EASTERN CO, DEF 14A, 1996-03-21

EASTERN CO
DEF 14A, 1996-03-21
CUTLERY, HANDTOOLS & GENERAL HARDWARE

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THE EASTERN COMPANY
112 Bridge Street
Naugatuck, CT 06770

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

April 24, 1996

The Annual Meeting of the stockholders of The Eastern Company (the "Company")
will be held at the office of the Company, 112 Bridge Street, Naugatuck,
Connecticut 06770, on Wednesday, the twenty-fourth day of April, 1996 at
eleven o'clock in the a.m., local time, for the following purposes:

1. To elect four (4) directors.
2. To approve the appointment by the Board of Directors of Ernst & Young LLP
as independent auditors to audit the books and consolidated financial
statements for the current fiscal year.
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.

The Board of Directors has fixed February 28, 1996, as the record date for the
determination of the common stockholders entitled to notice of, and to vote
at, this Annual Meeting or any adjournment thereof. In order that you may be
represented at the meeting, please date, vote, sign, and mail promptly the
enclosed proxy for which a postpaid return envelope is provided. If you attend
the meeting and desire to vote in person, your proxy will not be used.

All stockholders are cordially invited to attend the meeting, and the
management looks forward to seeing you there.

By order of the Board of Directors,

Donald E. Whitmore, Jr.
Secretary

March 22, 1996

PROXY STATEMENT

This proxy statement is furnished in connection with the solicitation of
proxies by the Company to be voted at the Annual Meeting of stockholders to be
held on April 24, 1996. Shares represented by proxies properly signed and
returned will be voted at the meeting. If a choice is specified in the proxy,
the shares represented by the proxy will be voted in accordance with the
specifications made. If no choice is specified, the shares represented by the
proxy will be voted "FOR" the election of four directors and "FOR" the
approval of the appointment of the auditors. Any proxy may be revoked at any
time before it is voted. 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.

The cost of solicitation of proxies will be borne by the Company. This
solicitation by mail to the Company's stockholders (including this proxy
statement and the enclosed proxy) began on approximately March 22, 1996. In
addition to this solicitation by mail, officers and regular employees of the
Company and its subsidiaries may make solicitation by mail, telephone or
personal interviews, and arrangement may be made with companies, brokerage
firms, and others to forward proxy material to their principals. The Company
will defray the expenses of such additional solicitations.

Holders of common stock of record at the close of business on February 28,
1996, are entitled to vote at the meeting. On that date there were 2,696,284
shares of common stock outstanding, each share being entitled to one vote.

The following table sets forth, as of February 24, 1996, certain information
with respect to the amount of the Company's outstanding securities
beneficially held by the directors and officers of the Company as a group.

<TABLE>

Amount/Nature Percent
of Beneficial of
Title of Class Ownership Class
- -------------- ------------ -----

Common, No par value 377,303(1) 13.3%

</TABLE>

(1) Reported shareholdings include 1,791 shares (less than .1% of the
outstanding stock) owned by or in trust for a director's or an officer's
spouse, and in which all beneficial interest has been disclaimed by the
director or the officer. Directors and officers have sole voting and
investment powers as to 375,512 shares (13.3% of the outstanding stock). Also
included are stock options for 139,793 shares deemed exercised solely for
purposes of showing beneficial ownership by such group.

-1-

The following table sets forth, as of February 24, 1996, certain information
with respect to any person who is known to the Company to be the beneficial
owner of more than five percent (5%) of the Company's outstanding securities.

<TABLE>

<S> <C> <C> <C>
Amount/Nature Percent
Name/Address of of Beneficial of
Title of Class Beneficial Owner Ownership Class
- -------------- ----------------- ----------- -----
Common, No Bank of Boston Connecticut 287,250 (1) 10.1 %
par value or one of its nominees
81 West Main Street
Waterbury, CT 06702

Common, No Dimensional Fund
par value Advisors, Inc. 213,400 (2) 7.5 %
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401

Common, No The First National Bank of 150,989 5.3 %
par value Boston or one of its nominees
100 Federal Street
Boston, MA 02110

</TABLE>

(1) Bank of Boston Connecticut holds 287,250 of these shares as Trustee under
The Eastern Companypension plans for salaried and for hourly employees. The
Trustee has exclusive authority and discretion to manage and control the
assets of these respective funds and to exercise the right to vote shares of
the Company's common stock held in these funds.

(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 213,400 shares of Eastern
Company stock as of February 24, 1996, all of which are held in portfolios of
DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.

STOCKHOLDER PROPOSAL

Any stockholder who intends to present a proposal at the 1997 Annual Meeting
of stockholders and desires that it be included in the Company's proxy
material must submit to the Company a copy of the proposal on or before
November 22, 1996.

-2-

1. ELECTION OF FOUR DIRECTORS

Unless otherwise specified on the proxy, it is intended that the persons named
in the proxy will vote your stock for four nominees to fill directorships for
three-year terms which expire in 1999. Mr. John W. Everets, Mr. Leonard F.
Leganza, Mr. Russell G. McMillen and Mr. David C. Robinson are current
directors whose terms expire in 1996. If, for any reason, any one of these
nominees is not a candidate when the election occurs, it is intended that such
proxies will be voted for any substituted nominees. However, this is not
expected to occur. Approval of this resolution requires the affirmative vote
of a majority of the voting power of the shares represented at the meeting
which are entitled to vote on this matter. Directors will hold office for the
term for which they are elected and until their respective successors are duly
elected.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
TO ELECT THESE FOUR DIRECTORS

The names of the nominees for directors and of the directors whose terms
continue after the meeting, together with certain information regarding them,
are as follows:

NOMINATED FOR ELECTION AT 1996 ANNUAL MEETING
FOR A THREE YEAR TERM EXPIRING 1999

<S> <C> <C> <C> <C>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 24, of
The Company Other Directorships Since 1996 (1) Class
- -------------------- -------------------- ----- ----------- -----

#John W. Everets, 49 Chairman of H.P.S.C. Inc. 1993 11,250 .4%
Director Boston, MA
(Financial Services)
Chairman and Co-Owner
Richardson Co. Inc. 1990-1993
Director:
H.P.S.C. Inc.
Crown/Northcorp, Inc.
Dairymart

*#+Leonard F. Leganza, 65 Financial and Business 1981 14,250 .5%
Director Consultant
Farmington, CT

*+Russell G. McMillen, 77 Chairman of the Company 1959 119,256 4.2%
Director and
Chairman of
the Company

*+David C. Robinson, 53 President of the Robinson 1990 22,050 .8%
Director Company, Waterbury, CT
(Employee Benefit Consultants)
Director:
Engineered Sinterings and
Plastics Inc

</TABLE>
-3-

CONTINUING DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common
Stock
Beneficially
Name, Age and Positions Principal Occupation Owned as of Percentage
Presently Held with During Past Five Years: Director February 24, of
The Company Other Directorships Since 1996 (1) Class
- ---------------------- ------------------- --------- -------- -----
*+Charles W. Henry, 46 Partner 1989 13,750 .5%
Director Kernan & Henry (Expires 1998)
Waterbury, CT
(Attorneys)

Ole K. Imset, 60 Director of Manufacturing 1991 11,550 .4%
Director Allen Bradley (Expires 1997)
Rockwell International
Manchester, New Hampshire
(Manufacturing Electronics)

*Stedman G. Sweet, 59 President and Chief Executive 1976 80,994 2.9%
Director, President and Officer of the Company (Expires 1997)
Chief Executive Officer Director:
of the Company Center Financial Corporation
Centerbank
Hubbard Hall, Inc.

#Donald S. Tuttle III, 47 Account Executive and 1988 11,850 .4%
Director Vice President, Paine (Expires 1997)
Webber, Middlebury, CT
(Stock Broker)

Donald E. Whitmore, Jr. 60 Vice President, 1980 38,376 1.3%
Director and Vice President, Treasurer and Secretary (Expires 1998)
Treasurer and Secretary of of the Company
the Company

</TABLE>

* Members of the Executive Committee
# Members of the Audit Committee
+ Members of the Compensation Committee

(1) Reported shareholdings include, in certain cases, shares owned by or in
trust for a director's or nominee's spouse, and in which all beneficial
interest has been disclaimed by the director or the nominee. Also included, in
certain cases, are stock options, which are deemed exercised solely for
purposes of showing beneficial ownership.

The Nominees who presently are directors and all directors whose terms
continue after the meeting were elected to their present terms of office by
stockholders.

-4-

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the American Stock Exchange. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to the Company,
the Company believes that during the period ended December 30, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.

BOARD AND COMMITTEE STRUCTURE

The Company's Board of Directors has three standing committees, an Executive
Committee, an Audit Committee and a Compensation Committee. During 1995 the
Board of Directors had four (4) meetings.

The Executive Committee, acting with full authority of the Board of Directors,
approved minutes, monthly operating reports, capital expenditures, banking
matters, and other matters requiring immediate attention. Executive Committee
meetings are generally scheduled for each month in which there is no
Directors' Meeting. During 1995, seven (7) Executive Committee Meetings were
held.

The Audit Committee is responsible for reviewing and planning the scope of the
audit of the Company as well as the review of the financial statements and the
results of such audit. During 1995, two (2) Audit Committee Meetings were
held.

The Compensation Committee, responsible for management compensation and all
related matters, and selecting the employees to be granted stock options, met
once in 1995.

Non-employee directors receive $3,000 per year plus $700 for each meeting
attended. Each non- employee member of the Executive Committee received an
additional $1,000 per year plus $700 for each Committee meeting attended. Each
non-employee member of the Audit Committee received an additional $700 for
each Committee meeting attended. Compensation Committee members are paid only
if a committee meeting is held on a day when no Executive Committee Meeting is
held

-5-

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The members of the Compensation Committee are Russell G. McMillen, Chairman,
and outside directors Charles W. Henry, Leonard F. Leganza and David C.
Robinson. The Committee is responsible for setting compensation, the Executive
Bonus Plan, stock options and all related matters. The Compensation Committee
met once in 1995.

The executive compensation program of the Company has been designed to:

Support a pay for performance policy that differentiates in compensation based
upon corporate, business unit and individual performance.

Motivate key senior officers to achieve strategic business initiatives and
reward them for their achievement.

Provide compensation opportunities which are in line with those offered by
comparable companies, thus allowing the Company to compete for and retain
talented executives who are critical to the Company's long-term success.

Align the interests of executives with the long-term interests of stockholders
through award opportunities that can result in the ownership of common stock.

At present, the executive compensation program is comprised of salary, annual
cash incentive opportunities and long-term incentive opportunities in the form
of stock options.

As an executive's level of responsibility increases, a greater portion of that
individual's potential total compensation opportunity is in the form of the
Executive Bonus Plan that is tied to individual plant and overall corporate
profit objectives and stock options which are intended to increase the
motivation for an interest in the Company's long-term success as measured by
the Company's share price and book value per share.

Effective January 2, 1995 the Compensation Committee increased the salary paid
to Mr. Stedman G. Sweet, President and Chief Executive Officer by 3.5% based
upon the level of achievement in line with the Company's executive
compensation program.

Russell G. McMillen Charles W. Henry Leonard F. Leganza
David C. Robinson

-6-

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Russell G. McMillen is a Director and Chairman of the Company. Although
Mr. McMillen served on the Company's Compensation Committee, he did not
participate in any decisions regarding his own compensation or benefits
provided to him as an officer of the Company. During the three years ended in
1995 Mr. McMillen was not awarded any increase in compensation or benefits.

The following Summary Compensation Table includes Stedman G. Sweet, President
and Chief Executive Officer, Russell G. McMillen, Chairman and Donald E.
Whitmore, Jr., Vice President/Chief Financial Officer, the only three
executive officers of The Eastern Company.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ -----------------------------------
AWARDS
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other
Annual Restricted Payouts- All Other
Name and Compensation Stock Options/ LTIP Compensation
Principal Position Year Salary Bonus ($) Award(s)($) SARs (#) Payouts ($) ($)

(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------------- ----- ------- ------- ------------ ----------- ---------- ----------- ------------
Stedman G. Sweet, 1995 205,000 47,646 1,544 - - - 1,500(1)
CEO & President 1994 198,000 60,265 1,562 - - - 1,180
1993 192,000 64,493 1,406 - - - -

Russell G. McMillen, 1995 140,000 - 772 - - - 130,830(2)
Chairman 1994 140,000 - 781 - - - 130,830
1993 140,000 - 703 - - - 130,830

Donald E. Whitmore, Jr., 1995 127,000 20,703 1,544 - - - 1,270(1)
Treas. & Sec'y 1994 122,500 23,086 1,562 - - - 730
1993 119,000 21,960 1,406 - - - -

</TABLE>

(1) Mr. Sweet and Mr. Whitmore participated in the Company's 401(k) program
and received Company contributions under the provisions of the plan.

(2) Mr. McMillen is receiving benefits under the joint and one-half survivor
option of the Company's Pension Plan, amounting to $130,830 annually, since he
reached age 70 1/2, in 1988, and was required under ERISA to start receiving
his accrued benefits.

-7-

STOCK PERFORMANCE GRAPH

The following graph sets forth the Company's cumulative Total Shareholder
Return (TSR) based upon an initial $100 investment made on December 31, 1990
(i.e. stock appreciation plus dividends during the past five years) compared
to the Wilshire 5000 Index and the S&P Manufacturing Diversified Index. The
Company is a manufacturer of locks and diversified hardware engineered for use
in industry, underground mining and construction. Consequently while the S&P
Manufacturing Diversified Index being used for comparison is a standard index
most closely related to the Company, it does not completely represent the
Company's products or market applications. The Wilshire 5000 is a market index
made up of 5,000 publicly-traded companies, including those having both large
and small capitalization.

CUMALATIVE TOTAL RETURN
Based on reinvestment of $100 beginning December 31, 1990

<TABLE>

Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Eastern Company $100 $78 $95 $113 $127 $124
Wilshire 5000 $100 $134 $146 $163 $163 $222
S&P Manufacturing $100 $123 $133 $161 $167 $235
(Diversified Ind) Index

</TABLE>

-8-

EMPLOYMENT AGREEMENTS

Mr. Sweet and Mr. Whitmore each have an Employment Agreement with the Company
through April 30, 1996. These Employment Agreements include basic annual
compensation and benefits under the Company's other employee benefit programs.
Mr. Sweet's and Mr. Whitmore's agreements also specifically include continued
participation in the Company's Executive Bonus Plan. If the Company breaches
its obligations to an executive during the term of the agreement, then the
executive must be paid an amount equal to the sum of the executive's annual
salary, his total compensation for the preceding fiscal year, and the amount
of the benefits he would have earned under the Executive Bonus Plan (if any).
However, if the executive's employment is terminated after a change in control
of the Company, this amount cannot exceed 2.99 times his compensation averaged
over the preceding five calendar years.

RETIREMENT BENEFITS

The Company maintains a pension plan for salaried employees. Under the plan,
the amount of a member's annual normal retirement benefit is equal to 1% of
total annual compensation applicable to each year of service and the sum of
one half of one percent (0.5%) of average annual compensation plus one half of
one percent (0.5%) of average annual compensation in excess of $10,000,
multiplied by years of service not in excess of thirty (30). Average annual
compensation means the average of the member's annual compensation for the
five (5) consecutive calendar years prior to retirement which result in the
highest average.

Presently Messrs. McMillen, Sweet and Whitmore have 54, 35 and 30 years of
service, respectively. The estimated annual retirement benefits payable to
Messrs. Sweet and Whitmore are $101,546 and $70,005, respectively. These
benefits are based on the five year certain form of annuity.

Mr. McMillen has a Deferred Compensation Agreement under which the Company
will pay him or his surviving spouse, upon his retirement from the Company, or
death as the case may be, $2,561 per month for 180 months. In addition, in the
event that a single person or entity or group of persons acting in concert
acquire more than 50% of the shares of capital stock of the Company entitled
to vote at all meetings of shareholders, then unless Mr. McMillen is a member
of such group or a participant in such entity, the benefits payable under this
agreement shall immediately become due and payable in full on demand by Mr.
McMillen or, if he is not living, by his spouse if she is then living.

The Company has adopted an unfunded supplemental retirement plan (the "SERP")
for the benefit of Mr. Sweet. Under the terms of the SERP, Mr. Sweet will be
entitled to receive a monthly retirement benefit equal to the excess of: (a)
the benefit he would have received under the Company's qualified pension plan,
determined without regard to the limitations on benefits imposed by the
Internal Revenue Code; over (b) the benefit to which he is actually entitled
under the Company's qualified pension plan, subject to the limitations on
benefits

-9-

imposed by the Internal Revenue Code. The monthly retirement benefit under the
SERP will begin upon Mr. Sweet's retirement at or after reaching age 65. The
benefit may also begin on an earlier date, at a reduced amount. The benefit
will be paid as an annuity over Mr. Sweet's life, with 60 monthly payments
guaranteed. However, if Mr. Sweet is married at the time benefits start, the
benefits will be actuarially adjusted and will be paid over the joint lives of
Mr. Sweet and his wife. The SERP also provides for the payment of benefits in
the event of Mr. Sweet's death or disability.

The Company has adopted an unfunded deferred compensation plan (the "DCP") for
the benefit of Mr. Sweet. Under the terms of the DCP, Mr. Sweet will receive
deferred compensation of $5,000 per month for a period of 180 consecutive
months. These amounts will be payable if Mr. Sweet retires upon reaching age
65, or if he retires with the consent of the Company after reaching age 65. In
addition, if the Company and Mr. Sweet agree, Mr. Sweet may retire prior to
age 65 and may commence to receive the deferred compensation at that time. The
DCP also provides for the payment of the deferred compensation in the event of
Mr. Sweet's death prior to his termination of employment.

SIP PLAN

The Company maintains a savings and investment plan (the "SIP Plan") for
salaried employees. A salaried employee who is participating in the SIP Plan
may execute a salary reduction agreement requiring the Company to reduce his
or her taxable earnings by an amount of from 1% to 18% (but not in excess of
$9,240 for calendar year 1995), and to contribute that amount to the SIP plan.
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
1995 the matching contribution equaled 25% of that portion of an employee's
salary reduction contribution which did not exceed 4% of his or her earnings.
An employee is fully vested in his or her salary reduction contributions and
the earnings on those contributions. An employee will become vested in any
matching contributions, and the earnings thereon, over a period of years, with
full vesting after completing five years of service. Employees who are
participating in the SIP Plan may direct that their account balances be
invested in either a bond fund, a stock fund, a money market fund, an Eastern
common stock fund, or in more than one such investment fund in multiples of 10%.

-10-

EXECUTIVE BONUS PLAN

During 1995 the Company maintained an Executive Bonus Plan under which both
executive officers, Vice Presidents and division managers may earn annual cash
bonuses in amounts up to 50% of their base salaries. For each 1% by which
corporate pre-tax earnings exceed 6% of corporate net worth, a 2% bonus is
earned with a maximum of 25% being earned when corporate pre-tax earnings
reach 18.37% of corporate net worth. The Corporate Vice President/Chief
Financial Officer's bonus, based on corporate pre-tax earnings, is limited to
a maximum of 25% of base salary. A division manager generally may earn up to
an additional 25% bonus calculated in the same manner but on the basis of
divisional pre-tax earnings and net worth. Corporate executives and Vice
Presidents may earn an additional bonus calculated in this manner but based on
the portion of their base salaries allocated to each division.

Effective for 1996 the Executive Bonus Plan has been modified to permit
certain Executive Officers to earn a bonus of up to 50% of their base salaries
calculated exclusively on corporate net per share earnings. All other Vice
Presidents and division managers will earn a bonus of up to 50% of their base
salaries using existing formulas with 80% of the bonus based on plant earnings
and 20% of the bonus based on corporate net per share earnings.

STOCK OPTIONS

On April 27, 1983, the stockholders approved the Incentive Stock Option Plan
(the "1983 Plan"), which by its terms expired on February 9, 1993. No
additional options may be granted under the 1983 Plan. However, options
previously granted remain exercisable in accordance with their terms.

On April 26, 1989, the stockholders approved The Eastern Company 1989
Executive Stock Incentive Plan (the "1989 Plan"), which by its terms will
expire either on February 7, 1999 or upon any earlier termination date
established by the Board of Directors. The 1989 Plan authorizes the granting
of stock options to purchase shares of common stock, no-par value, of the
Company. Under the 1989 Plan, incentive stock options may be granted to
salaried officers and other key employees of the Company and its subsidiary
corporations. The total amount of such common stock which may be issued under
options granted under this 1989 Plan shall not exceed in the aggregate 240,000
shares.

On April 26, 1995, the stockholders approved The Eastern Company 1995
Executive Stock Incentive Plan (the "1995 Plan"), which by its terms will
expire either February 8, 2005 or upon any earlier termination date
established by the Board of Directors. The 1995 Plan authorizes the granting
of incentive stock options and non-qualified stock options to purchase shares
of common stock and the granting of shares of restricted stock. The Incentive
Compensation Committee of the Company's Board of Directors will determine the
restrictions which will apply to shares of restricted stock granted under the
1995 Plan. Awards may be granted to salaried officers and other key employees
of the Company, whether or not such employees are also serving as directors of
the Company. The 1995 Plan also provides for the grant of non-qualified stock
options to purchase 11,250 shares of common stock to each non-employee
director of the Company upon his or her first election as a director. The
total amount of such common stock which may be issued under awards granted
under this 1995 Plan shall not exceed in the aggregate 250,000 shares.

-11-

The purchase price of the shares subject to each option granted under the 1983
and 1989 Plans and each incentive stock option granted under the 1995 Plan may
not be less than the fair market value of the shares on the date of grant. The
purchase price of shares subject to a non-qualified stock option granted under
the 1995 Plan, and the price which must be paid to acquire a share of
restricted stock granted under the 1995 Plan, will be set by the Incentive
Compensation Committee of the Company's Board of Directors.

Incentive stock options generally may not be granted under the 1983, 1989 or
1995 Plans 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, and non-qualified stock options must be
exercised within ten years and one month, after being granted. Moreover,
options may not be exercised more than three months after termination of
employment or termination of service as a director (except in the case of
death, disability or a director's retirement after age sixty-five (65), in
which event the option may be exercised within one year after death,
disability or the director's retirement after age sixty-five (65)). Under the
1995 Plan, the three month period is also extended to one year for an employee
who terminates employment at or after reaching age sixty-five (65).

No stock options or shares of restricted stock were granted to the three
executive officers of The Eastern Company during 1995.

There are no stock appreciation rights (SAR) programs in place. The following
table reflects unexercised stock options for these three individuals.

OPTION EXERCISES AND YEAR-END VALUE TABLE

Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR Value

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)(1)
Share
Acquired on Value 1) Exercisable 1) Exercisable
Name Exercise(#) Realized($) 2) Unexercisable 2) Unexercisable
- ----------------------- ----------- ----------- ---------------- ----------------
Stedman G. Sweet 0 0 1) 30,000 1) 86,250
CEO & President 2) - 2) -

Russell G. McMillen 0 0 1) 10,950 1) 34,712
Chairman 2) - 2) -

Donald E. Whitmore, Jr. 0 0 1) 18,000 1) 52,635
Vice President 2) - 2) -
Treasurer & Secretary

</TABLE>

(1) Based on the fair market value of the common stock on December 30, 1995
of $12.25 per share and the option exercise prices ranging from $9.08 to
$9.375 per share.

-12-

2. APPOINTMENT OF INDEPENDENT AUDITORS

Audit services of Ernst & Young LLP for the fiscal year ending December 30,
1995 included an audit of the consolidated financial statements of the Company
and its subsidiaries; assistance and consultations in connection with filing
the Form 10-K annual report with the Securities and Exchange Commission;
consultation on financial accounting and reporting matters; and meeting with
the Audit Committee.

All audit services provided by Ernst & Young LLP in 1995, which were similar
to the audit services provided in prior years, were approved in advance of the
work being performed.

The Board of Directors desire to continue the services of this firm for the
current fiscal year. Accordingly, the management will recommend at the meeting
that the stockholders approve the appointment by the Board of Directors of the
firm of Ernst & Young LLP to audit the consolidated financial statements of
the Company and its subsidiaries for the current year. Approval of this
resolution requires the affirmative vote of a majority of the voting power of
the shares represented at the meeting which are entitled to vote on this
matter.

Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will have an opportunity to speak as well as respond to questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
TO APPOINT INDEPENDENT AUDITORS

3. OTHER BUSINESS

It is not intended to present to the meeting any business other than the
election of directors and the proposals referred to in this statement. The
management knows of no other matters which will be presented for action at the
Annual Meeting.

By order of the Board of Directors,

Donald E. Whitmore, Jr.
Secretary

March 22, 1996

-13-