<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE EASTERN COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
MMI INVESTMENTS, L.L.C.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
1997 ANNUAL MEETING OF STOCKHOLDERS
OF
THE EASTERN COMPANY
------------------------
PROXY STATEMENT
OF
MMI INVESTMENTS, L.L.C.
RR 1, BOX 167D, WING ROAD
MILLBROOK, NEW YORK 12545
------------------------
This Proxy Statement and the accompanying letter to stockholders and BLUE
proxy card are furnished in connection with the solicitation of proxies by MMI
Investments, L.L.C. ("MMI"), to be used at the 1997 Annual Meeting of
Stockholders of The Eastern Company ("Eastern") to be held at 9:30 a.m., local
time, on March 26, 1997 at The Naugatuck Elks Lodge, 758 Rubber Avenue,
Naugatuck, Connecticut 06770, and at any adjournments or postponements thereof
(the "Annual Meeting").
At the Annual Meeting, three Directors of Eastern will be elected for a
three-year term expiring at the 2000 Annual Meeting of Stockholders. MMI is
soliciting your proxy in support of the election of MMI's three nominees for
Directors of Eastern named below (the "MMI Nominees").
ALL MMI NOMINEES ARE COMMITTED TO MAXIMIZING EASTERN STOCKHOLDER VALUE
THROUGH THE SOLICITATION OF OFFERS, BY AN INDEPENDENT INVESTMENT BANK, FOR THE
SALE OF EASTERN AT AN ATTRACTIVE PRICE, OR IF NO ATTRACTIVE OFFERS ARE RECEIVED,
TO PROPOSE OTHER STRATEGIES TO ENHANCE STOCKHOLDER VALUE.
The record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting is February 28, 1997 (the "Record Date").
Stockholders of record at the close of business on the Record Date will be
entitled to one vote at the Annual Meeting for each share of Eastern common
stock, no par value (the "Shares") held on the Record Date. As set forth in the
definitive proxy statement of Eastern filed with the Securities and Exchange
Commission on February 28, 1997 (the "Eastern Proxy Statement"), as of the close
of business on the Record Date, there were 2,809,284 Shares issued and
outstanding.
This Proxy Statement and the accompanying letter to stockholders and BLUE
proxy card are first being furnished to Eastern stockholders on or about March
5, 1997. The principal executive offices of Eastern are located at 112 Bridge
Street, Naugatuck, Connecticut 06770.
<PAGE>
IMPORTANT
At the Annual Meeting, MMI seeks to elect the three MMI Nominees as
Directors of Eastern.
The election of the three MMI Nominees requires the affirmative vote of
a plurality of the votes cast on the matter, assuming a quorum is present or
otherwise represented at the Annual Meeting. Consequently, only Shares that
are voted in favor of a particular nominee will be counted toward such
nominee's attaining a plurality of votes. Shares present at the meeting that
are not voted for a particular nominee (including broker non-votes) and
Shares present by proxy where the stockholder properly withheld authority to
vote for such nominee will not be counted toward such nominee's attainment
of a plurality.
MMI URGES YOU TO SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY VOTING
"FOR" ELECTION OF THE MMI NOMINEES.
A VOTE FOR THE MMI NOMINEES WILL PROVIDE YOU -- THE TRUE OWNERS OF
EASTERN -- WITH REPRESENTATIVES ON THE EASTERN BOARD WHO ARE COMMITTED TO
MAXIMIZING STOCKHOLDER VALUE.
MMI URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY EASTERN. IF YOU
HAVE ALREADY DONE SO, YOU MAY CHANGE YOUR VOTE FOR THE ELECTION OF THE MMI
NOMINEES BY SIGNING, DATING AND MAILING THE ENCLOSED BLUE PROXY, WHICH MUST
BE DATED AFTER ANY PROXY YOU MAY HAVE SUBMITTED TO EASTERN, TO MMI, C/O D.F.
KING & CO., INC. ("D.F. KING"), 77 WATER STREET, NEW YORK, NY 10005, OR TO
THE SECRETARY OF EASTERN, OR BY VOTING IN PERSON AT THE ANNUAL MEETING. SEE
"PROXY PROCEDURES" BELOW.
2
<PAGE>
THE MMI NOMINEES ARE COMMITTED TO
MAXIMIZING STOCKHOLDER VALUE
All MMI Nominees listed under "Election of Directors" below are committed to
enhancing stockholder value through the solicitation of offers by an independent
investment bank for the sale of Eastern at an attractive price, or in the
absence of a receipt of an attractive offer, the implementation of other
strategies that this bank might recommend aimed at enhancing stockholders'
returns. If elected, the qualified and experienced MMI Nominees will, subject to
their fiduciary duties, seek to cause the Eastern Board of Directors (the
"Eastern Board") to retain an independent investment bank to seek proposals for
the sale of Eastern. The MMI Nominees would, subject to their fiduciary duties,
support a sale proposal recommended by such an independent investment bank
whether or not the proposal came from MMI.
MMI is taking this action because the incumbent Eastern Board has
consistently demonstrated their lack of interest in seeking ways to enhance
stockholder value. Rather, their focus appears to be on maximizing management
compensation and entrenching themselves as evidenced by the recent amendment to
Eastern's By-laws which restricted the stockholders' ability to amend the
By-laws. As indicated under "Background of MMI's Investment in Eastern and Its
Merger Proposal" below, the Eastern Directors summarily rejected MMI's cash
merger proposal (the "Merger Proposal"), which was made on July 16, 1996, a
proposal which at the time represented approximately a 29% premium over
Eastern's average closing stock price for the prior thirty trading days
($11.64), without even accepting MMI's invitation to negotiate for a higher
merger price. You should also know that, despite their rhetoric to the contrary,
the Eastern Board and Eastern's management have failed to propose any viable
alternative plans or strategies to enhance stockholder value. Because of
Eastern's past record of poor performance and dim prospects for the future as
clearly evidenced by its dismal financial results in 1996 (income from
continuing operations plummeted 68%), MMI has decided to offer Eastern
stockholders an alternative in an effort to maximize value for all Eastern
shareholders.
CURRENT MANAGEMENT AND BOARD OF DIRECTORS
It is MMI's belief, based on the factors discussed below, that while the
Eastern Board and Eastern's management has failed to adequately protect the
interests of Eastern's stockholders, they have more than adequately protected
their own interests, and appear likely to continue to do so in the future.
MMI's conclusion is based upon its review of management's performance since
1990 as well as management's refusal to even discuss MMI's $15 per share Merger
Proposal, particularly in light of MMI's indication that it was prepared to
raise the price if discussions and due diligence with management disclosed
values not reflected in Eastern's publicly available information. See
"Background of MMI's Investment in Eastern and Its Merger Proposal". WHILE
REFUSING EVEN TO ENTERTAIN THE SALE OF EASTERN AT ANY PRICE, MANAGEMENT HAS
OFFERED NO ALTERNATIVE ROUTE TO MAXIMIZING STOCKHOLDER VALUE. WE BELIEVE THAT
NOW IS THE TIME FOR STOCKHOLDERS--THE TRUE OWNERS OF EASTERN--TO BE HEARD.
As a major stockholder of Eastern--MMI owns 178,400 shares, or 6.6%, of
Eastern common stock outstanding--MMI believes that the Eastern Board has not
been responsive to maximizing stockholder value but rather has become
instrumental in protecting management's and the Directors' own remuneration. The
cumulative compensation (including directors' fees) for Messrs. Sweet, McMillen
and Whitmore from 1990 to 1995 was $4,318,815, or 59.4% of the total dividend
distributions made by Eastern for the same period, which amounted to $7,273,000.
Yet stockholder value has remained stagnant (from 1990 to 1996, the total return
on the Dow Jones Industrial Average and on an investment in Short Term U.S.
Treasury Notes (1-3 years) was 189% and 47%, respectively, while the total
return on Eastern Common Stock, which is comprised of stock appreciation plus
dividends for this period, was only 38%).
3
<PAGE>
TAKE A CLOSE LOOK AT EASTERN'S RECORD OF FAILURE.
MMI BELIEVES THAT EASTERN'S MANAGEMENT HAS FAILED TO MAXIMIZE THE POTENTIAL
RETURN ON STOCKHOLDERS' EQUITY DUE TO A LACK OF FORESIGHT AND PLANNING. FURTHER,
MANAGEMENT'S INTERESTS HAVE BECOME DIVORCED FROM EASTERN'S STOCKHOLDERS'
INTERESTS. CONSIDER THE FOLLOWING:
- Under Eastern's current management, Eastern's income from continuing
operations has declined 27% from approximately $3.7 million in 1990 to
approximately $2.7 million in 1995. Continuing this pattern of dismal
results, management just announced that 1996 income from continuing
operations decreased by a staggering 68%.
- Not only have we, the stockholders, been hurt, but employees of Eastern
have also been hit hard. The total number of employees of Eastern has
declined from 656 in December 1989 to 489 in December 1995.
- Management's failure to align their interests with the interests of all
Eastern stockholders has worked to the benefit of management--not
Eastern's stockholders.
Eastern's management has failed to execute its stated strategy of making
strategic acquisitions. Compare what they tell you with their actual record of
failure:
- Eastern's 1992 annual report stated, "We are optimistic that
conditions exist to continue to increase shareholder value over the
long term and manage our businesses toward that objective--both
through internal growth and by acquisition."
- In Eastern's 1993 annual report, Eastern's management stated, ". . .
with our strong balance sheet, we are positioned to further increase
shareholder value by investing in upgrading our equipment and
processes as well as through acquisitions that strategically enhance
our security products group."
- The 1994 annual report reads, "With our strong balance sheet, we have
the flexibility to further increase shareholder value by investing in
projects with sound long-term potential. We also continue our
acquisition search for businesses or product lines that would
complement our focus on mechanical security products."
- In 1995, the company's annual report asserted, "Additional growth can
be supported through leveraging our balance sheet. Consistent with
this objective, we have increased our efforts in search of strategic
acquisitions to our group of companies." Eastern's current management
has claimed for years that it is pursuing strategic acquisitions, yet
no purchase has come to fruition.
- While Eastern wants you to believe that its plan is to grow through
acquisitions, it is clear to us that Eastern's so-called plans are
nothing more than empty promises and self-serving rhetoric.
Eastern's management has consistently failed to respond to the decline of
Eastern's financial situation despite its rhetoric to the contrary.
- The 1987 annual report stated, "We remain optimistic about Eastern
for both the short and long term."
- In 1988, the annual report stated, "The company has the financial
health and position in its selected markets to continue to make gains
for its shareholders."
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<PAGE>
- The 1989 annual report presents a stark indication of Eastern
management's lack of perception when it asserts, "Overall, incoming
orders and backlogs have declined since mid-year. It appears,
however, that they have bottomed out and we are optimistic for the
current year."
- Eastern's management makes yet another unfulfilled promise in the
1990 annual report, which states, "We will continue to focus on
achieving longer term results for our shareowners and have
restructuring programs now largely in place to do so."
- In 1991, Eastern's current management claimed, "Overall, incoming
orders appear to be firming up and we continue to be optimistic about
further increasing shareholders' value."
- In 1994, the annual report stated, "Your company has a strong
position in selected markets. The forecast for each of these markets
is good, and we expect growth in sales and earnings in 1995."
- In the 1995 annual report, Eastern's management stated, "The first
quarter of 1996, as previously announced, is expected to be down. As
more projects become tooled, we anticipate a recovery will begin
during the second quarter [of 1996]."
- In July 1996, in a letter to Eastern's stockholders attempting to
explain the Eastern Board's rejection of the Merger Proposal, Mr.
Sweet stated, "Your directors concluded that the [MMI merger]
proposal was not in the best interests of The Eastern Company, its
shareholders, its employers, its customers, its creditors, its
suppliers or the communities in which it has facilities. . . . As we
have informed Millbrook, we have no interest in abandoning our
carefully conceived strategic plan to build shareholder value over
the long term. We have worked hard to build a strong financial
position from which to build long-term value for the shareholders."
DESPITE THIS LIST OF CONSTANT PREDICTIONS FOR A FINANCIAL RECOVERY,
EASTERN'S MANAGEMENT HAS BEEN UNABLE TO REINFORCE ITS CLAIMS WITH TANGIBLE
RESULTS. IN OUR VIEW, EASTERN'S RHETORIC IS NOTHING MORE THAN AN EFFORT TO
DISGUISE ITS LONG-TERM RECORD OF FAILURE AND TO JUSTIFY MANAGEMENT'S EXCESSIVE
COMPENSATION--ALL TO THE DETRIMENT OF EASTERN'S STOCKHOLDERS. THE ONLY RECENT
DEMONSTRABLE ACTION TAKEN BY THE EASTERN BOARD HAS BEEN AN ATTEMPT TO
DISENFRANCHISE YOU, THE OWNERS OF EASTERN, BY AMENDING EASTERN'S BY-LAWS TO
REQUIRE A LARGER STOCKHOLDER VOTE TO AMEND THE BY-LAWS.
LOOK AT HOW EASTERN'S STOCKHOLDERS HAVE FARED
AS A RESULT OF EASTERN'S MANAGEMENT FAILURE TO PERFORM, CONSIDER HOW
EASTERN'S STOCKHOLDERS HAVE FARED:
- The total return on investment in Eastern from the end of fiscal year 1989
until the end of June 1996, the month before MMI's Merger Proposal was
delivered, was approximately 23%, a mere 3.5% average return per annum. To
put this anemic record into perspective, an investment in Short Term U.S.
Treasury Notes (1-3 years), one of the safest investments available, would
have generated total returns of approximately 55% over the same period!
- During that same time period, an investment in the Dow Jones Industrial
Average would have provided a 149% return and an investment in the
Standard & Poor's 500 Index would have provided a 129% return.
5
<PAGE>
EASTERN'S RECORD OF FAILURE
- The graph below, which incorporates data regarding Eastern Common Stock,
the Wilshire 5000 Index and the Standard & Poor's Manufacturing
Diversified Index supplied in the Eastern Proxy Statement, sets forth
Eastern'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 six years) compared to the Wilshire 5000
Index, the Standard & Poor's Manufacturing Diversified Index, the Dow
Jones Industrial Average and an investment in Short Term U.S. Treasury
Notes (1-3 years). The results are startling! A $100 investment in Eastern
provided to you the lowest return of ANY investment, including Short Term
Treasury Notes--the investment in Eastern would be worth $138 while an
investment in Short Term Treasury Notes would be worth $147, a 6%
difference! A similar investment in the Standard & Poor's Manufacturing
Diversified Index would be worth $313, a 56% difference!
6 YEAR STOCK PERFORMANCE GRAPH
CUMULATIVE TOTAL RETURN BASED ON REINVESTMENT OF $100 BEGINNING IN 12/90
[Graph showing cumulative total return based on reinvestment of $100 from
December 1990 to December 1996 -- Comparison between Eastern Common Stock,
Wilshire 5000 Index, Standard & Poor's Manufacturing Diversified Index,
Dow Jones Industrial Average and Short Term Treasury Notes]
<TABLE>
<CAPTION>
Dates
SPMAND DJIA WILSHIRE TREASURY NOTE EML
<S> <C> <C> <C> <C> <C>
Dec-90 100 100 100 100 100
Dec-91 123 124 134 112 77
Dec-92 133 133 146 119 95
Dec-93 161 156 163 125 113
Dec-94 167 164 163 126 126
Dec-95 235 224 222 140 124
Dec-96 313 289 269 147 138
</TABLE>
6
<PAGE>
- Despite poor returns to its stockholders, Eastern's management has been
well compensated. From 1990 to 1995, Messrs. Sweet, McMillen and Whitmore
received cumulative compensation (including directors' fees) amounting to
$4,318,815. During this same period, stockholders received dividends
amounting to $7,273,000. IN OTHER WORDS, EASTERN'S MANAGEMENT RECEIVED AS
COMPENSATION OVER 59% OF THE TOTAL DIVIDENDS THAT EASTERN'S STOCKHOLDERS
RECEIVED FROM 1990 TO 1995. You be the judge.
IT'S TIME FOR A CHANGE
EASTERN'S STOCKHOLDERS DESERVE A BOARD OF DIRECTORS THAT WILL MAXIMIZE
STOCKHOLDER VALUE AND A MANAGEMENT TEAM COMMITTED TO THAT GOAL RATHER THAN TO
PROTECTING ITS OWN INTERESTS, INCLUDING THEIR FAT PAYCHECKS, AND ITS
ENTRENCHMENT. EASTERN'S STOCKHOLDERS NEED MMI'S NOMINEES TO BE ELECTED TO THE
BOARD OF DIRECTORS TO PUT PRESSURE ON THE BOARD TO IMPLEMENT MMI'S PLAN TO
MAXIMIZE STOCKHOLDER VALUE. IF, LIKE US, YOU BELIEVE THAT YOU SHOULD HAVE THE
OPPORTUNITY TO DECIDE THE FUTURE OF YOUR COMPANY, MMI URGES YOU TO VOTE YOUR
BLUE PROXY CARD FOR ALL OF THE MMI NOMINEES. THE MMI NOMINEES WOULD URGE THE
EASTERN BOARD TO EFFECT A SALE OF EASTERN TO ANY PARTY, INCLUDING MMI, PROVIDED
AN INDEPENDENT INVESTMENT BANK ADVISED THE EASTERN BOARD OF THE FAIRNESS TO THE
EASTERN STOCKHOLDERS OF SUCH A PROPOSAL.
WE URGE YOU TO SUPPORT THE MMI NOMINEES WHO ARE COMMITTED TO MAXIMIZING
SHAREHOLDER VALUE BY SIGNING, DATING AND PROMPTLY MAILING YOUR BLUE PROXY CARD.
YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY.
7
<PAGE>
ELECTION OF DIRECTORS
According to publicly available information, Eastern currently has 9
Directors, divided into three classes having staggered terms of three years
each. The terms of the three incumbent Directors, Ole K. Imset, Stedman G.
Sweet, and Donald S. Tuttle III, will expire at the Annual Meeting.
MMI proposes that the Eastern stockholders elect the MMI Nominees as the
Directors of Eastern at the Annual Meeting. The three MMI Nominees are listed
below and have furnished the following information concerning their principal
occupations or employment and certain other matters. Each MMI Nominee, if
elected, would hold office until the 2000 Annual Meeting of Stockholders and
until a successor has been elected and qualified or until his earlier death,
resignation or removal. Although MMI has no reason to believe that any of the
MMI Nominees will be unable to serve as directors, if any one or more of the MMI
Nominees shall not be available for election, the persons named on the BLUE
proxy card have agreed to vote for the election of such other nominees as may be
proposed by MMI. YOU ARE URGED TO CAREFULLY CONSIDER THEIR QUALIFICATIONS AND
ABILITIES TO REPRESENT YOUR INTERESTS.
MMI NOMINEES FOR DIRECTORS:
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING LAST FIVE YEARS; CURRENT DIRECTORSHIPS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
John S. Dyson............................. Mr. Dyson is Chairman of Millbrook Capital Management Inc., the
RR1 Manager of MMI Investments, L.L.C., and its predecessors since 1981.
Box 167D He is also a director of Millbrook Capital Management Inc. From 1994
Wing Road to 1996, Mr. Dyson served as Deputy Mayor for Finance and Economic
Millbrook, New York 12545 Development for the City of New York and currently serves as Chairman
of the Mayor's Council of Economic Advisors. Mr. Dyson was Vice
Chairman of Dyson-Kissner-Moran Corporation where he worked from 1970
to 1975 at which time he was appointed to the position of
Commissioner of the New York State Department of Agriculture. From
1976 to 1979 he served as Commissioner of the New York State
Department of Commerce. From 1979 to 1985, Mr. Dyson was Chairman of
the New York State Power Authority. Mr. Dyson serves as Trustee of
Cornell University, Morgan Library, Middlesex School and Historic
Hudson Valley, and as a director of the New York Metropolitan Transit
Authority. AGE: 53
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING LAST FIVE YEARS; CURRENT DIRECTORSHIPS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Clay B. Lifflander........................ From October 1995 to present, Mr. Lifflander has been President and a
RR1 director of Millbrook Capital Management Inc., the Manager of MMI.
Box 167D From March 1994 to September 1995, Mr. Lifflander was President of
Wing Road the New York City Economic Development Corporation and Chairman of
Millbrook, New York 12545 the New York City Industrial Development Agency. Previously, Mr.
Lifflander was a Managing Director in the Mergers and Acquisitions
Group at Smith Barney, Inc., where he worked from 1984 to 1994. Mr.
Lifflander is a director of the United Nations Development
Corporation, as well as of several companies affiliated with
Millbrook Capital Management Inc. AGE: 34
George M. Scherer......................... From 1982 to present, Mr. Scherer has been President and a director
37 Milford Street of B.W. Elliott Manufacturing Co., Inc., a corporation engaged
Binghamton, New York 13902 primarily in the business of designing and manufacturing flexible
shaft products for the industrial, aerospace and commercial markets,
and in which Mr. Dyson indirectly holds a major investment. From 1993
to present, Mr. Scherer has been a Director of the Binghamton Mets
Baseball Club. AGE: 42
</TABLE>
Election of the MMI Nominees as the Directors of Eastern requires the
affirmative vote of a plurality of the votes cast on the matter at the Annual
Meeting, assuming a quorum is present or otherwise represented at the Annual
Meeting. Consequently, only Shares that are voted in favor of a particular
nominee will be counted toward such nominee's attaining a plurality of votes.
Shares present at the meeting that are not voted for a particular nominee
(including broker non-votes) and Shares present by proxy where the stockholder
properly withheld authority to vote for such nominee will not be counted toward
such nominee's attainment of a plurality.
The accompanying BLUE proxy card will be voted at the Annual Meeting in
accordance with your instructions on such card. You may vote FOR the election of
the MMI Nominees as the Directors of Eastern or withhold authority to vote for
the election of the MMI Nominees by marking the proper box on the BLUE proxy
card. You may also withhold your vote from any of the MMI Nominees by writing
the name of such nominee in the space provided on the BLUE proxy card. IF NO
MARKING IS MADE, YOU WILL BE DEEMED TO HAVE GIVEN A DIRECTION TO VOTE THE SHARES
REPRESENTED BY THE BLUE PROXY CARD FOR THE ELECTION OF ALL OF THE MMI NOMINEES
PROVIDED THAT YOU HAVE SIGNED AND DATED THE PROXY CARD.
MMI BELIEVES THAT IT IS IN YOUR BEST INTEREST TO ELECT THE MMI NOMINEES AT
THE ANNUAL MEETING, AND STRONGLY RECOMMENDS A VOTE FOR THE ELECTION OF THE MMI
NOMINEES. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE ACT TODAY BY SIGNING, DATING AND MAILING YOUR BLUE PROXY CARD.
9
<PAGE>
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
The description of matters to be presented to a shareholder vote at the 1997
Annual Meeting of Eastern is hereby incorporated by reference from Eastern's
proxy statement with respect to such meeting. You may vote for each of the items
being presented to shareholders at Eastern's 1997 Annual Meeting on the BLUE
proxy card delivered herewith. The following are MMI's recommendations on each
of the items being presented for a vote at Eastern's 1997 Annual Meeting:
- STOCKHOLDER PROPOSAL--MMI recommends that shareholders vote for the
stockholder proposal by Mr. Ernst Ohnell, who is a participant in MMI's
proxy solicitation group (see "Background of MMI's Investment in Eastern
and Its Merger Proposal" and Schedule I). Mr. Ohnell has proposed that
Eastern retain an independent investment banking firm to seek proposals
for the sale of Eastern to maximize shareholder value. Unmarked blue
proxies will be treated as a vote "for" Mr. Ohnell's proposal.
- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS--MMI makes no
recommendation regarding this matter. Unmarked blue proxies will be
treated as a vote to "abstain" with regard to this proposal.
- ADOPTION OF DIRECTORS FEE PROGRAM--MMI makes no recommendation regarding
this matter. Unmarked blue proxies will be treated as a vote to "abstain"
with regard to this proposal.
- OTHER PROPOSALS--Except as set forth above, MMI is not aware of any
proposals to be brought before the Annual Meeting. Should other proposals
be brought before the Annual Meeting, the persons named on the BLUE proxy
card will abstain from voting on such proposals unless such proposals
adversely affect the interests of MMI as determined by MMI in its sole
discretion, in which event such persons will vote on such proposals at
their discretion.
VOTING PROCEDURES
As set forth in the Eastern Proxy Statement, a plurality of the votes duly
cast is required for the election of directors. Each of the other matters to be
acted upon at the Annual Meeting will be approved if the votes cast in favor of
the matter exceed the votes cast opposing the matter.
The election of the three MMI Nominees requires the affirmative vote of a
plurality of the votes cast on the matter, assuming a quorum is present or
otherwise represented at the Annual Meeting. Consequently, only Shares that are
voted in favor of a particular nominee will be counted toward such nominee's
attaining a plurality of votes. Shares present at the meeting that are not voted
for a particular nominee (including broker non-votes) and Shares present by
proxy where the stockholder properly withheld authority to vote for such nominee
will not be counted toward such nominee's attainment of a plurality.
Under Connecticut law, with respect to the other three matters, shareholders
are entitled to vote for, against or abstain from voting. Under Connecticut law,
an abstaining vote is considered to be present but is not deemed to be a vote
cast. As a result, abstentions and broker "non-votes" are not included in the
tabulation of the voting results on these other matters to be acted on at the
Annual Meeting, each of which requires the approval of a majority of the votes
cast, and therefore do not have the effect of votes in opposition in such
tabulations. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner. Broker "non-
10
<PAGE>
votes" and shares as to which a shareholder abstains are included for purposes
of determining whether a quorum is present at the Annual Meeting.
PROXY PROCEDURES
IN ORDER FOR YOUR VIEWS ON THE ABOVE-DESCRIBED PROPOSALS TO BE REPRESENTED
AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY CARD
AND RETURN IT TO MMI, C/O D.F. KING & CO., INC., 77 WATER STREET, NEW YORK, NY
10005, IN THE ENCLOSED ENVELOPE IN TIME TO BE VOTED AT THE ANNUAL MEETING.
Execution of the BLUE proxy card will not affect your right to attend the Annual
Meeting and to vote in person. Any proxy may be revoked at any time prior to the
Annual Meeting by delivering a written notice of revocation or a later dated
proxy for the Annual Meeting to MMI or to the Secretary of Eastern, or by voting
in person at the particular meeting. If the blue proxy card is your latest proxy
submission and no direction is given, it will be deemed to be a direction to
vote "for" the election of MMI's Nominees and Mr. Ohnell's proposal to retain an
independent investment banking firm to seek proposals for the sale of The
Eastern Company to maximize shareholder value, and to abstain from voting on the
ratification of the appointment of independent auditors and the adoption of the
directors fee program. REMEMBER, ONLY YOUR LATEST DATED PROXY FOR THE ANNUAL
MEETING WILL COUNT. YOUR VOTE IS IMPORTANT--PLEASE ACT TODAY.
Only holders of record as of the close of business on the Record Date will
be entitled to vote. If you were a stockholder of record on the Record Date, you
will retain your voting rights for the Annual Meeting even if you sell such
Shares after the Record Date. ACCORDINGLY, IT IS IMPORTANT THAT YOU VOTE THE
SHARES HELD BY YOU ON THE RECORD DATE, OR GRANT A PROXY TO VOTE SUCH SHARES ON
THE BLUE PROXY CARD, EVEN IF YOU SELL SUCH SHARES AFTER THE RECORD DATE.
IMPORTANT INSTRUCTIONS FOR "STREET NAME" STOCKHOLDERS
If any of your Shares are held in the name of a brokerage firm, bank, bank
nominee or other institution on the Record Date, only it can vote such Shares
and only upon receipt of your specific instructions. Accordingly, please contact
the person responsible for your account and instruct that person to execute on
your behalf the BLUE proxy card. You should also sign, date and mail your proxy
when you receive it from your broker or banker. Please do so for each account
you maintain to ensure that all your shares are voted.
BACKGROUND OF MMI'S INVESTMENT IN
EASTERN AND ITS MERGER PROPOSAL
MMI acquired Shares of Eastern beginning in February, 1996, because MMI
believed that trading prices of the Shares did not adequately reflect the
potential value of Eastern's underlying business and assets. MMI initially
intended to work with management to effectuate value enhancement strategies for
all stockholders. However, after meeting with management in May, 1996, and
studying Eastern's operations and industry in June, 1996, MMI determined in
July, 1996, that the best means to maximize value for all stockholders was to
effect a sale of Eastern.
On July 16, 1996, Millbrook Capital Management Inc. ("Millbrook"), a
corporation that is primarily engaged in the business of managing investments in
publicly traded securities as well as in private companies, and the Manager of
MMI, sent a cash Merger Proposal to the Chairman of Eastern to have one of
Millbrook's portfolio companies, B.W. Elliott Manufacturing Co., Inc.
("Elliott"), acquire all
11
<PAGE>
outstanding Shares of Eastern for $15 per Share in cash. At the time of the
Merger Proposal, the cash offered represented approximately a 29% premium over
Eastern's average closing stock price for the prior thirty trading days
($11.64). The Merger Proposal also indicated that the merger price would be
subject to increase if Eastern could demonstrate additional value not reflected
in its then current stock price. The Merger Proposal is subject, among other
things, to the approval of Eastern's Board of Directors, a majority of Eastern's
public shareholders indicating support for the transaction and other customary
conditions for transactions of this nature.
Messrs. Dyson, Lifflander and Ohnell, individually, and MMI, Millbrook and
Elliott have executed agreements with respect to the joint filing of Schedules
13D and amendments thereto which have been filed with the Securities and
Exchange Commission with respect to the investment of certain of them in common
stock of Eastern. In addition, on July 16, 1996, Millbrook and Mr. Ohnell
executed a letter agreement (the "Letter Agreement") in which they agreed to
cooperate with respect to the Merger Proposal and to indemnify each other for
certain liabilities arising from certain actions or statements made in
connection with the Merger Proposal. In the Letter Agreement, Mr. Ohnell agreed
not to acquire, sell or grant a proxy with respect to Shares of Eastern without
notifying Millbrook, and he further agreed to vote Shares of Eastern that he
controls in favor of the Merger Proposal. Millbrook agreed in the Letter
Agreement to permit Mr. Ohnell to participate in the proposed acquisition of
Eastern and to permit Mr. Ohnell to agree to be a director of the entity that
was to acquire Eastern.
Additionally on July 16, 1996, the proxy given to Mr. Lifflander by Mr.
Dyson to vote the shares of capital stock of Millbrook that Mr. Dyson owns was
revoked.
On July 17, 1996, Eastern reported to the press, "In light of Eastern's
strong financial condition and prospects as an independent company, Eastern is
not looking to be sold." On July 18, 1996, and July 24, 1996, Millbrook sent
additional correspondence to the Chairman of Eastern, clarifying the
financeability of the Merger Proposal.
On July 25, 1996, in a letter to its stockholders, Eastern stated, "Your
directors concluded that the proposal was not in the best interests of The
Eastern Company, its shareholders, its employers, its customers, its creditors,
its suppliers or the communities in which it has facilities. . . ." On July 29,
1996, the Eastern Board amended Eastern's Bylaws to increase the vote required
for stockholders to amend the By-laws from 50% to 75%.
In order to be able to communicate directly with fellow stockholders, on
July 25, 1996 and August 12, 1996, Millbrook, on behalf of MMI, sent written
demands for a list of Eastern's stockholders to Eastern, which Eastern rejected.
On August 22, 1996, MMI, the Ohnell Investors and two other stockholders
issued a written request for a special meeting of stockholders to the President
of Eastern. On September 6, 1996, Eastern rejected the request for a special
meeting of stockholders and filed a lawsuit requesting a temporary and permanent
injunction and declaratory relief against MMI calling for a special meeting of
stockholders. At a hearing on September 9, 1996, the Superior Court consolidated
MMI's action filed August 15, 1996 requesting the stockholder list and Eastern's
action filed September 6, 1996 requesting an injunction against having to call a
special meeting of stockholders.
On September 20, 1996, Millbrook sent a letter to Eastern's stockholders
updating them with respect to the status of the Merger Proposal, noting the
Eastern Board's resistance and describing the litigation that was pending.
12
<PAGE>
A trial was held October 2 through October 4, 1996. In December, the
Superior Court ruled that Eastern was required to provide MMI with a
stockholders list and MMI was enjoined from calling a special meeting pursuant
to the request dated September 25, 1996.
On November 20, 1996, Mr. Ohnell sent to the Secretary of Eastern notice
that he intends to present at Eastern's 1997 Annual Meeting a stockholder
proposal requesting the Eastern Board to authorize the immediate retention of an
investment banking firm to seek proposals for the sale of Eastern to maximize
stockholder value.
On January 22, 1997, Eastern finally sent MMI a copy of its stockholders
list.
On February 5, 1997, MMI notified Eastern of its intent to nominate three
individuals to fill the three vacancies on the Eastern Board that will arise due
to their term expirations as of the 1997 Annual Meeting.
SOLICITATION OF PROXIES
Proxies may be solicited by mail, advertisement, telephone, telecopier or
other electronic means and in person. Solicitations may be made by officers,
investor relations personnel and other employees of MMI, none of whom will
receive additional compensation for such solicitations. MMI has requested banks,
brokerage houses and other custodians, nominees and fiduciaries to forward all
of its solicitation materials to the beneficial owners of the Shares they hold
of record. MMI will reimburse these record holders for customary clerical and
mailing expenses incurred by them in forwarding these materials to their
customers.
MMI has retained D.F. King for solicitation and advisory services in
connection with the solicitation for proxies at an estimated fee of $30,000,
together with reimbursement for its reasonable out-of-pocket expenses. MMI has
also agreed to indemnify D.F. King against certain liabilities and expenses,
including liabilities and expenses under the federal securities laws. D.F. King
will solicit by mail, telephone, and in person proxies for the Annual Meeting
from individuals, brokers, banks, bank nominees and other institutional holders.
It is anticipated that D.F. King will employ approximately fifty (50) persons to
solicit stockholders for the Annual Meeting.
MMI or Millbrook will pay all costs associated with the solicitation of
proxies on behalf of MMI.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
The date on which stockholders must provide notice to Eastern to have
proposals included in Eastern's proxy statement for Eastern's 1998 Annual
Meeting of shareholders is hereby incorporated by reference from Eastern's Proxy
Statement with respect to the 1997 Annual Meeting.
13
<PAGE>
OTHER INFORMATION
Certain information about MMI, Millbrook and Mr. Ernst Ohnell who, in each
case, may also assist the Agent in soliciting proxies is set forth in the
attached Schedule I. Schedule II sets forth certain information relating to
Shares beneficially owned by MMI, Millbrook and Mr. Dyson. Certain information
regarding Shares held by Eastern's Directors, nominees, management and 5%
stockholders is contained in the Eastern Proxy Statement and is incorporated
herein by reference.
MMI assumes no responsibility for the accuracy or completeness of any
information contained herein which is based on, or incorporated by reference to,
the Eastern Proxy Statement.
PLEASE INDICATE YOUR SUPPORT OF THE MMI NOMINEES BY SIGNING, DATING AND
MAILING PROMPTLY THE ENCLOSED BLUE PROXY TO MMI, C/O D.F. KING & CO., INC., 77
WATER STREET, NEW YORK, NY 10005, IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
NECESSARY IF MAILED IN THE UNITED STATES.
MMI INVESTMENTS, L.L.C.
March 5, 1997
14
<PAGE>
SCHEDULE I
INFORMATION CONCERNING THE MMI NOMINEES, MMI,
MILLBROOK AND MR. ERNST OHNELL
Participants in the solicitation with respect to the slate of directors
nominated hereby, who are collectively referred to as the "Participants", are
the following:
A. JOHN S. DYSON. Age: 53
Business Address: RR 1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK 12545
Principal Occupation or Employment: CHAIRMAN AND A DIRECTOR OF MILLBROOK
CAPITAL MANAGEMENT INC.
Number of Shares of Common Stock of The Eastern Company beneficially owned
as of the date of this notice: 178,400
B. CLAY B. LIFFLANDER
Age: 34
Business Address: RR I, BOX 167D, WING ROAD, MILLBROOK, NEW YORK 12545
Principal Occupation or Employment: PRESIDENT AND A DIRECTOR OF MILLBROOK
CAPITAL MANAGEMENT INC.
Number of Shares of Common Stock of The Eastern Company beneficially owned
as of the date of this notice: NONE.(1)
C. GEORGE M. SCHERER
Age: 42
Business Address: 37 MILFORD STREET, BINGHAMTON, NEW YORK 13902
Principal Occupation or Employment: PRESIDENT AND A DIRECTOR OF B. W.
ELLIOTT MANUFACTURING COMPANY INC.
Number of shares of Common Stock of The Eastern Company beneficially owned
as of the date of this notice: NONE.
Other information about nominee: SEE ATTACHED EXHIBIT C.
D. MMI INVESTMENTS, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY
Business Address: RR 1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK 12545
Principal Business: INVESTING IN SECURITIES
Number of Shares of Common Stock of The Eastern Company beneficially owned
as of the date of this notice: 178,400, OF WHICH 1,000 SHARES ARE HELD OF
RECORD.
- ------------------------
1 HOWEVER, MR. LIFFLANDER SERVES AS PRESIDENT AND A DIRECTOR OF MILLBROOK
CAPITAL MANAGEMENT INC., THE MANAGER OF MMI INVESTMENTS, L.L.C., WHICH IS
THE BENEFICIAL AND RECORD OWNER OF SHARES OF COMMON STOCK OF THE EASTERN
COMPANY. MR. LIFFLANDER IS ALSO A MEMBER OF MMI INVESTMENTS, L.L.C. ON JULY
16, 1996, MR. LIFFLANDER SURRENDERED THE PROXY GIVEN TO HIM BY MR. DYSON TO
VOTE THE SHARES OF CAPITAL STOCK OF MILLBROOK CAPITAL MANAGEMENT INC. THAT
MR. DYSON OWNS.
S-I-1
<PAGE>
Associates: MILLBROOK CAPITAL MANAGEMENT INC. IS THE MANAGER OF MMI
INVESTMENTS, L.L.C., AND IT BENEFICIALLY OWNS THE 178,400 SHARES OF COMMON STOCK
OF THE EASTERN COMPANY OWNED BY MMI INVESTMENTS, L.L.C.
E. MILLBROOK CAPITAL MANAGEMENT INC., A NEW YORK CORPORATION
Business Address: RR 1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK 12545
Principal Business: MANAGING INVESTMENTS IN PUBLICLY TRADED SECURITIES AND
IN PRIVATE COMPANIES
Number of Shares of Common Stock of The Eastern Company beneficially owned
as of the date of this notice: 178,400
Names and Addresses of, and Number of Shares of Common Stock of The Eastern
Company beneficially owned as of the date of this notice by, Associates:
JOHN DYSON--CHAIRMAN, SOLE STOCKHOLDER AND A DIRECTOR OF MILLBROOK CAPITAL
MANAGEMENT INC., RR1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK 12545. MR. DYSON
BENEFICIALLY OWNS THE 178,400 SHARES OF COMMON STOCK OF THE EASTERN COMPANY
OWNED BY MMI INVESTMENTS, L.L.C.
CLAY LIFFLANDER--PRESIDENT AND A DIRECTOR OF MILLBROOK CAPITAL MANAGEMENT
INC., RR 1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK, 12545. MR. LIFFLANDER
BENEFICIALLY OWNS NO SHARES OF THE EASTERN COMPANY.(2)
ALAN RIVERA--CHIEF FINANCIAL OFFICER AND A DIRECTOR OF MILLBROOK CAPITAL
MANAGEMENT INC., RR 1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK, 12545. MR.
RIVERA BENEFICIALLY OWNS NO SHARES OF THE EASTERN COMPANY.
DAVID BOVA--VICE PRESIDENT AND A DIRECTOR OF MILLBROOK CAPITAL MANAGEMENT
INC., RR 1, BOX 167D, WING ROAD, MILLBROOK, NEW YORK, 12545. MR. BOVA
BENEFICIALLY OWNS NO SHARES OF THE EASTERN COMPANY.
F. ERNST OHNELL
Business Address: 2 GREENWICH PLAZA, SUITE 100, GREENWICH, CONNECTICUT,
06830
Principal Occupation: CHIEF EXECUTIVE OFFICER OF OHNELL CAPITAL CORPORATION,
WHICH IS IN THE BUSINESS OF MERCHANT BANKING.
Number of Shares of Common Stock of The Eastern Company beneficially owned
as of the date of this notice: 89,800, WHICH INCLUDES 52,050 SHARES HELD
DIRECTLY AND OF RECORD BY MR. OHNELL, AS WELL AS 9,300 SHARES OWNED BY THE
OHNELL FAMILY FOUNDATION OF WHICH MR. OHNELL IS TRUSTEE AND 25,450 SHARES AND
3,000 SHARES OWNED BY HIS EMANCIPATED ADULT CHILDREN AND HIS WIFE, RESPECTIVELY,
WITH RESPECT TO WHICH MR. OHNELL HOLDS AN IRREVOCABLE PROXY.
- ------------------------
2 HOWEVER, MR. LIFFLANDER SERVES AS PRESIDENT AND A DIRECTOR OF MILLBROOK
CAPITAL MANAGEMENT INC., THE MANAGER OF MMI INVESTMENTS, L.L.C., WHICH IS
THE BENEFICIAL AND RECORD OWNER OF SHARES OF COMMON STOCK OF THE EASTERN
COMPANY. MR. LIFFLANDER IS ALSO A MEMBER OF MMI INVESTMENTS, L.L.C. ON JULY
16, 1996, MR. LIFFLANDER SURRENDERED THE PROXY GIVEN TO HIM BY MR. DYSON TO
VOTE THE SHARES OF CAPITAL STOCK OF MILLBROOK CAPITAL MANAGEMENT INC. THAT
MR. DYSON OWNS.
S-I-2
<PAGE>
SCHEDULE II
SHARES BENEFICIALLY OWNED BY MMI, MILLBROOK AND MR. DYSON
SCHEDULE OF TRANSACTIONS
PURCHASES OF COMMON STOCK OF THE EASTERN COMPANY
BY MMI INVESTMENTS, L.L.C.
<TABLE>
<CAPTION>
DATE SHARES PRICE PER SHARE
- --------- --------- -----------------
<S> <C> <C>
02/05/96.. 17,300 12.25
02/09/96.. 7,000 12.50
02/12/96.. 700 12.50
02/14/96.. 14,200 12.19
02/20/96.. 4,400 12.00
02/27/96.. 400 12.00
02/29/96.. 3,000 12.00
03/04/96.. 2,000 11.88
03/05/96.. 10,500 12.00
03/05/96.. 1,000 11.88
03/07/96.. 2,000 12.00
03/07/96.. 3,600 12.13
03/11/96.. 200 12.00
03/13/96.. 44,600 12.25
03/22/96.. 800 11.95
03/25/96.. 600 12.00
03/26/96.. 300 12.00
03/27/96.. 600 12.00
03/28/96.. 700 12.00
03/29/96.. 1,000 12.00
04/02/96.. 1,100 11.88
04/04/96.. 9,900 12.00
04/09/96.. 4,100 11.88
04/10/96.. 1,900 11.75
04/29/96.. 10,400 11.50
04/30/96.. 500 11.63
05/01/96.. 500 11.88
05/02/96.. 6,100 11.88
05/03/96.. 6,000 12.39
05/06/96.. 7,500 12.48
07/08/96.. 500 11.75
07/16/96.. 1,000 11.75
07/16/96.. 10,000 13.88
07/18/96.. 2,000 13.31
08/15/96.. 1,000 12.75
09/10/96.. 1,000 13.38
</TABLE>
In connection with the above-referenced transactions, MMI used approximately
$1.4 million of margin loans to finance these purchases. These margin loans were
with brokers under customary terms and conditions.
S-II-1
<PAGE>
IMPORTANT
YOUR VOTE IS IMPORTANT. NO MATTER HOW MANY SHARES YOU OWN, PLEASE SUPPORT
MMI IN ITS EFFORTS TO MAXIMIZE THE VALUE OF ALL EASTERN SHARES BY VOTING YOUR
PROXY FOR THE ELECTION OF THE MMI NOMINEES. PLEASE TAKE THESE EASY STEPS:
SIGN the enclosed BLUE proxy card.
DATE the enclosed BLUE proxy card.
MAIL the enclosed BLUE proxy card TODAY.
Remember, if you have already submitted a proxy to Eastern for the Annual
Meeting, you may change your vote to a vote FOR the election of the MMI Nominees
at any time by signing, dating and mailing the enclosed BLUE proxy card for the
Annual Meeting, which must be dated after any proxy you may have submitted to
Eastern. Only your latest dated proxy for the Annual Meeting will count at such
meeting.
IMPORTANT INSTRUCTIONS FOR "STREET NAME" SHAREHOLDERS
If any of your Shares are held in the name of a brokerage firm, bank, bank
nominee or other institution, only it can vote such Shares and only upon receipt
of your specific instructions. Accordingly, please contact the person
responsible for your account and instruct that person to execute the BLUE proxy
card. You should also sign, date and mail your proxy when you receive it from
your broker or banker. Please do so for each account you maintain to ensure that
all your shares are voted.
If you have any questions or require any assistance, please contact D.F.
King & Co., Inc. at the address set forth below.
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NEW YORK 10005
1-800-859-8511
CALL TOLL-FREE
<PAGE>
THE EASTERN COMPANY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY MMI INVESTMENTS, L.L.C. ("MMI")
The undersigned stockholder of The Eastern Company hereby appoints each of
John S. Dyson, Clay B. Lifflander and George M. Scherer, and each of them with
full power of substitution, for and in the name of the undersigned, to represent
and to vote, as designated below, all shares of common stock of The Eastern
Company that the undersigned is entitled to vote if personally present at the
1997 Annual Meeting of Stockholders of The Eastern Company to be held on March
26, 1997, and at any adjournment or postponement thereof. The undersigned hereby
revokes any previous proxies with respect to the matters covered by this Proxy.
MMI RECOMMENDS A VOTE FOR PROPOSAL 1.
(Please mark each proposal with an "X" in the appropriate box)
1. ELECTION OF DIRECTORS:
Election of John S. Dyson, Clay B. Lifflander and George M. Scherer as Directors
whose terms expire in 2000.
/ / FOR all nominees except as marked below / / WITHHOLD AUTHORITY
for all nominees
(INSTRUCTION: To withhold authority to vote for one or more nominees, mark FOR
above and print the name(s) of the person(s) with respect to whom you wish to
withhold authority to vote in the space provided below.)
- --------------------------------------------------------------------------------
MMI MAKES NO RECOMMENDATION REGARDING PROPOSAL 2.
2. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS.
/ / FOR / / AGAINST / / ABSTAIN
MMI MAKES NO RECOMMENDATION REGARDING PROPOSAL 3.
3. ADOPTION OF DIRECTORS FEE PROGRAM.
/ / FOR / / AGAINST / / ABSTAIN
MMI RECOMMENDS A VOTE FOR PROPOSAL 4.
4. APPROVAL OF THE STOCKHOLDER PROPOSAL MADE BY MR. ERNST OHNELL, A
PARTICIPANT IN MMI'S PROXY SOLICITATION GROUP, FOR THE EASTERN COMPANY TO RETAIN
AN INDEPENDENT INVESTMENT BANKING FIRM TO SEEK PROPOSALS FOR THE SALE OF THE
EASTERN COMPANY TO MAXIMIZE SHAREHOLDER VALUE.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURMENT THEREOF, IF
SUCH OTHER BUSINESS ADVERSELY AFFECTS THE INTERESTS OF MMI.
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE
PROVIDED.
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE DEEMED TO BE A DIRECTION TO VOTE "FOR" PROPOSALS 1 AND 4, AND TO ABSTAIN FROM
VOTING ON PROPOSALS 2 AND 3.
Please date and sign this proxy
exactly as your name appears hereon.
-------------------------------------
(Signature)
-------------------------------------
(Signature, if held jointly)
-------------------------------------
(Title)
DATED:_________________________, 1997
When shares are held by joint
tenants, both should sign. When
signing as attorney-in-fact,
executor, administrator, trustee,
guardian, corporate officer or
partner, please give full title as
such. If a corporation, please sign
in corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
<PAGE>
[MMI INVESTMENT LETTERHEAD]
YOU DESERVE A CHANCE
TO MAXIMIZE THE VALUE OF
YOUR EASTERN COMPANY SHARES
March 5, 1997
Dear Fellow Stockholder:
We are writing to ask your support to elect our three nominees to The
Eastern Company's nine person Board of Directors. MMI Investments is one of
Eastern's largest stockholders, owning 178,400 shares or approximately 6.6% of
Eastern's outstanding common stock. MMI strongly believes that our interests are
identical to yours--TO MAXIMIZE THE VALUE OF OUR MUTUAL INVESTMENT IN EASTERN.
Our program is simple, straightforward and of obvious benefit to all Eastern
Company stockholders:
MMI NOMINEES ARE COMMITTED TO MAXIMIZING EASTERN STOCKHOLDER VALUE
THROUGH THE SOLICITATION OF OFFERS, BY AN INDEPENDENT INVESTMENT
BANK, FOR THE SALE OF EASTERN AT AN ATTRACTIVE PRICE.
MMI is taking this action because Eastern's incumbent Board of Directors has
consistently demonstrated their lack of interest in enhancing stockholder value.
Instead, their focus appears to be on maximizing management compensation and
entrenching themselves. We urge you not to support these stewards of poor
performance and caution you not to sign any proxy card Eastern may have sent to
you. They no longer deserve your trust. TO SUPPORT OUR NOMINEES--QUALIFIED
INDIVIDUALS COMMITTED TO MAXIMIZING THE VALUE OF YOUR EASTERN SHARES--PLEASE
SIGN, DATE AND MAIL YOUR MMI BLUE PROXY CARD.
TAKE A CLOSE LOOK AT EASTERN'S RECORD OF FAILURE
Only a few months ago, we wrote to you and told you about our proposal to
acquire Eastern for cash at what would have been approximately a 29% premium to
market.(1) We also told you that your Board of Directors rejected that proposal
and refused to engage with us in any constructive dialogue DESPITE OUR EXPRESSED
WILLINGNESS TO INCREASE OUR OFFER. In light of Eastern's continuing record of
failure, you should ask yourself if your Board's actions were in your own best
interests. Since our letter to you, we have received many expressions of support
and we are appreciative. Sadly, however, nothing at Eastern has changed.
MMI believes that Eastern's financial performance paints a dismal record of
failure and that management has failed to maximize the potential return on
stockholders' equity due to a lack of foresight and planning. Further,
management's interests have become divorced from stockholders' interests.
CONSIDER THE FOLLOWING:
- Under current management, Eastern's income from continuing operations has
declined 27% from approximately $3.7 million in 1990 to approximately $2.7
million in 1995. During this same time period sales have been virtually
stagnant.
- ------------------------
(1) Based on Eastern's average closing stock price for the prior thirty trading
days ($11.64).
<PAGE>
- Eastern's record of failure continued unabated in 1996 despite our
nation's strong economy. While many public companies enjoyed record years,
Eastern's sales decreased marginally (-2.5%), while income from continuing
operations plummeted a staggering 68%.
- Not only have stockholders been hurt by Eastern's poor performance, but
employees of Eastern have also suffered. The total number of Eastern
employees has declined from 656 in December 1989 to 489 in December 1995.
- Eastern's financial performance has suffered, in our view, due to
management's failure to execute its stated strategy of making strategic
acquisitions. Year after year management tells you of their strategy to
grow the Company through strategic acquisitions. Yet, Eastern's Board and
management have failed to successfully execute this strategy.
NOTWITHSTANDING THEIR CONSTANT PREDICTIONS FOR A FINANCIAL RECOVERY,
EASTERN'S MANAGEMENT HAS CONSISTENTLY FAILED TO RESPOND TO EASTERN'S DECLINING
FINANCIAL PERFORMANCE AND HAS BEEN UNABLE TO REINFORCE ITS CLAIMS WITH TANGIBLE
RESULTS. IN OUR VIEW, EASTERN'S RHETORIC IS NOTHING MORE THAN AN EFFORT TO
DISGUISE ITS LONG-TERM RECORD OF FAILURE AND JUSTIFY MANAGEMENT'S EXCESSIVE
COMPENSATION--ALL TO THE DETRIMENT OF EASTERN'S STOCKHOLDERS.
STOCKHOLDER AND MANAGEMENT INTERESTS DIVORCED
Despite poor results and an anemic stock price, Eastern's management has
hardly suffered. From 1990 to 1995, Eastern's top three officers, Messrs. Sweet,
McMillen and Whitmore, received cumulative compensation of $4,318,815. During
this same period, Eastern stockholders received dividends amounting to
$7,273,000. In other words, Eastern's management received as compensation more
than 59% of the total dividends that Eastern's stockholders received from 1990
to 1995.
EASTERN'S STOCKHOLDERS HAVE SUFFERED
The total return on investment in Eastern from the end of fiscal year 1989
until the end of June 1996, the month before MMI delivered its acquisition
proposal, was approximately 23%, a mere 3.5% average return per annum. To put
this anemic record into perspective, an investment in Short Term U.S. Treasury
Notes, one of the safest investments available, would have generated total
returns of approximately 55% over this same period. A picture best tells the
story--consider how you have fared:
EASTERN'S RECORD OF FAILURE
The graph below, which incorporates data regarding Eastern Common Stock, the
Wilshire 5000 Index and the Standard & Poor's Manufacturing Diversified Index
supplied in the Eastern Proxy Statement, sets forth Eastern'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 six
years) compared to the Wilshire 5000 Index, the Standard & Poor's Manufacturing
Diversified Index, the Dow Jones Industrial Average and an investment in Short
Term U.S. Treasury Notes (1-3 years). The results are startling! A $100
investment in Eastern provided to you the lowest return of ANY investment,
including Short Term Treasury Notes -- the investment in Eastern would be worth
$138 while an investment in Short Term Treasury Notes would be worth $147, a 6%
difference! A similar investment in the Standard & Poor's Manufacturing
Diversified Index would be worth $313, a 56% difference!
2
<PAGE>
6 YEAR STOCK PERFORMANCE GRAPH
CUMULATIVE TOTAL RETURN BASED ON REINVESTMENT OF $100 BEGINNING IN 12/90
[Graph showing cumulative total return based on reinvestment of $100 from
December 1990 to December 1996 -- Comparison between Eastern Common Stock,
Wilshire 500 Index, Standard & Poor's Manufacturing Diversified Index,
Dow Jones Industrial Average and Short Term Treasury Notes]
<TABLE>
<CAPTION>
Dates
SPMAND DJIA WILSHIRE TREASURY NOTE EML
<S> <C> <C> <C> <C> <C>
Dec-90 100 100 100 100 100
Dec-91 123 124 134 112 77
Dec-92 133 133 146 119 95
Dec-93 161 156 163 125 113
Dec-94 167 164 163 126 126
Dec-95 235 224 222 140 124
Dec-96 313 289 269 147 138
</TABLE>
<TABLE>
<S> <C>
Standard & Poor's Manufacturing Diversified Index................. +213%
Dow Jones Industrial Average...................................... +189%
Wilshire 5000 Index............................................... +169%
Short Term U.S. Treasury Notes.................................... + 47%
Eastern Common Stock.............................................. + 38%
</TABLE>
EASTERN'S STOCKHOLDERS DESERVE A BOARD OF DIRECTORS THAT WILL MAXIMIZE
STOCKHOLDER VALUE AND A MANAGEMENT TEAM COMMITTED TO THAT GOAL RATHER THAN TO
PROTECTING ITS OWN INTERESTS, INCLUDING THEIR FAT PAYCHECKS, AND ITS
ENTRENCHMENT. WE URGE YOU TO SUPPORT THE MMI NOMINEES WHO ARE COMMITTED TO
MAXIMIZING STOCKHOLDER VALUE BY SIGNING, DATING AND PROMPTLY MAILING YOUR BLUE
PROXY CARD. YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY.
MMI NOMINEES ARE COMMITTED TO
MAXIMIZING STOCKHOLDER VALUE
All MMI Nominees are committed to enhancing stockholder value through the
solicitation of offers by an independent investment bank for the sale of Eastern
at an attractive price, or in the absence of a receipt of an attractive offer,
the implementation of other strategies that this bank might recommend aimed at
enhancing stockholders' returns. All three nominees have many years of
experience and expertise in business decision making, acquisitions and
management. The diversity they offer is necessary to be able to evaluate all
possible options for Eastern. We are willing and able to lead Eastern forward
(that is, after all, the job of the Board!) If elected, the MMI Nominees will,
subject to their fiduciary duties, seek to cause the Eastern Board of Directors
to retain an independent investment
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bank to seek proposals for the sale of Eastern and support a sale proposal
recommended by such an independent investment bank whether or not the proposal
came from MMI. To make it happen though, we need your help.
YOUR VOTE IS IMPORTANT
We urge you to send a strong and clear message to your Board of Directors
that you want them to actively pursue the sale of Eastern to maximize the value
of your investment. You may expect Eastern will try to convince you that better
days are ahead and that they have a plan to increase value. Remember, you've
heard that tune before. Don't be fooled-- they are just trying to maintain their
positions and excessive management compensation and all at a steep cost to you.
Don't forget, it's your Company, not theirs. Vote for the qualified MMI nominees
and for the stockholder proposal encouraging the sale of Eastern. SUPPORT THE
MAXIMIZATION OF YOUR INVESTMENT BY SIGNING, DATING AND MAILING YOUR BLUE PROXY
TODAY.
You, the true owners of Eastern, will make this important decision. Please
act in your own best interest. THE CURRENT BOARD HAD ITS CHANCE, NOW IT IS YOUR
TURN.
We thank you for your support.
Sincerely,
/s/ John S. Dyson
John S. Dyson
/s/ Clay B. Lifflander
Clay B. Lifflander
/s/ George M. Sherer
George M. Scherer
IMPORTANT
1. Be sure to vote on the BLUE proxy card. Vote "FOR" the MMI nominees and
"FOR" the stockholder proposal. We urge you not to sign any proxy card which
is sent to you by Eastern, even as a protest vote against the Board of
Directors. Remember, each properly executed proxy you submit revokes all
prior proxies.
2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the party responsible for your account and direct
him/her to vote on the BLUE PROXY CARD "FOR" MMI's nominees, and "FOR" the
stockholder proposal set forth by Mr. Ernst Ohnell, who is a participant in
MMI's proxy solicitation group. Mr. Ohnell has proposed that Eastern retain
an independent investment banking firm to seek proposals for the sale of
Eastern to maximize shareholder value. You should also return your MMI proxy
by mail once received.
3. If you have questions or need assistance in voting your shares, please
contact:
D.F. KING & CO., INC.
1-800-859-8511 (TOLL-FREE)
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