Exhibit 4(a)
Includes Amendment No. 1
THE EASTERN COMPANY
1995 EXECUTIVE STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to promote the interests of The
Eastern Company and its shareholders by providing a method whereby executives
and other key employees of the Company may become owners of the Company's
common stock by the exercise of Incentive Stock Options or Non-qualified Stock
Options or the grant of shares of Restricted Stock, and thereby increase their
proprietary interest in the Company's business, encourage them to remain in
the employ of the Company and increase their personal interest in its
continued success and progress. In addition, another purpose of the Plan is
to promote the interests of the Company by providing a method whereby
non-employee directors of the Company may become owners of the Company's
common stock by the exercise of Non-qualified Stock Options, and thereby
encourage qualified individuals to become members of the Board of Directors of
the Company.
2. Definitions. As used herein, the following terms shall have the
following meanings:
(a) Award shall mean the grant of an Incentive Stock Option, a Non-
qualified Stock Option or Restricted Stock as authorized by Section 4.
(b) Award Agreement shall mean an agreement described in Section 7 of the
Plan which is entered into between the Company and an Employee or a Non-
employee Director and which sets forth the terms, conditions and limitations
applicable to an Award granted hereunder.
(c) Board shall mean the board of directors of The Eastern Company.
(d) Code shall mean the Internal Revenue Code of 1986, as amended.
(e) Committee shall mean the Incentive Compensation Committee of the
Board or any successor committee with substantially the same responsibilities.
(f) Company shall mean The Eastern Company and each "parent or subsidiary
corporation" of The Eastern Company (as those terms are defined in Section 424
of the Code).
(g) Disability shall mean the inability of an Employee or Non-employee
Director to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death and which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months, as defined in Section
22(e)(3) of the Code.
(h) Eastern Common Stock shall mean the common stock, no par value, of
The Eastern Company.
(i) Employee shall mean an employee of the Company.
(j) Fair Market Value shall mean the reported price at which Eastern
Common Stock was last traded on the day on which such value is to be
determined (or, if there are no reported trades on such day, the last previous
day on which there was a reported trade).
(k) Incentive Stock Option shall mean a Stock Option which complies with
all of the requirements for incentive stock options set forth in Section 422
of the Code and which may be issued pursuant to Section 6.1.
(l) Non-employee Director shall mean a director of The Eastern Company
who is not an Employee.
(m) Non-qualified Stock Option shall mean a Stock Option which does not
comply with all of the requirements for incentive stock options set forth in
Section 422 of the Code and which may be issued pursuant to Section 6.1 or
Section 6.3.
(n) Restricted Stock shall mean shares of Eastern Common Stock which have
certain restrictions attached to the ownership thereof and which may be issued
pursuant to Section 6.2.
(o) Stock Option shall mean a right granted pursuant to the Plan to
purchase a specified number of shares of Eastern Common Stock at a specified
price during a specified period of time. Stock Options may be either
Incentive Stock Options or Non-qualified Stock Options.
3. Administration.
(a) In order to administer the issuance of Awards to Employees pursuant to
the Plan, there shall be a Committee which is appointed by the Board and which
consists of not less than three non-employee directors of the Company, each of
whom shall be a "disinterested person" as defined in Rule 16b-3 promulgated by
the Securities and Exchange Commission, as it may be amended from time to
time. Subject to the express provisions of the Plan, the Committee shall
select the Employees to be granted Awards, shall determine the number of
shares subject to each Award, shall determine the time or times when each
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Award will be granted, shall determine the time or times within which any
Stock Options may be exercised or any restrictions on shares of Restricted
Stock may lapse, and shall determine the form and content of the Award
Agreements (including, but not limited to, such terms, conditions and
limitations as the Committee may deem to be required by applicable law).
The Committee shall have full power and authority, subject to such orders
or resolutions not inconsistent with the provisions of the Plan as may from
time to time be issued or adopted by the Board, to interpret the provisions of
the Plan and administer the issuance of Awards to Employees under the Plan.
All decisions of the Committee hereunder shall be either by the affirmative
vote of a majority of the members of the Committee at a meeting called for
such purpose or by a writing signed by all of the members of the Committee.
Subject to any applicable provisions of the Company's bylaws, all such
decisions shall be final and binding on all persons including the Company, its
shareholders, employees and optionees.
(b) In order to administer the issuance of Non-qualified Stock Options to
Non-employee Directors pursuant to the Plan, the Secretary of the Company
shall take all steps necessary or desirable to carry out the provisions of the
Plan. Subject to the express provisions of the Plan, the Secretary of the
Company shall issue Non-qualified Stock Options to Non-employee Directors at
the time or times set forth in, and in accordance with the terms of, the Plan,
and shall determine the form and content of the Award Agreements (including,
but not limited to, such terms, conditions and limitations as the Secretary
shall deem to be required by the Plan or applicable law). Notwithstanding
anything else herein to the contrary, the Secretary of the Company shall
exercise no discretion regarding the administration of the grant of
Non-qualified Stock Options to Non-employee Directors, the eligibility of
Non-employee Directors to participate in the Plan, the time when Non-qualified
Stock Options shall be granted to such Non-employee Directors, the number of
shares subject to such Non-qualified Stock Options, the option price, or the
term of such options.
4. Eligibility.
(a) The Employees who shall be eligible to participate in the Plan and
receive Incentive Stock Options, Non-qualified Stock Options and/or shares of
Restricted Stock shall consist of those salaried officers and other key
employees (whether or not directors) of the Company who are selected by the
Committee.
More than one Award may be granted to the same Employee. An Award intended
as an Incentive Stock Option shall not be granted under this Plan to an
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Employee who, at the time of such grant, owns (actually and constructively)
more than ten percent (10%) of the Eastern Common Stock unless the purchase
price of the shares subject to such Incentive Stock Option is at least one
hundred ten percent (110%) of the fair market value of the shares at the time
of the granting of the Incentive Stock Option and the Incentive Stock Option
is not exercisable after the expiration of five (5) years from the date it is
granted.
(b) Each Non-employee Director of the Company who is first elected to the
Board on or after the date on which this Plan is approved by the shareholders
of the Company shall automatically be granted, on the first business day of
the calendar month following his election, a Non-qualified Stock Option to
purchase 11,250 shares of Eastern Common Stock. Notwithstanding anything else
herein to the contrary, a Non-employee Director elected to consecutive terms
of office shall not be granted a Non-qualified Stock Option upon his
reelection. However, a Non-employee Director elected to non-consecutive terms
of office shall be granted a Non-qualified Stock Option upon his reelection
following the period during which he was not a member of the Board.
The Non-qualified Stock Options granted to a Non-employee Director of the
Company under the terms of this Plan shall be in lieu of any Non-qualified
Stock Options which the Non-employee Director may be eligible to receive under
the terms of The Eastern Company 1989 Executive Stock Incentive Plan (the
"1989 Plan"). On and after the date of adoption of this Plan, no Non-
qualified Stock Options will be granted to any Non-employee Directors under
the terms of the 1989 Plan.
5. Shares Subject to the Plan. The shares subject to the Awards granted
under this Plan shall be authorized but unissued shares, or treasury shares,
of Eastern Common Stock. The total amount of Eastern Common Stock which may
be issued under Awards granted under this Plan shall not exceed in the
aggregate 250,000 shares. If an Award lapses, expires, terminates, ceases to
be exercisable or is forfeited in whole or in part, or if any stock acquired
pursuant to any Award (other than one intended as an Incentive Stock Option)
is reacquired by the Company without the payment of consideration, the shares
subject to but not issued under such Award or so reacquired shall be available
for the grant of other Awards.
6. Awards. Awards may include those described in this Section 6.
6.1 Stock Options for Employees.
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(a) The purchase price of the shares subject to each Incentive Stock
Option granted to an Employee shall not be less than one hundred percent
(100%) of the Fair Market Value of Eastern Common Stock at the time of the
granting of the Stock Option. The purchase price of the shares subject to
each Non-qualified Stock Option granted to an Employee shall be established by
the Committee at the time of the granting of the Non-qualified Stock Option.
(b) The term of a Stock Option granted to an Employee shall expire on
such date as is determined by the Committee; provided, however, that no
Incentive Stock Option shall be exercisable in whole or in part after ten
years from the date it is granted.
Each Stock Option granted under this Plan may be exercised only during
the continuation of the optionee's employment with the Company, except as
provided in Section 6.1(c) hereof. The Committee may, in its discretion,
provide that a Stock Option granted to an Employee may not be exercised in
whole or in part for any period or periods of time specified by the Committee.
An Employee's exercise of a Non-qualified Stock Option shall not affect
the exercise of any Incentive Stock Option.
(c) Any Stock Option, the period of which has not theretofore expired,
shall terminate at the time of the death of the optionee, or at the time of
the termination for any reason of his employment with the Company, and no
shares may thereafter be issued pursuant to such Stock Option; provided,
however, that, subject to the condition that no Incentive Stock Option may be
exercised in whole or in part after ten years from the date it is granted:
(i) upon such a termination of employment (other than by death), the
optionee may, within three months after the date of such termination, exercise
such Stock Option in whole or in part; provided, however, that: (A) if such
termination is due to Disability, such three month period shall be extended to
one year; and (ii) if an optionee terminates employment due to retirement at
or after attaining age sixty-five (65), such three month period shall be
extended to one year; and
(ii) upon the death of any optionee either prior to such a
termination of employment, or within the three month or one year period
referred to in (i) above, such optionee's estate or the person or persons to
whom such optionee's rights under the Stock Option are transferred by will or
the laws of descent and distribution may, within one year after the date of
such optionee's death, exercise such Stock Option in whole or in part.
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(d) The purchase price of each share shall, at the time of exercise of
any Stock Option, be paid in full in cash, or with previously acquired shares
of Eastern Common Stock having an aggregate fair market value at such time
equal to the purchase price, or in cash and such shares. Notwithstanding the
above, in connection with the exercise of an Incentive Stock Option, payment
with shares of Eastern Common Stock which constitute "statutory option stock"
(as defined in Section 424(c)(3)(B) of the Code) and which were previously
acquired by the optionee by the exercise of options granted under the Plan or
any other stock option plan shall be permitted only if the date of such
payment is at least two years from the date of grant of the options under the
Plan or such other stock option plan and such shares were held by the optionee
for at least one year.
(e) Upon the exercise of a Stock Option, a certificate or certificates
representing the shares of Eastern Common Stock so purchased shall be
delivered to the person entitled thereto.
(f) An optionee shall have no rights as a shareholder with respect to
shares subject to his Stock Option until such shares are issued to him and are
fully paid, and no adjustment will be made for dividends or other rights for
which the record date is prior thereto.
(g) Each Stock Option granted under this Plan shall by its terms be
non-transferable by the optionee other than by will or the laws of descent and
distribution and, during the lifetime of the optionee, be exercisable only by
him.
6.2 Restricted Stock for Employees.
(a) Restricted Stock are shares of Eastern Common Stock that are
issued to an Employee and are subject to such terms, conditions and
restrictions as the Committee deems appropriate. Such terms, conditions and
restrictions may include, but are not limited to, restrictions upon the sale,
assignment, transfer or other disposition of the Restricted Stock. The
Committee may provide for the lapse of any such terms, conditions and
restrictions, or may waive any such terms, conditions or restrictions, based
on such factors or criteria as the Committee may determine.
(b) If an Employee receives a grant of Restricted Stock, and if the
Employee desires to accept such grant, then the Employee shall pay to the
Company, in cash, an amount determined by the Committee. In the event of the
grant of Restricted Stock representing issued shares of Eastern Common Stock
or shares of Eastern Common Stock having no par value, such amount may be
greater than or equal to zero. In the event of the grant of Restricted Stock
representing authorized but unissued shares of Eastern Common Stock having a
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par value, such amount shall not be less than the par value of the shares of
Restricted Stock so granted. Such amount may be paid at any time prior to the
sixtieth (60th) day following the lapse of the restrictions applicable to the
shares of Restricted Stock.
(c) After receipt of any payment required by the Committee in
connection with the grant of shares of Restricted Stock, or as of the date of
grant of shares of Restricted Stock if no such payment is required, then the
Company shall issue to the Employee a certificate or certificates representing
the shares of Restricted Stock so granted. The certificates shall be
imprinted with a legend stating that the shares of Eastern Common Stock
represented thereby may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with the terms of
this Plan, and each transfer agent of the Eastern Common Stock shall be
informed of such restrictions. In aid of such restrictions, the Employee
shall, immediately upon receipt of the certificate or certificates, deposit
such certificate or certificates (together with a stock power or instrument of
transfer appropriately endorsed in blank) with the Secretary of the Company to
be held in escrow. In the event the restrictions applicable to such shares of
Restricted Stock lapse, the certificate or certificates shall be delivered to
the Employee free and clear of all such restrictions. In the event the shares
of Restricted Stock are forfeited, the certificate or certificates shall be
delivered to the Company.
(d) Upon issuance of a certificate or certificates representing shares
of Restricted Stock in accordance with the provisions of Section 6.2(c), the
Employee shall thereupon be deemed to be a shareholder with respect to all of
the shares of Eastern Common Stock represented by such certificate or
certificates. The Employee shall thereafter have, with respect to such shares
of Restricted Stock, all of the rights of a shareholder of the Company
(including the right to vote the shares of Restricted Stock and the right to
receive any cash or stock dividends on such Restricted Stock).
(e) In the event that an Employee terminates his employment with the
Company, then any shares of Restricted Stock still subject to restrictions on
the date of such termination of employment shall automatically be forfeited.
(f) Each share of Restricted Stock granted under this Plan shall by
its terms be non-transferable by the Employee, other than by will or the laws
of descent and distribution, until the restrictions applicable to such shares
have lapsed. While shares of Restricted Stock remain subject to restrictions,
all rights with respect to such shares shall be exercisable during an
Employee's lifetime only by him.
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6.3 Non-qualified Stock Options for Non-employee Directors
(a) The purchase price of the shares subject to each Non-qualified
Stock Option granted to a Non-employee Director shall be one hundred percent
(100%) of the Fair Market Value of Eastern Common Stock at the time of the
granting of the Stock Option.
(b) The term of a Non-qualified Stock Option granted to a Non-employee
Director shall expire ten years and one month from the date it is granted.
Each Non-qualified Stock Option granted to a Non-employee Director under
this Plan may be exercised only during the continuation of the optionee's
service as a Non-employee Director, except as provided in Section 6.3(c)
hereof. A Non-qualified Stock Option granted to a Non-employee Director may
be exercised in whole at any time, or in part from time to time, during its
term.
(c) Any Non-qualified Stock Option granted to a Non-employee Director,
the period of which has not theretofore expired, shall terminate at the time
of the death of the optionee, or at the time of the termination of his service
as a member of the Board, and no shares may thereafter be issued pursuant to
such Stock Option; provided, however, that, subject to the condition that no
Non-qualified Stock Option granted to a Non-employee Director may be exercised
in whole or in part after ten years and one month from the date it is granted:
(i) upon such a termination of service as a director (other than by
death), the optionee may, within three months after the date of such
termination, exercise such Stock Option in whole or in part; provided,
however, that: (A) if such termination is due to Disability, such three month
period shall be extended to one year; and (ii) if an optionee terminates
service as a director at or after attaining age sixty-five (65), such three
month period shall be extended to one year with respect to any Non-qualified
Stock Options granted to the optionee as the result of his service as a Non-
employee Director; and
(ii) upon the death of any optionee either prior to such a
termination of service as a director, or within the three month or one year
period referred to in (i) above, such optionee's estate or the person or
persons to whom such optionee's rights under the Non-qualified Stock Option
are transferred by will or the laws of descent and distribution may, within
one year after the date of such optionee's death, exercise such Non-qualified
Stock Option in whole or in part.
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(d) The purchase price of each share shall, at the time of exercise of
any Non-qualified Stock Option, be paid in full in cash, or with previously
acquired shares of Eastern Common Stock having an aggregate fair market value
at such time equal to the purchase price, or in cash and such shares.
(e) Upon the exercise of a Non-qualified Stock Option, a certificate
or certificates representing the shares of Eastern Common Stock so purchased
shall be delivered to the person entitled thereto.
(f) An optionee shall have no rights as a shareholder with respect to
shares subject to his Non-qualified Stock Option until such shares are issued
to him and are fully paid, and no adjustment will be made for dividends or
other rights for which the record date is prior thereto.
(g) Each Non-qualified Stock Option granted to a Non-employee Director
under this Plan shall by its terms be non-transferable by the optionee other
than by will or the laws of descent and distribution and, during the lifetime
of the optionee, be exercisable only by him.
7. Award Agreements. Each Award granted under this Plan shall be
evidenced by an Award Agreement setting forth the number of shares of Eastern
Common Stock subject to the Award, and such other terms and conditions
applicable to the Award as are required by or are consistent with the terms of
the Plan. By acceptance of an Award, each Employee or Non-employee Director
(as the case may be) thereby agrees to such terms and conditions and to the
terms of this Plan pertaining thereto.
8. Term of Plan. This Plan shall terminate ten years after the date of
its approval by the shareholders of the Company or its adoption by the Board,
whichever date is earlier, or upon any earlier termination date established by
action of the Board, and no Awards shall be granted thereafter. Such
termination shall not affect the validity of any Awards then outstanding.
9. Exercise of Awards.
(a) The exercise of any Award shall be by written notice to the Committee
which shall contain the following statement:
"By virtue of my position with The Eastern Company, I have access to the
kind of financial and other information about The Eastern Company as would be
contained in a registration statement filed under the Securities Act of 1933."
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(b) In the absence of an effective registration statement under the
Securities Act of 1933, as amended, (the "Act") at the time of the grant of an
Award, each Employee or Non-employee Director (as the case may be), by
accepting the Award, represents and agrees for himself, his estate and his
transferees by will or under the laws of descent and distribution that all
shares of stock acquired pursuant thereto shall be acquired for investment and
not with a view to further distribution or for purposes of resale. Exercise
of any Award shall be by written notice which, in the absence of an effective
registration statement under the Act, shall contain a statement in
substantially the following form:
"I am acquiring these shares for my own account for investment and not with
a view toward distribution in a manner which would require registration under
the Securities Act of 1933, and I do not presently have any reason to
anticipate any change in my circumstances or other particular occasion or fact
which would cause me to sell the shares being acquired. I agree that the
certificates representing these shares, in the absence of such an effective
registration statement, may be marked with a legend reading as follows:
'The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred, pledged or hypothecated in the
absence of an effective registration statement for the shares under the
Securities Act of 1933 or an opinion of counsel to the Company that
registration is not required under said Act.'"
To the extent required by the securities laws, all shares acquired pursuant
to any Award shall be marked with the foregoing legend.
10. Adjustment of Shares Subject to Award and Exercise Price.
(a) Subject to any required action by the Company's shareholders, the
number of shares of Eastern Common Stock subject to each outstanding Award,
and the exercise price per share thereof in each such Award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Eastern Common Stock resulting from a subdivision or consolidation
of shares or the payment of a stock dividend (but only on such common stock)
or any other increase or decrease in the number of such shares effected
without receipt of full consideration by the Company.
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(b) Subject to any required action by the Company's shareholders, the
aggregate number of shares of Eastern Common Stock subject to this Plan shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Eastern Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on such
common stock) or any other increase or decrease in the number of such shares
effected without receipt of full consideration by the Company.
(c) Subject to any required action by the Company's shareholders, if the
Company shall be the surviving corporation in any reorganization or
consolidation, each outstanding Award shall pertain to and apply to the
securities to which a holder of the number of shares of Eastern Common Stock
subject to the Award would have been entitled as a result of such
reorganization or consolidation.
(d) In the event of a change in Eastern Common Stock, as presently
constituted, which is limited to a change of all of its authorized shares into
the same number of shares with par value or with a different par value or
without par value, the shares resulting from any such change shall be deemed
to be the common stock subject to the Plan.
(e) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board whose
determination in that respect, including any determination of the value of
consideration received for shares, shall be final, binding and conclusive;
provided, however, that no Incentive Stock Option granted pursuant to this
Plan shall be adjusted in a manner that causes the Stock Option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
11. Amendments and Discontinuance. The Board may amend, suspend or
discontinue the Plan, but may not, without the prior approval of the Company's
shareholders, make any amendment which operates: (a) to abolish the
Committee, change the qualification of its members or withdraw its authority
to interpret or administer the Plan as regards the issuance of Awards to
Employees; (b) to make any material change in the class of eligible Employees
or Non-employee Directors under the Plan; (c) to increase the total number of
shares for which Awards may be granted under the Plan except as permitted by
the provisions of Section 10 hereof; (d) to extend the term of the Plan; (e)
to extend the maximum Incentive Stock Option period or to change the
Non-qualified Stock Option period for Non-employee Directors; or (f) to
decrease the minimum Incentive Stock Option price or to change the
Non-qualified Stock Option price for Non-employee Directors.
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Notwithstanding the above, however, in no event may the Board amend any of
the following provisions of the Plan more than once every six months (other
than to comply with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules thereunder): (a) the
provisions of Section 4(b) of the Plan designating those Non-employee
Directors who will be granted Non-qualified Stock Options under the Plan, the
date on which the options will be granted, and the number of shares subject to
the options; and (b) the provisions of Section 6.3 setting the purchase price
of the shares subject to the Non-qualified Stock Options.
12. Continuance of Employment. Neither the Plan nor the granting of any
Award hereunder shall impose any obligation to continue the employment of any
Employee by the Company or retain any Non-employee Director as a member of the
Board.
13. Tax Withholding. The Company shall have the power to withhold, or
require an optionee to remit to the Company, an amount sufficient to satisfy
Federal, state and local withholding tax requirements on any Award granted
under the Plan. To the extent permissible under applicable tax, securities
and other laws, the Company may, in its sole discretion, permit the Employee
or the Non-employee Director (as the case may be) to satisfy a tax withholding
requirement by directing the Company to apply shares of Eastern Common Stock
to which he is entitled as a result of the exercise of a Stock Option or the
lapse of restrictions on shares of Restricted Stock.
14. Required Notifications by Optionee. If any optionee shall dispose of
shares of Eastern Common Stock issued pursuant to the exercise of an Incentive
Stock Option under the circumstances described in Section 421(b) of the Code
(whereby the optionee makes a disqualifying disposition of the shares before
expiration of the applicable holding periods), then such optionee shall notify
the Company of such disqualifying disposition within ten days of the
disposition.
15. Limits of Liability.
(a) Any liability of the Company to any Employee or Non-employee Director
with respect to an Award shall be based solely upon the contractual
obligations created by the Plan and the Award Agreement.
(b) Neither the Company, nor any member of the Board or the Committee,
nor any other person participating in the determination of any question under
the Plan or the interpretation, administration or application of the Plan,
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shall have any liability to any party for any action taken or not taken, in
good faith, under the Plan.
16. Governing Law. The Plan, and all Award Agreements hereunder, shall
be construed in accordance with the laws of the State of Connecticut.
17. Effective Date. The Plan shall become effective only if and when
approved by the Company's shareholders at their annual meeting to be held on
April 26, 1995.
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