EASTERN CO 10-K

ITEM 9A CONTROLS AND PROCEDURES Management’s Responsibility for Financial Statements Management is responsible for the integrity and objectivity of all information presented in this Form 10-K. The consolidated financial statements were prepared in conformity with U.S. GAAP and include amounts based on management’s best estimates and judgments. Management believes the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly represent the Company’s financial position and results of operations. The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with the independent registered public accountants, Fiondella, Milone & LaSaracina LLP, the internal auditors and representatives of management to review accounting, financial reporting, internal control, and audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent registered public accountants. The independent registered public accountants and internal auditors have access to the Audit Committee. Evaluation of Disclosure Controls and Procedures As of the end of the fiscal year ended December 30, 2023, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 240.13a-15. As defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e), “the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.” Based upon that evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures were effective as of the December 30, 2023 evaluation date. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 240.13a-15(f) and 240.15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our control over financial reporting was effective as of December 30, 2023. The Company’s registered public accounting firm, Fiondella, Milone & LaSaracina LLP, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report is set forth below in this Item 9A. Changes in Internal Control over Financial Reporting During the fourth quarter of 2023, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 66 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of The Eastern Company Shelton, Connecticut Opinion on Internal Control over Financial Reporting We have audited The Eastern Company’s (the Company) internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows of the Company, and our report dated March 12, 2024, expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting under Item 9A on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/Fiondella, Milone & LaSaracina LLP Fiondella, Milone & LaSaracina LLP Glastonbury, Connecticut March 12, 2024 67 Table of Contents ITEM 9B OTHER INFORMATION None. ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 68 Table of Contents PART III ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information concerning directors is incorporated herein by reference to the information under the captions “Item No. 1 – Election of Directors” in the Company’s definitive proxy statement (the “Proxy Statement”) for the 2024 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A not later than 120 days after December 30, 2023. The information concerning the Company’s executive officers is incorporated herein by reference to the information under the caption “Executive Officer Biographies” in the Proxy Statement. The information concerning the Company’s Audit Committee is incorporated herein by reference to the information under the captions “Audit Committee Financial Expert” and “The Board of Directors and Committees” in the Proxy Statement. The Audit Committee Charter is also available on the Company’s website at http://www.easterncompany.com by clicking on Governance in the “About Us” menu. The information concerning compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information under the caption “Delinquent Section 16(a) Reports” if any, in the Proxy Statement. The Company’s Board of Directors has adopted a Code of Business Conduct and Ethics that applies to the Company’s Chief Executive Officer, Chief Financial Officer, and the Company’s other financial professionals. The Code of Business Conduct and Ethics is available on the Company’s website at https://www.easterncompany.com/ by clicking on Governance in the “About Us” menu. We intend to disclose any amendment or waiver to the Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions, on our website within four business days after such amendment or waiver. ITEM 11 EXECUTIVE COMPENSATION Information concerning director and executive compensation is incorporated herein by reference to the information under the captions “Director Compensation in Fiscal 2023,” “Executive Compensation,” “Stock Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” and “Termination of Employment and Change in Control Arrangements” in the Proxy Statement. The Compensation Committee of the Board of Directors operates under the Compensation Committee Charter, which can be found on the Company’s website at https://www.easterncompany.com/ by clicking on Governance in the “About Us” menu. 69 Table of Contents ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Securities authorized for issuance under equity compensation plans The following table sets forth information regarding securities authorized for issuance under the Company’s equity compensation plans as of December 30, 2023, consisting of the Company’s 2020 Executive Stock Incentive Plan (the “2020 Plan”). Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding awards, warrants and rights Weighted-average exercise price of outstanding awards, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (a) (b) (c) Equity compensation plans approved by security holders 55,100 $ 17.97 880,973 Equity compensation plans not approved by security holders - - - Total 55,100 $ 17.97 880,973 Security ownership of certain beneficial owners and management: (a) Information concerning security ownership of certain beneficial owners is incorporated herein by reference to the information under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement. (b) Information concerning security ownership of management is incorporated herein by reference to the information under the captions “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement. (c) Changes in Control None. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding transactions with related persons is incorporated herein by reference to information under the caption “Policies and Procedures Concerning Related Persons Transactions” in the Proxy Statement. Information regarding director independence is incorporated herein by reference to the information under the captions “Item No.1 – Election of Directors” and “The Board of Directors and Committees” in the Proxy Statement. ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning principal accountant fees and services is incorporated herein by reference to the information under the caption “Item No. 3 – Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement. 70 Table of Contents PART IV ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULE (a) Documents filed as part of this Form 10-K: (1) Financial statements Consolidated Balance Sheets — December 30, 2023 and December 31, 2022 32. Consolidated Statements of Income — Fiscal years ended December 30, 2023 and December 31, 2022 34. Consolidated Statements of Comprehensive Income — Fiscal years ended December 30, 2023 and December 31, 2022 35. Consolidated Statements of Shareholders’ Equity — Fiscal years ended December 30, 2023 and December 31, 2022 36. Consolidated Statements of Cash Flows — Fiscal years ended December 30, 2023 and December 31, 2022 37. Notes to Consolidated Financial Statements 38. Report of Independent Registered Public Accounting Firm (PCAOB ID 2230 ) 65. (2) Financial Statement Schedules Schedule II — Valuation and qualifying accounts begins on page [73] of this Form 10-K. Schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable. 71 Table of Contents Exhibit Index Exhibit No. Description 3.1 Restated Certificate of Incorporation of the Company (conformed copy) (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2020 (SEC File No. 001-35383) filed on May 6, 2020). 3.2 Amended and Restated By-Laws of the Company, as Amended through March 11, 2022 (incorporated herein by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K (SEC File No. 001-35383) filed on March 11, 2022). 4 Description of Securities (incorporated by reference to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2020 (SEC File No. 001-35383) filed on May 6, 2020). 10.1* Amended and Restated Employment Agreement, dated as of November 14, 2023, between the Company and Mark Anthony Hernandez (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-35383), filed November 15, 2023). 10.2* Amended and Restated Employment Agreement, dated as of January 1, 2018, between the Company and August M. Vlak (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-35383), filed January 22, 2018. 10.3* Offer Letter, dated February 1, 2023, between the Company and Nicholas Vlahos (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (SEC File No. 001-35383), filed February 6, 2023). 10.4* Severance Agreement, dated as of February 1, 2023, between the Company and Nicholas Vlahos (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 001-35383), filed February 6, 2023). 10.5* The Company’s Directors’ Fee Program, effective as of October 1, 1996 (incorporated herein by reference to Exhibit 4(a) to the Company’s Registration Statement on Form S-8, as amended (SEC File No. 333-21351) filed on February 7, 1997). 10.6* The Company’s 2020 Executive Stock Incentive Plan, effective February 19, 2020 (incorporated herein by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (SEC File No. 333-238565), filed on May 21, 2020). 10.7 Credit Agreement dated as of June 16, 2023 among the Company as Borrower, the Lenders signatory thereto and TD Bank, N.A., as the administrative agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-35383), filed on June 20, 2023). 10.8 Pledge and Security Agreement, dated as of June 16, 2023 among the Company, certain of its subsidiaries (as grantors), and TD Bank, N.A., as administrative agent for the benefit of the Secured Creditors (as defined therein) (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 001-35383), filed on June 20, 2023). 10.9* Form of The Eastern Company Stock Award Agreement (filed herewith) 21 Subsidiaries of the Company (filed herewith). 23 Consent of Fiondella, Milone & LaSaracina LLP (filed herewith). 31 Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 97 The Eastern Company Clawback Policy in the Event of a Financial Restatement (filed herewith). 101 The following materials from the Company’s Annual Report on Form 10-K for the year ended December 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022; (ii) the Consolidated Statements of Income for the fiscal years ended December 30, 2023 and December 31, 2022; (iii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December 30, 2023 and December 31, 2022; (iv) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 30, 2023 and December 31, 2022; (v) the Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2023 and December 31, 2022; and (vi) the Notes to the Consolidated Financial Statements (filed herewith). 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). * Management contract, compensatory plan or arrangement. 72 Table of Contents The Eastern Company and Subsidiaries Schedule II – Valuation and Qualifying accounts COL. A COL. B COL. C COL. D COL. E ADDITIONS Description Balance at Beginning of Period (1) Charged to Costs and Expenses (2) Charged to Other Accounts-Describe Deductions – Describe Balance at End of Period Fiscal year ended December 30, 2023: Deducted from asset accounts: Allowance for doubtful accounts $ 676,678 $ 51,270 $ 0 $ -163,132 (a) $ 564,816 Fiscal year ended December 31, 2022: Deducted from asset accounts: Allowance for doubtful accounts $ 515,000 $ 629,000 $ 0 $ -467,000 (a) $ 677,000 (a) Uncollectible accounts written off, net of recoveries. ITEM 16 FORM 10-K SUMMARY None. 73 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 12, 2024 THE EASTERN COMPANY By /s/ Nicholas Vlahos Nicholas Vlahos Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Mark A. Hernandez March 12, 2024 Mark A. Hernandez President, Chief Executive Officer, and Director (Principal Executive Officer) /s/ Nicholas Vlahos March 12, 2024 Nicholas Vlahos Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ James A. Mitarotonda March 12, 2024 James A. Mitarotonda Chairman of the Board /s/ Fredrick D. DiSanto March 12, 2024 Fredrick D. DiSanto Director /s/ John W. Everets March 12, 2024 John W. Everets Director /s/ Charles W. Henry March 12, 2024 Charles W. Henry Director /s/ Peggy B. Scott March 12, 2024 Peggy B. Scott Director /s/ Michael J. Mardy March 12, 2024 Michael J. Mardy Director 74