CVA) and Financial Forensics (CFF). She holds a Professional Director Certification from the American
College of Corporate Directors.
August M. Vlak, age 53, was appointed President and Chief Executive Officer of the Company on January 1, 2016. From 2012 to 2015, Mr. Vlak served as a senior
advisor to Barington Capital Group, L.P. Prior to that, he was a partner at Katzenbach Partners, a senior advisor at Booz & Company, and a consultant at McKinsey & Company. At his prior positions, Mr. Vlak’s work focused on growth strategy
and operational performance improvement at more than 50 companies, including leading domestic and global industrial enterprises. Mr. Vlak has served as a director since 2017. Mr. Vlak also serves on the Company’s Environment, Health and Safety
Committee.
Item No. 2
APPROVAL AND ADOPTION OF 2020 STOCK INCENTIVE PLAN
The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”) was adopted by the Board on February 19, 2020, subject to shareholder approval. If the 2020 Plan is approved and
adopted by the shareholders at the Annual Meeting, it will become effective as of the date of such approval (the “Approval Date”). No further awards may be made under the Company’s 2010 Executive Stock Incentive Plan, as amended (the “Prior Plan”),
which expired by its terms on February 9, 2020, and following the Approval Date, no awards will be made under the Company’s existing Directors’ Fee Program, as amended (the “Prior Directors’ Fee Program”). A copy of the 2020 Plan is attached to this
proxy statement as Exhibit A, and section references in this Item are references to sections of the 2020 Plan. Approval of the 2020 Plan by the shareholders requires the affirmative vote of a majority of the votes cast on this matter at the Annual
Meeting.
If this proposal is not approved, we believe we would be at a significant disadvantage against our competitors for recruiting, retaining and motivating those individuals who can
contribute significantly to the management, growth and profitability of our business and are therefore critical to our success. Additionally, stock-based compensation increases our directors, executives’ and other key employees’ proprietary interest
in the Company’s business, increases their personal interest in the Company’s continued success and progress and encourages employees to remain in the employ of the Company.
(1) General Plan Provisions
Pursuant to the 2020 Plan, salaried officers and other key employees of the Company or any of its parent or subsidiary corporations, and the non-employee directors of the
Company, may be granted awards under the 2020 Plan. See Section 4. The number of salaried officers who are eligible to receive awards under the 2020 Plan is approximately three, the number of other key
employees who are eligible to receive awards under the 2020 Plan is approximately seventeen, and the number of non-employee directors who are eligible to receive awards under the 2020 Plan is seven persons. The total number of Common Shares that may
be issued under awards granted under the 2020 Plan may not exceed (i) 500,000 Common Shares, plus (ii) the number of Common Shares available under the Prior Plan as of the Approval Date, plus (iii) the number of Common Shares related to any award outstanding under the Prior Plan as of the Approval Date that thereafter lapses, expires, terminates, ceases to be exercisable or is forfeited without
the issuance of such Common Shares, plus (iv) the number of Common Shares available for payment of directors’ fees under the Prior Directors’ Fee Program and previously registered on a Registration Statement on Form S-8 filed by the Company. See Section 5. A total of 178,500 Common Shares were authorized but unissued under the Prior Plan immediately prior to its termination on February 9, 2020, and a total of approximately 222,830 Common Shares
underlying awards that were outstanding as of such date have subsequently lapsed, expired, terminated, ceased to be exercisable or been forfeited without the issuance of such Common Shares, which will become available for grants under the 2020 Plan,
if approved. After anticipated grants under the Prior Directors’ Fee Program in March 2020 of approximately 6,000 Common Shares, a total of 16,000 Common Shares will remain available under the Prior
Directors’ Fee Program and will become available for grants under the 2020 Plan, if approved. The closing price of a Common Share on March 2, 2020 was $25.48.
The 2020 Plan will be administered by the Compensation Committee of the Board (the “Committee”). The Committee will consist of not less than two non-employee directors of the
Company. See Section 3.
The minimum vesting period for awards under the 2020 Plan, other than awards to non-employee directors, will be one year, subject to a limited carve-out for up to 5% of the
Common Shares reserved for issuance under the 2020 Plan.
(2) Stock Awards
The 2020 Plan authorizes the Committee to grant various types of stock awards.
(a) Stock
Options. The 2020 Plan authorizes the grant of both “incentive stock options” (“ISOs”) and “nonqualified stock options.” See Section 6.1. However, an ISO may not be granted to a non-employee
director. See Section 6.1(b). Stock options must be issued at an exercise price that is not less than the fair market value of the Common Shares on the date of grant. See
Section 6.1(a).
The 2020 Plan provides that the exercise price of a stock option may be paid either in cash or with Common Shares. See
Section 6.1(e). The time or times at which each stock option will become exercisable and the date of expiration of each stock option will be fixed by the Committee, but the term of an option intended to be an ISO may not be longer than ten years
from the date of grant. See Section 6.1(c). In addition, all stock options will expire not later
than three months after the date of termination of an optionee’s employment or service as a non-employee director. However, if an optionee terminates
employment or service as a non-employee director due to disability, or if an optionee terminates employment or service as a non-employee director due to retirement at or after age 65, the three month period is extended to twelve months. In addition,
if an optionee dies prior to the termination of his or her employment or service as a non-employee director, or within the three-month or twelve-month period noted above, the optionee’s stock options will not expire until twelve months following the
date of the optionee’s death. See Section 6.1(d). Stock options are not transferable other than by will or the laws of descent and distribution. See Section 6.1(h).
Under the 2020 Plan, an employee who owns directly or indirectly more than ten percent of the total combined voting power of all classes of stock of the
Company cannot receive an ISO unless the exercise price of the option is not less than 110% of the fair market value of the Common Shares on the date of grant and the option cannot be exercised after five years from the date of grant. See Section 6.1(b).
Under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), stock options will not be considered to be ISOs to the extent the fair market
value of the Common Shares with respect to which such options first become exercisable in any one calendar year exceeds $100,000.
The Committee, in its discretion, may also set other conditions relating to ISOs and nonqualified stock options (including vesting requirements). See Section 6.1(c).
(b) Restricted
Stock and Restricted Stock Units. The 2020 Plan authorizes the grant of shares of restricted stock and restricted stock units (“RSUs”). The Committee determines the vesting provisions and restrictions which will apply to the restricted
stock and RSUs. See Section 6.2(a) and Section 6.2(b).
Restricted stock may be evidenced in book entry-form or certificated, or evidenced in such other manner as the Committee determines. While the restricted stock
is subject to restrictions, the Committee may require any certificates representing the stock to be held by the Company, along with a stock power endorsed in blank by the employee or the non-employee director. RSUs may be settled in Common Shares,
cash, or a combination of the two, as determined by the Committee. See Section 6.2(d).
Except as otherwise set forth in an applicable award agreement or as determined by the Committee with respect to terminations resulting from specified causes,
if an employee terminates employment or a non-employee director terminates service as a director, any shares of restricted stock or RSUs then subject to restrictions will be forfeited. See Section 6.2(c).
(c) Dividends
and Dividend Equivalents. Under the terms of the 2020 Plan, at the discretion of the Compensation Committee and as described in the award agreement, dividends issued on restricted stock are credited to the participant’s account and are paid
to the participant only to the extent that the underlying award vests. The Committee may provide that such dividends are either (i) paid in cash, in kind or in Common Shares having a fair market value equal to the amount of the dividend or (ii)
automatically reinvested in additional restricted stock or held in kind. In the event of a payment of dividends on Common Shares, the Committee may credit RSUs with dividend equivalents. Under the terms of the 2020 Plan, such dividend equivalents
are subject to the same terms and conditions as the underlying RSU award to which they relate. No dividends or dividend equivalents will be paid unless and until the award associated with the dividend or dividend equivalent has vested. See Section 6.2(e).
(d) Non-Employee
Directors’ Fee Program. Under the 2020 Plan, the Committee may grant awards to non-employee directors in the form of Common Shares pursuant to the Company’s Directors’ Fee Program as may be in effect from time to time. Such awards are not
required to be evidenced by an award agreement. See Section 6.3.
(e) Other
Stock Awards. The Committee may also, in its discretion, grant employees or non-employee directors other types of stock-based awards, including stock appreciation rights (“SARs”), performance awards, phantom securities and dividend
equivalents. Any such awards may be settled in Common Shares, cash or other property, as determined by the Committee and provided in the applicable award agreement. See Section 6.4.
(3) Amendment
The Board may amend the 2020 Plan at any time. However, the Board may not, without prior shareholder approval, make any amendment which operates: (a) to abolish the Committee,
change the qualification of its members, or withdraw its authority to interpret and administer the 2020 Plan; (b) to make any material change in the class of eligible employees under the 2020 Plan; (c) to increase the total number of shares for which
awards can be granted under the 2020 Plan or to adjust the price
at which Common Shares can be acquired under a previously-granted award (except due to a reorganization, consolidation or other change in the capitalization of the Company); (d)
to extend the term of the 2020 Plan or the maximum ISO period; (e) to decrease the minimum ISO price; or (f) which otherwise requires shareholder approval under the rules of any stock exchange on which the Company’s securities are then listed. See Section 10.
(4) Summary of Federal Income Tax Consequences of
Awards
The following is a brief summary of the principal United States federal income tax consequences of Awards and transactions under the 2020 Plan. This summary is not intended to be
exhaustive and, among other things, does not describe local, state or foreign tax consequences.
AWARD TAXABLE EVENTS
Stock Options and SARs
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A participant will not recognize any income at the time a stock option or SAR is granted, nor will the Company be entitled to a deduction at that time.
• When a nonqualified stock option is exercised, the
participant will recognize ordinary income in an amount equal to the excess of the fair market value of the Common Shares received as of the date of exercise over the exercise price.
• When an ISO is exercised, a participant will not recognize
any income at the time of exercise. However, the excess of the fair market value of the Common Shares on the date of exercise over the exercise price paid could create a liability under the alternative minimum tax.
o If a participant disposes of the Common Shares acquired on exercise of an ISO after the later of
two years after the date of grant of the ISO and one year after the date of exercise of the ISO (the “holding period”), the gain (i.e., the excess of the proceeds received on sale over the exercise price paid), if any, will be long-term
capital gain eligible for favorable tax rates.
o If the participant disposes of the Common Shares prior to the end of the holding period, the
disposition is a “disqualifying disposition.” The participant will then recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the lesser of (i) the fair market value of the Common Shares on the
date of exercise or (ii) the amount received for the Common Shares, over the exercise price paid. The balance of the gain or the loss, if any, will be long-term or short-term capital gain or loss, depending on how long the Common Shares were
held by the participant prior to disposition. If a participant recognizes ordinary income as a result of a disqualifying disposition, the Company will be entitled to a deduction in the same amount as the participant recognizes ordinary
income.
o An employee must notify the Company if he or she makes a disqualifying disposition of any Common
Shares acquired upon the exercise of an ISO. See Section 13.
• When a SAR is exercised, a participant will recognize
ordinary income in an amount equal to the cash received or, if the SAR is paid in Common Shares, the fair market value of the Common Shares received as of the date of exercise.
Tax Withholding/Deduction
Upon exercise of stock options or SARs, the Committee may withhold from any award, or require that the employee pay the Company, an amount sufficient to satisfy any applicable tax withholding
obligations. The Committee may permit a participant to satisfy a tax withholding requirement with respect to the exercise of a stock option or SAR by directing the Company to withhold Common Shares to which the participant is otherwise
entitled as the result of such exercise. See Section 12.
The Company will not be entitled to a tax deduction at the time of grant of a nonqualified stock option but will be entitled to a tax deduction in the same amount as the participant
recognizes income at the time of exercise. The Company is not entitled to a deduction as a result of the grant or exercise of an ISO.
|
RSUs and Restricted Stock
|
|
A participant will not recognize any income at the time a RSU or share of restricted stock is granted, nor will the Company be entitled to a deduction at that time.
• Upon settlement of a RSU: The participant will recognize
ordinary income in an amount equal to the fair market value of the Common Shares received or, if the RSU is paid in cash, the amount payable.
• Upon vesting of shares of restricted stock: In the year in
which shares of restricted stock are no longer subject to a substantial risk of forfeiture (i.e., in the year that the shares vest), the participant will recognize ordinary income in an amount equal to the excess of the fair market value of
the shares on the date of vesting over the amount, if any, the participant paid for the shares.
An employee may, however, elect pursuant to section 83(b) of the Code within 30 days after being granted restricted stock to recognize ordinary income in the year of receipt instead of the
year of vesting. If an election is made, the amount of income recognized by the participant will be equal to the excess of the fair market value of the shares on the date of receipt over the amount, if any, the participant paid for the
shares.
A participant must notify the Company if he or she makes a Section 83(b) election. See Section 13.
Tax Withholding/Deduction
Payroll taxes are required to be withheld from an employee on the amount of ordinary income recognized by the participant.
The Company will be entitled to a tax deduction in the same amount as the employee recognizes income.
|
Cash Awards
|
|
A participant will not recognize any income at the time a cash-based award is granted. The participant will recognize income at the time that cash is paid to the participant pursuant to a
cash-based award, in the amount paid.
Tax Withholding/Deduction
The Company will satisfy an employee’s tax withholding obligations by withholding cash from payment. The Company will be entitled to a tax deduction in the same amount as the employee
recognizes income.
|
(5) Material Differences from the
Prior Plan
In addition to the authorization of 500,000 additional Common Shares for issuance, the 2020 Plan incorporates the following proposed changes from the Prior Plan, among others:
•
|
provides for a one-year minimum vesting period for all awards, subject to a limited carve-out for 5% of the share reserve;
|
•
|
limits share recycling back into the share reserve to Common Shares underlying awards that, in whole or in part, are forfeited, terminated, expire unexercised, are settled in cash in lieu
of Common Shares, are exchanged for other Awards or are released from a reserve for failure to meet the maximum payout, and excludes from share recycling any Common Shares tendered to satisfy an exercise price, Common Shares withheld to
satisfy tax withholding and Common Shares not delivered under SAR awards;
|
•
|
provides for the payment of Common Shares to non-employee directors in payment of directors’ fees, which were previously provided for under the Prior Directors’ Fee Program;
|
•
|
provides for the issuance of RSUs and sets parameters around the payment of dividends and dividend equivalents on restricted stock and RSUs, including a clarification that no dividends or
dividend equivalents are payable prior to vesting of the applicable award under any circumstance; and
|
•
|
provides for termination on February 19, 2030 (ten years after the date of the adoption by the Board of the 2020 Plan).
|
(6) Equity Compensation Plan Information
The following table sets forth information regarding securities authorized for issuance under the Company’s equity compensation plans as of December 28, 2019, which at that date,
consisted of the Prior Plan.
Plan category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
(a)
|
(b)
|
(c)
|
Equity compensation plans approved by security holders
|
96,728
|
22.36
|
178,5001
|
Equity compensation plans not approved by security holders
|
|
|
|
Total
|
|
|
|
1 Includes Common Shares available for future issuance under the Prior Plan. No new grants may be made under
the Prior Plan, which expired by its terms on February 9, 2020 but continues to govern awards outstanding under the Prior Plan.
No new grants may be made under the Prior Plan, which expired by its terms on February 9, 2020. No grants are expected to be made under the 2020 Plan prior to its approval by
shareholders.
(7) New Plan Benefits
Future grants under the 2020 Plan will be made at the discretion of the Committee and, accordingly, are not yet determinable. In addition, the value of awards granted under the
2020 Plan will depend on a number of factors, including the fair market value of the Common Shares on future dates and the exercise decisions made by the participants. Consequently, it is not possible to determine the benefits that might be received
by participants receiving discretionary grants under the 2020 Plan.
The Board of Directors recommends a vote FOR the approval and adoption of The Eastern Company 2020 Executive Stock Incentive Plan. Proxies
will be voted FOR the proposal unless otherwise specified.
Item No. 3
ADVISORY VOTE ON THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
We ask our shareholders to cast a non-binding advisory vote to approve the compensation of our named executive officers (each a “named executive officer” and collectively, the “named executive
officers”) described in the Compensation Discussion and Analysis and in the tabular and accompanying narrative disclosure regarding named executive officer compensation. We encourage you to read the Compensation Discussion and Analysis and the
tables and narratives beginning on page 21 for the 2019 compensation of our named executive officers.
As required by Section 14A(a)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our shareholders are entitled to vote at the Annual Meeting to approve
the compensation of the Company’s named executive officers, as disclosed in this proxy statement, pursuant to Item 402 of Regulation S-K (“Say-on-Pay Vote”). At our 2017 annual meeting of shareholders held on May 3, 2017, an advisory vote was held
on the frequency of the Say-on-Pay Vote. In such vote, the Company’s shareholders voted to hold an advisory vote on the compensation of the Company’s named executive officers once every year.
We believe that the compensation of our named executive officers for 2019 was consistent with our compensation philosophy and our performance described in the Compensation
Discussion and Analysis. We are asking our shareholders to indicate their support for our named executive officers’ compensation arrangements as described in this proxy statement. The vote is not intended to address any specific item of
compensation, but rather the overall compensation of our named executive officers described in this proxy statement.
While our Board values the opinions expressed by shareholders and intends to carefully consider the result of the shareholder vote on this proposal, the vote is an advisory vote
only, and is not binding on the Company, the Board or the Compensation Committee. In considering the outcome of this advisory vote, the Board will review and consider all Common Shares voted in favor of the proposal and not in favor of the
proposal. Abstentions and broker non-votes will have no impact on the outcome of this advisory vote.
The Board recommends that shareholders approve the 2019 compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis, and in the tabular
and accompanying narrative disclosure of this proxy statement by voting FOR the following resolution:
RESOLVED, that the 2019 compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion
and Analysis, compensation tables and narrative discussion, is hereby APPROVED, on a non-binding advisory basis.
The Board recommends a vote FOR the approval of the 2019 compensation of our named executive officers as disclosed in this proxy statement
pursuant to Item 402 of Regulation S-K. Proxies will be voted FOR the proposal unless otherwise specified.
Item No. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has recommended, and the Board has approved, continuing the services of Fiondella, Milone & LaSaracina LLP for the 2020 fiscal year. These services may include an integrated
audit of the consolidated financial statements and internal control over financial reporting of the Company; assistance in connection with filing the Company’s Annual Report on Form 10-K with the Securities and Exchange Commission (the “SEC”); a
review of the Company’s quarterly interim financial statements; assistance in connection with the filing of the Company’s Quarterly Reports on Form 10-Q; assistance on financial accounting and reporting matters; preparation of state and federal tax
returns; audits of employee benefit plans; and meetings with the Audit Committee. The Board recommends that shareholders vote at the Annual Meeting FOR ratification of the Audit Committee’s recommendation and the
Board of Directors’ appointment of Fiondella, Milone & LaSaracina LLP to audit the consolidated financial statements of the Company for the 2020 fiscal year.
It is the policy of our Audit Committee to approve all audit and acceptable non-audit engagements provided by the independent registered public accounting firm regarding the scope of the services
provided by the independent registered public accounting firm. These services may include audit, audit-related, tax and other services. The independent registered public accounting firm and management are required to report to the Audit Committee
regarding the extent of services provided by the independent registered public accounting firm in accordance with this policy.
The proposal to ratify the appointment of Fiondella, Milone & LaSaracina LLP as the Company’s independent registered public accounting firm 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. The Audit Committee will consider the outcome of the shareholder vote in connection with the selection of Fiondella, Milone & LaSaracina LLP
but is not bound by the vote, If the appointment is not ratified by shareholders, the Audit Committee will consider and advise the Board as to whether a different registered public accounting firm should be selected.
We have been advised that representatives of Fiondella, Milone & LaSaracina LLP will be present at the Annual Meeting and will be available to respond to appropriate questions. Such
representatives will have an opportunity to make a statement, if they desire to do so,
All fees related to audit services described below were approved in advance by our Audit Committee.
|
|
2019
|
|
2018
|
Audit Fees – Annual & quarterly reviews
|
|
$
|
506,000
|
|
$
|
405,000
|
Audit-Related Fees – Employee Benefit Plans
|
|
$
|
51,139
|
|
$
|
51,000
|
Tax Fees – Federal and State Return preparation
|
|
$
|
144,470
|
|
$
|
77,857
|
All Other Fees – Non-audit services
|
|
$
|
53,833
|
|
$
|
6,000
|
Audit Fees: Audit fees paid to Fiondella, Milone &
LaSaracina LLP include fees associated with the annual integrated audit and the reviews of the Company’s quarterly reports on Form 10-Q for the quarters ended March 30, 2019, June 29, 2019 and September 28, 2019. Audit Fees also include the audit of
Big 3 Precision Mold Services, Inc. and Big 3 Precision Products, Inc. (the “Big 3 Precision Acquisition”).
Audit-Related Fees: Audit-related fees paid to Fiondella,
Milone & LaSaracina LLP for 2019 primarily include audits of the employee benefit plans of the Company.
Tax Fees: Tax fees paid to Fiondella, Milone &
LaSaracina LLP for 2019 were for preparation of the 2018 federal and state income tax returns.
All Other Fees: All Other Fees paid to Fiondella, Milone & LaSaracina LLP for 2019 were for non-audit services.
The Board recommends a vote FOR the ratification of the appointment of Fiondella, Milone & LaSaracina LLP as the Company’s
independent registered public accounting firm for the 2020 fiscal year. Proxies will be voted FOR the proposal unless otherwise specified.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that all audit committee members are financially literate and are independent under the current listing standards of NASDAQ. The Board has also determined that Fredrick D.
DiSanto, John W. Everets, Michael A. McManus, Jr. and Peggy B. Scott qualify as “audit committee financial experts” as defined by SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. The Board adopted a revised written charter for the Audit Committee on February 4, 2004.
Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control. The independent registered public accounting firm is
responsible for expressing an opinion on the conformity of those statements with generally accepted accounting principles in the United States. Within this framework, the Audit Committee has reviewed and discussed the audited financial statements
included in the Annual Report on Form 10-K with the independent registered public accounting firm and management. In connection therewith, the Audit Committee reviewed with the independent registered public accounting firm their judgments as to the
quality and the acceptability of the Company’s accounting principles; the reasonableness of significant judgments; the clarity of disclosures in the financial statements; and other related matters as required to be discussed under generally accepted
auditing standards in the United States.
In addition, the Audit Committee has discussed with the independent registered public accounting firm the independence of such firm from management and from the Company, including the matters in
the written disclosures required by the Public Company Accounting Oversight Board, including Auditing Standard No. 1301 (Communications with Audit Committees) and the Independence Standards Board, and has considered the compatibility of non-audit
services with such firm’s independence.
The Audit Committee also discussed with the Company’s independent registered public accounting firm the overall scope and plan for their audit, their evaluation of the Company’s internal control
and the overall quality of the Company’s financial reporting. The Audit Committee held four meetings with the Company’s independent registered public accounting firm, both with and without management present, during fiscal year 2019.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 28, 2019 for filing with the SEC. The Audit Committee has recommended, and the Board has approved, subject to shareholder ratification, the selection of Fiondella, Milone & LaSaracina LLP as the
Company’s independent registered public accounting firm for the 2020 fiscal year.
Audit Committee:
Fredrick D. DiSanto, Chairman
John W. Everets
Michael A. McManus, Jr.
Peggy B. Scott
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 2, 2020, (unless a different date is specified in the notes to the table), with respect to (i) each person known by the Board to be the
beneficial owner of more than 5% of the Company’s outstanding Common Shares, (ii) each current director of the Company and nominee to be a director of the Company, (iii) each of the named executive officers (as hereinafter defined) and (iv) all
directors, nominees and executive officers of the Company as a group. Except as set forth below, the Company knows of no person or group that beneficially owns 5% or more of the outstanding Common Shares. Unless set forth in the following table, the
address of each shareholder is c/o The Eastern Company, 112 Bridge Street, Naugatuck, Connecticut 06770-0460.
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature
of Beneficial
Ownership (a)
|
Percent of
Class (b)
|
Common Stock
|
GAMCO Investors, Inc. (c)
One Corporate Center
Rye, NY 10580
|
1,166,574
|
18.69%
|
Common Stock
|
Barington Companies Equity Partners, L.P. (d)
888 Seventh Avenue, 6th Floor
New York, NY 10019
|
575,703
|
9.22%
|
Common Stock
|
Dimensional Fund Advisors LP (e)
Building One
6300 Bee Cave Road
Austin, TX 78746
|
409,732
|
6.57%
|
Common Stock
|
Minerva Advisors LLC (f)
50 Monument Road, Suite 201
Bala Cynwyd, PA 19004
|
339,050
|
5.43%
|
Common Stock
|
Fredrick D. DiSanto (g)
|
56,319
|
0.90%
|
Common Stock
|
John W. Everets
|
118,131
|
1.89%
|
Common Stock
|
Charles W. Henry
|
64,067
|
1.03%
|
Common Stock
|
James A. Mitarotonda (h)
|
585,066
|
9.37%
|
Common Stock
|
Michael A. McManus, Jr.
|
12,239
|
0.20%
|
Common Stock
|
Peggy B. Scott (i)
|
2,998
|
0.05%
|
Common Stock
|
John L. Sullivan III (j)
|
31,837
|
0.51%
|
Common Stock
|
August M. Vlak (k)
|
21,407
|
0.34%
|
Common Stock
|
All directors, nominees and executive
officers as a group (8 persons)(l)
|
892,064
|
14.29%
|
|
(a)
|
The SEC 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, the amounts owned reflect direct beneficial ownership and the person indicated has sole voting and sole investment power with respect to the Common Shares indicated as beneficially owned. As of
March 2, 2020, there were 6,240,705 Common Shares outstanding.
|
Amounts shown include the number of Common Shares (if any) subject to outstanding options or stock appreciation rights granted under the Company’s 2010 Executive Stock Incentive
Plan (the “2010 Plan”) that are exercisable within 60 days after March 2, 2020.
Reported shareholdings include, in certain cases, Common Shares owned by or in trust for a director or nominee, and in which all beneficial interest has been disclaimed by the
director or the nominee.
|
(b)
|
The percentages shown for each of the directors and executive officers are calculated on the basis that outstanding Common Shares include Common Shares (if any) subject to outstanding options or stock appreciation rights under the
Company’s 2010 Plan that are exercisable by such director or officer within 60 days after March 2, 2020.
|
|
(c)
|
Based on information set forth in Amendment No. 9 to Schedule 13D filed with the SEC on March 22, 2019 by Gabelli Funds, LLC, GAMCO Asset Management Inc., Teton Advisors, Inc., GGCP, Inc., Mario J. Gabelli, GAMCO Investors, Inc.,
Associated Capital Group, Inc. Gabelli Funds, LLC is an investment adviser registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides advisory services for a variety of investment funds,
investment companies, investment trusts and other investment entities. GAMCO Asset Management Inc., a wholly-owned subsidiary of GAMCO Investors, Inc., is an investment adviser registered under the Advisers Act that is an investment
manager providing discretionary managed account services for employee benefit plans, private investors, endowments, foundations and others. Teton Advisors, Inc. is an investment adviser registered under the Advisers Act that provides
discretionary advisory services to The TETON Westwood Mighty Mitessm Fund, The TETON Westwood Income Fund, The TETON Westwood SmallCap Equity Fund, TETON Westwood Intermediate Bond Fund and The TETON Westwood Mid-Cap Equity
Fund. Mario J. Gabelli is deemed to have beneficial ownership of the securities owned beneficially by each of the foregoing persons. GAMCO Investors, Inc. and GGCP, Inc. are deemed to have beneficial ownership of the securities owned
beneficially by each of the foregoing persons other than Mario J. Gabelli.
|
|
(d)
|
Based on information set forth in the Form 4 filed with the SEC on December 23, 2019 by Mr. Mitarotonda, Barington Companies Equity Partners, L.P. (“BCEP”)
beneficially owns 575,703 Common Shares. Mr. Mitarotonda beneficially owns 9,363 Common Shares granted to him under The Eastern Company’s Directors Fee Program. He may also be deemed to beneficially own the 575,703 Common Shares
beneficially owned by BCEP. Mr. Mitarotonda is the sole stockholder and director of LNA Capital Corp (“LNA”). LNA is the general partner of Barington Capital Group, L.P., which is the majority member of Barington Companies
Investors, LLC (“BCI”). BCI is the general partner of BCEP. Mr. Mitarotonda disclaims beneficial ownership of the Common Shares beneficially owned by BCEP except to the extent of his pecuniary interest therein.
|
|
(e)
|
Based on information set forth in Amendment No. 7 to Schedule 13G filed with the SEC on February 12, 2020 by Dimensional Fund Advisors LP (“Dimensional”), an investment adviser registered under Section 203 of the Advisors Act.
Dimensional furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, as amended, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and
separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Dimensional Funds”). In certain cases, subsidiaries of Dimensional may act as an adviser or sub-adviser to certain Dimensional Funds. In
its role as investment advisor, sub-adviser and/or manager, Dimensional or its subsidiaries (collectively, “Dimensional”) may possess voting and/or investment power over the Common Shares that are owned by the Dimensional Funds, and may
be deemed to be the beneficial owner of the Common Shares held by the Dimensional Funds. However, all Common Shares are owned by the Dimensional Funds, and Dimensional disclaims beneficial ownership of such Common Shares.
|
|
(f)
|
Based on information set forth in Amendment No. 4 to Schedule 13G filed with the SEC on February 12, 2020 by Minerva Advisors LLC, Minerva Group, LP, Minerva GP, LP, Minerva GP, Inc., and David P. Cohen. Each of Minerva Advisors LLC,
Minerva Group, LP, Minerva GP, LP, Minerva GP, Inc., and David P. Cohen is deemed a beneficial owner of the 217,685 Common Shares held by Minerva Group, LP. David P. Cohen is the beneficial owner of the 2,250 Common Shares that he owns
individually and is also deemed a beneficial owner of the 336,800 Common Shares beneficially owned by Minerva Advisors LLC.
|
|
(g)
|
Mr. DiSanto’s shareholdings include direct ownership of 12,522 Common Shares and shared voting power and investment power over an additional 43,797 Common Shares over which he has indirect beneficial ownership.
|
|
(h)
|
Mr. Mitarotonda beneficially owns 9,363 Common Shares granted to him under The Eastern Company’s Directors Fee Program. He may also be deemed to beneficially own 575,703 Common Shares beneficially owned by BCEP
(see footnote (d) above). Mr. Mitarotonda disclaims beneficial ownership of the Common Shares beneficially owned by BCEP except to the extent of his pecuniary interest therein.
|
(i)
|
Mrs. Scott was elected as a director of the Company at the last Annual Meeting, which was held on May 1, 2019.
|
|
(j)
|
Mr. Sullivan’s security ownership includes 2,087 Common Shares underlying stock appreciation rights granted on March 2, 2017 that became exercisable on February 1, 2018, February 1, 2019 and February 1, 2020.
|
|
(k)
|
Mr. Vlak’s security ownership includes 4,173 Common Shares underlying stock appreciation rights granted on March 2, 2017 that became exercisable on February 1, 2018 February 1, 2019 and February 1, 2020.
|
|
(l)
|
Unless otherwise indicated in the notes above, directors, nominees and named executive officers have sole voting and investment power as to 892,064 Common Shares (14.29% of the outstanding stock).
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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 SEC. Based on a review of the copies of such reports and written representations from certain reporting persons that no such reports were required for those persons, the Company believes that all reports
for the Company’s directors, officers and 10% beneficial owners that were required to be filed under Section 16 during the fiscal year ended December 28, 2019 were timely filed.
THE BOARD OF DIRECTORS AND COMMITTEES
The Board is committed to sound corporate governance practices and believes that our current corporate governance practices enhance the Company’s ability to achieve its goals and enable the Board to
govern the Company with the highest standards of integrity. In 2018, the Board adopted new Board Governance Guidelines that codify its practices. The Board Governance Guidelines, the Company’s Code of Business Conduct and Ethics, as adopted by the
Board on February 4, 2004 and the charters of our Audit, Compensation and Nominating and Corporate Governance Committees are available for review at the Company website at www.easterncompany.com.
The current leadership structure of the Board allows it to perform its duties effectively and efficiently considering the relatively small size of the Company. In 2019, the Board held seven meetings.
All seven current directors attended 100% of the meetings held.
The Board conducts annual self-evaluations to assess the effectiveness, processes, skills, functions and other matters relevant to the Board as a whole or to each particular committee. Results of
the evaluations are summarized and discussed at Board and committee meetings for the purpose of improving the effectiveness of the Board and committees.
Because of the Company’s diversified engineering, manufacturing and marketing activities, risk oversight responsibilities are focused generally on the Board’s overall assessment of broad and general
business and economic conditions in the market sectors in which the Company operates. With Board oversight, the executive management team’s planning and review and extensive Sarbanes-Oxley compliance testing of internal controls substantiates the
credibility of the Company’s financial reporting and operating controls.
The Board is provided with detailed and timely financial and operating communications, including the nature of significant capital projects as well as other important business matters indicating
business trends and economic projections that might affect the Company’s businesses.
Board’s Role in Company Strategy and Leadership
The Board has an active role in the Company’s overall strategies. Each year, the Board conducts a comprehensive, in-depth review of the Company’s long-term strategy and annual operating plan and
actively monitors and reviews management’s progress in executing both throughout the year. In addition, throughout the year the Board conducts individual segment strategy reviews with segment leadership.
The Board recognizes that one of its most important duties is to endure continuity in the Company’s senior leadership by overseeing the development of executive talent and planning for the
effective succession of the Company’s CEO and the executive leadership team. In order to ensure that the succession planning and leadership development process supports and enhances the Company’s strategic objectives, the Board regularly consults
with the CEO on the Company’s organizational needs, its leadership pipeline and the succession plans for critical leadership positions.
The Role of the Board in Corporate Social Responsibility
Corporate social responsibility is deeply ingrained in our work, and has been for over a century. Our businesses are committed to solving customers’ complex safety and security challenges. Every
day, the products that our businesses design and manufacture protect people who use them from injury and safeguard property against damage or loss. We know that our first obligation is to the people who come to work at each of our businesses, and we
are committed to our goal of zero reportable accidents. The Board has established an Environment, Health and Safety Committee which reviews the health and safety of our employees. Finally, our businesses seek to minimize their environmental impact
and embrace sustainable material recycling practices in our operations.
Board Committees
The Company’s Board has five standing committees: the Executive Committee, Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Environment, Health and Safety
Committee. The Pension Investment Review Committee was dissolved on May 1, 2019. Each committee is composed of four independent directors except the Executive Committee, which has three members, and the Environment, Health and Safety Committee, which
has three independent directors and the President and Chief Executive Officer.
The President and Chief Executive Officer is not a member of the Executive Committee, Audit, Compensation, and Nominating and Corporate Governance Committees but is a member of the Environment,
Health and Safety Committee.
Executive Committee. The Executive Committee, acting with the full authority
of the Board, approves minutes, monthly operating reports, capital expenditures, banking matters, and other issues requiring immediate attention when the Board is not in session. The members of the Executive Committee include Charles W. Henry,
Michael A. McManus, Jr. and James A. Mitarotonda (Chairman). In 2019, the Executive Committee did not meet.
Audit Committee. The Audit Committee advises the Board and provides oversight on matters relating to the Company’s
financial reporting process, accounting functions and internal controls, and the qualifications, independence, appointment, retention, compensation and performance of the Company’s independent registered public accounting firm. The Audit Committee
also provides oversight with respect to legal compliance, ethics programs, and cyber risk management. The members of the Audit Committee include Fredrick D. DiSanto (Chairman), John W. Everets, Michael A. McManus, Jr. and Peggy B. Scott. During 2019,
the Audit Committee held four meetings.
Compensation Committee. The Compensation Committee is responsible for establishing basic management compensation,
incentive plan goals, and all related matters, as well as determining stock incentive grants to employees. The Board adopted the charter of the Compensation Committee on December 13, 2006. The members of the Compensation Committee include Charles W.
Henry, Michael A. McManus, Jr. (Chairman), James A. Mitarotonda and Peggy B. Scott. During 2019, the Compensation Committee held five meetings.
Environment, Health and Safety Committee. The Board established the Environment, Health and Safety Committee in 2019.
The Environment, Health and Safety Committee’s responsibilities include reviewing environmental, health and safety policies; overseeing the management and implementation of systems necessary for compliance with the policies; monitoring the
effectiveness of policies, systems and processes; monitoring trends; and, reviewing and monitoring the overall environmental, health and safety performance of the Company. The members of the Environment, Health and Safety Committee include Charles W.
Henry, Michael A. McManus, Jr., Peggy B. Scott (Chairperson) and August M. Vlak. The Environment, Health and Safety Committee held one meeting in 2019.
Nominating and Corporate Governance Committee. The Board adopted the charter of the Nominating and Corporate Governance
Committee on May 21, 2015. As defined by the rules and regulations of NASDAQ, the independent members of the Board include all of the members of the Board other than the President and Chief Executive Officer. The independent directors select and
recommend to the Board the nomination of individuals for election to the Board. The members of the Nominating and Corporate Governance Committee include Fredrick D. DiSanto, John W. Everets, Charles W. Henry and James A. Mitarotonda (Chairman).
During 2019, the Nominating and Corporate Governance Committee held four meetings.
In 2017, the Board established the Pension Investment Review Committee and adopted the Committee’s charter. The committee was responsible for reviewing the Company’s qualified retirement plans. The
members of the Pension Investment Review Committee during 2019 included Fredrick D. DiSanto (Chairman), John W. Everets, Charles W. Henry and August M. Vlak. The Pension Investment Review Committee held two meetings in 2019. The Pension Investment
Review Committee was dissolved in 2019 and certain responsibilities were transferred to the Audit Committee.
Board Composition
Each member of the Board must have the ability to apply sound business judgment and must be able to exercise his or her duties of loyalty and care. Candidates for the position of director must
exhibit proven leadership capabilities and high integrity, exercise high level responsibilities within their chosen careers, and have an ability to quickly grasp complex principles of business and finance. In general, candidates will be preferred to
the extent they hold an established executive level position in business, finance, law, education, research, government or civic activities. When current members of the Board are considered for nomination for reelection, their prior contributions to
the Board, their performance and their meeting attendance records are taken into account.
With the aim of developing a diverse, experienced and highly-qualified Board, the Nominating and Corporate Governance Committee is responsible for developing and recommending to the Board the desired
qualifications, expertise and characteristics of members of the Board, including qualifications that the Nominating and Corporate Governance Committee believes are necessary for one or more of the members of the Board to possess.
Since selecting qualified directors requires consideration of many factors and will be influenced by the particular needs of the Board from time to time, the Board has not adopted a specific set of
minimum qualifications, qualities or skills that are necessary for a nominee to possess, other than those that are necessary to meet U.S. legal, regulatory and NASDAQ listing requirements and the provisions of our Restated Certificate of
Incorporation (as amended), our Bylaws(as amended), and the charters of the committees of the Board . When considering nominees, the Nominating and Corporate Governance Committee takes into consideration many factors, including a candidate’s
independence, integrity, skills, financial and other expertise, experience, knowledge about our business or the industries in which we operate and ability to devote adequate time and effort to responsibilities of the Board. The brief biographical
description of each director set forth in Item 1 of this Proxy Statement includes the individual experience, qualifications, attributes and skill of each director that led to the conclusion that each director should serve as a member of our Board.
The Board does not have a formal or informal policy with respect to diversity, but believes that the Board, taken as a whole, should embody a diverse set of skills, knowledge, experiences and
backgrounds appropriate in light of the Company’s needs, and in this regard also subjectively takes into consideration the diversity (with respect to race, gender and national origin) of the Board when considering director nominees.
Pursuant to the Company’s Corporate Governance Guidelines, the Board examines whether the role of Chairman and Chief Executive Officer should be combined and may determine to separate or combine the
offices of Chairman and CEO as it deems appropriate. Since January 1, 2016, the Company has separated the positions of Chairman of the Board and Chief Executive Officer. The Board believes that having a separate Chairman allows the Chief Executive
Officer to focus on the day-to-day management of the Company, while enabling the Board to maintain an independent perspective on the activities of the Company and executive management.
Director Nomination Process
The Nominating and Corporate Governance Committee considers director nominees who are identified by the directors, by the shareholders, or through another source. The Nominating and Corporate
Governance Committee may also use the services of a third party search firm to assist in the identification or evaluation of director candidates, as the committee deems necessary or appropriate.
Shareholders wishing to submit the names of qualified candidates for possible nomination to the Nominating and Corporate Governance Committee may make such a submission by sending the information
described in the Company’s Bylaws to the Board (in care of the Secretary of the Company). This information generally must be submitted not more than 90 days nor less than 60 days prior to the first anniversary of the preceding year’s annual meeting
of shareholders.
The Nominating and Corporate Governance Committee will make a preliminary assessment of each proposed nominee based upon his or her resume and biographical information, the individual’s willingness
to serve as a director, and other background information. When considering nominees, the Nominating and Corporate Governance Committee takes into consideration many factors, including a candidate’s independence, integrity, skills, financial,
diversity and other expertise, experience, knowledge about our business or the industries in which we operate and ability to devote adequate time and effort to responsibilities of the Board. This information is evaluated against the criteria
described above and the specific needs of the Company at the time. Based upon a preliminary assessment of the candidate(s), those who appear best suited to meet the needs of the Company may be invited to participate in a series of interviews, which
are used as a further means of evaluating potential candidates. On the basis of information learned during this process, the Nominating and Corporate Governance Committee will determine which nominee(s) they will recommend for election to the Board.
The Nominating and Corporate Governance Committee use the same process for evaluating all nominees, regardless of the original source of the nomination.
Board Independence
The Board is currently composed of six members, five of whom are independent. Our Corporate Governance and Nominating Committee conducts an annual review and makes a recommendation to the full Board as to whether each
of our directors meets the applicable independence standards of the NASDAQ Marketplace Rule 4200(a)(15). In accordance with the NASDAQ standards, our Board has adopted categorical standards for director independence, including heightened standards
applicable to members of our Audit and Compensation Committees. A director will not be considered independent unless the Board determines that the director has no material relationship with the Company (directly, or a partner, stockholder or officer
of an organization that has a material relationship with the Company). The Board has determined that each of the current directors, except August M. Vlak, has no material relationship with the Company other than as a director and is independent
within the listing standards of the NASDAQ. In making its independence determinations, the Board has broadly considered all relevant facts and circumstances.