UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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The Eastern Company
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THE EASTERN COMPANY
112 Bridge Street
P.O. Box 460
Naugatuck, CT 06770-0460
______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 2, 20181, 2019
______________
The Annual Meeting of Shareholders of The Eastern Company ("Eastern" or the "Company") will be held on May 2, 20181, 2019 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 |
| 2. | To vote on a nonbinding advisory vote to approve the compensation of the named executive |
| 3. | 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 2019. |
| 4. | To transact such other business as may properly come before the annual meeting of shareholders or any adjournment thereof. |
The Board of Directors has fixed March 1, 20182019 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 vote 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 15, 201814, 2019
PROXY STATEMENT
of
THE EASTERN COMPANY
for the Annual Meeting of Shareholders
To Be Held on May 2, 20181, 2019
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 20182019 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 15, 2018.14, 2019.
GENERAL INFORMATION REGARDING VOTING AT THE ANNUAL MEETING
The Board of Directors of Eastern (the "Board") has fixed the close of business on March 1, 20182019 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 6,263,2456,231,409 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.
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 of Directors 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 electelect: 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 of Directors; (2) FOR the approval of the compensation of the named executive officers; and (3) FOR the proposal to appoint Fiondella, Milone & LaSaracina LLP as the Company's independent registered public accounting firm. 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 [thethe Corporate Secretary of]of the Company, at 112 Bridge Street, P.O. Box 460, Naugatuck, CT 06770-0460, or it must be delivered to [thethe Corporate Secretary of]of the Company at the Annual Meeting before proxies are voted.exercised. You may also revoke your proxy by submitting a new proxy onvia the Internet [atat www.proxyvote.comwww. proxyvote.com], or by a later telephone vote, no later than 11:59 p.m. local timeEastern Time on May 1, 2018.April 30, 2019. Attendance at the Annual Meeting does not, without further action, revoke the appointment of a proxy; however, it 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 15, 2018,14, 2019, 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. We chose to use thisThis online access format because it expedites the delivery of materials, reduces printing and postage costs and eliminates bulky paper documents, creating a more efficient process for both shareholders andreduces the Company.environmental impact of our Annual Meeting.
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:
1) BY INTERNET: | www.proxyvote.com | |
2) BY TELEPHONE: | 1-800-579-1639 | |
3) BY E-MAIL: | sendmaterial@proxyvote.com |
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 of Directors than there are positions on the Board of Directors 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.
The Board of Directors recommends voting:
FOR the election of 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 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.firm for the 2019 fiscal year.
Item No. 1
ELECTION OF DIRECTORS
At the Annual Meeting, fourseven directors will be elected to serve for one-year terms, which expire in 20192020 or until his or her 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, each of whom is a current director whose term expires in 2018, are the Company's nominees for election at the Annual Meeting. Six of the nominees are current directors whose terms expire in 2019. On February 25, 2019, Mrs. Scott was nominated as a director for election at the Annual Meeting by the Nominating and Corporate Governance Committee.
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. 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 of Directors recommends a vote FOR the election of 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, andaffiliations. Information regarding each director's beneficial ownership of equity securities of the Company.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 20182019 Annual Meeting
For a one-year term expiring in 20192020
Fredrick D. DiSanto, age 56,57, 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 Edgewater Technology, Inc. and Medical Mutual of Ohio,(which merged into Alithya Group) and previously served on the respective Boards of Directors of Axia NetMediaNet Media Corporation and LNB Bancorp, Inc. and PVF Capital Corporation.
Mr. DiSanto was electedhas served as a Directordirector of the Company at the 2016 annual meeting of shareholders, which was held on April 26,since 2016. Mr. DiSanto is Chairman of the Audit and the Pension Investment Review Committees and serves on the Executive Committee.
John W. Everets, age 72, 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 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, Compensation, Pension Investment Review, and Nominating and Corporate Governance Committees.
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Charles W. Henry, age 68,69, is an attorney and partner with the law firm Henry & Federer, LLP located in Woodbury, Connecticut.
Mr. Henry has been a Director of the Company since 1989 and brings to the Board of Directors extensive knowledge of the Company's business. He serves on the Audit, Compensation, Executive, Pension Investment Review, and Nominating and Corporate Governance Committees.
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 businesses. His law firm does not provide any services to the Company.
| Name | Common Stock Beneficially Owned as of March 1, 2018 | Percentage Of Class |
| Fredrick D. DiSanto (1) | 52,861 | 0.84% |
| John W. Everets | 115,665 | 1.85% |
| Charles W. Henry | 61,585 | 0.98% |
| Michael A. McManus, Jr. | 9,216 | 0.15% |
| James A. Mitarotonda (2) | 580,294 | 9.27% |
| August M. Vlak (3) | 8,836 | 0.14% |
James A. Mitarotonda, age 64, 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 at OMNOVA Solutions Inc. since 2015. Mr. Mitarotonda's directorships at public companies in the past five years include director for Pep Boys - Manny, Moe & Jack from 2006 to 2016; A. Shulman Inc. from 2005 to 2018; Ebix, Inc. for 2015 and The Jones Group, Inc. from 2013 to 2014. Mr. Mitarotonda also served as the Chairman of Barington/Hilco Acquisition Corp. from 2015 to 2018 and was its Director from 2014 to 2018. 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 he also serves on the Compensation and Executive Committees.
Peggy B. Scott, age 67, 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 1,2017 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 of the Blue Cross Blue Shield of Louisiana Foundation, since 2006, and former Chairperson and President. She has also been a member of the Advisory Board of ClearData Networks, Inc., a provider of cloud computing and security services, since March 2017. She has served as a Senior Fund Advisor and as a member of the Advisory Board of Health Catalyst Capital Management LLC, a private equity fund, since March 2016.
5
Mrs. Scott is a Certified Public Accountant (CPA) and a Chartered Global Management Accountant (CGMA). She is also Certified in Valuations (ABV and CVA) and Financial Forensics (CFF). She holds a Professional Director Certification from the American College of Corporate Directors. She also holds an MBA from Tulane University and a B.S. in accounting from Louisiana State University. Mrs. Scott was nominated as a director on February 25, 2019 by the Nominating and Corporate Governance Committee and is a nominee for election to the Board at the Annual Meeting.
The Board believes Mrs. Scott is qualified to serve as a director based upon, among other things, her prior senior executive, strategy, operations, financial and board experience, which provides her with valuable knowledge and expertise in the areas of board governance, growth strategies, acquisitions, international business, accounting, finance, customer service, risk management and security.
August M. Vlak, age 52, was appointed President and Chief Executive Officer of the Company on January 1, 2016. From 2012 to 2015, Mr. Vlak served as a former 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.
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Item No. 2
ADVISORY VOTE ON THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
We are asking 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 (the "Say-on-Pay Vote").compensation. We encourage you to read the Compensation Discussion and Analysis and the tables and narratives beginning on page 18 for the 20172018 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 2018 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 will be nonbindingis an advisory vote only, and is onlynot binding on the Company, the Board of Directors or the Compensation Committee. In considering the outcome of this advisory vote, the Board will review and consider all shares voted in nature.
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 2018 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 2018 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.
APPROVED, on a non-binding advisory basis. Proxies will be voted FOR approval of the proposal unless otherwise specified.
The Board of Directors recommends a vote FOR the approval of the 2018 compensation of our named executive officers.
officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K.
Item No. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of Fiondella, Milone & LaSaracina LLP acts as our principal independent registered public accounting firm. The services of Fiondella, Milone & LaSaracina LLP for the fiscal year ended December 30, 201729, 2018 included an audit of the consolidated financial statements 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"); 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.
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 Audit Committee has recommended, and the Board has approved, continuing the services of Fiondella, Milone & LaSaracina LLP for the 20182019 fiscal year. Accordingly, the Board recommends that shareholders vote at the Annual Meeting FOR the appointment of Fiondella, Milone & LaSaracina LLP to audit the consolidated financial statements of the Company for the 20182019 year.
The proposal to appoint 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.
Representatives of Fiondella, Milone & LaSaracina LLP will be present at the Annual Meeting and will have an opportunity to make a statement, if they desire to do so, and will be available to respond to questions.
All fees related to audit services described below were approved in advance by our Audit Committee.
| 2017 | 2016 | 2018 | 2017 | |||||||||
| Audit Fees – Annual & quarterly reviews | $ | 420,000 | $ | 375,000 | $ | 405,000 | $ | 420,000 | ||||
| Audit-Related Fees – Employee Benefit Plans | $ | 51,223 | $ | 50,712 | $ | 51,000 | $ | 51,223 | ||||
| $ | 32,623 | $ | 31,390 | $ | 77,857 | $ | 32,623 | |||||
| $ | 71,446 | $ | 42,000 | $ | 6,000 | $ | 71,446 | |||||
Audit Fees: Audit fees paid to Fiondella, Milone & LaSaracina LLP include fees associated with the annual audit and the reviews of the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 29, 2018.
Audit-Related Fees: Audit-related fees paid to Fiondella, Milone & LaSaracina LLP for 2018 primarily include audits of the employee benefit plans of the Company.
Tax Fees: Tax fees paid to Fiondella, Milone & LaSaracina LLP for 2018 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 2018 were for non-audit services.
The Board of Directors recommends a vote FOR the appointment of Fiondella, Milone & LaSaracina LLP as the Company's independent registered public accounting firm for the 20182019 fiscal year.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors 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 and Michael A. McManus, Jr. 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. A copy of the Audit Committee's charter is available on the Company's website at www.easterncompany.com.
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 Standards Nos. 1301 (Communication 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 five meetings with the Company's independent registered public accounting firm, both with and without management present, during fiscal year 2017.2018.
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 30, 201729, 2018 for filing with the SEC. The Audit Committee has recommended, and the Board of Directors has approved, subject to shareholder ratification, the selection of Fiondella, Milone & LaSaracina LLP as the Company's independent registered public accounting firm for the 20182019 fiscal year.
Audit Committee:
Fredrick D. DiSanto, Chairman
Charles W. Henry
John W. Everets
Michael A. McManus, Jr.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL SHAREHOLDERSOWNERS AND MANAGEMENT
The following table sets forth information, as of March 1, 20182019, (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 Officersnamed 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 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.
| Shareholder | Amount and nature of beneficial ownership (a) | Percent of class (b) |
GAMCO Investors, Inc. (c) One Corporate Center Rye, NY 10580 | 1,105,474 | 17.65% |
Barington Capital Group, L.P. (d) 888 Seventh Avenue, 17th Floor New York, NY 10019 | 575,703 | 9.19% |
Dimensional Fund Advisors LP (e) Building One 6300 Bee Cave Road Austin, TX 78746 | 369,436 | 5.90% |
Minerva Advisors LLC (f) 50 Monument Road, Suite 201 Bala Cynwyd, PA 19004 | 359,251 | 5.74% |
Fredrick D. DiSanto (g) | 52,861 | 0.84% |
John W. Everets | 115,665 | 1.85% |
Charles W. Henry | 61,585 | 0.98% |
Angelo M. Labbadia (h) | 2,278 | 0.04% |
James A. Mitarotonda (i) | 580,294 | 9.27% |
Michael A. McManus, Jr. | 9,216 | 0.15% |
John L. Sullivan III (j) | 29,688 | 0.47% |
August M. Vlak (k) | 8,836 | 0.14% |
All directors, nominees and executive officers as a group (8 persons)(l) | 860,423 | 13.74% |
| 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 | 1,105,474 | 17.74% |
| Common Stock | Barington Capital Group, L.P. (d) 888 Seventh Avenue, 17th Floor New York, NY 10019 | 575,703 | 9.24% |
| Common Stock | Dimensional Fund Advisors LP (e) Building One 6300 Bee Cave Road Austin, TX 78746 | 418,503 | 6.72% |
| Common Stock | Minerva Advisors LLC (f) 50 Monument Road, Suite 201 Bala Cynwyd, PA 19004 | 359,251 | 5.77% |
| Common Stock | Fredrick D. DiSanto (g) | 54,582 | 0.88% |
| Common Stock | John W. Everets | 116,842 | 1.88% |
| Common Stock | Charles W. Henry | 62,762 | 1.01% |
| Common Stock | James A. Mitarotonda (i) | 582,632 | 9.35% |
| Common Stock | Michael A. McManus, Jr. | 10,665 | 0.17% |
| Common Stock | Peggy B. Scott (i) | 0 | 0.00% |
| Common Stock | John L. Sullivan III (j) | 31,556 | 0.51% |
| Common Stock | August M. Vlak (k) | 15,598 | 0.25% |
| Common Stock | All directors, nominees and executive officers as a group (8 persons)(l) | 874,637 | 14.04% |
| (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 |
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.
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Reported shareholdings include, in certain cases, 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 the directors and executive officers are calculated on the basis that outstanding shares include Common Shares (if any) subject to outstanding options or stock appreciation rights under the Company's 2010 Plan that are exercisable by the directors and officers within 60 days. |
| (c) | Based on information set forth in Amendment No. 8 to Schedule 13D filed with the SEC on April 7, 2017 by Gabelli Funds, LLC, GAMCO Asset Management Inc., Gabelli Foundation, Inc., Teton Advisors, Inc., GGCP, Inc., GAMCO Investors, Inc. ("GAMCO Investors"), Associated Capital Group, Inc. ("AC Group"), and Mario J. Gabelli with the SEC. 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, 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. Gabelli Foundation, Inc. is a private foundation for which Mario Gabelli is the Chairman, a Trustee and the Investment Manager and Elisa M. Wilson is the President. 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, and The TETON Westwood Mid-Cap Equity Fund. GGCP, Inc. makes investments for its own account and is the manager and a member of GGCP Holdings LLC, which is the controlling shareholder of GAMCO Investors and AC Group. GAMCO Investors, a public company listed on the New York Stock Exchange, is the parent company for a variety of companies engaged in the securities business. AC Group, a public company listed on the New York Stock Exchange, is the parent company for a variety of companies engaged in the securities business. Mario J. Gabelli acts as chief investment officer or directly or indirectly controls various entities, including the aforementioned entities, that are engaged in various aspects of the securities business, primarily as investment adviser to various institutional and individual clients, including registered investment companies and pension plans, and as general partner or the equivalent of various private investment partnerships or private funds. Certain of these entities may also make investments for their own accounts. |
| (d) | Based on information set forth in Form 4 filed with the SEC on December 26, 2018 by Mr. Mitarotonda, Barington Capital Group, L.P. |
| (e) | Based on information set forth in Amendment No. |
| (f) | Based on information set forth in Amendment No. 3 to Schedule 13G filed with the SEC on February 13, 2018 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 214,985 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 357,001 Common Shares beneficially owned by Minerva Advisors LLC. |
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| (g) | Mr. DiSanto's shareholdings include direct ownership of 9,064 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. |
| (i) | Mrs. Scott was nominated as a director on February 25, 2019 by the Nominating and Corporate Governance Committee. Mrs. Scott is a nominee for election to the Board at the Annual Meeting. |
| (j) | Mr. Sullivan's security ownership includes |
| (k) | Mr. Vlak's security ownership includes |
| (l) | Unless otherwise indicated, |
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. SEC regulations require the Company's directors, officers and 10% beneficial owners to furnish the Company with copies of all Section 16(a) reports that they file. 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 complied with applicablethat were required to be filed under Section 16(a) filing requirements16 during the fiscal year ended December 30, 2017, except for Messrs. Henry and Labbadia, each of whom inadvertently filed on late Form 4 reporting on late transaction.29, 2018 were timely filed.
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THE BOARD OF DIRECTORS AND COMMITTEES
The Board is currently composedcommitted 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 six members, fiveintegrity. In 2018, the Board adopted new Board Governance Guidelines that codify its practices. The Board Governance Guidelines, the Company's Code of whom are independentBusiness Conduct and Ethics, as definedadopted by the listing standardsBoard on February 4, 2004 and the charters of NASDAQ. The sixth director, August M. Vlak, is the Chiefour Executive, Officer ofAudit, Compensation, Nominating and Corporate Governance and Pension Investment Review Committees are available for review at the Company and is not an independent director as defined by the listing standards of NASDAQ.
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 2018, the Board held ten meetings. All six current Directors attended more than 75% of the meetings held.
The Company's Board of Directors has five standing committees:conduct annual self-evaluations to assess the Executive Committee, Audit Committee, Compensation Committee, Nominatingeffectiveness, processes, skills, functions and Corporate Governance Committee and Pension Investment Review Committee. Each committee is composed of four independent Directors withother matters relevant to the exceptionBoard as a whole or to each particular committee. Results of the Executive Committee, which has three members. The Presidentevaluations are summarized and Chief Executive Officer is not a memberdiscussed at Board and committee meetings for the purpose of improving the effectiveness of the Audit, Compensation,Board and Nominating and Corporate Governance Committees.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 sound corporate governance practicessolving customers' complex safety and believessecurity challenges. Every day, the products that our current corporate governancebusinesses 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 conducts an annual review of the health and safety of our employees. Finally, our businesses seek to minimize their environmental impact and embrace sustainable material recycling practices enhancein our operations.
Board Committees
The Company's Board of Directors has five standing committees: the Company's ability to achieve its goalsExecutive Committee, Audit Committee, Compensation Committee, Nominating and enable the Board to govern the CompanyCorporate Governance Committee and Pension Investment Review Committee. Each committee is composed of four independent Directors with the highest standardsexception of integrity.the Executive Committee, which has three members.
Executive Committee. The Executive Committee, acting with the full authority of the Board of Directors, 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. In 2017,2018, the Executive Committee did not meet.
Audit Committee. The Audit Committee advises the Board of Directors 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 the legal compliance, and ethics programs, established by management and cyber risk management. The members of the Board. The Company's Code of Business ConductAudit Committee include Fredrick D. DiSanto, John W. Everets, Charles W. Henry and Ethics, as adopted by the Board on February 4, 2004, is available on the Company's website at www.easterncompany.com.Michael A. McManus, Jr. During 2017,2018, the Audit Committee held five 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, which is available on2006. The members of the Company's website at www.easterncompany.com.Compensation Committee include John W. Everets, Charles W. Henry, Michael A. McManus, Jr. and James A. Mitarotonda. During 2017,2018, the Compensation Committee held five meetings.
Nominating and Corporate Governance Committee. The Board adopted the charter of the Nominating and Corporate Governance Committee on May 21, 2015, which is available on the Company's website at www.easterncompany.com.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 nominaterecommend to the Board the nomination of individuals for election to the Board. The members of the Nominating and Corporate Governance Committee include John W. Everets, Charles W. Henry, Michael A. McManus, Jr. and James A. Mitarotonda. During 2017,2018, the Nominating and Corporate Governance Committee held four meetings.
Pension Investment Review Committee. In 2017, the Board established the Pension Investment Review Committee and adopted the Committee's charter, which is available on the Company's website at www.easterncompany.com.charter. The committee is responsible for reviewing the Company's qualified retirement plans. The members of the Pension Investment Review Committee include Fredrick D. DiSanto, John W. Everets, Charles W. Henry and August M. Vlak. The Pension Investment Review Committee held four meetings in 2017.2018.
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 of Directors are considered for nomination for reelection, their prior contributions to the Board of Directors, their performance and their meeting attendance records are taken into account.
With the aim of developing a diverse, experienced and highly-qualified Board of Directors, 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 Certificate of Incorporation, Bylaws, and charters of the Board Committees. In addition, neither the Board nor the Nominating and Corporate Governance Committee has a formal policy with regard to the consideration of diversity in identifying nominees. 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
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industries in which we operate and ability to devote adequate time and effort to responsibilities of the Board. Through the nominating process, the Nominating and Corporate Governance Committee seeks to promote Board membership that reflects a diversity of business experience, expertise, viewpoints, personal backgrounds and other characteristics that are expected to contribute to the Board's overall effectiveness. 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. As part of its commitment to increase diversity on its Board of Directors, the Governance and Nominating Committee of the Board is nominating Mrs. Scott to serve as a director of the Company in 2019 and intends to nominate at this time.least one additional female Director in 2020.
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 of Directors believe 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 of Directors to maintain an independent perspective on the activities of the Company and executive management.
Director Nomination Process
The Nominating and Corporate Governance Committee considers Directordirector nominees who are identified either by the Directors,directors, by the shareholders, or through some otheranother 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 they deemthe 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,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 of Directors. The Nominating and Corporate Governance Committee use the same process for evaluating all nominees, regardless of the original source of the nomination.
| Name (1) | Fees Earned or Paid in Cash ($) (2) | Stock Awards ($) | Option Awards ($) | Non-equity Incentive Plan Compensation ($) | Change in pension value and nonqualified deferred compensation earnings ($) | All Other Compensation ($) (3) | Total ($) |
| Fredrick D. DiSanto | $ 38,550 | $ 30 | $38,580 | ||||
| John W. Everets | 32,300 | 15 | 32,315 | ||||
| Charles W. Henry | 31,800 | 30 | 31,830 | ||||
| Leonard F. Leganza(4) | 5,000 | 15 | 5,015 | ||||
| Michael A. McManus, Jr. | 34,425 | 15 | 34,440 | ||||
| James A. Mitarotonda | 44,633 | 30 | 44,663 |
15 Summary of Annual Director Compensation During fiscal year 2018, the Company paid non-employee directors individually in common shares of the Company (Company Shares) or cash as follows: the annual retainer for the chairman of the board is $60,000; for directors it is $30,000; the chairman of the Audit Committee received an additional $10,000; the chairman of the Compensation Committee received an additional $7,500; the chairman of the Pension Investment Review Committee received an additional $5,000; and chairman of the Nominating and Governance Committee received an additional $2,000. In addition to the annual retainer fee, all non-employee directors were compensated for all meetings in addition to the Board's six regularly scheduled meetings as follows: $1,500 for each in-person meeting and $500 for each telephonic meeting. The Directors make an annual election, within a reasonable time before their first quarterly payment, to receive their fees in the form of cash, Company Shares or a combination of cash and Company Shares. The election remains in force for one year. Messrs. DiSanto, Everets, Henry, McManus and Mitarotonda elected to receive their director compensation in Company Shares. The Company Shares are issued under the Directors Fee Program, which was approved by our shareholders in March 26, 1997 at the 1997 Annual Meeting of Shareholders and amended and restated, with shareholder approval, in 2004. The Company does not maintain a minimum share ownership requirement for any Director. DIRECTOR COMPENSATION IN FISCAL 2018
Our Code of Business Conduct and Ethics prohibits all conflicts of interest between the Company and any of its directors, officers and employees, except under guidelines approved by the Board or the Board Committees. A conflict of interest exists whenever an individual's private interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of the Company. Employees are encouraged to report any conflicts of interest, or potential conflicts of interest, to their supervisors or superiors. However, if an employee does not believe it appropriate or if he or she is not comfortable approaching his or her supervisors or superiors, then the employee may contact either the Chairman of the Audit Committee or Company counsel. To identify related party transactions, each year the Company requires our directors and executive officers to complete a questionnaire that identifies any transaction with the Company or any of its subsidiaries in which the director or executive officer or members of his or her family have an interest. If any related party transactions are reported, the Board reviews them to determine if the potential for a prohibited conflict of interest exists. Prior to its review, the Board will require full disclosure of all material facts concerning the relationship and financial interest of the relevant individuals in the transaction. Each year, our directors and executive officers also review our Code of Business Conduct and Ethics. The Board has determined that no transactions occurred since the beginning of 2018 involving any director, director nominee or executive officer of the Company, any known 5% shareholder of the Company or any immediate family member of any of the foregoing persons (together "related persons") that would require disclosure as a "related person transaction. COMPENSATION DISCUSSION AND ANALYSIS Our named executive officers for fiscal year 2018 were:
Compensation Governance The Compensation Committee recommends to the Board policies and processes for the regular and orderly review of the performance and compensation of the Company's senior executive management personnel, including the President and Chief Executive Officer. The Compensation Committee reviews and approves corporate goals and objectives relevant to compensation of the Company's Chief Executive Officer and other executive officers; recommends to the Board of Directors and/or the Company's Management with respect to compensation of executives other than named executive officers and administers the Company's stock plan, The Eastern Company 2010 Executive Stock Incentive Plan, and all other equity-based plans from time to time. The Compensation Committee regularly reviews, administers, and when necessary recommends changes to the Company's stock incentive and performance-based compensation plans. The Compensation Committee is comprised of members of the Board, none of whom may be an active or retired officer or employee of the Company or any of its subsidiaries. Members of the Compensation Committee are appointed annually by the Board. Messrs. Michael A. McManus, Jr., John W. Everets, Charles W. Henry, and James A. Mitarotonda are the members of the Compensation Committee. Mr. McManus has been the Chairman of the Compensation Committee since July 29, 2015. The Compensation Committee held five meetings during the fiscal year ended December This Compensation Discussion and Analysis focuses on:
Principles and Objectives of the Compensation Program The Company's compensation program and policy are designed to attract, motivate, retain and reward highly qualified executives and employees and to reinforce the relationship between individual performance and business results in a manner that aligns the interests of executives and shareholders. At our On June 27, 2016, the Board adopted an incentive compensation clawback policy as part of the Board's ongoing efforts to strengthen the Company's corporate governance and risk management. The policy is designed to ensure that incentive compensation is awarded based on accurate financial and operating data and the correct calculation of the Company's performance against incentive targets. The policy requires the Compensation Committee to seek the recovery of incentive compensation in the event of fraud or misconduct or a restatement of the financial or operating results of the Company that results in the payment of inflated incentive compensation. 17 On March 6, 2018, the Board adopted an anti-hedging policy that prohibits Restricted Persons (as defined in such policy) from short-term trading, taking short positions, or hedging in Company Shares. The following principles guide the Company's compensation practices as applied to all executives. Compensation levels should be sufficiently competitive to attract and retain highly qualified executives and employees. The Company endeavors to pay compensation at levels consistent with prevailing levels of compensation for similar positions in the geographic areas in which the Company maintains operations, in order to enable the Company to attract and retain the talent needed to achieve its business objectives. The Compensation Committee has used various sources to evaluate the competitiveness and overall structure of executive compensation and non-employee director compensation. Compensation should be The Company believes that a significant portion of executive compensation should take the form of annual incentives The Company's incentive compensation program is balanced between short- and long-term incentive compensation. Short-term incentive compensation—in the form of annual cash incentive awards—is awarded based on annual financial performance and operational goals. This design achieves our objective of offering superior pay for superior performance. Long-term incentive compensation is an important component of the Company's total compensation for executives. The Company's long-term incentive compensation program grants stock options, stock appreciation rights and restricted stock awards at appropriate times and in appropriate amounts to serve as a long-term performance incentive. The Compensation Committee believes that the Company's long-term incentive program provides executives with the opportunity to increase their ownership in the Company, thereby more closely aligning the best interest of the shareholders and the executives. The Company does not maintain minimum share ownership requirements for any executive. Compensation should reflect an individual's position and responsibility, and compensation for named executive officers should be more heavily weighted toward incentive pay. Total compensation should generally increase with position and responsibility. Employees in named executive officer positions have greater roles and responsibilities associated with achieving the Company's performance goals, and should thus have a greater portion of their compensation tied to the achievement of those goals. Accordingly, a greater percentage of compensation for more senior positions, particularly those with the greatest responsibility for driving achievement of performance targets, is paid in the form of potential short- and long-term incentive pay as a percent of salary. Components of the Compensation Program Base salary Base salaries are set after referencing market data for similar positions from the Towers Watson Data Services survey report on Top Management Compensation in the manufacturing sector. The compensation of the Company's President and Chief Executive Officer, August M. Vlak, is determined pursuant to the terms and conditions of an employment agreement between Mr. Vlak and the Company, entered into effective January 1, 2018. In The compensation of named executive officer, John L. Sullivan III, Vice President and Chief Financial Officer, is determined annually by the Compensation Committee and approved by the Board. Mr. Sullivan's base salary was Total base salary compensation of Messrs. Vlak 18 Short-Term Incentives — Annual Cash Incentives For fiscal year annual operating During During During During The following table shows the incentive calculation for fiscal year
Long-term incentives and performance based SAR's On March 2, 2017 the named executive officers were granted Stock Appreciation Rights (SAR's) which vest over a three-year period, the 2017 - 2019 performance cycle, provided certain performance goals are achieved. At the time of the grant the exercise price of $19.10 per unit was equal to 100% of the fair market value of a share of common stock of the Company on the date of the grant of the SAR. The performance goal is the Return on Invested Capital (ROIC) achieved in each of the three fiscal years ending December 2017, December 2018 and December 2019. The ROIC is defined as the Company's average annual fixed assets, intangible assets, and current assets; reduced by the sum of the Company's average annual current liabilities and cash. On February 7, 2018 the named executive officers were granted Stock Appreciation Rights (SAR's) which vest February 1, 2021, the 2020 performance cycle, provided certain performance goals are achieved. At the time of the grant the exercise price of $ 24.90 per unit was equal to 100% of the fair market value of a share of common stock of the Company on the date of the grant of the SAR. The performance goal is the Company's Book Value at the close of December of fiscal year 2020. The Company's Book Value is defined as the total assets minus the value of total liabilities as recorded on the Company's balance sheet. On February 25, 2019 the named executive officers were granted Stock Appreciation Rights (SAR's) which vest February 1, 2022, the 2021 performance cycle, provided certain performance goals are achieved. At the time of the grant the exercise price of $26.30 per unit was equal to 100% of the fair market value of a share of common stock of the Company on the date of the grant of the SAR. The performance goal is the Company's Book Value at the close of December of fiscal year 2021. The Company's Book Value is defined as the total assets minus the value of total liabilities as recorded on the Company's balance sheet. The performance cycles are as follows:
20 Retirement and Other Post-Termination Plans 401(k) Plan The Company maintains a savings and investment plan (the "SIP Plan") for eligible employees, including executive officers. An eligible employee who participates in the SIP Plan may execute a salary reduction agreement requiring the Company to reduce his or her taxable earnings by a percentage of his or her compensation (as elected by the participant) and to contribute that amount to the SIP Plan. The amount of the contribution could not exceed 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 Effective June 1, 2016, the SIP Plan was amended to increase the non-discretionary profit sharing contribution to 3%, and eligibility for the profit sharing contribution was extended to all non-union U.S. employees. The SIP Plan was also amended to provide for a non-discretionary contribution (the "transitional credit") for certain non-union U.S. employees who were eligible to participate in the Salaried Employees Retirement Plan of The Eastern Company (the "Salaried Plan"). The amount of this non-discretionary contribution ranges from 0% to 4% of compensation, based on the age of the individual on June 1, 2016. Earnings in excess of Retirement Benefits On April 5, 2016, the Board passed a resolution freezing benefit accruals under the Salaried Plan, effective as of May 31, 2016. As a result, compensation and years of service earned after May 31, 2016 are not taken into account in determining the amount of a member's retirement benefit. An employee reaches his or her normal retirement date and can begin benefits without reduction upon reaching age 65 (or, if later, the earlier of the attainment of age 70 or the completion of five years of participation in the plan). An employee reaches his or her early retirement date when he or she reaches age 55 after completing 20 years of service. An employee who is eligible for early retirement can elect to begin to receive his or her benefits on an actuarially reduced basis. In addition, if an employee's age and years of service equal at least 90, the employee can elect to begin to receive his or her benefits with a smaller reduction for early commencement than is otherwise applicable for early retirement. Pension Benefits Table The following table provides certain information regarding the present value of accumulated benefits under the Company's qualified and nonqualified defined benefit pension plans as of the last day of the
COMPENSATION COMMITTEE REPORT We, the Compensation Committee of the Board of Directors of the Company, have reviewed and discussed the Compensation Discussion and Analysis set forth above with management and, based on such review and discussions, have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and, through incorporation by reference to this proxy statement, in the Company's Annual Report on Form 10-K for the fiscal year ended December Compensation Committee: Michael A. McManus, Chairman John W. Everets Charles W. Henry James A. Mitarotonda CEO PAY RATIO DISCLOSURE Our philosophy is to pay our employees competitively with similar positions in the applicable labor market. We follow this approach, whether it be an executive salary level position or an hourly wage job at a foreign division. Following is a reasonable estimate, calculated in accordance with applicable SEC rules, of the ratio of the annual total compensation of our Chief Executive Officer to the median annual total compensation of our employees for the fiscal year ended December
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee, we compiled payroll data for all U.S. and non-U.S. full-time employees who were employed for the full year of The median employee is an hourly worker at our During the or an executive officer of the Company, on the one hand, and any member of the compensation committee (or committee performing equivalent functions, or the full Board of Directors) or an executive officer of any other entity, on the other hand. EXECUTIVE COMPENSATION This section of the proxy statement explains our compensation program for our principal executive officer and our other most highly-compensated executive officer, whom we refer to collectively in this proxy statement as our named executive officers. Summary Compensation Table The
STOCK BASED AWARDS On April 28, 2010, the shareholders approved The Eastern Company 2010 The purchase price of the Common Shares subject to each incentive stock option granted under the 2010 Plan may not be less than the fair market value of the Common Shares on the date of grant. The purchase price of Common Shares subject to non-qualified stock options granted under the 2010 Plan, and the price (if any) which must be paid to acquire a share of restricted stock granted under the 2010 Plan, is set by the Compensation Committee. All non-qualified stock options granted to date under prior stock option plans have required a purchase price equal to 100% of the fair market value of the Common Shares on the date of the grant. Incentive stock options generally may not be granted under the 2010 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 must be exercised within the period set forth in the 2010 Plan or, if the 2010 Plan permits, 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. However, in the case of death or disability, the option may be exercised within one year after death or Grants of 24 OPTIONS EXERCISED IN FISCAL The OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following table displays the units of unvested stock appreciation rights held by each of the named executive officers at the end of fiscal year
On On February On February 7, 2018, the Compensation Committee granted stock appreciation rights under the 2010 Plan as follows: August M. Vlak – 20,000; and John L. Sullivan III – 25 TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS Employment Agreement On January 16, 2018, the Company entered into an amended and restated employment agreement (the "Amended and Restated Employment Agreement") with August M. Vlak, the Company's President and Chief Executive Officer. The Amended and Restated Employment Agreement supersedes the employment agreement executed on March 29, 2016 and was retroactively effective January 1, 2016. The initial term of the Amended and Restated Employment Agreement is from January 1, 2018 through December 31, 2018. However, the Amended and Restated Employment Agreement will be automatically renewed for additional one year terms, unless either party provides notice of nonrenewal at least 60 days prior to the end of the term. The Amended and Restated Employment Agreement automatically renewed for another one year term from January 1, 2019 through December 31, 2019. The Amended and Restated Employment Agreement sets forth Mr. Vlak's employment duties, compensation and additional benefits, as well as certain noncompetition, nonsolicitation and nondisclosure covenants. Under the terms of the Amended and Restated Employment Agreement, in the event of Mr. Vlak's death, termination by the Company without cause, termination by Mr. Vlak for good reason or due to a constructive termination, or when certain requirements are met in the event of a change in control, the Company will pay Mr. Vlak (i) any accrued compensation, including earned but unpaid base salary, reimbursement for reasonable and necessary expenses, accrued but unused vacation pay, the unpaid portion of any earned annual bonus for the fiscal year preceding termination, a pro-rated portion of the actual bonus, and vested accrued employee benefits; (ii) an amount equal to one times Mr. Vlak's annual base salary; and (iii) an amount equal to one times Mr. Vlak's target annual bonus for the year of termination. However, the change in control benefits will be reduced to the extent necessary to avoid the applicability of Section 280G of the Internal Revenue Code. All payments by the Company are subject to the execution of a release and waiver. The following table provides certain information regarding the benefits payable under the termination of employment and change in control agreement for
RISK ASSESSMENT OF COMPENSATION POLICIES AND PRACTICES Management and the Compensation Committee have reviewed the existing incentive compensation programs in which executives who are not 
ADDITIONAL INFORMATION Any shareholder who intends to present a proposal at the It is the Company's policy to have the members of the Board of Directors attend the Annual Meeting, to the extent feasible. All of the members of the Board of Directors attended the If any shareholder wishes to send communications to the Board of Directors or to any member of the Board of Directors, he or she may do so by sending such communications to the Board of Directors or to the individual director in care of The Eastern Company, 112 Bridge Street, P.O. Box 460, Naugatuck, Connecticut 06770. All such communications will be delivered to the Board of Directors or to the individual director in strict confidence. FORM 10-K ANNUAL REPORT A copy of the Company's Annual Report on Form 10-K as filed with the SEC for the fiscal year ended December VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy The Eastern Company materials, you can consent to receiving all future proxy statements, proxy cards 112 Bridge Street and annual reports electronically via e-mail or the Internet. To sign up for Naugatuck, CT 06770-0460 electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on site and follow the instructions to obtain your records and to create an electronic voting instruction form. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR ALL the following: For Withhold For All To withhold authority to vote for any All All Except individual nominee(s), mark "For Al Except" and write the number(s) of the [ ] [ ] [ ] nominee(s) on the line below. 1. Election of Directors Nominees 01 Fredrick D. DiSanto 02 John W. Everets 06 Peggy B. Scott 07 August M. Vlak The Board of Directors recommends you vote FOR proposals 2 and 3. For Against Abstain 2. Advisory vote to approve the compensation of the named executive officers. [ ] [ ] [ ] For Against Abstain 3. Ratify the appointment of the independent registered public accounting firm [ ] [ ] [ ] (Fiondella, Milone & LaSaracina LLP). NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Note: A vote to withhold authority to vote for any nominee(s) is treated as a vote against the nominee(s). For address change/comments, mark here. [ ] (see reverse for instructions) Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. ____________________________________ __________________________________ Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report and Form 10K are available at www.proxyvote.com. THE EASTERN COMPANY 112 Bridge Street, P.O. Box 460, Naugatuck, CT 06770-0460 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY The undersigning hereby appoints This proxy will be voted as directed by the shareholder but if no choice is specified, it will be voted FOR proposals 1, 2 and 3. Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||