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Exhibit 99
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 2005 by and between
THE
EASTERN COMPANY, a corporation organized under the laws of the
State of
Connecticut (the "Company"), and LEONARD F. LEGANZA, of 62
Tunxis Village Road,
Farmington, Connecticut (the "Executive").
W I T N E S S E T H:
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WHEREAS, the Company wishes to continue to employ the Executive
in the
capacities and on the terms and conditions set forth below, and
the Executive
has agreed to accept such employment on the terms set forth
below.
NOW, THEREFORE, in consideration of the foregoing premises, the
mutual
covenants hereinafter set forth and other good and valuable
consideration, the
Company and the Executive agree as follows:
Section 1. Definitions.
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When used herein, each of the words and phrases defined
hereinafter
shall have the following meaning unless a different meaning is
clearly required
by the context of the Agreement:
(a) Average Adjusted Compensation shall mean the average of
the
Executive's annual compensation over the five calendar years
ending prior to the
date of a Change in Control. Average Adjusted Compensation shall
be determined
by taking into account all of the compensation payable to the
Executive by the
Company (including any pre-tax contributions made to a cafeteria
plan or a
Section 401(k) plan), but shall exclude any compensation
resulting from the
exercise of stock options granted to the Executive by the
Company.
(b) Average Total Compensation shall mean the average of the
Executive's annual compensation over the five calendar years
ending prior to the
date of a Statutory Change in Control (or such shorter period of
time during
which the Executive is employed by the Company). Average Total
Compensation
shall be determined by taking into account all of the
compensation payable to
the Executive by the Company (including any pre-tax
contributions made to a
cafeteria plan or a Section 401(k) plan), and shall be
determined pursuant to
Section 280G of the Code. If the five calendar year period
includes a calendar
year in which the Executive was not employed for the entire
year, the
Executive's compensation for such calendar year shall be
annualized.
(c) Base Compensation shall mean the base compensation of the
Executive
set forth in Section 5(a), as it may be adjusted by the Board of
Directors.
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(d) Beneficiary shall mean the Executive's surviving spouse.
(e) Board of Directors shall mean the board of directors of
the
Company.
(f) Cause shall mean any one or more of the following, as
determined in
good faith by the Board of Directors:
(i) the conviction of the Executive of (or the entry by the
Executive of a plea of guilty or nolo contendere to) a felony
involving
moral turpitude;
(ii) the Executive's engaging in conduct that constitutes
willful gross neglect or willful gross misconduct in carrying
out his
duties and that results in economic harm to the Company;
provided,
however, that no act or failure to act will be considered to
be
"willful" unless it is done, or omitted to be done, by the
Executive in
bad faith or without reasonable belief that his action or
omission was
in the best interests of the Company; or
(iii) the Executive's material breach of the noncompetition,
nonsolicitation or nondisclosure covenants set forth in Section
8, the
Company's code of ethics, the Company's policies with regard to
trading
in its common stock, or any other applicable rules or
regulations.
Notwithstanding the above, no act or omission shall constitute
"Cause"
until the Board of Directors has provided the Executive with a
detailed written
notice of its conclusion that such an act or omission has
occurred, and then
only if the Executive has failed to correct such act or omission
within a
reasonable period of time.
For purposes of this Agreement, the Executive's termination
of
employment shall be deemed to be for Cause if the Board of
Directors of the
Company determines, at the time of the Executive's termination
of employment or
at any time subsequent to the Executive's termination of
employment, that Cause
for termination exists or existed at the time of his termination
of employment.
In particular, the Executive shall be deemed to have been
terminated for Cause
if a material breach of the noncompetition, nonsolicitation or
nondisclosure
covenants set forth in Section 8 occurs subsequent to the
Executive's
termination of employment.
(g) Change of Control shall mean:
(i) The acquisition by any individual, entity or group
(within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person")
of
beneficial ownership (within the meaning of Rule 13d-3
promulgated
under the Exchange Act) of more than 50% of either (A) the
then
outstanding shares of common stock of the Company (the
"Outstanding
Company Common Stock") or (B) the combined voting power of the
then
outstanding voting securities of the Company entitled to vote
generally
in the election of directors (the "Outstanding Company
Voting
Securities"); provided, however, that for purposes of this
subsection
(i), the following acquisitions shall not constitute a Change
of
Control:
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(A)any acquisition directly from the Company, (B) any
acquisition by
the Company, (C) any acquisition by any employee benefit plan
(or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition by
any
corporation pursuant to a transaction which complies with
clauses (A),
(B) and (C)of subsection (iii) of this Section 1(g); or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board") cease
for any
reason to constitute at least a majority of the Board of
Directors of
the Company; provided, however, that any individual becoming a
director
subsequent to the date hereof whose election, or nomination
for
election by the Company's shareholders, was approved by a vote
of at
least a majority of the directors then comprising the Incumbent
Board
shall be considered as though such individual were a member of
the
Incumbent Board, but excluding, for this purpose, any such
individual
whose initial assumption of office occurs as a result of an
actual or
threatened election contest with respect to the election or
removal of
directors or other actual or threatened solicitation of proxies
or
consents by or on behalf of a Person other than the Board of
Directors
of the Company; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all
of the assets of the Company (a "Business Combination"), in each
case,
unless, following such Business Combination, (A) all or
substantially
all of the individuals and entities who were the beneficial
owners,
respectively, of the Outstanding Company Common Stock and
Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than
75% of,
respectively, the then outstanding shares of common stock and
the
combined voting power of the then outstanding voting
securities
entitled to vote generally in the election of directors, as the
case
may be, of the corporation resulting from such Business
Combination
(including, without limitation, a corporation which as a result
of such
transaction owns the Company or all or substantially all of
the
Company's assets either directly or through one or more
subsidiaries)
in substantially the same proportions as their ownership,
immediately
prior to such Business Combination of the Outstanding Company
Common
Stock and Outstanding Company Voting Securities, as the case may
be;
(B) no Person (excluding any corporation resulting from such
Business
Combination or any employee benefit plan (or related trust) of
the
Company or such corporation resulting from such Business
Combination)
beneficially owns, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock of
the
corporation resulting from such Business Combination or the
combined
voting power of the then outstanding voting securities of
such
corporation except to the extent that such ownership existed
prior to
the Business Combination; and (C) at least a majority of the
members of
the board of directors of the corporation resulting from such
Business
Combination were members of the Incumbent Board at the time of
the
execution of the initial agreement, or of the action of the
Board of
Directors of the Company, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company of a
complete
liquidation or dissolution of the Company.
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(h) Code shall mean the Internal Revenue Code of 1986, as
amended.
(i) Deferred Benefit shall mean a monthly benefit of eight
thousand
three hundred thirty-three and 33/100 dollars ($8,333.33),
payable for a period
of sixty (60) consecutive months.
(j) ERISA shall mean the Employee Retirement Income Security Act
of
1974, as amended.
(k) Parachute Payment Limit shall mean 2.99 times the
Executive's
Average Total Compensation, as determined pursuant to Section
280G of the Code.
(l) Statutory Change in Control shall mean a change in ownership
or
effective control of the Company, or a change in the ownership
of a substantial
portion of the assets of the Company, as determined pursuant to
Section 280G of
the Code.
(m) Tax Advisor shall mean the independent accounting firm
engaged by
the Company.
(n) Total Parachute Payments shall mean any and all payments
or
benefits which are in the nature of compensation and which are
received (or to
be received) by the Executive in connection with a Statutory
Change in Control,
as determined pursuant to Section 280G of the Code.
Section 2. Position
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The Company hereby employs the Executive, and the Executive
hereby
accepts employment, as President and Chief Executive Officer of
the Company for
the period from January 1, 2005 through December 31, 2006. The
Board of
Directors of the Company hereby appoints the Executive to serve,
and the
Executive hereby agrees to serve, as the Chairman of the Board
of Directors of
the Company for the period from January 1, 2007 through December
31, 2007.
The Executive agrees to serve in the positions described above
and to
devote his full working time, attention and energies to the
performance of the
duties described in Section 3: (i) except for vacations in
accordance with
Section 5(e) hereof and absences due to temporary illness; and
(ii) except that
the foregoing shall not preclude the Executive from serving on
the boards of a
reasonable number of trade associations, for-profit corporations
and charitable
organizations and engaging in charitable activities and
community affairs,
provided such activities collectively do not interfere with the
proper
performance of the Executive's duties and responsibilities
hereunder.
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Section 3. Authority, Responsibilities and Duties.
---------------------------------------
The Executive shall have such authority, responsibilities and
duties as
generally pertain to the office of President and Chief Executive
Officer, and
shall have such other authority, responsibilities and duties as
may reasonably
be assigned from time to time by the Board of Directors of the
Company or its
designee; provided, however, that when the Executive commences
to serve as the
Chairman of the Board of Directors of the Company, the Executive
shall have such
authority, responsibilities and duties as generally pertain to
the office of
Chairman, and shall have such other authority, responsibilities
and duties as
may reasonably be assigned from time to time by the Board of
Directors of the
Company or its designee.
Section 4. Term.
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The term of this Agreement shall begin as of January 1, 2005 and
shall
continue until December 31, 2007.
The Company may, in its discretion, elect to renew this
Agreement for
one or more additional one-year periods by giving written notice
to the
Executive at least thirty (30) days prior to the end of the
initial term or any
renewal period.
Section 5. Compensation and Benefits.
--------------------------
In consideration of the services performed for or on behalf of
the
Company, the Company shall compensate the Executive as
follows:
(a) Base Compensation. The Company shall pay the Executive,
in
accordance with the Company's customary payroll practices for
its senior
executive officers, Base Compensation at an annual rate
determined by the Board
of Directors.
(b) Annual Bonus. For each fiscal year of the Company which ends
within
the term of the Agreement, the Executive shall be entitled to
participate in the
Company's annual incentive program for its senior executive
officers, or such
other bonus plan or program as the Board of Directors shall
establish for the
Executive in its sole discretion.
(c) Equity Incentive Plans. The Executive may be granted stock
options
or other equity incentive awards in accordance with the terms of
the Company's
equity incentive plans, as the Board of Directors shall
determine from time to
time in its sole discretion.
(d) Other Benefits. The Executive will be eligible for and will
be
entitled to participate in other benefits maintained by the
Company for its
senior executive officers (including, but not limited to,
medical, dental,
disability, life insurance and retirement benefits) on a basis
not less
favorable than that applicable to other senior executive
officers of the
Company, subject to the requirements of applicable law. The
Company shall have
the right to amend or terminate any or all of such benefits at
any time;
provided, however, that any such amendment or termination shall
apply on the
same basis to the Executive and to all other senior executive
officers of the
Company. The Executive will also be entitled to appropriate
office
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<PAGE>
space, administrative support (including but not limited to
secretarial
assistance), and such other facilities and services as are
suitable to the
Executive's position and adequate for the performance of the
Executive's duties.
(e) Vacation. The Executive will be entitled to five (5) weeks
of
vacation per calendar year, to be taken at such times and
intervals as shall be
determined by the Executive, subject to the reasonable business
needs of the
Company and to Company policies applicable to senior executive
officers as in
effect from time to time. The Executive shall not be entitled to
receive cash in
lieu of any unused vacation time. In addition, the Executive
shall not be
entitled to carryover any unused vacation time to a subsequent
calendar year.
(f) Business Expenses. The Executive will be entitled to
reimbursement
of all reasonable business expenses, in accordance with the
Company's policy as
in effect from time to time and on a basis not less favorable
than that
applicable to other senior executive officers of the Company
(including, without
limitation, telephone, travel and entertainment expenses
incurred by the
Executive in connection with the business of the Company). All
such
reimbursements shall be subject to such reasonable
substantiation and
documentation as may be specified by the Company.
Section 6. Post-Termination Benefits
-------------------------
Following the termination of the Executive's employment as
President
and Chief Executive Officer of the Company for any reason, the
Executive shall
be entitled to receive the following benefits:
(a) Deferred Compensation. Following the termination of the
Executive's
employment as President and Chief Executive Officer of the
Company for any
reason (other than the Company's termination of the Executive's
employment for
Cause), the Executive shall be entitled to receive the deferred
compensation
described in this Section 6(a).
(i) The amount of the deferred compensation payable to the
Executive shall equal: (A) the Deferred Benefit; multiplied by
(B) a
fraction (not greater than one), the numerator of which is the
number
of full or partial months from January 1, 2005 until the date on
which
the Executive has terminated both his employment as the
President and
Chief Executive Officer of the Company and his service as a
member of
the Board of Directors of the Company, and the denominator of
which is
thirty-six (36).
If the Executive terminates his employment as the President
and Chief Executive Officer of the Company but remains a member
of the
Board of Directors of the Company, the Company shall commence
payment
of the deferred compensation described in this Section 6(a)(i)
as of
the later of January 1, 2008 or the first day of the month
following
the date on which the Executive has terminated his employment as
the
President and Chief Executive Officer of the Company. If the
Executive
terminates both his employment as the President and Chief
Executive
Officer of the Company and his service as a member of the Board
of
Directors of the Company, the
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