10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from	to
Commission file number	1-367

THE L. S. STARRETT COMPANY

(Exact name of registrant as specified in its charter)

Massachusetts	04-1866480
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

121 Crescent Street, Athol, Massachusetts	01331-1915
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code 978-249-3551

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common - $1.00 Per Share Par Value	SCX	New York Stock Exchange
Class B Common - $1.00 Per Share Par Value	Not applicable	Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check One):

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐    No ☒

Common Shares outstanding as of	October 31, 2020
Class A Common Shares	6,434,815
Class B Common Shares	651,200

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THE L. S. STARRETT COMPANY

CONTENTS

			Page No.
Part I.	Financial Information:
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets – September 30, 2020 (unaudited) and June 30, 2020	3
		Consolidated Statements of Operations (unaudited)– three months ended September 30, 2020 and September 30, 2019	4
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) – three months ended September 30, 2020 and September 30, 2019	5
		Consolidated Statements of Stockholders' Equity (unaudited) – three  months ended September 30, 2020 and September 30, 2019	6
		Consolidated Statements of Cash Flows (unaudited) - three months ended September 30, 2020 and September 30, 2019	7
		Notes to Unaudited Consolidated Financial Statements	8-18
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	22
Part II.	Other Information:
	Item 1A.	Risk Factors	23
	Item 6.	Exhibits	25
SIGNATURES			26

2

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

	(unaudited) 09/30/2020		(audited) 06/30/2020
ASSETS
Current assets:
Cash	$	11,561	$	13,458
Accounts receivable (less allowance for doubtful accounts of $597 and $736, respectively)	30,629		29,012
Inventories	50,076		52,987
Prepaid expenses and other current assets	8,894		8,641
Total current assets	101,160		104,098
Property, plant and equipment, net	37,156		37,090
Right of use assets	4,213		4,465
Deferred tax assets, net	23,914		21,018
Intangible assets, net	4,948		4,997
Goodwill	1,015		1,015
Total assets	$	172,406	$	172,683
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	5,605	$	4,532
Current lease liability	1,672		1,905
Accounts payable	9,409		7,579
Accrued expenses	8,278		8,838
Accrued compensation	4,671		4,980
Total current liabilities	29,635		27,834
Other tax obligations	2,578		2,532
Long-term lease liability	2,651		2,655
Long-term debt, net of current portion	21,227		26,341
Postretirement benefit and pension obligations	66,113		67,338
Total liabilities	122,204		126,700
Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,342,031 outstanding at September 30, 2020 and 6,308,025 outstanding at June 30, 2020)	6,342		6,308
Class B Common stock$1 par (10,000,000 shares authorized; 651,816 outstanding at September 30, 2020 and 679,680 outstanding at June 30, 2020	652		680
Additional paid-in capital	56,117		55,762
Retained earnings	62,764		58,648
Accumulated other comprehensive loss	(75,673)		(75,415)
Total stockholders' equity	50,202		45,983
Total liabilities and stockholders’ equity	$	172,406	$	172,683

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands except per share data) (unaudited)

	3 Months Ended
	09/30/2020			09/30/2019
Net sales	$	49,411		$	52,114
Cost of goods sold	33,839			34,411
Gross margin	15,572			17,703
% of Net sales	31.5		%	34.0		%
Restructuring charges	346			—
Selling, general and administrative expenses	13,391			16,258
Operating income	1,835			1,445
Other (expense)	(1)			(169)
Income before income taxes	1,834			1,276
Income tax (benefit) expense	(2,282)			498
Net income	$	4,116		$	778
Basic income per share	$	0.59		$	0.11
Diluted income per share	$	0.57		$	0.11
Weighted average outstanding shares used in per share calculations:
Basic	6,988			6,904
Diluted	7,245			7,006

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss)

(in thousands) (unaudited)

	3 Months Ended
	09/30/2020		09/30/2019
Net income	$	4,116	$	778
Other comprehensive income (loss):
Currency translation (loss), net of tax	(236)		(3,739)
Pension and postretirement plans, net of tax	(22)		(20)
Other comprehensive (loss)	(258)		(3,759)
Total comprehensive income (loss)	$	3,858	$	(2,981)

See Notes to Unaudited Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

(in thousands) (unaudited)

For the Three Month Period Ended September 30, 2020:

	Common Stock Outstanding				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Class A		Class B
Balance June 30, 2020	$	6,308	$	680	$	55,762	$	58,648	$	(75,415)	$	45,983
Total comprehensive income (loss)	—		—		—		4,116		(258)		3,858
Repurchase of shares	—		(2)		(4)		—		—		(6)
Stock-based compensation	8		—		359		—		—		367
Conversion	26		(26)		—		—		—		—
Balance September 30, 2020	$	6,342	$	652	$	56,117	$	62,764	$	(75,673)	$	50,202
Accumulated balance consists of:
Translation loss									$	(62,110)
Pension and postretirement plans, net of taxes									(13,563)
									$	(75,673)

For the Three Month Period Ended September 30, 2019:

	Common Stock Outstanding				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Class A		Class B
Balance June 30, 2019	$	6,207	$	690	$	55,276	$	80,487	$	(59,281)	$	83,379
Total comprehensive income (loss)	—		—		—		778		(3,759)		(2,981)
Repurchase of shares	—		(2)		(8)		—		—		(10)
Stock-based compensation	57		—		157		—		—		214
Conversion	6		(6)		—		—		—		—
Balance September 30, 2019	$	6,270	$	682	$	55,425	$	81,265	$	(63,040)	$	80,602
Accumulated balance consists of:
Translation loss									$	(53,297)
Pension and postretirement plans, net of taxes									(9,743)
									$	(63,040)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands) (unaudited)

	3 Months Ended
	09/30/2020		09/30/2019
Cash flows from operating activities:
Net income	$	4,116	$	778
Non-cash operating activities:
Depreciation	1,360		1,212
Amortization	300		575
Stock-based compensation	367		214
Net long-term tax obligations	17		26
Deferred taxes	(2,822)		141
Postretirement benefit and pension obligations	4		30
Working capital changes:
Accounts receivable	(1,656)		3,087
Inventories	3,194		(5,091)
Other current assets	(324)		(428)
Other current liabilities	678		(2,796)
Prepaid pension expense	(1,609)		(1,281)
Other	38		49
Net cash provided by (used in) operating activities	3,663		(3,484)
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,543)		(2,625)
Software development	(251)		(399)
Net cash used in investing activities	(1,794)		(3,024)
Cash flows from financing activities:
Proceeds from borrowing	4,462		2,500
Debt repayments	(8,475)		(1,039)
Shares repurchased	(6)		(10)
Net cash (used in) provided by financing activities	(4,019)		1,451
Effect of exchange rate changes on cash	253		(15)
Net decrease in cash	(1,897)		(5,072)
Cash, beginning of period	13,458		15,582
Cash, end of period	$	11,561	$	10,510
Supplemental cash flow information:
Interest paid	$	201	$	269
Income taxes paid, net	1,224		594

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

September 30, 2020

Note 1:    Basis of Presentation and Summary of Significant Account Policies

The unaudited interim consolidated financial statements as of and for the three months ended September 30, 2020 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. The balance as of June 30, 2020 has been derived from the audited consolidated financial statements as of and for the year ended June 30, 2020.  Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2020 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Throughout the COVID-19 pandemic crisis, the Company's main focus has been on protecting the health and well-being of it's employees, and the long-term financial health of the Company. As anticipated, the COVID-19 pandemic has had a negative impact on global sales. It remains very difficult for management to predict when this crisis will have reached its peak and when sales and order intake resume their pre-pandemic levels. Because of this remaining uncertainty, management has conducted several scenario planning exercises and is prepared to take additional necessary steps to preserve the longer-term financial health of the Company. To the extent that pandemic-related events do not provide evidence about conditions that existed at the balance-sheet date, the Company considers it necessary to disclose it cannot estimate all aspects of the impact on the financial statements as a result of COVID-19.

Note 2:    Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the consolidated financial statements entitled “Financial Information by Segment & Geographic Area” included in our Annual Report on Form 10-K for the year ended June 30, 2020. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below.

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There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended September 30, 2020
Sales1	$	25,984	$	23,427	$	—	$	49,411
Operating Income (Loss)	$	839	$	2,830	$	(1,834)	$	1,835
Three Months ended September 30, 2019
Sales2	$	31,009	$	21,105	$	—	$	52,114
Operating Income (Loss)	$	2,206	$	1,163	$	(1,924)	$	1,445

1.Excludes $746 of North American segment intercompany sales to the International segment, and $2,786 of International segment intercompany sales to the North American segment.

2.Excludes $968 of North American segment intercompany sales to the International segment, and $4,242 of International segment intercompany sales to the North American segment.

Note 3:    Revenue from Contracts with Customers

On July 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all the related amendments (“ASC Topic 606”), using the modified retrospective method. In addition, the Company elected to apply certain of the permitted practical expedients within the revenue recognition guidance and make certain accounting policy elections, including those related to significant financing components, sales taxes and shipping and handling activities. Most of the changes resulting from the adoption of ASC Topic 606 on July 1, 2018 were changes in presentation within the Unaudited Consolidated Balance Sheet. Therefore, while the Company made adjustments to certain opening balances on its July 1, 2018 Unaudited Consolidated Balance Sheet, the Company made no adjustment to opening Retained Earnings.

The core principle of ASC Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The application of the FASB’s guidance on revenue recognition requires the Company to recognize the amount of revenue and consideration that the Company expects to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which requires us to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation.

The Company accounts for a contract or purchase order when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the product passes to the customer, which is upon shipment, unless otherwise specified within the customer contract or on the purchase order as delivery, and is recognized at the amount that reflects the consideration the Company expects to receive for the products sold, including various forms of discounts. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Contracts with customers are evaluated to determine if there are separate performance obligations related to timing of product shipment that will be satisfied in different accounting periods. When that is the case, revenue is deferred until each performance obligation is met. No revenue was deferred as of September 30, 2020 and 2019. Purchase orders are of durations less than one year. As such, the Company applies the practical expedient in ASC paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, for which work has not yet been performed.

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Certain taxes assessed by governmental authorities on revenue producing transactions, such as value added taxes, are excluded from revenue and recorded on a net basis.

Performance Obligations

The Company’s primary source of revenue is derived from the manufacture and distribution of metrology tools and equipment, saw blades and related products sold to distributors. The Company recognizes revenue for sales to our customers when transfer of control of the related good or service has occurred. All of the Company’s revenue was recognized under the point in time approach for the three months ended September 30, 2020 and 2019. Contract terms with certain metrology equipment customers could result in products and services being transferred over time as a result of the customized nature of some of the Company’s products, together with contractual provisions in the customer contracts that provide the Company with an enforceable right to payment for performance completed to date; however, under typical terms, the Company does not have the right to consideration until the time of shipment from its manufacturing facilities or distribution centers, or until the time of delivery to its customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time may be slightly accelerated compared to the Company’s right to consideration at the time of shipment or delivery.

The Company’s typical payment terms vary based on the customer, geographic region, and the type of goods and services in the contract or purchase order. The period of time between invoicing and when payment is due is typically not significant. Amounts billed and due from the Company’s customers are classified as accounts receivables on the Consolidated Balance Sheets. As the Company’s standard payment terms are usually less than one year, the Company has elected the practical expedient under ASC paragraph 606-10-32-18 to not assess whether a contract has a significant financing component. 

The Company’s customers take delivery of goods, and they are recognized as revenue at the time of transfer of control to the customer, which is usually at the time of shipment, unless otherwise specified in the customer contract or purchase order. This determination is based on applicable shipping terms, as well as the consideration of other indicators, including timing of when the Company has a present right to payment, when physical possession of products is transferred to customers, when the customer has the asset, and provisions in contracts regarding customer acceptance.

While unit prices are generally fixed, the Company provides variable consideration for certain customers, typically in the form of promotional incentives at the time of sale. The Company utilizes the most likely amount to estimate the effect of uncertainty on the amount of variable consideration to which the Company would be entitled. The most likely amount method considers the single most likely amount from a range of possible consideration amounts. The most likely amounts are based upon the contractual terms of the incentives and historical experience with each customer. The Company records estimates for cash discounts, promotional rebates, and other promotional allowances in the period the related revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are presented within accrued expenses on the Consolidated Balance Sheets. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales and costs associated with shipping and handling are included in cost of sales. The Company has concluded that its estimates of variable consideration are not constrained according to the definition within the new standard. Additionally, the Company applies the practical expedient in ASC paragraph 606-10-25-18B and accounts for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity, rather than a separate performance obligation.

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet. As of September 30, 2020, and June 30, 2020, the balance of the return asset is $0.1 million and was $0.1 million and the balance of the refund liability is $0.2 million and was $0.2 million. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Consolidated Balance Sheets.

The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to 1 year. The Company does not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had no contract asset balances, but had

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contract liability balances of $0.4 million and $0.4 million at September 30, 2020 and June 30, 2020 located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in two reportable segments: North America and International. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three months ended September 30, 2020 and 2019 (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
North America
United States	$	24,337	$	28,624
Canada & Mexico	1,647		2,385
	25,984		31,009
International
Brazil	14,908		12,822
United Kingdom	4,995		5,231
China	1,581		1,514
Australia & New Zealand	1,943		1,538
	23,427		21,105
Total Sales	$	49,411	$	52,114

Note 4:    Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement ('Topic 820'): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The adoption in fiscal 2020 of this standard did not have a material impact on the Company’s financial position and results of operations upon adoption.

Recently Issued Accounting Standards not yet adopted:

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption was permitted for annual periods beginning after December 15, 2018, and interim periods therein. This pronouncement was extended for Small Reporting Companies and for the Company until 2023. The Company is currently assessing the effect, if any, that ASU 2018-14 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14

11

removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2020. The amendments in ASU 2018-14 must be applied on a retrospective basis. The Company is currently assessing the effect, if any, that ASU 2018-14 will have on its consolidated financial statements.

Note 5:    Leases

Operating lease cost amounted to $0.6 million and $0.6 million for three months period ended September 30, 2020 and 2019. As of September 30, 2020, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	4,213	$	4,323	$	5,080

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately 9.0% and 4.0 years. As of September 30, 2020, the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases are de minimis.

The Company entered into $0.1 million in operating lease commitments during the three months ended September 30, 2020. At September 30, 2020, the Company had the following fiscal year minimum operating lease commitments (in thousands)

Three months ended September 30, 2020	Operating Lease Commitments
2021 (Remainder of year)	$	1,757
2022	1,051
2023	740
2024	707
2025	349
Thereafter	476
Subtotal	$	5,080
Imputed interest	(757)
Total	4,323

Note 6:    Stock-based Compensation

On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 Stock Plan was approved by shareholders on October 17, 2012, and the material terms of its performance goals were re-approved by shareholders at the Company’s Annual Meeting held on October 18, 2017. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.

Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of September 30, 2020, there were 9,000 stock options and 360,134 restricted stock units outstanding. There were 13,233 shares available for grant under the 2012 Stock Plan as of September 30, 2020.

For stock option grants, the fair value of each grant is estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend

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yield, and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk-free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The expected life is determined using the average of the vesting period and contractual term of the options (Simplified Method).

No stock options were granted during the three months ended September 30, 2020 and 2019.

The weighted average contractual term for stock options outstanding as of September 30, 2020 was 2.25 years.  The aggregate intrinsic value of stock options outstanding as of September 30, 2020 was less than $0.1 million. Stock options exercisable as of September 30, 2020 were 20,000 shares. In recognizing stock compensation expense for the 2012 Stock Incentive Plan, management has estimated that there will be no forfeitures of options.

The Company accounts for stock options and RSU awards by recognizing the expense of the grant date fair value ratably over vesting periods generally ranging from one year to three years. The related expense is included in selling, general and administrative expenses.

There were 289,800 RSU awards with a fair value of $3.37 per RSU granted during the three months ended September 30, 2020. There were no RSUs settled, and no RSUs forfeited during the three months ended September 30, 2020.  The aggregate intrinsic value of RSU awards outstanding as of September 30, 2020 was $1.1 million. All awards vesting in the quarter ending of September 30, 2020 are expected to be issued in the quarter ending December 31, 2020.

On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service are eligible to participate.

Compensation expense related to all stock-based plans for the three-month periods ended September 30, 2020 and 2019 was $0.3 million, and $0.1 million respectively.  As of September 30, 2020, there was $2.7 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, $1.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $1.0 million is expected to be recognized over a weighted average period of 2.2 years.

Note 7:    Inventories

Inventories consist of the following (in thousands):

	09/30/2020		06/30/2020
Raw material and supplies	$	30,066	$	26,255
Goods in process and finished parts	13,890		13,694
Finished goods	31,168		37,579
	75,124		77,528
LIFO Reserve	(25,048)		(24,541)
	$	50,076	$	52,987

Of the Company’s $50.1 million and $53.0 million total inventory at September 30, 2020 and June 30, 2020, respectively, the $25.0 million and $24.5 million LIFO reserves belong to the U.S. Precision Tools and Saws Manufacturing “Core U.S.” business. The Core U.S. business total inventory was $31.9 million on a FIFO basis and $6.9 million on a LIFO basis at September 30, 2020. The Core U.S. business had total Inventory, on a FIFO basis, of $33.1 million and $8.6 million on a LIFO basis as of June 30, 2020. The use of LIFO, as compared to FIFO, resulted in a $0.5 million increase in cost of sales for the goods sold in the period ending September 30, 2020 compared to a de minimis change in the three months ending September 30, 2019.

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Note 8:    Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 and a private software company in 2017 resulted in the recognition of goodwill totaling $4.7 million. During the fourth quarter of fiscal year 2020 the Company, considering the COVID-19 pandemic a triggering event for the private software company and Bytewise due to a drop in sales, tested impairment of intangible assets according to ASC 360 "Property, Plant and Equipment" and determined the carrying value was deemed to be recoverable at Bytewise but not at the private software company where the impairment of intangibles was calculated. The Company concluded that Intangible Assets of the private software company were impaired $2.9 million.

The Company then, according to ASC 350 Intangibles -Goodwill and Other, conducted a step one analysis performed based on the update carrying value for each reporting unit. Goodwill was determined to be impaired $0.6 million at the private software company and Goodwill of $3.0 million was impaired at the Bytewise reporting unit as of June 30, 2020. As a result, the balance of Goodwill at Bytewise is zero and $1.0 million at the private software company as of September 30, 2020.

The Company will continue to perform an annual assessment of goodwill associated with its purchase of a private software company. If future results significantly vary from current estimates, related projections, or business assumptions due to changes in industry or market conditions, the Company may be required to perform an impairment analysis prior to our annual test date if a triggering event is identified. As of September 30, 2020, we did not identify a triggering event.

Amortizable intangible assets consist of the following (in thousands):

	09/30/2020		6/30/2020
Trademarks and trade names	2,070		2,070
Completed technology	2,010		2,010
Customer relationships	630		630
Software development	9,696		9,445
Total	14,406		14,155
Accumulated amortization	(9,458)		(6,316)
Intangibles impairment	$	—	$	(2,842)
Total net balance	$	4,948	$	4,997

Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for some trademark and trade name assets. The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next five years and thereafter, is as follows (in thousands):

2021 (Remainder of year)	$	1,071
2022	1,212
2023	978
2024	707
2025	547
2026	204
Thereafter	229
Total net balance	$	4,948

Note 9:    Pension and Post-retirement Benefits

The Company has two defined benefit pension plans, one for U.S. employees and another for U.K. employees.  The Company has a postretirement medical and life insurance benefit plan for U.S. employees. The Company also has defined contribution plans.

The U.K. defined benefit plan was closed to new entrants in fiscal 2009.

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On December 21, 2016, the Company amended the U.S. defined benefit pension plan to freeze benefit accruals effective December 31, 2016. Consequently, the Plan is closed to new participants and current participants will no longer earn additional benefits after December 31, 2016.

Net periodic benefit costs for the Company's defined benefit pension plans are located in Other Income except (in the table below) for service cost. Service cost are in cost of sales and selling, general and administrative. Net periodic benefit costs consist of the following (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
Service cost	$	—	$	—
Interest cost	1,113		1,349
Expected return on plan assets	(1,108)		(1,294)
Amortization of net loss	13		10
	$	18	$	65

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
Service cost	$	21	$	18
Interest cost	51		60
Amortization of prior service credit	(134)		(134)
Amortization of net loss	42		21
	$	(20)	$	(35)

For the three month period ended September 30, 2020, the Company contributed $1.3 million in the U.S. and $0.2 million in the UK pension plans. The Company estimates that it will contribute an additional $6.4 million for the remainder of fiscal 2021.

The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of ten percent (10)% of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of accumulated other comprehensive loss.

Note 10:     Debt

Debt is comprised of the following (in thousands):

	09/30/2020		06/30/2020
Short-term and current maturities
Loan and Security Agreement (Term Loan)	1,376		597
Brazil Loans	4,229		3,935
	5,605		4,532
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	8,624		5,941
Loan and Security Agreement (Line of Credit)	12,603		20,400
	21,227		26,341
	$	26,832	$	30,873

On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement. The Amendment and Restatement waived the fixed charge coverage ratio for the quarter ended June 30, 2020. In addition, the Amendment and Restatement clarifies that certain non-cash adjustments to the

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definition of EBITDA are permitted under the Loan Agreement, as amended. In addition, the Amendment and Restatement increases the permitted borrowings from a foreign bank from $5.0 million to $15.0 million and permits the Company to draw the remainder of the outstanding balance under the Loan Agreement.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank updated its security interests in the Company’s U.S. based assets, increased the maximum interest charged on the Line Of Credit from and annual interest rate of 2.25% plus Libor to 3.50% plus Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value (NOLV) of US Inventory plus 62.5% of total appraised US real estate values. As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement and will provide additional reporting supporting the borrowing base and covenants certifications. This minimum adjusted EBITDA covenant is based on the Company’s plan for a slow pandemic recovery throughout FY21 and the impact of the Company’s restructuring plan initiatives. The Company will apply certain proceeds from the sale of US real estate assets against the principle balance of the term loans under the TD Bank loan agreement. The Agreement will revert to the existing covenant package for the quarter ending September 30, 2021 and every quarter thereafter. The Company was compliant with the minimum liquidity requirement and the minimum adjusted cumulative EBITDA required bank covenants as of September 30, 2020.

On December 31, 2019, the Company entered into the Tenth Amendment of its Loan and Security Agreement (“Tenth Amendment”). Under the revised agreement, the credit limit for the Revolving Loan was increased from $23.0 million to $25.0 million. In addition, the Company entered into a new $10.0 million 5-year Term Loan with a fixed interest rate of 4.0%. The new Term Loan will require interest only payments for 12 months and will convert to a term loan requiring both interest and principal payments commencing January 1, 2021. Also, under the Tenth Amendment, the credit limit for external borrowing was increased from $2.5 million to $5.0 million.

Total debt decreased $4.0 million during the three months ending September 30, 2020.  Availability under the Line of Credit remains subject to a borrowing base comprised of accounts receivable and inventory. The Company believes that the borrowing base will consistently produce availability under the Line of Credit of $25.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

The Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of September 30, 2020 (in thousands):

Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance
Brazil Bank	3.10	%	February 2020	February 2021	$	310
Brazil Bank	2.40	%	March 2020	February 2021	300
Brazil Bank	6.05	%	March 2020	February 2021	688
Bradesco	5.18	%	May 2020	May 2021	1,000
Brazil Bank	4.30	%	September 2020	August 2021	1,000
Santander	8.12	%	April 2020	April 2021	931
					$	4,229

Note 11:     Income Taxes

The Company is subject to U.S. federal income tax and various state, local, and foreign income taxes in numerous jurisdictions. The Company’s domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

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The Company provides for income taxes on an interim basis based on an estimate of the effective tax rate for the year. This estimate is reassessed on a quarterly basis. Discrete tax items are accounted for in the quarterly period in which they occur.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Beginning in fiscal 2019, the Company incorporated certain provisions of the Act in the calculation of the tax provision and effective tax rate, including the provisions related to the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), as well as other provisions, which limit tax deductibility of expenses.

The GILTI provisions are expected to have the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. In general, this foreign income will effectively be taxed at an additional 10.5% tax rate reduced by any available current year foreign tax credits. The ability to benefit foreign tax credits may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income and other potential limitations within the foreign tax credit calculation.

In July 2020, the IRS issued final regulations and additional proposed regulations that address the application of the high-taxed exclusion from GILTI. Under these regulations, the Company can make an annual election to exclude from its GILTI inclusion, income from its foreign subsidiaries that’s effective income tax rate exceeds 18.9% for that year. The regulations must be applied for tax years beginning after July 23, 2020 but companies have the option to apply retroactively for tax years beginning after December 31, 2017 and before July 23, 2020. In the first quarter of fiscal 2021 the Company recognized a discrete tax benefit of ($2.7) million related to the impact of electing to apply the high-tax exclusion retroactively for fiscal year 2019 and fiscal year 2020.

The tax expense for the first quarter of fiscal 2021 was a benefit of ($2.3) million on a profit before tax of $1.8 million (an effective tax rate of (124)%). Before the discrete benefits relating to legislation enacted during the first quarter in the amount of ($2.7) million related to the impact of the GILTI high-tax exclusion and ($0.2) million related to the impact of the increase in UK corporate tax rate on the net deferred tax asset, tax expense was $0.7 million or 36% of pre-tax income. This was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses. The tax expense for the first quarter of fiscal 2020 was $0.5 million on a profit before tax of $1.3 million (an effective tax rate of 39%). The tax rate for fiscal 2020 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%. The first quarter of fiscal 2020 also includes a discrete tax expense of $0.1 million relating to adjustments to the fourth quarter of fiscal 2019 balances.

U.S. Federal tax returns for years prior to fiscal 2017 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of September 30, 2020, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2015 – present. During the next twelve months, it is possible there will be a reduction of $0.1 million in long-term tax obligations due to the expiration of the statute of limitations on prior year tax returns.

Accounting for income taxes requires estimates of future benefits and tax liabilities. Due to the temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded tax assets, the Company assesses the likelihood that the asset will be realized by addressing the positive and negative evidence to determine whether realization is more likely than not to occur. If realization is in doubt because of uncertainty regarding future profitability, the Company provides a valuation allowance related to the asset to the extent that it is more likely than not that the deferred tax asset will not be realized. Should any significant changes in the tax law or the estimate of the necessary valuation allowance occur, the Company would record the impact of the change, which could have a material effect on the Company’s financial position.

No valuation allowance has been recorded for the Company’s U.S. federal and foreign deferred tax assets related to temporary differences included in taxable income. While the Company continues to believe that forecasted future taxable income provide sufficient evidence to, more likely than not, support the realization of the tax benefits provided by those differences; the impact of COVID-19 may significantly impact its ability to forecast future pre-tax earnings in certain jurisdictions. If its forecasts are significantly impacted, the Company may need to record a valuation allowance on some or all its deferred tax assets as soon as the current fiscal year end.

In the U.S., a partial valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future and certain state net operating loss carryforwards that will expire in the near future unutilized.

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Note 12:     Contingencies

The Company is involved in certain legal matters, which arise, in the normal course of business. These matters are not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

Note 13:     Restructuring

In June 2020, the Company recorded a $1.6 million restructuring charge of which $1.0 million remained in the accrual at fiscal 2020 year end. In the three months ending September 30, 2020, $0.3 million of restructuring cost were charged as a period expense and $0.3 million was charge against the accrual. The remaining balance of the accrual at September 30, 2020 was $0.7 million, plus the Company expects to charge an addition $2.0 million in the period those cost are incurred in fiscal year 2021.

The Company decided in January 2018 to vacate its facility in Mt. Airy, North Carolina, and move current operations to a smaller company owned building. The Company is also considering selling the facility with a lease back provision to accommodate remaining operations. While there are no definitive plans set yet, the Company still anticipates that the sale could happen within the current fiscal year, yet based on past experience, the immediate sale is not probable.

As of September 30, 2020, the carrying value of the building is $2.0 million, and based on comparable sales data sourced from the Company’s real estate agent, the Company believes that the current fair value of the building exceeds its carrying value.

Note 14:     Subsequent Events

On October 1, 2020, The L. S. Starrett Company (the “Company”) was notified (the “Notice”) by the New York Stock Exchange (the “NYSE”) that it was not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because the Company’s average market capitalization was less than $50 million over a consecutive 30 trading-day period and the stockholders’ equity of the Company was less than $50 million.

The Company notified the NYSE that it intends to submit a plan to cure this deficiency and return to compliance with the NYSE continued listing requirements. In order to avoid delisting under Section 802.01B, the Company has 45 days from the receipt of the Notice to submit a business plan advising the NYSE of definitive actions the Company has taken, or proposes to take, that would bring it into compliance with the market capitalization listing standards on or before April 1, 2022 (the “Cure Period”). The Company has prepared and will submit a plan on or before November 15, 2020, and stockholder's equity had already exceeded the $50.0 million minimum threshold with the quarter ending September 30, 2020. If the NYSE accepts the plan, the Company’s common stock will continue to be listed and traded on the NYSE during the Cure Period, subject to the Company’s compliance with other continued listing standards, and the Company will be subject to quarterly monitoring by the NYSE for compliance with the plan.

The Notice has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on the NYSE during the Plan Period, subject to the Company’s compliance with the other listing requirements of the NYSE. The Company’s common stock will continue to trade under the symbol “SCX,” but will have an added designation of “.BC” to indicate that the Company is not currently in compliance with NYSE continued listing standards.

On October 7, 2020, our information technology (“IT”) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time. We are investigating the incident, together with legal counsel and other incident response professionals. We do not believe that we have experienced any material losses related to the ransomware attack and were able to recover all material data. Please see Item 1A - Risk Factors for additional information.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months ended September 30, 2020 and September 30, 2019

Overview

We finished the quarter ending September 30, 2020 with sales of $49.4 million and net income of $4.1 million. Although, sales in the quarter ending September 30, 2020 were $2.7 million lower than the quarter ending September 30, 2019 , operating income was greater by $0.4 million due in large part to previous and on-going restructuring initiatives. Additionally, new GILTI legislation in the current quarter led to a favorable revision of income tax provisions of $2.7 million, and a commensurate increase in net income, which was $3.3 million favorable to the prior year quarter. We generally experience a slow first quarter on a fiscal year basis and we are still being affected by the pandemic. Given lower sales than the prior year quarter in North America of $5.0 million, operating income was $0.8 million in the quarter ending September 30, 2020, which was $1.4 million lower than the quarter ending September 30, 2019, partially due to $0.3 million in restructuring charges in the quarter ending September 30, 2020. International sales were $2.3 million higher and operating income was $1.7 million higher versus the prior year quarter.

Net Sales

Our total sales decreased $2.7 million or 5% from $52.1 million in quarter ending September 30, 2019 versus $49.4 million in the quarter ending September 30, 2020. North American sales decreased $5.0 million or 16% from $31.0 million in the quarter ending September 30, 2019 to $26.0 million in the quarter ending September 30, 2020 principally due to lower sales of $2.8 million for precision measuring tools. The high-end metrology sales were unfavorable $1.2 million from prior year quarter. The uncertainty in the market due to the COVID-19 pandemic is affecting all sales and has a greater impact on the high end metrology product lines.

International sales increased $2.3 million or 11% from $21.1 million in the quarter ending September 30, 2019 to $23.4 million in the quarter ending September 30, 2020. Brazil sales increased $2.1 million or 16% even with a 26% decline in the exchange rate during the quarter ended September 30, 2020 vs the prior year quarter. The exchange rate impact in the quarter ending September 30, 2020 versus 2019 was $3.4 million, unfavorable.

Gross Margin

Gross margin decreased $2.1 million or 12% principally due to the drop in sales volume. Gross margin as a percentage of sales went from 34% to 32% in the quarter ending September 30, 2019 versus 2020.

North American gross margins decreased $2.6 million from $9.4 million in the quarter ending September 30, 2019 to $6.8 million in the quarter ending September 30, 2020 due to the decline in revenues, reduced manufacturing utilization and lower production.

International gross margins increased $0.5 million from $8.2 million in the quarter ending September 30, 2019 to $8.7 million sales in 2020 based upon an increase in sales volume and manufacturing utilization.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $2.9 million or 18% from $16.3 million in the quarter ending September 30, 2019 to $13.4 million in 2020. Austerity measures have been taken with compensation and lower spending in distribution expenses due to lower sales in addition to $1.3 million in lower selling and $0.9 million in lower G&A expenses.

North American expenses decreased $1.2 million or 17% from $7.2 million in the quarter ending September 30, 2019 to $6.0 million in 2020. Corporate expenses were decreased $0.1 million or 5% in quarter ending September 30, 2020 as compared to 2019.

Other Income (Expense)

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Other income improved $0.2 million from expense of $0.2 million in the quarter ending September 30, 2019 to a $0.0 million income in 2020.

Income Taxes

The tax expense for the first quarter of fiscal 2021 was a benefit of ($2.3) million on a profit before tax of $1.8 million (an effective tax rate of (124%)). The first quarter of fiscal 2021 includes a discrete benefit of ($2.7) million related to the impact of enacted GILTI legislation on the fiscal 2019 and fiscal 2020 tax calculations and ($0.2) million related to the impact of the increase in the UK corporate tax rate on the net deferred tax assets. Before the discrete benefits of ($2.9) million, tax expense was $0.7 million or 36% of pre-tax income, which was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses. The tax expense for the first quarter of fiscal 2020 was $0.5 million on a profit before tax of $1.3 million (an effective tax rate of 39%). The tax rate for fiscal 2020 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%. The first quarter of fiscal 2020 also includes a discrete tax expense of $0.1 million relating to adjustments to the fourth quarter of fiscal 2019 balances.

Net Income

The Company recorded net income of $4.1 million or $0.59 per basic share in the quarter ending September 30, 2020 compared to net income of $0.8 million or $0.11 per basic share in 2019 as higher pretax profits and a higher effective tax rate related to the new tax legislation enacted in the quarter ending September 30, 2020.

Three months ended September 30, 2019 and September 30, 2018

Overview

The Company generally experiences a slow first quarter on a fiscal year basis and fiscal 2020 was no exception. Geo-political concerns significantly dampened manufacturing activity and the corresponding reaction in the Company’s distribution channels to reduced inventory levels negatively impacted incoming orders. Despite flat sales, gross margins improved $1.0 million to 34% of sales in the period ending September 30, 2019 compared to 32.1% in 2018. The key drivers for the better performance were the Company’s North American based metrology businesses.

Net sales increased $0.2 million. Operating income increased $0.5 million as higher gross margins more than offset increased Selling, General and Administrative expenses. Net income increased $0.2 million from a net income of $0.6 million or $0.08 per share in the quarter ending September 30, 2018 to net income of $0.8 million or $0.11 per share in 2019.

Net Sales

North American sales increased $0.8 million or 3% from $30.2 million in the quarter ending September 30, 2018 to $31.0 million in 2019 as a $1.1 million or 14% increase in high-end metrology products negated a modest $0.3 million decline in saw products. International sales declined $0.6 million or 3% from $21.7 million in the quarter ending September 30, 2018 to $21.1 million in 2019 due to a softening of the European economy and a weakening of the British Pound against the U. S. dollar.

Gross Margin

Gross margins in is the quarter ending September 30, 2019 increased $1.0 million to 34% of sales compared to 32.1% in 2018. North American gross margins increased $1.5 million in the quarter ending September 30, 2019 due to higher sales of higher margin capital equipment and improved margins in core products. International gross margins decreased $0.5 million in the quarter ending September 30, 2019 as compared to 2018 principally due to higher saw and hand tool material costs in Brazil.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.5 million or 3%. North American expenses were level as a $0.4 million decline in divisional expenses was offset set by a $0.4 million increase in Corporate expenses related to professional fees. International expenses increased $0.5 million primarily due to higher selling expenses in Brazil.

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Other Income (expense)

Other expense increased $0.2 million due to higher interest expense and currency translation losses.

Income Tax Expense

The tax expense for the first quarter of fiscal 2020 was $0.5 million on a profit before tax of $1.3 million (an effective tax rate of 39%). The tax expense for the first quarter of fiscal 2019 was $0.4 million on profit before tax of $0.9 million (an effective tax rate of 38%). The tax rate for both fiscal 2020 and fiscal 2019 was higher than the U.S. statutory tax rate of 21% primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal 2019, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%. The first quarter of fiscal 2020 also includes a discrete tax expense of $0.1 million relating to adjustments to the fourth quarter of fiscal 2019 balances.

Net earnings (loss)

The Company recorded net earnings of $0.8 million or $0.11 per share in the first quarter of fiscal 2020 compared to net income of $0.6 million or $0.08 per share in fiscal 2019.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Three Months Ended
	09/30/2020		09/30/2019
Cash provided by (used in) operating activities	$	3,663	$	(3,484)
Cash (used in) investing activities	(1,794)		(3,024)
Cash provided by (used in) financing activities	(4,019)		1,451
Effect of exchange rate changes on cash	253		(15)
Net (decrease) in cash	$	(1,897)	$	(5,072)

Fiscal year 2021 net cash flows for the three months ended September 30, 2020 decreased $1.9 million as cash from operations increased $3.7 million as net income was $4.1 million driven predominately by the tax benefit from new legislation and an increase in inventories. Cash from investing activities decreased $1.8 million as a result of $1.5 million in capital expenditures and $0.3 million in software development while cash provided from financing decreased $4.0 million as the Company's debt repayments were $8.5 million and borrowings $4.5 million.

Liquidity and Credit Arrangements

The Company believes it maintains sufficient liquidity and has the resources to fund its operations.  During 2020 the Company implemented a restructuring plan to address changes in its business as a result of the COVID-19 pandemic. This plan included reducing payroll, consolidation of certain operations and managing variable costs.

The Company worked with TD Bank to amend the current loan agreement which resulted in a number of changes such as amendments to the financial covenants through June 2021. The Company believes that existing cash and cash expected to be provided by future operating activities, augmented by the plans highlighted above, are adequate to satisfy its working capital, capital expenditure requirements and other contractual obligations for at least the next 12 months. If the Company's expectations are incorrect or the impact from the COVID-19 pandemic worsens then it may need to take advantage of unanticipated strategic opportunities to strengthen our financial position, which could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement. The Amendment and Restatement waived the fixed charge coverage ratio for the quarter ended June 30, 2020.

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Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank perfected its security interests in the Company’s U.S. based assets, increased the maximum interest charged on the Line Of Credit from an annual interest rate of 2.25% plus Libor to 3.50% plus Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value (NOLV) of US Inventory plus 62.5% of total appraised US real estate values. As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement. In addition, the Company will provide additional reporting to TD Bank, including monthly profit and loss statements, balance sheets, cash flow statements and forecasting. This minimum adjusted EBITDA covenant is based on the Company’s plan for a slow pandemic recovery throughout FY21 and the impact of the Company’s restructuring plan initiatives. The Company will apply certain proceeds from the sale of US real estate assets against the principle balance of the term loans under the TD Bank loan agreement. The Agreement will revert to the existing covenant package for the quarter ending September 30, 2021 and every quarter thereafter.

The effective interest rate on the borrowings under the Loan and Security Agreement during the three months ending September 30, 2020 and 2019 was 1.9% and 3.9% respectively.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any material off-balance sheet arrangements as defined under the Securities and Exchange Commission rules.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

One should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2020.

ITEM 4.    CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of September 30, 2020, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

There is a potential risk in internal controls to financial reporting due to increased stress levels and remote working of accounting and finance staff as a result of the pandemic. The Company feels this risk currently has not had a significant impact on internal control. The Company has taken action to allow remote access while working within established guidelines for access and use of its networks. Further, Sarbanes-Oxley internal control testing was on-going during the period ending September 30, 2020.

On October 7, 2020, our information technology (“IT”) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time. We are investigating the incident, together with legal counsel and other incident response professionals. We do not believe that we have experienced any material losses related to the ransomware attack and were able to recover all material data.

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PART II.    OTHER INFORMATION

ITEM 1A.    RISK FACTORS

SAFE HARBOR STATEMENT

UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s business, competition, sales, expenditures, foreign operations, plans for reorganization, interest rate sensitivity, debt service, liquidity and capital resources, and other operating and capital requirements. In addition, forward-looking statements may be included in future Company documents and in oral statements by Company representatives to securities analysts and investors. The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements. You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2020. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2020 other than what is set forth below;

On October 1, 2020, The L. S. Starrett Company (the “Company”) was notified (the “Notice”) by the New York Stock Exchange (the “NYSE”) that it was not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because the Company’s average market capitalization was less than $50 million over a consecutive 30 trading-day period and the stockholders’ equity of the Company was less than $50 million.

The Company notified the NYSE that it intends to submit a plan to cure this deficiency and return to compliance with the NYSE continued listing requirements. In order to avoid delisting under Section 802.01B, the Company has 45 days from the receipt of the Notice to submit a business plan advising the NYSE of definitive actions the Company has taken, or proposes to take, that would bring it into compliance with the market capitalization listing standards on or before April 1, 2022 (the “Cure Period”). The Company has prepared and will submit a plan on or before November 15, 2020, and stockholder's equity had already exceeded the $50m minimum threshold with the quarter ending September 30, 2020. If the NYSE accepts the plan, the Company’s common stock will continue to be listed and traded on the NYSE during the Cure Period, subject to the Company’s compliance with other continued listing standards, and the Company will be subject to quarterly monitoring by the NYSE for compliance with the plan.

The Notice has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on the NYSE during the Plan Period, subject to the Company’s compliance with the other listing requirements of the NYSE. The Company’s common stock will continue to trade under the symbol “SCX,” but will have an added designation of “.BC” to indicate that the Company is not currently in compliance with NYSE continued listing standards.

Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services. Any inadequacy, interruption, integration failure or security failure with respect to our information technology could harm our ability to effectively operate our business.

The efficient operation of the Company's business is dependent on its information systems, including its ability to operate them effectively and to successfully implement new technologies, systems, controls and adequate disaster recovery systems. In addition, the Company must protect the confidentiality of data of its business, employees, customers and other third parties. Information technology security threats -- from user error to cybersecurity attacks designed to gain unauthorized access to our systems, networks and data – are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. For example, on October 7, 2020, our information technology (“IT”) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time. We are investigating the incident, together with legal counsel and other incident response professionals. We do not believe that we have experienced any material losses related to the ransomware attack and were able to recover all material data.

These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Cybersecurity attacks could also include attacks targeting customer data or the security, integrity and/or reliability of the hardware and software installed in our products. It is possible that our information technology systems and networks, or those managed by third parties, could have vulnerabilities, which could go unnoticed for a period of time. The failure of the Company's information systems to perform as designed or its failure to implement and operate them effectively could disrupt the Company's business or subject it to liability and thereby harm its profitability. While the Company continues to enhance the applications contained in the Enterprise Resource Planning (ERP) system as well as improvements to other operating systems,

23

there can be no guarantee that the actions and controls we have implemented and are implementing, or which we cause or have caused third party service providers to implement, will be sufficient to protect our systems, information or other property.

24

ITEM 6.    EXHIBITS

31a	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31b	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32	Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
4.A	Active_87819453_7_StarrettLSCo_Rights Agreement 2020
101	The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (I) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statement of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE L. S. STARRETT COMPANY (Registrant)
Date	November 12, 2020	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	November 12, 2020	/S/R. John C. Tripp
		John C. Trip - Treasurer and CFO (Principal Accounting Officer)

26

EX-4.A

THE L.S. STARRETT COMPANY and

COMPUTERSHARE INC.

___________________________________

AMENDED AND RESTATED RIGHTS AGREEMENT

Dated as of October 30, 2020

TABLE OF CONTENTS

Page

Section 1.    Definitions	1
Section 2.    Appointment of Rights Agent	5
Section 3.    Issue of Right Certificates	5
Section 4.    Form of Right Certificates	7
Section 5.    Countersignature and Registration	7
Section 6.    Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates	8
Section 7.    Exercise of Rights; Purchase Price; Expiration Date of Rights	9
Section 8.    Cancellation and Destruction of Right Certificates	10
Section 9.    Availability of Shares of Class A Common Stock	11
Section 10.    Class A Common Stock Record Date	11
Section 11.    Adjustment of Purchase Price, Number of Shares or Number of Rights	12
Section 12.    Certificate of Adjusted Purchase Price or Number of Shares	18
Section 13.    Consolidation, Merger or Sale or Transfer of Assets or Earning Power	18
Section 14.    Fractional Rights and Fractional Shares	19
Section 15.    Rights of Action	20
Section 16.    Agreement of Right Holders	20
Section 17.    Right Certificate Holder Not Deemed a Shareholder	21
Section 18.    Concerning the Rights Agent	21
Section 19.    Merger or Consolidation or Change of Name of Rights Agent	22
Section 20.    Duties of Rights Agent	22
Section 21.    Change of Rights Agent	26
Section 22.    Issuance of New Right Certificates	27
Section 23.    Redemption	27
Section 24.    Exchange	28
Section 25.    Notice of Certain Events	30
Section 26.    Notices	30
Section 27.    Supplements and Amendments	31
Section 28.    Successors	32
Section 29.    Determinations and Actions by the Board; etc	32
Section 30.    Benefits of this Agreement	32
Section 31.    Severability	32
Section 32.    Governing Law	32
Section 33.    Counterparts; Effectiveness	33
Section 34.    Descriptive Headings	33
Section 35.    Force Majeure	33

    -1-

Exhibit A – Form of Right Certificate

Exhibit B – Summary of Rights to Purchase Shares of Class A Common Stock

    -2-

AMENDED AND RESTATED RIGHTS AGREEMENT

This Amended and Restated Rights Agreement (the “Agreement”) is dated as of October 30, 2020 by and between The L.S. Starrett Company, a Massachusetts corporation (the “Company”), and Computershare Inc., a Delaware corporation, as rights agent (the “Rights Agent”).

WHEREAS, the Company entered into a Rights Agreement, dated as of November 2, 2010 (the “Original Agreement”).

    WHEREAS, on October 30, 2020, the Board of Directors determined it desirable and in the best interests of the Company and its stockholders that the Original Agreement be replaced and superseded in its entirety by the Agreement.

WHEREAS, the Board of Directors of the Company deemed it reasonable and in the best interests of the Company to authorize the issuance of rights (collectively, the “Rights” and each individually a “Right”), each Right being a right to purchase, on the terms and subject to the provisions of this Agreement, shares of the Company’s Class A Common Stock (as hereinafter defined) (or in certain circumstances provided in this Agreement, other securities of the Company or Common Shares or other securities of certain other Persons) and authorize and declare a dividend distribution of one Right for every share of Class A Common Stock and Class B Common Stock (as hereinafter defined) of the Company outstanding at the Close of Business (as hereinafter defined) on November 9, 2020 (the “Record Date”), and has further authorized and directed the issuance of one Right with respect to each share of Class A Common Stock and Class B Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined), and the Board of Directors of the Company also determined that the consideration to be received for any shares of Class A Common Stock issued pursuant to the terms and conditions set forth herein is adequate.

NOW, THEREFORE, in consideration of the premises and mutual agreements herein set forth, the parties hereby agree as follows:

Section 1.Definitions. For purposes of this Agreement, the following terms have the meanings indicated:

(a)“Acquiring Person” shall mean any Person who or which, together with all Affiliates and Associates of such Person and with any other Person with whom such Person is Acting in Concert, shall be the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding, but shall not include (1) the Company, (2) any Subsidiary of the Company or (3) any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an “Acquiring Person” as the result of an acquisition of Common Shares by the Company that, by reducing the number of Common Shares of the Company outstanding, increases the proportionate number of Common Shares of the Company beneficially owned by such Person to 15% or more of the Common Shares of the

Company then outstanding; provided, however, that, if a Person, together with all Affiliates or Associates of such Person, shall become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an “Acquiring Person.” Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph (a), (i) has become such inadvertently or (ii) has become such as the result of contractual obligations that are or purport to be legally binding entered into prior to, and not materially amended or modified after, the date of this Agreement and has not acquired 1% or more of the Common Shares of the Company then outstanding by means other than such contractual obligations since the date of this Agreement, and in either of case (i) or (ii), such Person divests as promptly as practicable (but in the case of clause (ii), in no event later than 60 calendar days following the date of the acquisition of beneficial ownership that would otherwise cause such Person to be an Acquiring Person) a sufficient number of Common Shares so that such Person would no longer be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be an “Acquiring Person” for any purposes of this Agreement.

A Person shall be deemed to be “Acting in Concert” with another Person if such Person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) at any time after the first public announcement of the adoption of this Agreement, in concert or in parallel with such other Person, or towards a common goal with such other Person, relating to changing or influencing the control of the Company or in connection with or as a participant in any transaction having that purpose or effect, where (i) each Person is conscious of the other Person’s conduct and this awareness is an element in their decision-making processes and (ii) at least one additional factor supports a determination by the Board that such Persons intended to act in concert or in parallel, which such additional factors may include, without limitation, exchanging information, attending meetings, conducting discussions, or making or soliciting invitations to act in concert or in parallel; provided that the additional factor shall not include actions by an officer or director of the Company acting in such capacities. A Person who is Acting in Concert with another Person shall also be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other Person.

No Person shall be deemed to be Acting in Concert with another Person solely as a result of (i) making or receiving a solicitation of, or granting or receiving, revocable proxies or consents given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act (as such term is hereinafter defined) by means of a solicitation statement filed on Schedule 14A, or (ii) soliciting or being solicited for, or tendering or receiving, tenders of securities in a public tender or exchange offer made pursuant to, and in accordance with, Section 14(d) of the Exchange Act by means of a tender offer statement filed on Schedule TO.

    -2-

(b)“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement.

(c)“Associate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement.

(d)“Authorized Officer” shall mean any of the Chairman of the Board, the Chief Executive Officer, the President or any Vice President or the Clerk or any Assistant Clerk or the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company;

(e)A Person shall be deemed the “Beneficial Owner” of and shall be deemed to “beneficially own” any securities:

(i)which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or indirectly;

(ii)which such Person or any of such Person’s Affiliates or Associates has (A) the right or the obligation to acquire (whether such right is exercisable, or such obligation is required to be performed, immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or

(iii)which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section l(d)(ii)(B) hereof) or disposing of any securities of the Company.

    -3-

Notwithstanding anything in this definition of beneficial ownership to the contrary, the phrase “then outstanding,” when used with reference to a Person’s beneficial ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding that such Person would be deemed to own beneficially hereunder.

(f)“Business Day” shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of New York or the State of New Jersey are authorized or obligated by law or executive order to close.

(g)“Class A Common Stock” shall mean the Class A Common Stock, par value $1.00 per share, of the Company.

(h)“Class A Common Stock Equivalents” shall have the meaning set forth in Section 11(b) hereof.

(i)“Class B Common Stock” shall mean the Class B Common Stock, par value $1.00 per share, of the Company.

(j)“Close of Business” on any given date shall mean 5:00 P.M., Boston, Massachusetts time, on such date; provided, however, that, if such date is not a Business Day, it shall mean 5:00 P.M., Boston, Massachusetts time, on the next succeeding Business Day.

(k)“Common Shares” when used with reference to the Company shall mean or shall include the shares of Class A Common Stock and Class B Common Stock. “Common Shares” when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.

(l)“Distribution Date” shall have the meaning set forth in Section 3(a) hereof.

(m)(1) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(n)“Exchange Ratio” shall have the meaning set forth in Section 24(a) hereof.

(o)“Final Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

(p)“NYSE” shall mean The New York Stock Exchange.

(q)“Person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, trust, association, unincorporated organization or other entity, and shall include any successor (by merger or otherwise) of such entity.

    -4-

(r)“Purchase Price” shall have the meaning set forth in Section 4 hereof.

(s)“Record Date” shall have the meaning set forth in the second paragraph hereof.

(t)“Redemption Date” shall have the meaning set forth in Section 7(a) hereof.

(u)“Redemption Price” shall have the meaning set forth in Section 23(a) hereof.

(v)“Right” shall have the meaning set forth in the second paragraph hereof.

(w)“Right Certificate” shall have the meaning set forth in Section 3(a) hereof.

(x)“Shares Acquisition Date” shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such.

(y)“Signature Guarantee” shall mean a guaranty of signature by an “eligible guarantor institution” that is a member of or participant in the Securities Transfer Agents Medallion Program or other comparable “signature guarantee program.”

(z)“Subsidiary” of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person.

(aa)“Summary of Rights” shall have the meaning set forth in Section 3(b) hereof.

(ab)“Trading Day” shall have the meaning set forth in Section 11(d) hereof.

Section 2.Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as rights agent for the Company in accordance with the express terms and conditions hereof (and no implied terms or conditions), and the Rights Agent hereby accepts such appointment. The Company may from time to time, upon ten (10) days’ prior written notice to the Rights Agent, appoint such co-Rights Agents (“Co-Rights Agents”) as it may deem necessary or desirable. The Rights Agent shall have no duty to supervise, and shall in no event be liable for, the acts or omissions of any such Co-Rights Agent. The respective duties of the Rights Agent and any such Co-Rights Agent shall be as the Company shall determine, provided that such duties and determination are consistent with the terms and provisions of this Agreement and that, contemporaneously with such appointment, the Company provides written notice thereof to the Rights Agent.

Section 3.Issue of Right Certificates.

    -5-

(a)From the date hereof until the tenth day after the Shares Acquisition Date (including any such date which is after the date of this Agreement and prior to the issuance of the Rights, the “Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares of the Company registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates), or in the case of Common Shares held in uncertificated form, by the transaction statement or other record of ownership of such Common Shares, and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares of the Company. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested by the Company and provided with a shareholder list and all necessary or relevant information and documents, at the Company’s expense, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares of the Company as of the Close of Business on the Distribution Date, at the address of such holder shown on the stock transfer records of the Company or the transfer agent(s) or registrar for Common Shares, a Right Certificate in substantially the form of Exhibit A hereto (a “Right Certificate”), evidencing one Right (subject to adjustment) for each Common Share so held. As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates and the Rights shall be transferable only separately from the transfer of Common Stock.

The Company shall notify the Rights Agent in writing upon the occurrence of the Distribution Date and, if such notification is given orally, the Company shall confirm same in writing on or prior to the Business Day next following. Until such written notice is received by the Rights Agent, the Rights Agent may assume conclusively for all purposes that the Distribution Date has not occurred.

i.On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Shares of Class A Common Stock, in substantially the form of Exhibit B hereto (the “Summary of Rights”), by first-class, postage-prepaid mail, to each record holder of Common Shares as of the Close of Business on the Record Date, at the address of such holder shown on the stock transfer records of the Company or the transfer agent(s) or registrar for Common Shares. With respect to certificates for Common Shares of the Company outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with a copy of the Summary of Rights attached thereto. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares of the Company outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares of the Company represented thereby.

ii.In the case of certificates for Common Shares that become outstanding (including, without limitation, reacquired Common Shares referred to in the last sentence of this paragraph (c)) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date

    -6-

or the Final Expiration Date, the Company shall cause them to have impressed on, printed on, written on or otherwise affixed to them a legend in substantially the following form:

This certificate also evidences and entitles the holder hereof to certain rights as set forth in an Agreement between The L.S. Starrett Company and Computershare Inc. (or any successor Rights Agent), dated as of October 30, 2020, as it may be amended from time to time (the “Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of The L.S. Starrett Company. Under certain circumstances, as set forth in the Agreement, such Rights (as defined in the Agreement) will be evidenced by separate certificates and will no longer be evidenced by this certificate. The L.S. Starrett Company will mail to the holder of this certificate a copy of the Agreement without charge after receipt of a written request therefor. As set forth in the Agreement, Rights beneficially owned by any Person (as defined in the Agreement) who becomes an Acquiring Person (as defined in the Agreement) become null and void.

With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares of the Company represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares of the Company represented thereby. In the event that the Company purchases or acquires any Common Shares of the Company after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares of the Company shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares of the Company that are no longer outstanding.

Notwithstanding this Section 3(c), neither the omission of a legend nor the inclusion of a legend that makes reference to a rights agreement other than the Agreement shall affect the enforceability of any part of this Agreement or the rights of any holder of Rights (so long as the rights, duties or responsibilities of the Rights Agent are not affected).

Section 4.Form of Right Certificates. The Right Certificates (and the forms of election to purchase shares of Class A Common Stock and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in as Exhibit A hereto, and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate (but which do not affect the rights, duties, liabilities or responsibilities of the Rights Agent) and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any applicable rule or regulation made pursuant thereto or with any applicable rule or regulation of any stock exchange or the Financial Industry Regulatory Authority or to conform to usage. Subject to the provisions of Sections 7, 11 and 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of shares of Class A Common Stock as shall be set forth therein at the price per one share of Class A Common Stock set forth therein (the “Purchase

    -7-

Price”), but the number of such shares of Class A Common Stock issuable upon exercise of each Right and the Purchase Price shall be subject to adjustment as provided herein.

Section 5.Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President, its Treasurer or any Vice President, either manually or by facsimile or by electronic signature, shall have affixed thereto the Company’s seal or a facsimile thereof, and shall be attested by an authorized signatory of the Clerk or an Assistant Clerk of the Company, either manually or by facsimile or by electronic signature. The Right Certificates shall be countersigned, either manually or by facsimile or by electronic signature, by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the individual who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any individual who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such person is not such an officer.

Following the Distribution Date, receipt by the Rights Agent of notice to that effect and all other information and documents referred to in Section 3(a), the Rights Agent shall keep or cause to be kept, at the office of the Rights Agent designated for such purpose, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.

Section 6.Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Section 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become null and void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates entitling the registered holder to purchase a like number of shares of Class A Common Stock as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose, accompanied by a Signature Guarantee and such other and further documentation as the Rights Agent or the Company may require. The Right Certificates are transferable only on the registry books of the Rights Agent. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered

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Right Certificate or Right Certificates until the registered holder shall have (i) properly completed and duly executed the certificate contained in the form of assignment set forth on the reverse side of such Right Certificate, which shall be accompanied by a Signature Guarantee, (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) from whom the Rights evidenced by such Right Certificate are to be transferred (or the Beneficial Owner to whom such Rights are to be transferred) or Affiliates thereof as the Company or the Rights Agent shall reasonably request, and (iii) paid a sum sufficient to cover any tax or charge that may be imposed in connection with any transfer, split up combination or exchange of Right Certificates as required by Section 9 hereof. Thereupon, subject to Sections 5, 7(e) and 14 hereof, the Company shall execute and the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested, registered in such name or names as may be designated by the surrendering registered holder. The Rights Agent shall forward any such sum collected by it to the Company or to such Persons as the Company shall specify by written notice. The Rights Agent shall have no duty or obligation under any Section of this Agreement that requires the payment of taxes or charges unless and until it is satisfied that all such taxes and/or charges have been paid in full.

Upon receipt by the Company and the Rights Agent of evidence satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, the receipt of indemnity or security satisfactory to them, and, at the Company’s or the Rights Agent’s request, and upon reimbursement to the Company and the Rights Agent of all expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, accompanied by a Signature Guarantee and such other and further documentation as the Rights Agent may require, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

Notwithstanding any other provisions hereof, but subject to Section 27, the Company and the Rights Agent may amend this Agreement to provide for uncertificated Rights in addition to or in place of Rights evidenced by Right Certificates.

Section 7.Exercise of Rights; Purchase Price; Expiration Date of Rights.

iii.Except as otherwise provided herein, the registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein), in whole or in part, at any time from and after the Distribution Date, upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof properly completed and duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, accompanied by a Signature Guarantee and such other documentation as the Rights Agent may require, together with payment in cash, only by electronic or wire transfer, or by certified check or bank check, of the Purchase Price with respect to the total number of shares of Class A Common Stock as to which the Rights are exercised (which payment shall include any additional amount payable by such Person in accordance with this Agreement), at or prior to the earliest of (i) the Close of Business on October 30, 2030 (the “Final Expiration Date”), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the “Redemption Date”), or (iii)

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the time at which such Rights are exchanged as provided in Section 24 hereof. The Company shall provide the Rights Agent with a prompt written notice pursuant to Section 26 of the occurrence of any of the events provided for in this Section 7(a) (and the Rights Agent may conclusively assume that no such event has occurred until it receive such notice).

Except for such provisions herein that expressly survive the termination of this Agreement, this Agreement shall terminate at such time as the Rights are no longer exercisable hereunder.

iv.The Purchase Price for each share of Class A Common Stock purchasable pursuant to the exercise of a Right shall initially be $24.00, and shall be subject to adjustment from time to time as provided in Section 11 or 13 hereof, and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below.

v.Subject to the other provisions of this Agreement, upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase set forth on the reverse side thereof properly completed and duly executed, accompanied by payment of the Purchase Price for the shares of Class A Common Stock to be purchased and an amount equal to any applicable tax or charge required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check, cashier’s check or money order payable to the order of the Rights Agent, the Rights Agent shall, subject to Sections 7(a), 11(a)(iii) and 20(k) hereof, thereupon promptly (i) (A) request from any transfer agent of the Class A Common Stock (or from the Company, if there shall be no such transfer agent, or make available if the Rights Agent is such transfer agent) certificates for the number of shares of Class A Common Stock to be purchased and the Company hereby irrevocably authorizes any such transfer agent to comply with all such requests, or (B) if the Company, in its sole discretion, shall have elected to deposit the shares of Class A Common Stock issuable upon exercise of the Rights hereunder with a depository agent under a depository arrangement and provides written notice of such election to the Rights Agent, request from the depositary agent depositary receipts representing such number of shares of Class A Common Stock as are to be purchased (in which case certificates for the shares of Class A Common Stock represented by such receipts shall be deposited by the transfer agent of the shares of Class A Common Stock with such depositary agent), and the Company hereby directs such depositary agent to comply with all such requests; (ii) when necessary to comply with this Agreement, after receipt, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof; (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder; and (iv) when necessary to comply with this Agreement, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate. For purposes of this Section 7, the Rights Agent shall be entitled to rely, and shall be protected in relying, on a certificate from the Company duly executed by a Authorized Officer to the effect that the Distribution Date has occurred.

vi.In case the registered holder of any Right Certificate shall exercise fewer than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights

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remaining unexercised shall be issued and delivered by the Company to the Rights Agent and countersigned and delivered if requested and provided with all necessary information by the Rights Agent to the registered holder of such Right Certificate or to such holder’s duly authorized assigns, subject to the provisions of Section 14 hereof

vii.Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a holder of any Right Certificate upon the occurrence of any purported exercise thereof unless such holder shall have (i) duly executed and properly completed the form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner from whom the Rights evidenced by such Right Certificate are to be transferred (or the Beneficial Owner to whom such Rights are to be transferred) or Affiliates thereof as the Company or the Rights Agent shall reasonably request.

Section 8.Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of and accepted for exercise, or surrendered for the purpose of redemption, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents (other than the Rights Agent), be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and, in such case, shall deliver a certificate of destruction thereof to the Company.

Section 9.Availability of Shares of Class A Common Stock. The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Class A Common Stock or any shares of Class A Common Stock held in its treasury the number of shares of Class A Common Stock that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7 hereof. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Class A Common Stock delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares of Class A Common Stock (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares.

The Company further covenants and agrees that it will pay when due and payable any and all taxes and charges that may be payable in respect of the issuance or delivery of the Right Certificates or of any shares of Class A Common Stock upon the exercise of Rights. The Company shall not, however, be required to pay any tax or charge that may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts for the shares of Class A Common Stock in a name other than that of, the registered holder of the Right Certificate or Right Certificates evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for shares

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of Class A Common Stock upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company’s or the Rights Agent’s satisfaction that no such tax or charge is due.

Section 10.Class A Common Stock Record Date. Each Person in whose name any certificate for shares of Class A Common Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Class A Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered with the form of election properly completed and duly executed and payment of the Purchase Price (and any applicable taxes or charges) was duly made; provided, however, that, if the date of such surrender and payment is a date upon which the relevant transfer books for the Class A Common Stock are closed, such Person shall be deemed to have become the record holder of such shares of Class A Common Stock on, and such certificate shall be dated, the next succeeding Business Day on which such transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of shares of Class A Common Stock for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

Section 11.Adjustment of Purchase Price, Number of Shares or Number of Rights. The Purchase Price, the number of shares of Class A Common Stock covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

viii.( In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Class A Common Stock or Class B Common Stock payable in shares of Class A Common Stock or Class B Common Stock, (B) subdivide the outstanding Class A Common Stock or Class B Common Stock, (C) combine the outstanding Class A Common Stock or Class B Common Stock into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Class A Common Stock or Class B Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving entity), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the transfer books for the Common Shares were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right.

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a.Subject to Section 24 hereof and the provisions of the next paragraph of this Section 11(a)(ii), in the event any Person becomes an Acquiring Person, each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then-current Purchase Price, such number of shares of Class A Common Stock as shall equal the result obtained by (A) multiplying the then-current Purchase Price by the number of shares of Class A Common Stock for which a Right is then exercisable and dividing that product by (B) 50% of the then-current per share market price of the Class A Common Stock (determined pursuant to Section 11(d) hereof) on the date of the occurrence of such event. In the event that any Person shall become an Acquiring Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights.

From and after the occurrence of such event, any Rights that are or were acquired or beneficially owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring Person or any Person Acting in Concert with such Acquiring Person) shall be null and void, and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 hereof that represents Rights beneficially owned by an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence or any Associate or Affiliate thereof or any Person Acting in Concert with such Acquiring Person; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence or any Associate or Affiliate thereof or any Person Acting in Concert with an Acquiring Person or to any nominee of such Acquiring Person, Associate, or Affiliate or Person Acting in Concert with such Acquisition Person; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence shall be cancelled.

b.Subject to Section 24 hereof, in lieu of issuing shares of Class A Common Stock in accordance with Section 11(a)(ii) hereof, the Company may, if a majority of the Board of Directors then in office determines that such action is necessary or appropriate and not contrary to the interests of the holders of Rights (other than any Acquiring Person, or any Affiliate or Associate of such Acquiring Person or any Person Acting in Concert with such Acquiring Person), elect to (and, in the event that the Board of Directors has not exercised the exchange right contained in Section 24 hereof and there are not sufficient authorized but unissued and unreserved for other purposes shares of Class A Common Stock to permit the exercise in full of the Rights in accordance with subparagraph (ii) above, the Company shall) take all such action as may be necessary to authorize, issue or pay, upon the exercise of each Right: (A) cash; (B) a reduction in Purchase Price; (C) property; (D) other securities of the Company (including, without limitation, shares of Class B Common Stock or a number of shares of Class A Common Stock or fraction thereof such that the current per share market price of one share of Class A Common Stock multiplied by such number or fraction is equal to the current per share market price of one share of Class A Common Stock as of the date of issuance of such shares of Class A Common Stock or fraction thereof); or (E) any combination of the

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foregoing, in each case having an aggregate value equal to the value of the shares of Class A Common Stock that otherwise would have been issuable pursuant to Section 11(a)(ii) hereof, which aggregate value shall be determined in good faith by the Board of Directors. For purposes of the preceding sentence, the value of the shares of Class A Common Stock shall be determined pursuant to Section 11(d) hereof. As soon as practicable, the Company shall provide the Rights Agent with written notice of any election made pursuant to this Section 11(a)(iii).

ix.In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of shares of Class A Common Stock and/or Class B Common Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase shares of Class A Common Stock (or shares having the same rights, privileges and preferences as the shares of Class A Common Stock (“Class A Common Stock Equivalents”)) or securities convertible into shares of Class A Common Stock or Class A Common Stock Equivalents at a price per share of Class A Common Stock or Class A Common Stock Equivalent (or having a conversion price per share, if a security convertible into shares of Class A Common Stock or Class A Common Stock Equivalents) less than the then-current per share market price of the Class A Common Stock (as determined pursuant to Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Class A Common Stock outstanding on such record date plus the number of shares of Class A Common Stock which the aggregate offering price of the total number of shares of Class A Common Stock and/or Class A Common Stock Equivalents so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of shares of Class A Common Stock outstanding on such record date plus the number of additional shares of Class A Common Stock and/or Class A Common Stock Equivalents to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and holders of the Rights. The Rights Agent may be conclusively assumed to have no knowledge thereof until it receives such statement and may conclusively rely on such statement. Shares of Class A Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and, in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

x.In case the Company shall fix a record date for the making of a distribution to all holders of the shares of Class A Common Stock and/or Class B Common Stock (including any

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such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in shares of Class A Common Stock or Class B Common Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then-current per share market price of the Class A Common Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a written statement filed with the Rights Agent and binding on the holders of the Rights) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of Class A Common Stock and the denominator of which shall be such then-current per share market price of the Class A Common Stock on such record date; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. The Rights Agent may conclusively assume that no such determination has been made until it receives such statement and may conclusively rely on such statement. Such adjustments shall be made successively whenever such a record date is fixed; and, in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

xi.For the purpose of any computation hereunder, the “current per share market price” of any security (a “Security” for the purpose of this Section 11(d)) on any date shall be deemed to be the average of the daily closing prices per share of such Security for the 30 consecutive Trading Days immediately prior to but not including such date; provided, however, that, in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or Securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security and prior to the expiration of 30 Trading Days after but not including the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, reported at or prior to 4:00 P.M. Eastern time or, in case no such sale takes place on such day, the average of the bid and asked prices, regular way, reported as of 4:00 P.M. Eastern time, in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price reported at or prior to 4:00 P.M. Eastern time or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported as of 4:00 P.M. Eastern time by NYSE or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company with a statement to such effect filed with the Rights Agent and binding on the holders

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of the Rights. The Rights Agent may be conclusively assumed to have no knowledge of such selection until it receives such statement and may conclusively rely on such statement. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business, or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day.

xii.No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one ten-thousandths of a share of Class A Common Stock or one ten-thousandths of any other share or security as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) 36 months from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights.

xiii.If, as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than shares of Class A Common Stock, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Class A Common Stock contained in Section 11(a) through (c) hereof, inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the shares of Class A Common Stock shall apply on like terms to any such other shares.

xiv.All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Class A Common Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

xv.Unless the Company shall have exercised its election as provided in Section 11 (i) hereof, upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares of Class A Common Stock (calculated to the nearest one ten-thousandths of a share of Class A Common Stock) obtained by (A) multiplying (x) the number of shares of Class A Common Stock covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (B) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

xvi.The Company may elect, on or after the date of any adjustment of the Purchase Price, to adjust the number of Rights in substitution for any adjustment in the number of shares of Class A Common Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of shares of Class A Common Stock for which a Right was exercisable immediately prior to such

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adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement (with prompt written notice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the Rights Agent may assume conclusively that no such election has occurred) of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed, delivered and countersigned in the manner provided for herein, and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement.

xvii.Irrespective of any adjustment or change in the Purchase Price or in the number of shares of Class A Common Stock issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of shares of Class A Common Stock which were expressed in the initial Right Certificates issued hereunder.

xviii.Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the shares of Class A Common Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Class A Common Stock at such adjusted Purchase Price.

xix.In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer (with prompt written notice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the Rights Agent may assume conclusively that no such election has occurred) until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the shares of Class A Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the shares of Class A Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate

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instrument evidencing such holder’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

xx.Notwithstanding anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it, in its sole discretion, shall determine to be advisable in order that any consolidation or subdivision of the shares of Class A Common Stock, issuance wholly for cash of any shares of Class A Common Stock at less than the current market price, issuance wholly for cash of shares of Class A Common Stock or securities which by their terms are convertible into or exchangeable for shares of Class A Common Stock, dividends on shares of Class A Common Stock payable in shares of Class A Common Stock or issuance of rights, options or warrants referred to in Section 11(b) hereof, hereafter made by the Company to holders of the shares of Class A Common Stock shall not be taxable to such shareholders.

xxi.Notwithstanding anything in this Agreement to the contrary, in the event that, at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable in Common Shares, or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then, in any such case, (A) the number of shares of Class A Common Stock purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of shares of Class A Common Stock so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) each Common Share outstanding immediately after such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected.

Section 12.Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and/or 13 hereof, the Company shall (a) promptly prepare a certificate duly executed by an Authorized Officer of the Company setting forth such adjustment, including any adjustment in Purchase Price, the number of shares payable, and a brief, reasonably detailed statement of the facts, computations and methodology accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the shares of Class A Common Stock and Class B Common Stock and the Securities and Exchange Commission a copy of such certificate, and (c) mail a brief summary thereof to each registered holder of a Right Certificate (or if prior to the Distribution Date, to each holder of a Right) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment or change or statement therein contained, and shall have no duty or liability with respect to, and shall not be deemed to have knowledge of, any adjustment or change unless and until it shall have received such a certificate.

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Section 13.Consolidation, Merger or Sale or Transfer of Assets or Earning Power. In the event, directly or indirectly, at any time after a Person has become an Acquiring Person, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 25% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person other than the Company or one or more of its wholly-owned Subsidiaries, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then-current Purchase Price multiplied by the number of shares of Class A Common Stock for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of shares of Class A Common Stock, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) as shall equal the result obtained by (A) multiplying the then-current Purchase Price by the number of shares of Class A Common Stock for which a Right is then exercisable and dividing that product by (B) 50% of the then-current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless, prior thereto, the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers.

Section 14.Fractional Rights and Fractional Shares.

xxii.The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value

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of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NYSE or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. As soon as practicable, the Company shall notify the Rights Agent of any determination pursuant to this Section 14(a). The Rights Agent may assume conclusively that no such election has occurred until it receives such notice.

xxiii.The Company shall not be required to issue fractions of shares of Class A Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Class A Common Stock. In lieu of fractional shares of Class A Common Stock, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one share of such Class A Common Stock. For the purposes of this Section 14(b), the current market value of a share of Class A Common Stock shall be the closing price of a such Class A Common Stock (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of such exercise.

xxiv.The holder of a Right, by the acceptance of the Right, expressly waives such holder’s right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above).

xxv.Whenever a payment for fractional Rights or fractional shares is to be made by the Rights Agent, the Company shall (i) promptly prepare and deliver to the Rights Agent a certificate duly executed by an Authorized Officer of the Company setting forth in reasonable detail the facts related to such payments and the prices and/or formulas utilized in calculating such payments, and (ii) provide sufficient monies to the Rights Agent in the form of fully collected funds to make such payments. The Rights Agent shall be fully protected in relying upon such a certificate and shall have no duty with respect to, and shall not be deemed to have knowledge of any payment for fractional Rights or fractional shares under any Section of this Agreement relating to the payment of fractional Rights or fractional shares unless and until the Rights Agent shall have received such a certificate and sufficient monies.

Section 15.Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under this Agreement, and except as set

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forth in Section 20(e) hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in such holder’s own behalf and for such holder’s own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder’s right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach by the Company of this Agreement, and will be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations by the Company of the obligations of the Company. Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, judgment decree or ruling (whether interlocutory or final) issued by a court of competent jurisdiction or by a governmental, regulatory, self- regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation.

Section 16.Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

xxvi.prior to the Distribution Date, the Rights will be transferable (subject to the provisions of this Agreement) only in connection with the transfer of the Common Shares;

xxvii.after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the designated office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer along with a form of assignment set forth on the reverse side thereof duly executed, accompanied by a Signature Guarantee and such other and further documentation as the Rights Agent may require; and

xxviii.the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificate, prior to the Distribution Date, or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary.

Section 17.Right Certificate Holder Not Deemed a Shareholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the shares of Class A Common Stock or any other securities of the Company that

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may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof.

Section 18.Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder, in accordance with a fee schedule to be mutually agreed upon and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and expenses and other disbursements incurred in the preparation, negotiation, delivery, amendment, administration and execution of this Agreement and the exercise and performance of its duties hereunder, including but not limited to any taxes or charges imposed as a result of the action taken by it hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any and all loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense (including, without limitation, the reasonable fees and expenses of legal counsel), paid, incurred or suffered by it, or to which it shall have become subject, without gross negligence, bad faith or willful misconduct on the part of the Rights Agent (which gross negligence, bad faith or willful misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction), for any action taken, suffered, or omitted to be taken by the Rights Agent in connection with the execution, acceptance, administration, exercise and performance of its duties under this Agreement, including the costs and expenses (including reasonable attorneys’ fees and expenses) of defending against any claim of liability hereunder. The costs and expenses incurred in enforcing a successful right of indemnification hereunder shall be paid by the Company. The provisions of this Section 18 and Section 20 below shall survive the termination of this Agreement, the exercise or expiration of the Rights and the resignation, replacement or removal of the Rights Agent.

The Rights Agent shall be authorized and protected and shall incur no liability for or in respect of any action taken, suffered, or omitted to be taken by it in connection with its acceptance and administration of this Agreement and the exercise and performance of its duties hereunder, in reliance upon any Right Certificate or certificate for any shares of Class A Common Stock or Class B Common Stock or other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, instruction, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed and executed by the proper Person or Persons, and guaranteed, verified or acknowledged as required by this Agreement, or otherwise upon the advice of counsel. The Rights Agent shall not be deemed to have any knowledge of any event of which it was supposed to receive notice thereof hereunder, and the Rights Agent shall be fully protected and shall incur no liability for failing to take any action in connection therewith unless and until it has received such notice in writing.

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Section 19.Merger or Consolidation or Change of Name of Rights Agent. Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the stock transfer, corporate trust or shareholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, and any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and, in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and, in all such cases, such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver such Right Certificates so countersigned; and, in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and, in all such cases, such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

Section 20.Duties of Rights Agent. The Rights Agent undertakes to perform only the duties and obligations expressly imposed by this Agreement, and no implied duties or obligations, upon the following terms and conditions, to all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound:

xxix.The Rights Agent may consult with legal counsel of its selection (which may be legal counsel for the Company or an employee of the Rights Agent or otherwise), and the advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent, and the Rights Agent shall incur no liability for, or in respect of any action taken, suffered or omitted to be taken by it in accordance with such advice or opinion.

xxx.Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of current per share market price) be proved or established by the Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or Assistant Secretary or the Clerk or any Assistant Clerk of

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the Company and delivered to the Rights Agent; and such certificate shall be full and complete authorization and protection to the Rights Agent, and the Rights Agent will incur no liability for or in respect of any action taken, suffered or omitted to be taken by it under the provisions of this Agreement in reliance upon such certificate. The Rights Agent shall have no duty to act without such certificate as set forth in this Section 20(b).

xxxi.The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or willful misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction). Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, consequential, or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage. Any liability of the Rights Agent under this Agreement shall be limited to the amount of fees paid by the Company to the Rights Agent during the twelve (12) months immediately preceding the event for which recovery from the Rights Agent is being sought.

xxxii.The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature on such Right Certificate) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

xxxiii.The Rights Agent shall not have any liability for, or be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it have any liability for, or be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it have any liability for, or be responsible for any change in the exercisability of the Rights (including the Rights becoming null and void pursuant to Section 11(a)(ii) hereof), a transfer to an Acquiring Person or any adjustment (including the manner, method or amount thereof or the ascertaining of the existence of facts that would require any such change, adjustment or procedure (except with respect to the exercise of Rights evidenced by Right Certificates after receipt by the Rights Agent of a certificate delivered pursuant to Section 12 hereof, describing any such change, adjustment or procedures, upon which the Rights Agent may rely, thereof describing such change or adjustment and stating that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Class A Common Stock or Class B Common Stock or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Class A Common Stock or Class B Common Stock, or any shares or similar units of other securities, will, when issued, be validly authorized and issued, fully paid, and nonassessable.

xxxiv.The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts,

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instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performance by the Rights Agent of the provisions of this Agreement.

xxxv.The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder and any certificates delivered pursuant to any provision hereof from the Chairman of the Board, the Chief Executive Officer, the President or any Vice President or the Clerk or any Assistant Clerk or the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company, and is authorized to apply to such officers for advice or instructions in connection with its duties, and such instructions shall be full authorization and protection to the Rights Agent, and the Rights Agent shall not be liable for or in respect of any action taken, suffered or omitted to be taken by it in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. The Rights Agent shall be fully authorized and protected in relying upon the most recent instructions received by it from any such officer. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken, suffered or omitted to be taken by the Rights Agent under this Agreement and the date on and/or after which such action shall be taken or suffered or such omission shall be effective. The Rights Agent shall not be liable for any action taken, suffered or omitted to be taken in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five (5) Business Days after the date any such officer actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent has received written instructions from the Company in response to such application specifying the action to be taken, suffered or omitted to be taken, or a written objection by the Company to such proposal.

xxxvi.The Rights Agent and any shareholder, director, officer, Affiliate or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent or any such shareholder, director, officer, Affiliate or employee from acting in any other capacity for the Company or for any other Person.

xxxvii.The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself (through its directors, officers and employees) or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or any other Person resulting from any such act, omission, default, neglect or misconduct, absent gross negligence or willful misconduct (which gross negligence or willful misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction) in the selection and continued employment thereof.

xxxviii.No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties

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hereunder or in the exercise of its rights if the Rights Agent believes that the repayment of such funds or adequate indemnification against such risk or liability is not assured to it.

xxxix.In addition to the foregoing, subject to Section 20(c), the Rights Agent shall be protected and will incur no liability for, or in respect of, any action taken, suffered or omitted to be taken by it in connection with its acceptance and administration of this Agreement in reliance upon (i) the completion and execution of the form of assignment and/or form of election to purchase set forth on the reverse side of the Right Certificates or (ii) the non- execution or failure to complete the form of assignment and/or form of election to purchase including, without limitation, any refusal to honor any otherwise permissible assignment or election by reason of such noncompletion, nonexecution or failure.

xl.If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the form of assignment and/or form of election to purchase appearing on the reverse side thereof, as the case may be, has either not been properly completed or executed, the Rights Agent (A) shall notify the Company of such improperly completed or executed Right Certificate and (B) shall not take any further action with respect to such requested exercise or transfer until it consults with the Company; provided, however, that the Rights Agent shall not be liable for any delays resulting from the duties under this Section 20(l).

xli.The Rights Agent shall have no responsibility to the Company, any holders of Rights or any other Person for interest or earnings on any moneys held by the Rights Agent pursuant to this Agreement.

xlii.The Rights Agent shall not be required to take notice or be deemed to have notice of any fact, determination, event or condition hereunder, including any fact, determination, event or condition that may require action by the Rights Agent, unless the Rights Agent shall be specifically notified in writing of such fact, determination, event or condition by the Company, and all notices or other instruments required by this Agreement to be delivered to the Rights Agent must, in order to be effective, be received by the Rights Agent as specified in Section 26 hereof, and in the absence of such notice so delivered, the Rights Agent may conclusively assume no such event or condition exists.

xliii.The Rights Agent shall not be liable or responsible for any failure of the Company to comply with any of its obligations relating to any registration statement filed with the Securities and Exchange Commission or this Agreement, including without limitation obligations under applicable regulation or law.

xliv.The Rights Agent shall act hereunder solely as agent for the Company. The Rights Agent shall not assume any obligations or relationship of agency or trust with any of the owners or holders of the Rights or Common Stock.

xlv.The Rights Agent may rely on and be fully authorized and protected in acting or failing to act upon (a) any guaranty of signature by an “eligible guarantor institution” that is a member of or participant in the Securities Transfer Agents Medallion Program or other comparable “signature guarantee program” or insurance program in addition to, or in substitution

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for, the foregoing; or (b) any related law, act, regulation or any interpretation of the same even though such law, act, regulation or interpretation may thereafter have been altered, changed, amended or repealed.

xlvi.The Rights Agent shall not have any duty or responsibility in the case of the receipt of any written demand from any holder of Rights with respect to any action or default by the Company, including, without limiting the generality of the foregoing, any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise or to make any demand upon the Company.

xlvii.In the event the Rights Agent believes any ambiguity or uncertainty exists hereunder or in any notice, instruction, direction, request or other communication, paper or document received by the Rights Agent hereunder, the Rights Agent, may (upon notice to the Company of such ambiguity or uncertainty), in its sole discretion, refrain from taking any action, and shall be fully protected and shall not be liable in any way to the Company, the holder of any Rights Certificate or any other Person for refraining from taking such action, unless the Rights Agent receives written instructions signed by the Company which eliminates such ambiguity or uncertainty to the satisfaction of Rights Agent.

Section 21.Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days’ notice in writing mailed to the Company and to each transfer agent of the Class A Common Stock and Class B Common Stock known to the Rights Agent by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. In the event the transfer agency relationship in effect between the Company and the Rights Agent terminates, the Rights Agent will be deemed to have resigned automatically and be discharged from its duties under this Agreement as of the effective date of such termination, and the Company shall be responsible for sending any such required notice. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Class A Common Stock and Class B Common Stock by registered or certified mail, and, subsequent to the Distribution Date, to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (which holder shall, with such notice, submit such holder’s Right Certificate for inspection by the Company), then the Company shall become the Rights Agent, and the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (i) a Person organized and doing business under the laws of the United States or any state thereof, which is authorized under such laws to exercise corporate trust or stock transfer powers or conduct a shareholder services business and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50

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million, or (ii) and Affiliate of a Person described in clause (i). After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose, but such predecessor Rights Agent shall not be required to make any additional expenditure or assume any additional liability in connection with the foregoing; and, except as the context herein otherwise requires, such successor Rights Agent shall be deemed to be the “Rights Agent” for all purposes of this Agreement. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Class A Common Stock and Class B Common Stock, and, following the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

Section 22.Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by the Board of Directors of the Company to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement.

Section 23.Redemption.

xlviii.The Board of Directors of the Company may, at its option, at any time prior to such time as any Person becomes an Acquiring Person, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “Redemption Price”), and the Company may, at its option, pay the Redemption Price in Common Shares (based on the “current per share market price,” as such term is defined in Section 11(d) hereof, of the Common Shares at the time of redemption), cash or any other form of consideration deemed appropriate by the Board of Directors. The redemption of the Rights by the Board of Directors of the Company may be made effective at such time, on such basis and with such conditions as the Board of Directors of the Company, in its sole discretion, may establish.

xlix.Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption (with prompt written notice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the Rights Agent may presume conclusively that no such redemption has occurred); provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption.

    -28-

Within 10 days after such action of the Board of Directors of the Company ordering the redemption of the Rights, the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Shares prior to the Distribution Date.

l.In the case of a redemption under Section 23(a) hereof, the Company may, at its option, discharge all of its obligations with respect to the Rights by (i) issuing a press release announcing the manner of redemption of the Rights (with prompt written notice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the Rights Agent may assume conclusively that no such discharge has occurred) and (ii) mailing payment of the Redemption Price to the registered holders of the Rights at their last addresses as they appear on the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agents of the Class A Common Stock and Class B Common Stock, and upon such action, all outstanding Right Certificates shall be null and void without any further action by the Company.

Section 24.Exchange.

li.The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become null and void pursuant to the provisions of Section 11(a)(ii) hereof) for shares of Class A Common Stock at an exchange ratio of one share of Class A Common Stock per Right, appropriately adjusted to reflect any adjustment in the number of Rights pursuant to Section 11(i) (such exchange ratio being hereinafter referred to as the “Exchange Ratio”). The Rights Agent shall be given written notice as soon as practicable of any such exchange and the Exchange Ratio pursuant to which such exchange is effected and shall be deemed to have no knowledge thereof until it receives such notice. Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the shares of Class A Common Stock and Class B Common Stock (taken together as a single class, treating each share of Class B Common Stock outstanding as one share of Class A Common Stock outstanding for the purposes of such Beneficial Ownership) then outstanding. If the Board of Directors of the Company elects to exchange any Rights pursuant to this Section 24, the Board may, at its option and without limiting any rights the Company may have under Section 27, cause the Company to enter into one or more arrangements it deems necessary or

    -29-

appropriate to implement and give effect to such exchange in the manner contemplated by this Agreement, including by establishing one or more trusts or other mechanisms for the proper and orderly distribution of the shares of Class A Common Stock or other consideration to be issued pursuant to this Agreement.

lii.Immediately upon the effectiveness of the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Class A Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange, and the Rights Agent shall be given prompt written notice of any such exchange (and until such written notice is received by the Rights Agent, the Rights Agent may assume conclusively that no such exchange has occurred); provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent, or prior to the Distribution Date, on the registry books of the transfer agents for the Class A Common Stock and Class B Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Class A Common Stock for Rights will be effected, and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become null and void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.

liii.In lieu of issuing shares of Class A Common Stock of the Company in accordance with Section 24(a) hereof, the Company may, if a majority of the Board of Directors then in office determines that such action is necessary or appropriate and not contrary to the interests of the holders of Rights (other than any Acquiring Person or any Affiliate or Associate of such Acquiring Person), elect to (and, in the event that there are not sufficient authorized but unissued and unreserved for other purposes shares of Class A Common Stock to permit any exchange of the Rights in accordance with Section 24(a) hereof, the Company shall) take all such action as may be necessary to authorize, issue or pay, upon the exchange of each Right: (A) cash; (B) property; (C) other securities of the Company (including, without limitation, shares of Class B Common Stock or a number of shares of Class A Common Stock or fraction thereof such that the current per share market price of one share of Class A Common Stock multiplied by such number or fraction is equal to the current per share market price of one share of Class A Common Stock as of the date of issuance of such Class A Common Stock or fraction thereof); or (D) any combination of the foregoing, in each case having an aggregate value equal to the value of the shares of Class A Common Stock of the Company that otherwise would have been issuable pursuant to Section 24 (a) hereof, which aggregate value shall be determined in good faith by the Board of Directors. The Rights Agent shall be given written notice of any such determinations as soon as practicable and may assume conclusively that no such determination has occurred until such written notice is received.

    -30-

liv.The Company shall not be required to issue fractions of shares of Class A Common Stock or to distribute certificates which evidence fractional shares of Class A Common Stock. In lieu of such fractional shares of Class A Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Class A Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Class A Common Stock. For the purposes of this paragraph (d), the current market value of a whole share of Class A Common Stock shall be the closing price of a share of Class A Common Stock (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24.

Section 25.Notice of Certain Events.

lv.In case the Company shall, at any time after the Distribution Date, propose (i) to pay any dividend payable in stock of any class to the holders of its Class A Common Stock or to make any other distribution to the holders of its Class A Common Stock (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Class A Common Stock rights or warrants to subscribe for or to purchase any additional shares of Class A Common Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of the Class A Common Stock (other than a reclassification involving only the subdivision of outstanding shares of Class A Common Stock), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 25% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Class A Common Stock or Class B Common Stock payable in shares of Class A Common Stock or Class B Common Stock or to effect a subdivision, combination or consolidation of the Class A Common Stock or Class B Common Stock (by reclassification or otherwise than by payment of dividends in shares of Class A Common Stock or Class B Common Stock), then, in each such case, the Company shall give to the Rights Agent and each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Class A Common Stock and/or Class B Common Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the shares of Class A Common Stock for purposes of such action, and, in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Class A Common Stock and/or Class B Common Stock, whichever shall be the earlier.

lvi.In case the event set forth in Section 11(a)(ii) hereof shall occur, then the Company shall, as soon as practicable thereafter, give to the Rights Agent and each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event,

    -31-

which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) hereof.

Section 26.Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if in writing and sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) or by facsimile transmission as follows:

The L.S. Starrett Company

121 Crescent Street

Athol, MA 01331

Attn: Treasurer

Facsimile No.: (978) 249-6667

With a copy to:

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Attn: Thomas Danielski, Esq.

Facsimile No.: (617) 235-0730

Subject to the provisions of Sections 19 and 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if in writing and sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) or by facsimile transmission as follows:

Computershare Inc.

150 Royall Street

Canton, MA 02021

Attn: Client Services

Facsimile No.: (781) 575-4210

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if in writing and sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

Section 27.Supplements and Amendments. The Company may from time to time supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other changes, modifications, or provisions with respect to the Rights which the Company may deem necessary

    -32-

or desirable; any such supplement or amendment is to be evidenced by a writing signed by the Company and the Rights Agent; provided, however, that, from and after such time as any Person becomes an Acquiring Person, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights. Upon the delivery of a certificate from an Authorized Officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment; provided, that notwithstanding anything to the contrary set forth herein, the Rights Agent shall not be required to consent to or execute any amendment or supplement that affects its rights, duties, liabilities, immunities or obligations hereunder. Any and all supplements and amendments to this Agreement shall be evidenced in a writing signed by the Company and the Rights Agent.

Section 28.Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

Section 29.Determinations and Actions by the Board; etc. The Board shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board, or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations (including a determination to redeem or not redeem the Rights or to amend this Agreement) deemed necessary or advisable for the administration of this Agreement. All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below all omissions with respect to the foregoing) which are done or made by the Board in good faith and with the concurrence of a majority of the Board shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other Persons and (y) not subject any Director to any liability to the holders of the Rights. The Rights Agent shall always be entitled to assume that the Board acted in good faith and shall be fully protected and incur no liability in reliance thereon.

Section 30.Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the associated Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the associated Common Shares).

Section 31.Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that if such excluded term, provision, covenant or restriction

    -33-

shall affect the rights, immunities, duties or obligations of the Rights Agent, the Rights Agent shall be entitled to resign immediately.

Section 32.Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the Commonwealth of Massachusetts and for all purposes shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts to be made and performed entirely within the Commonwealth of Massachusetts; provided, however, that all provisions regarding the rights, duties and obligations of the Rights Agent shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such state.

Section 33.Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. A signature to this Agreement transmitted electronically shall have the same authority, effect and enforceability as an original signature. This Agreement shall be effective as of the Close of Business as of the date of this Agreement, and upon effectiveness shall replace and supersede the Original Agreement in its entirety.

Section 34.Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

Section 35.Force Majeure. Notwithstanding anything to the contrary contained herein, the Warrant Agent will not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, epidemics, pandemics, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest

[Remainder of page intentionally left blank.]

    -34-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written.

THE L.S. STARRETT COMPANY		Attest:
By:	/s/ D. A. Starrett	By:	/s/ John C. Tripp
	Name: Douglas A. Starrett Title: Chief Executive Officer		Name: John C. Tripp Title: Treasurer and Chief Financial Officer

COMPUTERSHARE INC., as Rights Agent
By:	/s/ Katherine Anderson
	Name: Katherine Anderson Title: Manager, Relationship Management

Exhibit A

Form of Right Certificate

Certificate No. R-___________    ____ Rights

NOT EXERCISABLE AFTER October 30, 2030 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE AGREEMENT.

Right Certificate THE L.S. STARRETT COMPANY

This certifies that _________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Amended and Restated Rights Agreement, dated as of October 30, 2020 (the “Agreement”), between The L.S. Starrett Company, a Massachusetts corporation (the “Company”), and Computershare Inc., a Delaware corporation (the “Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Agreement) and prior to 5:00 P.M., Boston, Massachusetts time, on October 30, 2030 at the office of the Rights Agent designated for such purpose, or at the office of its successor as Rights Agent, one fully paid non-assessable share of Class A Common Stock, par value $1.00 per share, of the Company (the “Class A Common Stock”), at a purchase price of $24.00 per share (the “Purchase Price”), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase set forth on the reverse side hereof duly and properly completed and executed, accompanied by a Signature Guarantee and such other documentation as the Rights Agent may require. The number of Rights evidenced by this Right Certificate (and the number of shares of Class A Common Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of October 30, 2020, based on the Class A Common Stock as constituted at such date. As provided in the Agreement, the Purchase Price and the number of shares of Class A Common Stock which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

This Right Certificate is subject to all of the terms, provisions and conditions of the Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Agreement are on file at the principal executive offices of the Company and may be obtained by the holder of any Rights upon written request to the Company.

This Right Certificate, with or without other Right Certificates, upon surrender at the office of the Rights Agent designated for such purpose, accompanied by a Signature Guarantee and such other documentation as the Rights Agent may require, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Class A Common Stock as the Rights

    A-1

evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Agreement, the Rights evidenced by this Right Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for shares of Class A Common Stock.

No fractional shares of Class A Common Stock will be issued upon the exercise of any Right or Rights evidenced hereby, but, in lieu thereof, a cash payment will be made, as provided in the Agreement.

No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the shares of Class A Common Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Agreement.

This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _____________.

THE L.S. STARRETT COMPANY		Attest:
By:		By:
	Name: Title:		Name: Title:

COMPUTERSHARE INC.
By:
	Name: Title:

    A-2

Form of Reverse Side of Right Certificate

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Right Certificate.)

FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers unto (Please print name and address of transferee) ______________________________, whose social security or tax identification number is: _____________________ this Right Certificate and the Rights evidences by this Right Certificate, together with all right, title and interest herein and therein, and does hereby irrevocably constitute and appoint _ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.

Dated:
	Signature

Signature Guarantee:

The signature(s) must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to The L.S. Starrett Company’s rights agent.

The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Agreement).

Signature

    A-3

Form of Reverse Side of Right Certificate – continued

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise the

Rights represented by the Right Certificate.)

To: THE L.S. STARRETT COMPANY

The undersigned hereby irrevocably elects to exercise ____________ Rights represented by this Right Certificate to purchase the number of shares of Class A Common Stock (or other securities) issuable upon the exercise of such Rights and requests that certificates for such shares of Class A Common Stock be issued in the name of:

Please insert social security or other identifying number

(Please print name and address)

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

(Please print name and address)

Dated:
	Signature

    A-4

Signature Guarantee:

The signature(s) must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to The L.S. Starrett Company’s rights agent.

The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Agreement).

Signature

NOTICE

The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.

In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Agreement) and such Assignment or Election to Purchase will not be honored.

    A-5

Exhibit B

SUMMARY OF RIGHTS TO PURCHASE

SHARES OF CLASS A COMMON STOCK

Introduction

On October 30, 2020, the Board of Directors of our Company, The L.S. Starrett Company, a Massachusetts corporation, authorized the issuance of one Class A Common Stock purchase right (a “Right”), for each outstanding share of Class A Common Stock, par value $1.00 per share, and Class B Common Stock, par value $1.00 per share, (all such shares, the “Common Shares”) outstanding as of the close of business on November 9, 2020. The dividend is payable on November 9, 2020 to the shareholders of record on that date.

Our Board has adopted this Amended and Restated Rights Agreement to protect shareholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group which acquires 15% or more of our outstanding common stock without the approval of our Board, with exceptions for the Company and its affiliates. The Amended and Restated Rights Agreement should not interfere with any merger or other business combination approved by our Board.

For those interested in the specific terms of the Amended and Restated Rights Agreement as made between our Company and Computershare Inc., a Delaware corporation, as the Rights Agent, on October 30, 2020, we provide the following summary description. Please note, however, that this description is only a summary, and is not complete, and should be read together with the entire Rights Agreement, which has been filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form 8-A/A dated October 30, 2020 and a Current Report on Form 8-K dated October 30, 2020. A copy of the agreement is available free of charge from our Company.

The Rights. Our Board authorized the issuance of a Right with respect to each outstanding share of Class A Common Stock and Class B Common Stock on November 9, 2020. The Rights will initially trade with, and will be inseparable from, the Common Shares. The Rights are evidenced only by certificates that represent Common Shares. New Rights will accompany any new Common Shares we issue after November 9, 2020 until the Distribution Date described below.

Exercise Price. Each Right will allow its holder to purchase from our Company one share of Class A Common Stock for $24.00, once the Rights become exercisable. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.

Exercisability. The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 15% or more of our outstanding common stock.

We refer to the date when the Rights become exercisable as the “Distribution Date.” Until that date, the certificates representing the Common Shares will also evidence the Rights,

    B-1

and any transfer of Common Shares will constitute a transfer of Rights. After that date, the Rights will separate from the Common Shares and be evidenced by book-entry credits or by Rights certificates that we will mail to all eligible holders of Common Shares. Any Rights held by an Acquiring Person are void and may not be exercised.

Exceptions to the Definition of “Acquiring Person.”

If the Company repurchases some of its own Common Shares and this causes a person or group’s holdings to constitute 15% or more of the outstanding Common Shares, that person or group will not be an Acquiring Person so long as it does not make any further acquisition of Common Shares. If a person or group acquires 15% or more of the Common Shares inadvertently or as a result of third parties exercising contractual rights that exist as of October 30, 2020 (and without acquiring by other means 1% or more of the Common Shares since October 30, 2020), and that person or group sells enough common stock to reduce its holdings below 15% of the Common Shares as promptly as practicable (which, in the contractual rights case, shall not be longer than 60 days), such person or group will not be an Acquiring Person.

Consequences of a Person or Group Becoming an Acquiring Person.

•Flip In. If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may purchase shares of our Class A Common Stock at a 50% discount from the market price of the Class A Common Stock at such time. These provisions are particularly effective against open market purchases or other stock accumulation programs whereby a potential Acquiring Person could steadily build up its ownership of our Class A Common Stock, or so-called “creeping tender offers” whereby a potential Acquiring Person could acquire our Class A Common Stock through a concerted buying program from institutional investors or other large stockholders.

•Flip Over. If our Company is later acquired in a merger or similar transaction after the Rights Distribution Date, all holders of Rights except the Acquiring Person may purchase shares of the acquiring corporation at a purchase price equal to 50% of the market price of the acquiring corporation’s stock prior to such merger. The Acquiring Person’s stock ownership of the resulting company is significantly diluted while our stockholders acquire additional value, thereby making our company a substantially less attractive candidate for an unwelcome takeover.

Expiration. The Rights will expire on October 30, 2030.

Redemption. Our Board may redeem the Rights for $.01 per Right at any time before any person or group becomes an Acquiring Person. If our Board redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $.01 per Right. The redemption price will be adjusted if we have a stock split or stock dividends of Common Shares.

Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of our outstanding Common Shares, our Board may extinguish the

    B-2

Rights by exchanging one share of Class A Common Stock (or, in the Board’s discretion, cash, other securities or property with equivalent value) for each Right, other than Rights held by the Acquiring Person.

Anti-Dilution Provisions. Our Board may adjust the purchase price of the shares of Class A Common Stock, the number of shares of Class A Common Stock issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, or a reclassification of the Class A Common Stock or Class B Common Stock. No adjustments to the Exercise Price of less than 1% will be made.

Amendments. The terms of the Amended and Restated Rights Agreement may be amended by our Board without the consent of the holders of the Rights. However, our Board may not amend the Amended and Restated Rights Agreement to lower the threshold at which a person or group becomes an Acquiring Person to below 15% of our outstanding Common Shares. In addition, the Board may not cause a person or group to become an Acquiring Person by lowering this threshold below the percentage interest that such person or group already owns. After a person or group becomes an Acquiring Person, our Board may not amend the agreement in a way that adversely affects holders of the Rights.

    B-3

EX-31.A

EXHIBIT 31.a

CERTIFICATIONS

I, Douglas A. Starrett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The L.S. Starrett Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 12, 2020	/S/	Douglas A. Starrett
		Douglas A. Starrett
		Chief Executive Officer

EX-31.B

EXHIBIT 31.b

CERTIFICATIONS

I, John C. Tripp, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The L.S. Starrett Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 12, 2020	/S/	John C. Tripp
		John C. Tripp
		Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of The L.S. Starrett Company, a Massachusetts corporation (the "Company"), does hereby certify, to such officer's knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date	November 12, 2020	/S/ Douglas A. Starrett
		Douglas A. Starrett
		Chief Executive Officer
Date	November 12, 2020	/S/ John C. Tripp
		John C. Tripp
		Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to The L.S. Starrett Company and will be retained by The L.S. Starrett Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Cover page - shares	3 Months Ended
	Sep. 30, 2020	Oct. 31, 2020
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	1-367
Entity Registrant Name	STARRETT L S CO
Entity Incorporation, State or Country Code	MA
Entity Address, Address Line One	121 Crescent Street
Entity Address, City or Town	Athol
Entity Tax Identification Number	04-1866480
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	01331-1915
City Area Code	978
Local Phone Number	249-3551
Title of 12(b) Security	Class A Common - $1.00 Per Share Par Value
Trading Symbol	SCX
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Entity Central Index Key	0000093676
Amendment Flag	false
Class A
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		6,434,815
Class B
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		651,200

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Current assets:
Cash	$ 11,561	$ 13,458
Accounts receivable (less allowance for doubtful accounts of $597 and $736, respectively)	30,629	29,012
Inventories	50,076	52,987
Prepaid expenses and other current assets	8,894	8,641
Total current assets	101,160	104,098
Property, plant and equipment, net	37,156	37,090
Right of use assets	4,213	4,465
Deferred tax assets, net	23,914	21,018
Intangible assets, net	4,948	4,997
Goodwill	1,015	1,015
Total assets	172,406	172,683
Current liabilities:
Current maturities of debt	5,605	4,532
Current lease liability	1,672	1,905
Accounts payable	9,409	7,579
Accrued expenses	8,278	8,838
Accrued compensation	4,671	4,980
Total current liabilities	29,635	27,834
Other tax obligations	2,578	2,532
Long-term lease liability	2,651	2,655
Long-term debt, net of current portion	21,227	26,341
Postretirement benefit and pension obligations	66,113	67,338
Total liabilities	122,204	126,700
Stockholders' equity:
Additional paid-in capital	56,117	55,762
Retained earnings	62,764	58,648
Accumulated other comprehensive loss	(75,673)	(75,415)
Total stockholders' equity	50,202	45,983
Total liabilities and stockholders’ equity	172,406	172,683
Class A
Stockholders' equity:
Common stock	6,342	6,308
Class B
Stockholders' equity:
Common stock	$ 652	$ 680

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Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Allowance for doubtful accounts	$ 597	$ 736
Class A
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares, outstanding (in shares)	6,342,031	6,308,025
Class B
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares, outstanding (in shares)	651,816	679,680

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Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Net sales	$ 49,411	$ 52,114
Cost of goods sold	33,839	34,411
Gross margin	$ 15,572	$ 17,703
% of Net sales	31.50%	34.00%
Restructuring charges	$ 346	$ 0
Selling, general and administrative expenses	13,391	16,258
Operating income	1,835	1,445
Other (expense)	(1)	(169)
Income before income taxes	1,834	1,276
Income tax (benefit) expense	(2,282)	498
Net income	$ 4,116	$ 778
Basic income per share (in dollars per share)	$ 0.59	$ 0.11
Diluted income per share (in dollars per share)	$ 0.57	$ 0.11
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	6,988	6,904
Diluted (in shares)	7,245	7,006

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 4,116	$ 778
Other comprehensive income (loss):
Currency translation (loss), net of tax	(236)	(3,739)
Pension and postretirement plans, net of tax	(22)	(20)
Other comprehensive (loss)	(258)	(3,759)
Total comprehensive income (loss)	$ 3,858	$ (2,981)

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock Outstanding Class A	Common Stock Outstanding Class B	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Beginning balance at Jun. 30, 2019	$ 83,379	$ 6,207	$ 690	$ 55,276	$ 80,487	$ (59,281)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	(2,981)				778	(3,759)
Repurchase of shares	(10)		(2)	(8)
Stock-based compensation	214	57		157
Conversion		6	(6)
Ending balance at Sep. 30, 2019	80,602	6,270	682	55,425	81,265	(63,040)
Accumulated balance consists of:
Translation loss						(53,297)
Pension and postretirement plans, net of taxes						(9,743)
Accumulated other comprehensive loss						(63,040)
Accumulated other comprehensive loss	(75,415)
Beginning balance at Jun. 30, 2020	45,983	6,308	680	55,762	58,648	(75,415)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	3,858				4,116	(258)
Repurchase of shares	(6)		(2)	(4)
Stock-based compensation	367	8		359
Conversion	0	26	(26)
Ending balance at Sep. 30, 2020	50,202	$ 6,342	$ 652	$ 56,117	$ 62,764	(75,673)
Accumulated balance consists of:
Translation loss						(62,110)
Pension and postretirement plans, net of taxes						(13,563)
Accumulated other comprehensive loss	$ (75,673)					$ (75,673)

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net income	$ 4,116	$ 778
Non-cash operating activities:
Depreciation	1,360	1,212
Amortization	300	575
Stock-based compensation	367	214
Net long-term tax obligations	17	26
Deferred taxes	(2,822)	141
Postretirement benefit and pension obligations	4	30
Working capital changes:
Accounts receivable	(1,656)	3,087
Inventories	3,194	(5,091)
Other current assets	(324)	(428)
Other current liabilities	678	(2,796)
Prepaid pension expense	(1,609)	(1,281)
Other	38	49
Net cash provided by (used in) operating activities	3,663	(3,484)
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,543)	(2,625)
Software development	(251)	(399)
Net cash used in investing activities	(1,794)	(3,024)
Cash flows from financing activities:
Proceeds from borrowing	4,462	2,500
Debt repayments	(8,475)	(1,039)
Shares repurchased	(6)	(10)
Net cash (used in) provided by financing activities	(4,019)	1,451
Effect of exchange rate changes on cash	253	(15)
Net decrease in cash	(1,897)	(5,072)
Cash, beginning of period	13,458	15,582
Cash, end of period	11,561	10,510
Supplemental cash flow information:
Interest paid	201	269
Income taxes paid, net	$ 1,224	$ 594

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Basis of Presentation and Summary of Significant Account Policies

3 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Account Policies

Basis of Presentation and Summary of Significant Account Policies

The unaudited interim consolidated financial statements as of and for the three months ended September 30, 2020 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. The balance as of June 30, 2020 has been derived from the audited consolidated financial statements as of and for the year ended June 30, 2020.  Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2020 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Throughout the COVID-19 pandemic crisis, the Company's main focus has been on protecting the health and well-being of it's employees, and the long-term financial health of the Company. As anticipated, the COVID-19 pandemic has had a negative impact on global sales. It remains very difficult for management to predict when this crisis will have reached its peak and when sales and order intake resume their pre-pandemic levels. Because of this remaining uncertainty, management has conducted several scenario planning exercises and is prepared to take additional necessary steps to preserve the longer-term financial health of the Company. To the extent that pandemic-related events do not provide evidence about conditions that existed at the balance-sheet date, the Company considers it necessary to disclose it cannot estimate all aspects of the impact on the financial statements as a result of COVID-19.

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Segment Information

3 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Information

Segment InformationThe segment information and the accounting policies of each segment are the same as those described in the notes to the consolidated financial statements entitled “Financial Information by Segment & Geographic Area” included in our Annual Report on Form 10-K for the year ended June 30, 2020. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below.

There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended September 30, 2020
Sales1	$	25,984	$	23,427	$	—	$	49,411
Operating Income (Loss)	$	839	$	2,830	$	(1,834)	$	1,835
Three Months ended September 30, 2019
Sales2	$	31,009	$	21,105	$	—	$	52,114
Operating Income (Loss)	$	2,206	$	1,163	$	(1,924)	$	1,445

1.Excludes $746 of North American segment intercompany sales to the International segment, and $2,786 of International segment intercompany sales to the North American segment.

2.Excludes $968 of North American segment intercompany sales to the International segment, and $4,242 of International segment intercompany sales to the North American segment.

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Revenue from Contracts with Customers

3 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customer

Revenue from Contracts with Customers

On July 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all the related amendments (“ASC Topic 606”), using the modified retrospective method. In addition, the Company elected to apply certain of the permitted practical expedients within the revenue recognition guidance and make certain accounting policy elections, including those related to significant financing components, sales taxes and shipping and handling activities. Most of the changes resulting from the adoption of ASC Topic 606 on July 1, 2018 were changes in presentation within the Unaudited Consolidated Balance Sheet. Therefore, while the Company made adjustments to certain opening balances on its July 1, 2018 Unaudited Consolidated Balance Sheet, the Company made no adjustment to opening Retained Earnings.

The core principle of ASC Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The application of the FASB’s guidance on revenue recognition requires the Company to recognize the amount of revenue and consideration that the Company expects to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which requires us to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation.

The Company accounts for a contract or purchase order when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the product passes to the customer, which is upon shipment, unless otherwise specified within the customer contract or on the purchase order as delivery, and is recognized at the amount that reflects the consideration the Company expects to receive for the products sold, including various forms of discounts. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Contracts with customers are evaluated to determine if there are separate performance obligations related to timing of product shipment that will be satisfied in different accounting periods. When that is the case, revenue is deferred until each performance obligation is met. No revenue was deferred as of September 30, 2020 and 2019. Purchase orders are of durations less than one year. As such, the Company applies the practical expedient in ASC paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, for which work has not yet been performed.

Certain taxes assessed by governmental authorities on revenue producing transactions, such as value added taxes, are excluded from revenue and recorded on a net basis.

Performance Obligations

The Company’s primary source of revenue is derived from the manufacture and distribution of metrology tools and equipment, saw blades and related products sold to distributors. The Company recognizes revenue for sales to our customers when transfer of control of the related good or service has occurred. All of the Company’s revenue was recognized under the point in time approach for the three months ended September 30, 2020 and 2019. Contract terms with certain metrology equipment customers could result in products and services being transferred over time as a result of the customized nature of some of the Company’s products, together with contractual provisions in the customer contracts that provide the Company with an enforceable right to payment for performance completed to date; however, under typical terms, the Company does not have the right to consideration until the time of shipment from its manufacturing facilities or distribution centers, or until the time of delivery to its customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time may be slightly accelerated compared to the Company’s right to consideration at the time of shipment or delivery.

The Company’s typical payment terms vary based on the customer, geographic region, and the type of goods and services in the contract or purchase order. The period of time between invoicing and when payment is due is typically not significant. Amounts billed and due from the Company’s customers are classified as accounts receivables on the Consolidated Balance Sheets. As the Company’s standard payment terms are usually less than one year, the Company has elected the practical expedient under ASC paragraph 606-10-32-18 to not assess whether a contract has a significant financing component. 

The Company’s customers take delivery of goods, and they are recognized as revenue at the time of transfer of control to the customer, which is usually at the time of shipment, unless otherwise specified in the customer contract or purchase order. This determination is based on applicable shipping terms, as well as the consideration of other indicators, including timing of when the Company has a present right to payment, when physical possession of products is transferred to customers, when the customer has the asset, and provisions in contracts regarding customer acceptance.

While unit prices are generally fixed, the Company provides variable consideration for certain customers, typically in the form of promotional incentives at the time of sale. The Company utilizes the most likely amount to estimate the effect of uncertainty on the amount of variable consideration to which the Company would be entitled. The most likely amount method considers the single most likely amount from a range of possible consideration amounts. The most likely amounts are based upon the contractual terms of the incentives and historical experience with each customer. The Company records estimates for cash discounts, promotional rebates, and other promotional allowances in the period the related revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are presented within accrued expenses on the Consolidated Balance Sheets. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales and costs associated with shipping and handling are included in cost of sales. The Company has concluded that its estimates of variable consideration are not constrained according to the definition within the new standard. Additionally, the Company applies the practical expedient in ASC paragraph 606-10-25-18B and accounts for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity, rather than a separate performance obligation.

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet. As of September 30, 2020, and June 30, 2020, the balance of the return asset is $0.1 million and was $0.1 million and the balance of the refund liability is $0.2 million and was $0.2 million. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Consolidated Balance Sheets.

The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to 1 year. The Company does not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had no contract asset balances, but had

contract liability balances of $0.4 million and $0.4 million at September 30, 2020 and June 30, 2020 located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in two reportable segments: North America and International. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three months ended September 30, 2020 and 2019 (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
North America
United States	$	24,337	$	28,624
Canada & Mexico	1,647		2,385
	25,984		31,009
International
Brazil	14,908		12,822
United Kingdom	4,995		5,231
China	1,581		1,514
Australia & New Zealand	1,943		1,538
	23,427		21,105
Total Sales	$	49,411	$	52,114

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Recent Accounting Pronouncements

3 Months Ended

Sep. 30, 2020

Accounting Standards Update and Change in Accounting Principle [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement ('Topic 820'): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The adoption in fiscal 2020 of this standard did not have a material impact on the Company’s financial position and results of operations upon adoption.

Recently Issued Accounting Standards not yet adopted:

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption was permitted for annual periods beginning after December 15, 2018, and interim periods therein. This pronouncement was extended for Small Reporting Companies and for the Company until 2023. The Company is currently assessing the effect, if any, that ASU 2018-14 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14

removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2020. The amendments in ASU 2018-14 must be applied on a retrospective basis. The Company is currently assessing the effect, if any, that ASU 2018-14 will have on its consolidated financial statements.

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Leases

3 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Leases

Leases

Operating lease cost amounted to $0.6 million and $0.6 million for three months period ended September 30, 2020 and 2019. As of September 30, 2020, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	4,213	$	4,323	$	5,080

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately 9.0% and 4.0 years. As of September 30, 2020, the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases are de minimis.

The Company entered into $0.1 million in operating lease commitments during the three months ended September 30, 2020. At September 30, 2020, the Company had the following fiscal year minimum operating lease commitments (in thousands)

Three months ended September 30, 2020	Operating Lease Commitments
2021 (Remainder of year)	$	1,757
2022	1,051
2023	740
2024	707
2025	349
Thereafter	476
Subtotal	$	5,080
Imputed interest	(757)
Total	4,323

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Stock-based Compensation

3 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-based Compensation

Stock-based Compensation

On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 Stock Plan was approved by shareholders on October 17, 2012, and the material terms of its performance goals were re-approved by shareholders at the Company’s Annual Meeting held on October 18, 2017. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.

Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of September 30, 2020, there were 9,000 stock options and 360,134 restricted stock units outstanding. There were 13,233 shares available for grant under the 2012 Stock Plan as of September 30, 2020.

For stock option grants, the fair value of each grant is estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend

yield, and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk-free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The expected life is determined using the average of the vesting period and contractual term of the options (Simplified Method).

No stock options were granted during the three months ended September 30, 2020 and 2019.

The weighted average contractual term for stock options outstanding as of September 30, 2020 was 2.25 years.  The aggregate intrinsic value of stock options outstanding as of September 30, 2020 was less than $0.1 million. Stock options exercisable as of September 30, 2020 were 20,000 shares. In recognizing stock compensation expense for the 2012 Stock Incentive Plan, management has estimated that there will be no forfeitures of options.

The Company accounts for stock options and RSU awards by recognizing the expense of the grant date fair value ratably over vesting periods generally ranging from one year to three years. The related expense is included in selling, general and administrative expenses.

There were 289,800 RSU awards with a fair value of $3.37 per RSU granted during the three months ended September 30, 2020. There were no RSUs settled, and no RSUs forfeited during the three months ended September 30, 2020.  The aggregate intrinsic value of RSU awards outstanding as of September 30, 2020 was $1.1 million. All awards vesting in the quarter ending of September 30, 2020 are expected to be issued in the quarter ending December 31, 2020.

On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service are eligible to participate.

Compensation expense related to all stock-based plans for the three-month periods ended September 30, 2020 and 2019 was $0.3 million, and $0.1 million respectively.  As of September 30, 2020, there was $2.7 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, $1.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $1.0 million is expected to be recognized over a weighted average period of 2.2 years.

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Inventories

3 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consist of the following (in thousands):

	09/30/2020		06/30/2020
Raw material and supplies	$	30,066	$	26,255
Goods in process and finished parts	13,890		13,694
Finished goods	31,168		37,579
	75,124		77,528
LIFO Reserve	(25,048)		(24,541)
	$	50,076	$	52,987

Of the Company’s $50.1 million and $53.0 million total inventory at September 30, 2020 and June 30, 2020, respectively, the $25.0 million and $24.5 million LIFO reserves belong to the U.S. Precision Tools and Saws Manufacturing “Core U.S.” business. The Core U.S. business total inventory was $31.9 million on a FIFO basis and $6.9 million on a LIFO basis at September 30, 2020. The Core U.S. business had total Inventory, on a FIFO basis, of $33.1 million and $8.6 million on a LIFO basis as of June 30, 2020. The use of LIFO, as compared to FIFO, resulted in a $0.5 million increase in cost of sales for the goods sold in the period ending September 30, 2020 compared to a de minimis change in the three months ending September 30, 2019.

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Goodwill and Intangible Assets

3 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 and a private software company in 2017 resulted in the recognition of goodwill totaling $4.7 million. During the fourth quarter of fiscal year 2020 the Company, considering the COVID-19 pandemic a triggering event for the private software company and Bytewise due to a drop in sales, tested impairment of intangible assets according to ASC 360 "Property, Plant and Equipment" and determined the carrying value was deemed to be recoverable at Bytewise but not at the private software company where the impairment of intangibles was calculated. The Company concluded that Intangible Assets of the private software company were impaired $2.9 million.

The Company then, according to ASC 350 Intangibles -Goodwill and Other, conducted a step one analysis performed based on the update carrying value for each reporting unit. Goodwill was determined to be impaired $0.6 million at the private software company and Goodwill of $3.0 million was impaired at the Bytewise reporting unit as of June 30, 2020. As a result, the balance of Goodwill at Bytewise is zero and $1.0 million at the private software company as of September 30, 2020.

The Company will continue to perform an annual assessment of goodwill associated with its purchase of a private software company. If future results significantly vary from current estimates, related projections, or business assumptions due to changes in industry or market conditions, the Company may be required to perform an impairment analysis prior to our annual test date if a triggering event is identified. As of September 30, 2020, we did not identify a triggering event.

Amortizable intangible assets consist of the following (in thousands):

	09/30/2020		6/30/2020
Trademarks and trade names	2,070		2,070
Completed technology	2,010		2,010
Customer relationships	630		630
Software development	9,696		9,445
Total	14,406		14,155
Accumulated amortization	(9,458)		(6,316)
Intangibles impairment	$	—	$	(2,842)
Total net balance	$	4,948	$	4,997

Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for some trademark and trade name assets. The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next five years and thereafter, is as follows (in thousands):

2021 (Remainder of year)	$	1,071
2022	1,212
2023	978
2024	707
2025	547
2026	204
Thereafter	229
Total net balance	$	4,948

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Pension and Post-retirement Benefits

3 Months Ended

Sep. 30, 2020

Retirement Benefits [Abstract]

Pension and Post-retirement Benefits

Pension and Post-retirement Benefits

The Company has two defined benefit pension plans, one for U.S. employees and another for U.K. employees.  The Company has a postretirement medical and life insurance benefit plan for U.S. employees. The Company also has defined contribution plans.

The U.K. defined benefit plan was closed to new entrants in fiscal 2009.

On December 21, 2016, the Company amended the U.S. defined benefit pension plan to freeze benefit accruals effective December 31, 2016. Consequently, the Plan is closed to new participants and current participants will no longer earn additional benefits after December 31, 2016.

Net periodic benefit costs for the Company's defined benefit pension plans are located in Other Income except (in the table below) for service cost. Service cost are in cost of sales and selling, general and administrative. Net periodic benefit costs consist of the following (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
Service cost	$	—	$	—
Interest cost	1,113		1,349
Expected return on plan assets	(1,108)		(1,294)
Amortization of net loss	13		10
	$	18	$	65

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
Service cost	$	21	$	18
Interest cost	51		60
Amortization of prior service credit	(134)		(134)
Amortization of net loss	42		21
	$	(20)	$	(35)

For the three month period ended September 30, 2020, the Company contributed $1.3 million in the U.S. and $0.2 million in the UK pension plans. The Company estimates that it will contribute an additional $6.4 million for the remainder of fiscal 2021.

The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of ten percent (10)% of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of accumulated other comprehensive loss.

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Debt

3 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

Debt

Debt is comprised of the following (in thousands):

	09/30/2020		06/30/2020
Short-term and current maturities
Loan and Security Agreement (Term Loan)	1,376		597
Brazil Loans	4,229		3,935
	5,605		4,532
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	8,624		5,941
Loan and Security Agreement (Line of Credit)	12,603		20,400
	21,227		26,341
	$	26,832	$	30,873

On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement. The Amendment and Restatement waived the fixed charge coverage ratio for the quarter ended June 30, 2020. In addition, the Amendment and Restatement clarifies that certain non-cash adjustments to the

definition of EBITDA are permitted under the Loan Agreement, as amended. In addition, the Amendment and Restatement increases the permitted borrowings from a foreign bank from $5.0 million to $15.0 million and permits the Company to draw the remainder of the outstanding balance under the Loan Agreement.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank updated its security interests in the Company’s U.S. based assets, increased the maximum interest charged on the Line Of Credit from and annual interest rate of 2.25% plus Libor to 3.50% plus Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value (NOLV) of US Inventory plus 62.5% of total appraised US real estate values. As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement and will provide additional reporting supporting the borrowing base and covenants certifications. This minimum adjusted EBITDA covenant is based on the Company’s plan for a slow pandemic recovery throughout FY21 and the impact of the Company’s restructuring plan initiatives. The Company will apply certain proceeds from the sale of US real estate assets against the principle balance of the term loans under the TD Bank loan agreement. The Agreement will revert to the existing covenant package for the quarter ending September 30, 2021 and every quarter thereafter. The Company was compliant with the minimum liquidity requirement and the minimum adjusted cumulative EBITDA required bank covenants as of September 30, 2020.

On December 31, 2019, the Company entered into the Tenth Amendment of its Loan and Security Agreement (“Tenth Amendment”). Under the revised agreement, the credit limit for the Revolving Loan was increased from $23.0 million to $25.0 million. In addition, the Company entered into a new $10.0 million 5-year Term Loan with a fixed interest rate of 4.0%. The new Term Loan will require interest only payments for 12 months and will convert to a term loan requiring both interest and principal payments commencing January 1, 2021. Also, under the Tenth Amendment, the credit limit for external borrowing was increased from $2.5 million to $5.0 million.

Total debt decreased $4.0 million during the three months ending September 30, 2020.  Availability under the Line of Credit remains subject to a borrowing base comprised of accounts receivable and inventory. The Company believes that the borrowing base will consistently produce availability under the Line of Credit of $25.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

The Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of September 30, 2020 (in thousands):

Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance
Brazil Bank	3.10	%	February 2020	February 2021	$	310
Brazil Bank	2.40	%	March 2020	February 2021	300
Brazil Bank	6.05	%	March 2020	February 2021	688
Bradesco	5.18	%	May 2020	May 2021	1,000
Brazil Bank	4.30	%	September 2020	August 2021	1,000
Santander	8.12	%	April 2020	April 2021	931
					$	4,229

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Income Taxes

3 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe Company is subject to U.S. federal income tax and various state, local, and foreign income taxes in numerous jurisdictions. The Company’s domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

The Company provides for income taxes on an interim basis based on an estimate of the effective tax rate for the year. This estimate is reassessed on a quarterly basis. Discrete tax items are accounted for in the quarterly period in which they occur.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Beginning in fiscal 2019, the Company incorporated certain provisions of the Act in the calculation of the tax provision and effective tax rate, including the provisions related to the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), as well as other provisions, which limit tax deductibility of expenses.

The GILTI provisions are expected to have the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. In general, this foreign income will effectively be taxed at an additional 10.5% tax rate reduced by any available current year foreign tax credits. The ability to benefit foreign tax credits may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income and other potential limitations within the foreign tax credit calculation.

In July 2020, the IRS issued final regulations and additional proposed regulations that address the application of the high-taxed exclusion from GILTI. Under these regulations, the Company can make an annual election to exclude from its GILTI inclusion, income from its foreign subsidiaries that’s effective income tax rate exceeds 18.9% for that year. The regulations must be applied for tax years beginning after July 23, 2020 but companies have the option to apply retroactively for tax years beginning after December 31, 2017 and before July 23, 2020. In the first quarter of fiscal 2021 the Company recognized a discrete tax benefit of ($2.7) million related to the impact of electing to apply the high-tax exclusion retroactively for fiscal year 2019 and fiscal year 2020.

The tax expense for the first quarter of fiscal 2021 was a benefit of ($2.3) million on a profit before tax of $1.8 million (an effective tax rate of (124)%). Before the discrete benefits relating to legislation enacted during the first quarter in the amount of ($2.7) million related to the impact of the GILTI high-tax exclusion and ($0.2) million related to the impact of the increase in UK corporate tax rate on the net deferred tax asset, tax expense was $0.7 million or 36% of pre-tax income. This was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses. The tax expense for the first quarter of fiscal 2020 was $0.5 million on a profit before tax of $1.3 million (an effective tax rate of 39%). The tax rate for fiscal 2020 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%. The first quarter of fiscal 2020 also includes a discrete tax expense of $0.1 million relating to adjustments to the fourth quarter of fiscal 2019 balances.

U.S. Federal tax returns for years prior to fiscal 2017 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of September 30, 2020, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2015 – present. During the next twelve months, it is possible there will be a reduction of $0.1 million in long-term tax obligations due to the expiration of the statute of limitations on prior year tax returns.

Accounting for income taxes requires estimates of future benefits and tax liabilities. Due to the temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded tax assets, the Company assesses the likelihood that the asset will be realized by addressing the positive and negative evidence to determine whether realization is more likely than not to occur. If realization is in doubt because of uncertainty regarding future profitability, the Company provides a valuation allowance related to the asset to the extent that it is more likely than not that the deferred tax asset will not be realized. Should any significant changes in the tax law or the estimate of the necessary valuation allowance occur, the Company would record the impact of the change, which could have a material effect on the Company’s financial position.

No valuation allowance has been recorded for the Company’s U.S. federal and foreign deferred tax assets related to temporary differences included in taxable income. While the Company continues to believe that forecasted future taxable income provide sufficient evidence to, more likely than not, support the realization of the tax benefits provided by those differences; the impact of COVID-19 may significantly impact its ability to forecast future pre-tax earnings in certain jurisdictions. If its forecasts are significantly impacted, the Company may need to record a valuation allowance on some or all its deferred tax assets as soon as the current fiscal year end.

In the U.S., a partial valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future and certain state net operating loss carryforwards that will expire in the near future unutilized.

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Contingencies	3 Months Ended
	Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]
Contingencies	ContingenciesThe Company is involved in certain legal matters, which arise, in the normal course of business. These matters are not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

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Restructuring

3 Months Ended

Sep. 30, 2020

Restructuring and Related Activities [Abstract]

Restructuring

Restructuring

In June 2020, the Company recorded a $1.6 million restructuring charge of which $1.0 million remained in the accrual at fiscal 2020 year end. In the three months ending September 30, 2020, $0.3 million of restructuring cost were charged as a period expense and $0.3 million was charge against the accrual. The remaining balance of the accrual at September 30, 2020 was $0.7 million, plus the Company expects to charge an addition $2.0 million in the period those cost are incurred in fiscal year 2021.

The Company decided in January 2018 to vacate its facility in Mt. Airy, North Carolina, and move current operations to a smaller company owned building. The Company is also considering selling the facility with a lease back provision to accommodate remaining operations. While there are no definitive plans set yet, the Company still anticipates that the sale could happen within the current fiscal year, yet based on past experience, the immediate sale is not probable.

As of September 30, 2020, the carrying value of the building is $2.0 million, and based on comparable sales data sourced from the Company’s real estate agent, the Company believes that the current fair value of the building exceeds its carrying value.

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Subsequent Events

3 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On October 1, 2020, The L. S. Starrett Company (the “Company”) was notified (the “Notice”) by the New York Stock Exchange (the “NYSE”) that it was not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because the Company’s average market capitalization was less than $50 million over a consecutive 30 trading-day period and the stockholders’ equity of the Company was less than $50 million.

The Company notified the NYSE that it intends to submit a plan to cure this deficiency and return to compliance with the NYSE continued listing requirements. In order to avoid delisting under Section 802.01B, the Company has 45 days from the receipt of the Notice to submit a business plan advising the NYSE of definitive actions the Company has taken, or proposes to take, that would bring it into compliance with the market capitalization listing standards on or before April 1, 2022 (the “Cure Period”). The Company has prepared and will submit a plan on or before November 15, 2020, and stockholder's equity had already exceeded the $50.0 million minimum threshold with the quarter ending September 30, 2020. If the NYSE accepts the plan, the Company’s common stock will continue to be listed and traded on the NYSE during the Cure Period, subject to the Company’s compliance with other continued listing standards, and the Company will be subject to quarterly monitoring by the NYSE for compliance with the plan.

The Notice has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on the NYSE during the Plan Period, subject to the Company’s compliance with the other listing requirements of the NYSE. The Company’s common stock will continue to trade under the symbol “SCX,” but will have an added designation of “.BC” to indicate that the Company is not currently in compliance with NYSE continued listing standards.

On October 7, 2020, our information technology (“IT”) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time. We are investigating the incident, together with legal counsel and other incident response professionals. We do not believe that we have experienced any material losses related to the ransomware attack and were able to recover all material data. Please see Item 1A - Risk Factors for additional information.

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Basis of Presentation and Summary of Significant Account Policies (Policies)	3 Months Ended
	Sep. 30, 2020
Accounting Policies [Abstract]
Basis of Accounting	The unaudited interim consolidated financial statements as of and for the three months ended September 30, 2020 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. The balance as of June 30, 2020 has been derived from the audited consolidated financial statements as of and for the year ended June 30, 2020.  Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.
Potential Impairment Due to COVID-19	The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2020 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

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Segment Information (Tables)

3 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Summary of financial results for reportable segments

Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended September 30, 2020
Sales1	$	25,984	$	23,427	$	—	$	49,411
Operating Income (Loss)	$	839	$	2,830	$	(1,834)	$	1,835
Three Months ended September 30, 2019
Sales2	$	31,009	$	21,105	$	—	$	52,114
Operating Income (Loss)	$	2,206	$	1,163	$	(1,924)	$	1,445

1.Excludes $746 of North American segment intercompany sales to the International segment, and $2,786 of International segment intercompany sales to the North American segment.

2.Excludes $968 of North American segment intercompany sales to the International segment, and $4,242 of International segment intercompany sales to the North American segment.

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Revenue from Contracts with Customers (Tables)

3 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of revenue

In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three months ended September 30, 2020 and 2019 (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
North America
United States	$	24,337	$	28,624
Canada & Mexico	1,647		2,385
	25,984		31,009
International
Brazil	14,908		12,822
United Kingdom	4,995		5,231
China	1,581		1,514
Australia & New Zealand	1,943		1,538
	23,427		21,105
Total Sales	$	49,411	$	52,114

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Leases (Tables)

3 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Summary of lease assets and liabilities

As of September 30, 2020, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	4,213	$	4,323	$	5,080

Fiscal year minimum operating lease commitments

At September 30, 2020, the Company had the following fiscal year minimum operating lease commitments (in thousands)

Three months ended September 30, 2020	Operating Lease Commitments
2021 (Remainder of year)	$	1,757
2022	1,051
2023	740
2024	707
2025	349
Thereafter	476
Subtotal	$	5,080
Imputed interest	(757)
Total	4,323

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Inventories (Tables)

3 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Schedule of inventories

Inventories consist of the following (in thousands):

	09/30/2020		06/30/2020
Raw material and supplies	$	30,066	$	26,255
Goods in process and finished parts	13,890		13,694
Finished goods	31,168		37,579
	75,124		77,528
LIFO Reserve	(25,048)		(24,541)
	$	50,076	$	52,987

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Amortizable intangible assets

Amortizable intangible assets consist of the following (in thousands):

	09/30/2020		6/30/2020
Trademarks and trade names	2,070		2,070
Completed technology	2,010		2,010
Customer relationships	630		630
Software development	9,696		9,445
Total	14,406		14,155
Accumulated amortization	(9,458)		(6,316)
Intangibles impairment	$	—	$	(2,842)
Total net balance	$	4,948	$	4,997

Estimated aggregate amortization expense

The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next five years and thereafter, is as follows (in thousands):

2021 (Remainder of year)	$	1,071
2022	1,212
2023	978
2024	707
2025	547
2026	204
Thereafter	229
Total net balance	$	4,948

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Pension and Post-retirement Benefits (Tables)

3 Months Ended

Sep. 30, 2020

Retirement Benefits [Abstract]

Schedule of Net Benefit Costs

Net periodic benefit costs consist of the following (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
Service cost	$	—	$	—
Interest cost	1,113		1,349
Expected return on plan assets	(1,108)		(1,294)
Amortization of net loss	13		10
	$	18	$	65

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):

	Three Months Ended
	09/30/2020		09/30/2019
Service cost	$	21	$	18
Interest cost	51		60
Amortization of prior service credit	(134)		(134)
Amortization of net loss	42		21
	$	(20)	$	(35)

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Debt (Tables)

3 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt schedule

Debt is comprised of the following (in thousands):

	09/30/2020		06/30/2020
Short-term and current maturities
Loan and Security Agreement (Term Loan)	1,376		597
Brazil Loans	4,229		3,935
	5,605		4,532
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	8,624		5,941
Loan and Security Agreement (Line of Credit)	12,603		20,400
	21,227		26,341
	$	26,832	$	30,873

Schedule of short-term debt, Brazilian subsidiary

The Company’s Brazilian subsidiary has the following loans of September 30, 2020 (in thousands):

Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance
Brazil Bank	3.10	%	February 2020	February 2021	$	310
Brazil Bank	2.40	%	March 2020	February 2021	300
Brazil Bank	6.05	%	March 2020	February 2021	688
Bradesco	5.18	%	May 2020	May 2021	1,000
Brazil Bank	4.30	%	September 2020	August 2021	1,000
Santander	8.12	%	April 2020	April 2021	931
					$	4,229

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Segment Information - Narrative (Details) - 3 months ended Sep. 30, 2020	segment	Total
Segment Reporting [Abstract]
Number of reportable segments	2	2

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Segment Information - Summary of financial results for reportable segments (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	$ 49,411	$ 52,114
Operating Income (Loss)	1,835	1,445
Unallocated
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	0	0
Operating Income (Loss)	(1,834)	(1,924)
North American Operations
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	25,984	31,009
North American Operations | Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	25,984	31,009
Operating Income (Loss)	839	2,206
North American Operations | Intercompany sales
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Intercompany sales	746	968
International Operations | Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	23,427	21,105
Operating Income (Loss)	2,830	1,163
International
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	23,427	21,105
International | Intercompany sales
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Intercompany sales	$ 2,786	$ 4,242

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Revenue from Contracts with Customers - Narrative (Details) $ in Thousands		3 Months Ended
	Jul. 01, 2018 USD ($)	Sep. 30, 2020 USD ($) segment	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Customer return asset		$ 100	$ 100	$ 100
Customer refund liability		200	200	$ 200
Contract asset		0	0
Contract liability		$ 400	$ 400		$ 400
Number of reportable segments		2	2
Cumulative Effect, Period of Adoption, Adjustment
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Adjustments to retained earnings for accounting change	$ 0

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Revenue from Contracts with Customers - Disaggregation of revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Disaggregation of Revenue [Line Items]
Net sales	$ 49,411	$ 52,114
North America
Disaggregation of Revenue [Line Items]
Net sales	25,984	31,009
International
Disaggregation of Revenue [Line Items]
Net sales	23,427	21,105
United States | North America
Disaggregation of Revenue [Line Items]
Net sales	24,337	28,624
Canada & Mexico | North America
Disaggregation of Revenue [Line Items]
Net sales	1,647	2,385
Brazil | International
Disaggregation of Revenue [Line Items]
Net sales	14,908	12,822
United Kingdom | International
Disaggregation of Revenue [Line Items]
Net sales	4,995	5,231
China | International
Disaggregation of Revenue [Line Items]
Net sales	1,581	1,514
Australia & New Zealand | International
Disaggregation of Revenue [Line Items]
Net sales	$ 1,943	$ 1,538

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Leases - Narrative (Details) $ in Millions	3 Months Ended
	Sep. 30, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Operating lease cost	$ 0.6
Weighted average discount rate	9.00%
Weighted average remaining lease term	4 years
Operating lease commitments	$ 0.1

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Leases - Summary of lease assets and liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]
Right of use assets	$ 4,213	$ 4,465
Operating Lease Obligations	4,323
Remaining Cash Commitment	$ 5,080

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Leases - Fiscal year minimum operating lease commitments (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2021 (Remainder of year)	$ 1,757
2022	1,051
2023	740
2024	707
2025	349
Thereafter	476
Subtotal	5,080
Imputed interest	(757)
Total	$ 4,323

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Stock-based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 05, 2012
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Shares of common stock authorized by 2012 plan (in shares)			500,000
The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Shares available for grant under 2012 plan (in shares)	13,233
Weighted average contractual term for stock options outstanding (in years)	2 years 3 months
Share-based Payment Arrangement, Expense	$ 0.3	$ 0.1
Unrecognized stock-based compensation costs	$ 1.0
Expected weighted average vesting period (in years)	2 years 2 months 12 days
Share-based Payment Arrangement, Option | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Expiration date of options granted (in years)	10 years
Shares outstanding (in shares)	9,000
Stock options granted (in shares)	0
Aggregate intrinsic value of shares outstanding	$ 0.1
Stock options exercisable (in shares)	20,000
Forfeiture of options (in shares)	0
Restricted Stock Units (RSUs) | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Shares outstanding (in shares)	360,134
Aggregate intrinsic value of shares outstanding	$ 1.1
Restricted stock awards (in shares)	289,800
Fair value of restricted stock award grants (in dollars per share)	$ 3.37
Restricted stock awards vested (in shares)	0
Restricted stock awards forfeited (in shares)	0
Unrecognized stock-based compensation costs	$ 2.7
Portion Relating to RSU Grants Not Expected to be Awarded | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Unrecognized stock-based compensation costs	$ 1.7
Minimum | Share-based Payment Arrangement, Option | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)	1 year
Minimum | Restricted Stock Units (RSUs) | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)	1 year
Maximum | Share-based Payment Arrangement, Option | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)	3 years
Maximum | Restricted Stock Units (RSUs) | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)	3 years

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Inventories - Components of Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Inventory Disclosure [Abstract]
Raw material and supplies	$ 30,066	$ 26,255
Goods in process and finished parts	13,890	13,694
Finished goods	31,168	37,579
Total before LIFO reserve	75,124	77,528
LIFO Reserve	25,048	24,541
Total	$ 50,076	$ 52,987

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Inventories (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2020	Jun. 30, 2020
Inventory Disclosure [Abstract]
Inventories	$ 50,076	$ 52,987
LIFO Reserve	25,048	24,541
Inventory difference using FIFO basis	31,900	33,100
LIFO inventory amount	6,900	$ 8,600
Effect of LIFO Reserve on income	$ 500

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Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Jun. 30, 2020
Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 1,015	$ 1,015	$ 1,015
Intangibles impairment	0		$ 2,842
Private Software Company
Finite-Lived Intangible Assets [Line Items]
Goodwill	1,000
Goodwill impairment loss		600
Intangibles impairment		2,900
Bytewise
Finite-Lived Intangible Assets [Line Items]
Goodwill	0
Goodwill impairment loss		$ 3,000
Bytewise and Private Software Company
Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 4,700
Computer software
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life	5 years
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life	20 years

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Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Sep. 30, 2020	Jun. 30, 2020
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	$ 14,406	$ 14,155
Accumulated amortization	(9,458)	(6,316)
Intangibles impairment	0	(2,842)
Intangible assets, net	4,948	4,997
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	2,070	2,070
Completed technology
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	2,010	2,010
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	630	630
Software development
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	$ 9,696	$ 9,445

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Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
2021 (Remainder of year)	$ 1,071
2022	1,212
2023	978
2024	707
2025	547
2026	204
Thereafter	229
Total net balance	$ 4,948	$ 4,997

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Pension and Post-retirement Benefits - Net Periodic Costs (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 0	$ 0
Interest cost	1,113	1,349
Expected return on plan assets	(1,108)	(1,294)
Amortization of net loss	13	10
Total	18	65
Post Retirement Medical Plan
Defined Benefit Plan Disclosure [Line Items]
Service cost	21	18
Interest cost	51	60
Amortization of prior service credit	(134)	(134)
Amortization of net loss	42	21
Total	$ (20)	$ (35)

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Pension and Post-retirement Benefits (Details) $ in Millions	3 Months Ended
	Sep. 30, 2020 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Expected Future Employer Contributions, Remainder of Fiscal Year	$ 6.4
Pension Plan | United States
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Contributions by Employer	1.3
Pension Plan | Foreign Plan
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Contributions by Employer	$ 0.2

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Debt - Debt schedule (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Debt Instrument [Line Items]
Loan and Security Agreement (Term Loan)	$ 5,605	$ 4,532
Brazil Loans	4,229
Short-term and current maturities	5,605	4,532
Long-term debt (net of current portion)	21,227	26,341
Long-term debt	26,832	30,873
Loan and Security Agreement (Term Loan)
Debt Instrument [Line Items]
Long-term debt (net of current portion)	8,624	5,941
Loan and Security Agreement (Line of Credit)
Debt Instrument [Line Items]
Long-term debt (net of current portion)	12,603	20,400
Loan and Security Agreement (Term Loan)
Debt Instrument [Line Items]
Loan and Security Agreement (Term Loan)	1,376	597
Brazil Loans
Debt Instrument [Line Items]
Brazil Loans	$ 4,229	$ 3,935

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Debt (Details) - USD ($)			3 Months Ended
	Jun. 25, 2020	Dec. 31, 2019	Sep. 30, 2020	Jun. 24, 2020	Dec. 30, 2019
Debt Instrument [Line Items]
Credit limit on revolving loan facility		$ 25,000,000.0	$ 25,000,000.0		$ 23,000,000.0
Commitment fee percentage on line of credit			0.25%
All Debt
Debt Instrument [Line Items]
Increase in debt			$ (4,000,000.0)
Loan and Security Agreement
Debt Instrument [Line Items]
Face value of term loan				$ 5,000,000.0
Amended and Restated Loan And Security Agreement, Term Loan | London Interbank Offered Rate (LIBOR) | Maximum
Debt Instrument [Line Items]
Variable interest rate	3.50%
Amended and Restated Loan And Security Agreement, Term Loan | London Interbank Offered Rate (LIBOR) | Minimum
Debt Instrument [Line Items]
Variable interest rate	2.25%
Amended and Restated Loan And Security Agreement, Foreign Bank Term Loan
Debt Instrument [Line Items]
Face value of term loan	$ 15,000,000.0
Line of Credit | Loan and Security Agreement
Debt Instrument [Line Items]
Percent of qualified AR		80.00%
Percent of the lower of Cost or Market of US Inventory values		50.00%
Line of Credit | Amended and Restated Loan And Security Agreement, Term Loan
Debt Instrument [Line Items]
Percent of qualified AR	80.00%
Percent of Net Orderly Liquidation Value (NOLV)	85.00%
Percent of US real estate values	62.50%
Credit limit on revolving loan facility		$ 25,000,000
Term Loan
Debt Instrument [Line Items]
Credit limit for external borrowing		5,000,000.0			$ 2,500,000
Face value of term loan		$ 10,000,000.0
Term of loan		5 years
Fixed interest rate		4.00%

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Debt - Short-term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020
Statement [Line Items]
Brazil Loans	$ 4,229
Brazil Loans
Statement [Line Items]
Brazil Loans	$ 4,229	$ 3,935
Notes Payable to Banks | Brazil Bank Member | Three Point One Zero Percent Short-term Loan
Statement [Line Items]
Interest rate	3.10%
Brazil Loans	$ 310
Notes Payable to Banks | Brazil Bank Member | Two Point Four Zero Percent Short-term Loan
Statement [Line Items]
Interest rate	2.40%
Brazil Loans	$ 300
Notes Payable to Banks | Brazil Bank Member | Three Point One One Percent Short Term Loan
Statement [Line Items]
Interest rate	4.30%
Brazil Loans	$ 1,000
Notes Payable to Banks | Brazil Bank Member | Six Point Zero Five Percent Short-term Loan
Statement [Line Items]
Interest rate	6.05%
Brazil Loans	$ 688
Notes Payable to Banks | Brazil Bank Member | Eight Point One Two Percent Short- Term Loan
Statement [Line Items]
Interest rate	8.12%
Brazil Loans	$ 931
Notes Payable to Banks | Bradesco Bank | Four Point Zero Percent Short Term Loan
Statement [Line Items]
Interest rate	5.18%
Brazil Loans	$ 1,000

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Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Jun. 30, 2020
Operating Loss Carryforwards [Line Items]
Income tax (benefit) expense	$ (2,282)	$ 498
Profit before tax	$ 1,834	$ 1,276
Effective income tax rate percentage	(124.00%)	39.00%	18.90%
Income Tax Expense (Benefit) On Pretax Income	$ 700
Effective Income Tax Rate Reconciliation, Percent Of Pretax Income	36.00%
Possible reduction in long-term tax obligations	$ 100
Tax Years 2019 and 2020
Operating Loss Carryforwards [Line Items]
Income tax (benefit) expense	(2,700)
Tax Year 2019
Operating Loss Carryforwards [Line Items]
Income tax (benefit) expense		$ 100
Foreign Tax Authority | Her Majesty's Revenue and Customs (HMRC)
Operating Loss Carryforwards [Line Items]
Increase in UK corporate tax rate	$ (200)

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Restructuring (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Jun. 30, 2020	Sep. 30, 2020	Sep. 30, 2019
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 1,600	$ 346	$ 0
Restructuring Reserve	1,000	700
Restructuring costs charged as period expense		300
Remaining expected restructuring costs		2,000
Carrying value of building	$ 37,090	37,156
Vacated Facility at Mt. Airy, North Carolina
Restructuring Cost and Reserve [Line Items]
Carrying value of building		$ 2,000