-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ib5/xWUudco2ThWQ5bM5oiTlnYXESyi8HtgAfZJMQ542uNcjCxpCnunFCqSVgNO/ axwdEGt1aEzDUrYUcRKVsg== 0000093676-99-000011.txt : 19991110 0000093676-99-000011.hdr.sgml : 19991110 ACCESSION NUMBER: 0000093676-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990925 FILED AS OF DATE: 19991109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARRETT L S CO CENTRAL INDEX KEY: 0000093676 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 042756926 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00367 FILM NUMBER: 99743994 BUSINESS ADDRESS: STREET 1: 121 CRESCENT ST CITY: ATHOL STATE: MA ZIP: 01331 BUSINESS PHONE: 5082493551 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 25, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from 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 (I.R.S. Employer incorporation or organization) 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 Former name, address and fiscal year, if changed since last report. 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 filings requirements for the past 90 days. YES X NO Common Shares outstanding as of September 25, 1999: Class A Common Shares 5,124,809 Class B Common Shares 1,572,407 Page 1 of 11 THE L. S. STARRETT COMPANY CONTENTS Page No. Part I. Financial Information: Item 1. Financial Statements Consolidated Statements of Earnings and Cash Flows - thirteen weeks ended September 25, 1999 and September 26, 1998 (unaudited) 3 Consolidated Balance Sheets - September 25, 1999 (unaudited) and June 26, 1999 4 Consolidated Statements of Stockholders' Equity - thirteen weeks ended September 25, 1999 and September 26, 1998 (unaudited) 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Part II. Other information: Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and reports on Form 8-K 10-11 Page 2 of 11 THE L. S. STARRETT COMPANY Consolidated Statements of Earnings and Cash Flows (in thousands of dollars except per share data)(unaudited) 13 Weeks Ended EARNINGS 9/25/99 9/26/98 Net sales 58,412 58,364 Cost of goods sold (42,267) (41,221) Selling and general (11,844) (11,891) Other income and expense 16 509 Earnings before income taxes 4,317 5,761 Provision for federal, foreign and state income taxes 1,442 1,845 Net earnings 2,875 3,916 Basic earnings per share .43 .57 Average outstanding shares used 6,698 6,896 Diluted earnings per share .43 .57 Average outstanding shares used 6,706 6,908 Dividends per share .20 .20 CASH FLOWS Cash flows from operating activities: Net earnings 2,875 3,916 Noncash expenses: Depreciation and amortization 2,976 2,954 Deferred taxes 411 207 Unrealized translation losses(gains) Working capital changes: Receivables (6,505) 1,210 Inventories 1,158 1,031 Other assets and liabilities 1,130 (1,485) Prepaid pension cost and other (905) (763) Net cash from operations 1,140 7,070 Cash flows from investing activities: Additions to plant and equipment (3,248) (5,335) Short-term investments, net 1,464 (3,217) Net cash used in investing (1,784) (8,552) Cash flows from financing activities: Short-term borrowings, net 2,415 (401) Common stock issued 954 840 Treasury shares purchased (1,205) (861) Dividends (1,339) (1,378) Net cash used in financing 825 (1,800) Effect of translation rate changes on cash (28) 38 Net decrease in cash 153 (3,244) Cash, beginning of period 271 3,705 Cash, end of period 424 461 See notes to consolidated financial statements Page 3 of 11 THE L. S. STARRETT COMPANY Consolidated Balance Sheets (in thousands of dollars) Sep. 25 June 26 1999 1999 ASSETS (unaudited) Current assets: Cash 424 271 Investments 15,356 16,933 Accounts receivable (less allowance for doubtful accounts of $2,380,000 and $2,361,000) 42,138 36,004 Inventories: Finished goods 32,178 31,964 Goods in process and finished parts 27,243 31,589 Raw materials and supplies 16,278 14,488 75,699 78,041 Prepaid expenses and other current assets 1,980 6,173 Total current assets 135,597 137,422 Property, plant and equipment, at cost (less accumulated depreciation of $71,003,000 and $69,685,000) 73,494 73,854 Cost in excess of net assets acquired (less accumulated amortization of $4,365,000 and $4,266,000) 6,998 7,094 Prepaid pension cost 27,149 26,212 Other assets 1,107 1,146 244,345 245,728 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities 6,016 3,600 Accounts payable and accrued expenses 11,580 13,783 Accrued salaries and wages 4,330 6,026 Taxes payable 691 484 Employee deposits for stock purchase plan 495 429 Total current liabilities 23,112 24,322 Deferred income taxes 12,433 11,919 Long-term debt 3,300 3,300 Accumulated postretirement medical benefit obligation 16,156 16,151 Stockholders' equity: Class A Common $1 par (20,000,000 shrs. auth.; 5,124,809 outstanding in 9/99, excluding 1,249,165 held in treasury; 5,109,173 outstanding in 6/99, excluding 1,243,158 held in treasury) 5,125 5,109 Class B Common $1 par (10,000,000 shrs. auth.; 1,572,407 outstanding in 9/99, excluding 291,340 held in treasury; 1,596,748 outstanding in 6/99, excluding 288,642 held in treasury) 1,572 1,597 Additional paid-in capital 43,316 42,730 Retained earnings reinvested and employed in the business 156,057 155,349 Foreign currency translation adjustment (16,871) (14,922) Other equity adjustments 145 173 Total stockholders' equity 189,344 190,036 244,345 245,728 See Notes to Consolidated Financial Statements Page 4 of 11 THE L. S. STARRETT COMPANY Consolidated Statements of Stockholders' equity For the Thirteen Weeks Ended September 25, 1999 and September 26, 1998 (in thousands of dollars) (unaudited) Common Addi- Accumulated Stock Out- tional Other standing Paid-in Retained Comprehensive ($1 Par) Capital Earnings Income Total Balance June 27, 1998 6,897 41,263 151,317 (4,183) 195,294 Comprehensive income: Net earnings 3,916 3,916 Unrealized net gains on investments 103 103 Translation gain, net 253 253 Total comprehensive income 4,272 Dividends ($.20 per share) (1,378) (1,378) Treasury shares: Purchased (23) (145) (693) (861) Issued 25 815 840 Balance September 26, 1998 6,899 41,933 153,162 (3,827) 198,167 Balance June 26, 1999 6,706 42,730 155,349 (14,749) 190,036 Comprehensive income: Net earnings 2,875 2,875 Unrealized net losses on investments (28) (28) Translation loss, net (1,949) (1,949) Total comprehensive income 898 Dividends ($.20 per share) (1,339) (1,339) Treasury shares: Purchased (46) (331) (828) (1,205) Issued 37 917 954 Balance September 25, 1999 6,697 43,316 156,057 (16,726) 189,344 See Notes to Consolidated Financial Statements Page 5 of 11 THE L. S. STARRETT COMPANY Notes to Consolidated Financial Statements In the opinion of management, the accompanying financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 25, 1999 and June 26, 1999; the results of operations and cash flows for the thirteen weeks ended September 25, 1999 and September 26, 1998; and changes in stockholders' equity for the thirteen weeks ended September 25, 1999 and September 26, 1998. The Company follows the same accounting policies in the preparation of interim statements as described in the Company's annual report filed on form 10-K for the year ended June 26, 1999, and these financial statements should be read in conjunction with said annual report. Other income (expense) is comprised of the following (in thousands): Thirteen Weeks Ended September 1999 1998 Interest income 272 499 Interest expense and commitment fees (212) (77) Realized and unrealized exchange losses (82) (31) Other 38 118 16 509 Approximately 70% of all inventories are valued on the LIFO method. At September 25, 1999 and June 26, 1999, total inventories are $23,508,000 and $23,521,000 less, respectively, than if determined on a FIFO basis. Long-term debt is comprised of the following (in thousands): September June 1999 1999 Industrial revenue bond 900 900 Revolving credit agreement 3,000 3,000 3,900 3,900 Less current portion 600 600 3,300 3,300 Page 6 of 11 THE L. S. STARRETT COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales Sales for the September quarter are approximately the same as the corresponding quarter of a year ago. A 5% decrease in foreign sales is offset by a slight increase in domestic sales. The foreign decrease is mainly a result of the Brazil currency devaluation that took place in January 1999. In addition, the strong pound in the U.K. continues to adversely affect Scotland's business in terms of export pricing and import price competition. Foreign sales were actually up over 10% in local currency. The increase in domestic sales was mostly due to product mix as the industrial manufacturing sector continues to be weak. Earnings Before Taxes Pretax earnings are down 25% from the September 1998 quarter. Almost half of this decrease relates to the devaluation mentioned above. The rest is due to international pricing pressures resulting from the strong pound, lower domestic margins as a result of lower production activity and overhead absorption, product mix, and less net interest income. Income Taxes The effective income tax rate was 33.4% in the September quarter of 1999 and 32.0% in the prior year. The increase is because the prior period contained the effects of some favorable tax law changes in Brazil. Market Risk Market risk is the potential change in a financial instrument's value caused by fluctuations in interest and currency exchange rates and equity and commodity prices. The Company's operating activities expose it to many risks that are continually monitored, evaluated, and managed. Proper management of these risks helps reduce the likelihood of earnings volatility. At June 1999 and September 1999, the Company was not a party to any derivative arrangement and the Company does not engage in trading, market-making or other speculative activities in the derivatives markets. The Company does not engage in regular hedging activities to minimize the impact of foreign currency fluctuations. Net monetary assets in Scotland and Brazil are approximately $5 million and $4 million, respectively. Inflation in Brazil has decreased to less than 10% today from over 2000% in 1994 when their current economic plan was initiated. As a consequence, their economy ceased to be considered hyperinflationary as of January 1998. A 10% change in interest rates would not have a significant impact on the aggregate net fair value of the Company's interest rate sensitive financial instruments (primarily variable rate investments of $8,000,000 and debt of $9,000,000 at September 25, 1999) or the cash flows or future earnings associated with those financial instruments. A 10% change in interest rates would impact the fair value of the Company's fixed rate investments of approximately $6,800,000 by $300,000. Year 2000 The Company does not currently anticipate any material disruption of its operations as a result of failure by the Company to be year 2000 compliant. If, however, the Company, its customers or its suppliers are unable to achieve year 2000 compliance, the potential exists for the Company's business and results of operations to be adversely affected. Page 7 of 11 Worldwide, the Company has four major computer systems that are used in the areas of manufacturing, sales and accounting. Two use third party packages that the Company believes are or, through vendor upgrades, will be year 2000 compliant. The other two systems are in the process of being converted to third party packages that the Company believes are already compliant. The Company expects to complete the reasonably necessary remediation of its significant systems by the end of calendar 1999 and has not incurred, and does not expect to incur, significant additional separately identifiable costs in order to make its computer systems year 2000 compliant. If it begins to appear that the Company's planned upgrades and modifications might fail to bring any of these major systems into year 2000 compliance or fail to do so in a timely manner, the Company will have to adopt, and for one system has actually adopted, contingency plans to deal with any resulting disruptions in its business. The Company employs certain manufacturing processes that utilize computer controlled manufacturing equipment. The Company believes such equipment is year 2000 compliant to the extent reasonably necessary but has not completed its testing of such equipment. In the event the Company determines that such equipment cannot readily be made year 2000 compliant, it believes it can revert to the manual processes previously employed or outsource such work. The Company is also in the process of investigating the status of other systems with respect to year 2000 compliance such as phone, fax, heating/air conditioning, and electricity and believes they will be year 2000 compliant to the extent reasonably necessary before the end of 1999. The Company is utilizing internal resources for this purpose and does not expect to incur significant separately identifiable costs. In addition to reviewing its own systems, the Company has polled or is in the process of polling its significant customers and vendors to get assurance that they are year 2000 compliant and to attempt to identify potential issues. To the extent such assurance is not received, appropriate contingency plans will be developed and implemented. At this time, the Company is not aware of significant problems. If the Company's customers and vendors do not achieve year 2000 compliance before the end of 1999, the Company could experience a variety of problems that might have a material adverse effect on the Company's business and results of operations. For example, customers might lose EDI capability or vendors might fail to deliver, but most foreseeable problems can be overcome by reverting to phone, fax, mail and other manual procedures. It should be noted that the Company outsources very little other than raw steel and is not dependent on single source suppliers. LIQUIDITY AND CAPITAL RESOURCES 13 Weeks Ended 9/25/99 9/26/98 Cash provided by operations 1,140 7,070 Cash used in investing activities (1,784) (8,552) Cash from (used in) financing activities 825 (1,800) Cash effect of translation rate changes (28) 38 Net increase (decrease) in cash 153 (3,244) The drop in net earnings along with an increase in accounts receivable caused cash flow provided by operations to decrease compared to the prior year's quarter. Lower fixed asset additions and less cash available for investment caused the drop in investing activity. Short-term borrowing in Brazil accounts for the change in cash from financing activities. Page 8 of 11 The Company maintains sufficient liquidity and has adequate resources, including lines of credit, to fund its operations under current business conditions. The Company continues to maintain a strong financial position with a working capital ratio of 5.9 to 1 as of September 25, 1999 and 5.7 to 1 as of June 26, 1999. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996 This quarterly report, as well as the 1999 Annual Report, including the Chairman's letter to stockholders, include forward-looking statements about the Company's business, sales, expenditures, Year 2000 compliance, environmental regulatory compliance, foreign operations, 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 security analysts and investors. The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements, including the following risk factors: Risks Related to Year 2000 Issues: The Company continues to explore whether and to what extent its computer and other systems will be disrupted at the turn of the century as a result of the widely-publicized dating system flaw inherent in many computer systems. While the Company is in the process of upgrading and modifying its systems in order to address the Year 2000 issue, there can be no assurance that the Company's existing systems will be upgraded or modified in time to remedy the Year 2000 issue or that the Company's computer systems will not be disrupted upon the turn of the century. Any disruption of the Company's business due to the Year 2000 issue, whether caused by the Company's systems or those of any of its suppliers, customers, banks, lenders, or insurers, could have a material adverse effect on the Company's financial condition or results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000." Risks Related to Technology: Although the Company's strategy includes significant investment in research and development of new and innovative products to meet technology advances, there can be no assurance that the Company will be successful in competing against new technologies developed by competitors. Risks Related to Adoption of the Euro: The new European currency (the Euro) began being used by the eleven participating European countries January 1, 1999. Although the United Kingdom is not currently a Euro country, the Company's Scottish subsidiary does a significant amount of business with Euro countries. Management believes it has the necessary systems and business processes to deal with what is, in effect, one more foreign currency, but there can be no assurance that there will not be unforeseen economic effects of this change that might affect the Company's sales or margins on business done with Euro countries. Risks Related to Foreign Operations: Approximately a third of the Company's sales are derived from foreign operations and approximately a third of the Company's net assets are located outside the United States. Foreign operations are subject to special risks that can materially affect the sales, profits, cash flows, and financial position of the Company, including taxes and other restrictions on distributions and payments, currency exchange rate fluctuations, political and economic instability, inflation, minimum capital requirements, and exchange controls. In particular, the Page 9 of 11 Company's Brazilian operations, which constitute over half of the Company's revenues from foreign operations, can be very volatile, changing from year to year due to the political situation and economy. As a result, the future performance of the Brazilian operations is inherently unpredictable. See Management's Discussion (SALES) regarding the recent devaluation of the Brazilian currency. Risks Related to Cyclical Nature of the Industry: The market for the Company's products is subject to general economic conditions, including the level of capital spending by industrial companies. As such, recessionary forces decrease demand for the Company's products and adversely affect performance. Risks Related to Competition: The Company's business is subject to direct and indirect competition from both domestic and foreign firms. In particular, low-wage foreign sources have created severe competitive pricing pressures. Under certain circumstances, including significant changes in U.S. and foreign currency relationships, such pricing pressures might reduce unit sales and/or adversely affect the Company's margins. PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders. (a) A regular meeting of shareholders was held on September 15, 1999. (c)1. The following directors were elected: Abstentions Votes Votes and Broker For Withheld Non-votes A shares voting as separate class: Andrew B. Sides, Jr. 4,598,250 235,932 N/A A and B shares voting together: Douglas R. Starrett 19,037,952 295,910 N/A Roger U. Wellington, Jr. 19,033,653 300,209 N/A 2. The following additional matters, as more fully described in the registrant's Notice and Proxy Statement for said meeting, were voted on: Approval of an amendment to the Company's By-laws to specify the the circumstances under which indemnification of directors and officers and certain employees who are trustees and administrators of the Company's employee benefit plans is allowed or required. There were 17,019,084 votes in favor, 141,220 votes against, and 353,169 abstentions. Approval of a form of indemnification agreement for directors and officers and certain employees who are trustees and administrators of the Company's employee benefit plans. There were 16,884,227 votes in favor, 296,588 votes against, and 332,658 abstentions. Pursuant to this approval, effective September 15, 1999, the Company entered into indemnification agreements with such persons. ITEM 6. Exhibits and Reports on Form 8-K. 6(a) Exhibit 3. Bylaws as amended 9/15/99 filed herewith electronically. Page 10 of 11 ITEM 6. Exhibits and Reports on Form 8-K. (continued) 6(a)(continued) Exhibit 10. Form of indemnification agreement entered into with directors and officers and certain employees who are trustees and administrators of the Company's employee benefit plans filed herewith electronically. 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 8, 1999 S/R.U.WELLINGTON, JR. R. U. Wellington, Jr. (Treasurer and Chief Financial Officer) Date November 8, 1999 S/S.G.THOMSON S. G. Thomson (Chief Accounting Officer) Page 11 of 11 EX-27 2
5 1,000 3-MOS JUN-24-2000 SEP-25-1999 424 15,356 44,518 2,380 75,699 135,597 144,497 71,003 244,345 23,112 3,300 0 0 6,697 182,647 244,345 58,412 58,412 42,257 42,257 0 0 212 4,317 1,442 2,875 0 0 0 2,875 .43 .43
EX-3 3 As amended through 9/15/99 BY-LAWS OF THE L. S. STARRETT COMPANY SECTION 1. ARTICLES OF ORGANIZATION The name and purposes of the corporation shall be as set forth in the articles of organization. These by-laws, the powers of the corporation and of its directors and stockholders, or of any class of stockholders if there shall be more than one class of stock, and all matters concerning the conduct and regulation of the business and affairs of the corporation shall be subject to such provisions in regards thereto, if any, as are set forth in the articles of organization as from time to time in effect. SECTION 2. STOCKHOLDERS 2.1 Annual Meeting. The annual meeting of the stockholders shall be held at two o'clock in the afternoon on the third Wednesday of September in each year, unless a different hour is fixed by the president or the directors. If that day be a legal holiday at the place where the meeting is to be held, the meeting shall be held on the next succeeding day not a legal holiday at such place. Purposes for which an annual meeting is to be held, additional to those prescribed by law, by the articles of organization or by these by-laws, may be specified by the president or by the directors. 2.2 Special Meeting in Place of Annual Meeting. If no annual meeting has been held in accordance with the foregoing provisions, a special meeting of the stockholders may be held in place thereof, and any action taken at such special meeting shall have the same force and effect as if taken at the annual meeting, and in such case all references in these by-laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. Any such special meeting shall be called as provided in Section 2.3. 2.3 Special Meeting. A special meeting of the stockholders may be called at any time by the president or by the directors. Each call of a meeting shall state the place, date, hour and purposes of the meeting. 2.4 Place of Meeting. All meetings of the stockholders shall be held at the principal office of the corporation in Massachusetts or at such other place within Massachusetts as shall be fixed by the president or the directors. Any adjourned session of any meeting of the stockholders shall be held at the same city or town as the initial session, or within Massachusetts, in either case at the place designated in the vote of adjournment. 2.5 Notice of Meetings. A written notice of each meeting of stockholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the articles of organization or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the clerk or an assistant clerk or by an officer designated by the directors. No notice of any meeting of stockholders need be given to a stockholder if a written waiver of notice, executed before or after the meeting by such stockholder or his attorney thereunto duly authorized, is filed with the records of the meeting. 2.6 Quorum of Stockholders. At any meeting of the stockholders, a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except that if two or more classes or series of stock are entitled to vote as separate classes or series, then in the case of each such class or series a quorum as to any matter shall consist of a majority of the votes of that class or series entitled to be cast on the matter, and except where a larger quorum is required by law, by the articles of organization or by these by-laws. 2.7 Action by Vote. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office, and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the articles of organization or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.8 Voting. Stockholders entitled to vote shall have one vote for each share of stock entitled to vote held by them of record according to the records of the corporation, unless otherwise provided by the articles of organization. The corporation shall not, directly or indirectly, vote any share of its own stock. The provisions of Chapter 110D of the Massachusetts General Laws shall not apply to control share acquisitions of the Company. The provisions of Chapter 110F of the Massachusetts General Laws shall not apply to the Company. 2.9 Proxies. Stockholders entitled to vote may vote either in person or by proxy in writing dated not more than six months before the meeting named therein, which proxies shall be filed with the clerk or other person responsible to record the proceedings of the meeting before being voted. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. 2.10 Notice of Business. At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for in this Section, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section. For business to be properly brought before a stockholder meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Clerk of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 120 days nor more than 150 days prior to the meeting; provided, however, that in the event that less than 130 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Clerk shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the by-laws to the contrary, no business shall be conducted at a stockholder meeting except in accordance with the procedures set forth in this Section. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the by-laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. SECTION 3. BOARD OF DIRECTORS 3.1 Number. The number of directors which shall constitute the whole board shall be determined from time to time by vote of a majority of the directors then in office, provided that the number thereof may not be less than three nor more than eleven. No director need be a stockholder. 3.2 Election and Tenure. The directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, with one class to be elected at each annual meeting of stockholders. Each class shall hold office until its successors are elected and qualified. If the number of directors is changed by the directors, any newly created directorships or any decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal as possible; provided, however, that no decrease in the number of directors shall shorten the term of any incumbent director. At each annual meeting of stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. 3.3 Powers. Except as reserved to the stockholders by law, by the articles of organization or by these by-laws, the business of the corporation shall be managed by the directors who shall have and may exercise all the powers of the corporation. In particular, and without limiting the generality of the foregoing, the directors may at any time issue all or from time to time any part of the unissued capital stock of the corporation from time to time authorized under the articles of organization and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. 3.4 Committees. The directors may, by vote of a majority of the directors then in office, elect from their number an executive committee and other committees and may by vote delegate to any such committee or committees some or all of the powers of the directors except those which by law, by the articles of organization or by these by-laws they are prohibited from delegating. Except as the directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the directors or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the directors. 3.5 Regular Meetings. Regular meetings of the directors may be held without call or notice at such places and at such times as the directors may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 3.6 Special Meetings. Special meetings of the directors may be held at any time and at any place designated in the call of the meeting, when called by the president or the treasurer or by two or more directors, reasonable notice thereof being given to each director by the secretary or an assistant secretary, or, if there be none, by the clerk or an assistant clerk, or by the officer or one of the directors calling the meeting. 3.7 Notice. It shall be sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.8 Quorum. At any meeting of the directors a majority of the directors then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.9 Action by Vote. When a quorum is present at any meeting, a majority of the directors present may take any action, except when a larger vote is required by law, by the articles of organization or by these by-laws. 3.10 Action by Writing. Any action required or permitted to be taken at any meeting of the directors may be taken without a meeting if a written consent thereto is signed by all the directors and such written consent is filed with the records of the meetings of the directors. Such consent shall be treated for all purposes as a vote at a meeting. 3.11 Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in these by-laws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Section, who shall be entitled to vote for the election of Directors at the meeting and who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Clerk of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 120 days nor more than 150 days prior to the meeting; provided, however, that in the event that less than 130 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is other wise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected), and (b) as to the stockholder given the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the Clerk of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a Director of the corporation unless nominated in accordance with the procedures set forth in this by-law. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the by-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. SECTION 4. OFFICERS AND AGENTS 4.1 Enumeration: Qualification. The officers of the corporation shall be a president, a treasurer, a clerk, and such other officers, if any, as the incorporators at their initial meeting, or the directors from time to time, may in their discretion elect or appoint. The corporation may also have such agents, if any, as the incorporators at their initial meeting or the directors from time to time may in their discretion appoint. Any officer may be but none need be a director or stockholder. The clerk shall be a resident of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any two or more offices may be held by the same person. Any officer may be required by the directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the directors may determine. 4.2 Powers. Subject to law, to the articles of organization and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such duties and powers as the directors may from time to time designate. 4.3 Election. The president, the treasurer and the clerk shall be elected annually by the directors at their first meeting following the annual meeting of the stockholders. Other officers, if any, may be elected or appointed by the board of directors at said meeting or at any other time. 4.4 Tenure. Except as otherwise provided by law or by the articles of organization or by these by-laws, the president, the treasurer and the clerk shall hold office until the first meeting of the directors following the next annual meeting of the stockholders and until their respective successors are chosen and qualified, and each other officer shall hold office until the first meeting of the directors following the next annual meeting of the stockholders unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors. 4.5(a) Chief Executive Officer. The chief executive officer of the corporation shall be the chairman of the board, if any, the president or such other officer as is designated by the directors and shall, subject to the control of the directors, have general charge and supervision of the business of the corporation. If no such designation is made, the president shall be the chief executive officer. Unless the board of directors otherwise specifies, if there is no chairman of the board, the chief executive officer shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. 4.5(b) Chairman of the Board. If a chairman of the board of directors is elected, he shall have the duties and powers specified in these by-laws and shall have such other duties and powers as may be determined by the directors. Unless the board of directors otherwise specifies, the chairman of the board shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. 4.5(c) President and Vice Presidents. The president shall have the duties and powers specified in these by-laws and shall have such other duties and powers as may be determined by the directors. Any vice president shall have such duties and powers as shall be designated from time to time by the directors. 4.6 Treasurer and Assistant Treasurers. The treasurer shall be the chief financial and accounting officer of the corporation and shall be in charge of its funds and valuable papers, books of account and accounting records, and shall have such other duties and powers as may be designated from time to time by the directors or by the president. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the directors. 4.7 Clerk and Assistant Clerks. The clerk shall record all proceedings of the stockholders in a book or series of books to be kept therefor, which book or books shall be kept at the principal office of the corporation or at the office of its transfer agent or of its clerk and shall be open at all reasonable times to the inspection of any stockholder. In the absence of the clerk from any meeting of stockholders, an assistant clerk, or if there be none or he is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid book. Unless a transfer agent has been appointed the clerk shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the amount of stock held by each. If no secretary is elected, the clerk shall keep a true record of the proceedings of all meetings of the directors and in his absence from any such meeting an assistant clerk, or if there be none or he is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof. Any assistant clerk shall have such duties and powers as shall be designated from time to time by the directors. 4.8 Secretary and Assistant Secretaries. If a secretary is elected, he shall keep a true record of the proceedings of all meetings of the directors and in his absence from any such meeting an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the directors. SECTION 5. RESIGNATIONS AND REMOVALS Any director or officer may resign at any time by delivering his resignation in writing to the president, the treasurer or the clerk or to a meeting of the directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time. A director (including persons elected by directors to fill vacancies in the board) may be removed from office only for cause (a) by the vote of the holders of a majority of the total number of votes of the then outstanding shares entitled to vote generally in the election of directors, provided that the directors of a class elected by the holders of a particular class of stockholders may be removed only by affirmative vote of a majority of the total number of votes of the then outstanding shares of such class, or (b) by the vote of a majority of the directors then in office. For the purposes of this Section 5, "cause" shall mean (i) conviction of a felony, (ii) declaration of unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission of an action involving moral turpitude, or (v) commission of an action which constitutes intentional misconduct or a knowing violation of law if such action in either event results both in an improper substantial personal benefit and a material injury to the corporation. The directors may remove any officer elected by them with or without cause by the vote of the directors then in office. A director or officer may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. No director or officer resigning, and (except where a right to receive compensation shall be expressly provided in a fully authorized written agreement with the corporation) no director or officer removed, shall have any right to any compensation as such director or officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of a removal, the body acting on the removal, shall in their or its discretion provide for compensation. SECTION 6. VACANCIES Any vacancy and newly-created directorships in the board of directors, whether resulting from an increase in the size of the board of directors, from the death, resignation, disqualification or removal of a director, or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. If the office of the president or the treasurer or the clerk becomes vacant, the directors may elect a successor by a vote of a majority of the directors then in office. If the office of any other officer becomes vacant, the directors may elect or appoint a successor by vote of a majority of the directors present. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the clerk, until his successor is chosen and qualified, or in each case until he sooner dies, resigns, is removed or becomes disqualified. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number. SECTION 7. CAPITAL STOCK 7.1 Number and Par Value. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue shall be as stated in the articles of organization. 7.2 Fractional Shares. The corporation shall not issue fractional shares of stock but may issue scrip in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon surrender of such scrip aggregating a full share, the terms and conditions and manner of issue of such scrip to be fixed by the directors. 7.3 Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such forms as shall, in conformity to law, be prescribed from time to time by the directors. Such certificate shall be signed by the chairman of the board, the president or a vice president and by the treasurer or an assistant treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent, or by a registrar, other than a director, officer or employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. 7.4 Loss of Certificates. In the case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the directors may prescribe. SECTION 8. TRANSFER OF SHARES OF STOCK 8.1 Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the articles of organization or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these by-laws. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2 Record Date and Closing Transfer Books. The directors may fix in advance a time, which shall not be more than sixty days before the date of any meeting of stockholders or the date for the payment of any dividend or making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date; or without fixing such record date the directors may for any such purposes close the transfer books for all or any part of such period. SECTION 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent permitted from time to time under applicable law, indemnify any person against all liabilities and expenses, including amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees, reasonably incurred by such person in connection with the defense or disposition of any action, suit or other proceeding, whether civil, criminal, administrative or investigative, in which such person may be involved or with which such person may be threatened, by reason of the fact that such person (a) is or was or has agreed to be a director or officer of the corporation or while serving as a director or officer is or was serving at the request of the corporation as a director, officer, trustee, employee or agent of another organization; or (b) is or was a director, officer or employee who is or was serving or has agreed to serve at the request of the corporation in any capacity with respect to any employee benefit plan. Such indemnification shall be provided although the person to be indemnified is not currently a director, officer, trustee, employee or agent of the corporation or such other organization or no longer serves with respect to any such employee benefit plan. Notwithstanding the foregoing, no indemnification shall be provided with respect to any matter disposed of by settlement, consent decree or other negotiated disposition unless (a) such indemnification shall have been approved by the holders of the shares of the corporation's capital stock then entitled to vote for directors, voting such shares as a single class, by a majority of the votes cast on the question exclusive of any shares owned by an interested director or officer; or (b) such indemnification and such settlement, decree or disposition shall have been approved as being in the best interest of the corporation or organization or plan or participants served, as the case may be, after notice that it involves such indemnification, by a majority of the disinterested directors (or, if applicable, the sole disinterested director) then in office (whether or not constituting a quorum); or (c) if no directors are disinterested, a written opinion, reasonably satisfactory to the corporation, of independent legal counsel selected by the corporation shall have been furnished to the corporation that (1) such indemnification and such settlement, decree or disposition are in the best interest of the corporation or organization or plan or participants served, as the case may be, and (ii) if adjudicated, such indemnification would not be found to have been prohibited by law. Expenses reasonably incurred in the defense or disposition of any such action, suit or other proceeding may be paid from time to time by the corporation in advance of the final disposition thereof upon receipt of an undertaking by the person so indemnified to repay to the corporation the amounts so paid if it is ultimately determined that indemnification for such expenses is not authorized under this section. Such undertaking may be accepted without reference to the financial ability of such person to make repayment. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any person may be entitled. As used in this section, the term "person" includes the heirs, executors, administrators and personal representatives of any person; an "interested" director or officer is one against whom in such capacity the proceeding in question or another proceeding on the same or similar grounds is then pending or threatened; and a ``disinterested director'' is any director who is not an interested director. The absence of any express provision for indemnification shall not limit any right of indemnification existing independently of this section. Any repeal or modification of the foregoing provisions of this Section 9 shall not adversely affect any right or protection of a director or officer of the corporation, or an employee of the corporation serving at the request of the corporation in any capacity with respect to an employee benefit plan, with respect to any acts or omission of such director, officer or employee occurring prior to such repeal or modification. The corporation may enter into an indemnification agreement with any person afforded indemnification by the corporation pursuant to this Section 9 so long as such agreement is in accordance with the provisions of this Section 9. SECTION 10. CORPORATE SEAL The seal of the corporation shall, subject to alteration by the directors, consist of the name of the corporation and the words "Athol, Mass., U.S.A.", arranged in circular form in the outside circle of a die, and the words "Corporate Seal" and a representation of a square, caliper and micrometer gage combined, in the inside of the circle. SECTION 11. EXECUTION OF PAPERS Except as the directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation shall be signed by the president or by one of the vice presidents or by the treasurer. SECTION 12. FISCAL YEAR Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the corporation shall end on the last Saturday in June in each year. SECTION 13. AMENDMENTS These by-laws may be altered, amended or repealed at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, by vote of the stockholders, or if there shall be two or more classes or series of stock entitled to vote on the question, by vote of each such class or series. These by-laws may also be altered, amended or repealed by vote of the majority of the directors then in office, except that the directors shall not take any action which provides for indemnification of directors or affects the powers of directors or officers to contract with the corporation, nor any action to amend this Section 13, and except that the directors shall not take any action unless permitted by law. Any by-law so altered, amended or repealed by the directors may be further altered or amended or reinstated by the stockholders in the above manner. EX-10 4 INDEMNIFICATION AGREEMENT This Agreement, made and entered into this 15th day of September, 1999 ("Agreement"), by and between The L.S. Starrett Company, a Massachusetts corporation (the "Corporation"), and ("Indemnitee"): WHEREAS, the By-laws of the Corporation, as amended (the "By-laws"), state that the Corporation shall, to the maximum extent permitted from time to time under applicable law and subject to certain other limitations, indemnify each person who serves as director or officer of the Corporation or while serving as a director or officer is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another organization or who is or was a director, officer or employee who is or was serving at the request of the Corporation in any capacity with respect to any employee benefit plan (each, an "Indemnified Position"), against certain liabilities and expenses; or WHEREAS, the Corporation has requested that Indemnitee serve in an Indemnified Position; and WHEREAS, Indemnitee has relied upon the indemnification provisions in the By-laws of the Corporation as a source of protection against inordinate risks of claims and actions against him or her arising out of his or her service to, and activities on behalf of, the Corporation and is only willing to continue to serve on behalf of the Corporation on the condition that the Corporation enter into an agreement in substantially the form hereto. NOW, THEREFORE, in consideration of Indemnitee's continued service in an Indemnified Position for or at the request of the Corporation after the date hereof, the parties hereto hereby agree as follows: 1. Indemnification of Indemnitee. a. The Corporation hereby agrees, to the maximum extent permitted from time to time under applicable law, including the laws of the Commonwealth of Massachusetts, and, in the case of any Indemnitee serving with respect to an employee benefit plan (each, a "Plan"), the Employee Retirement Income Security Act ("ERISA"), to indemnify Indemnitee against all liabilities and expenses, including amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees, reasonably incurred by Indemnitee in connection with the defense or disposition of any action, suit or other proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, in which Indemnitee may be involved or with which Indemnitee may be threatened, by reason of the fact that Indemnitee is or was or has agreed to serve in an Indemnified Position. b. Notwithstanding the foregoing, no indemnification shall be provided with respect to any matter disposed of by settlement, consent decree or other negotiated disposition unless: i. such indemnification shall have been approved by the holders of the shares of the Corporation's capital stock then entitled to vote for directors, voting such shares as a single class, by a majority of the votes cast on the question exclusive of any shares owned by an interested director or officer; or ii. such indemnification and such settlement, decree or disposition shall have been approved as being in the best interest of the corporation or organization or plan or participants served, as the case may be, after notice that it involves such indemnification, by a majority of the Disinterested Directors (or, if applicable, the sole Disinterested Director) then in office (whether or not constituting a quorum); or iii. if no Disinterested Directors exist, a written opinion, reasonably satisfactory to the Corporation, of independent legal counsel selected by the Corporation shall have been furnished to the Corporation that (A) such indemnification and such settlement, decree or disposition are in the best interest of the corporation or organization or plan or participants served, and (B) if adjudicated, such indemnification would not be found to have been prohibited by law. c. As used in this section, an "interested" director is one against whom in the capacity of an Indemnified Position the Proceeding in question or another Proceeding on the same or similar grounds is then pending or threatened, and a "Disinterested Director" is any director who is not an interested director. The absence of any express provision for indemnification shall not limit any right of indemnification existing independently of this section. 2. Additional Limitations on Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by the Corporation; a. except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of such losses for which Indemnitee is indemnified pursuant to any D & O Insurance or Fiduciary Insurance purchased and maintained by the Corporation; b. in respect to remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law or public policy (and, in this respect, both the Corporation and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for such indemnification should be submitted to appropriate courts for adjudication); c. on account of any Proceeding initiated by Indemnitee unless such Proceeding was authorized in the specific case by action of the Board of Directors of the Corporation (the "Board"); d. on account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto (the "Exchange Act") or similar provisions of any federal, state or local statutory law; e. on account of Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct; and f. on account of Indemnitee's conduct which is the subject of a Proceeding described in Section 5(b)(ii) or (iii) hereof. 3. Continuation of Obligations. All agreements and obligations of the Corporation contained herein shall continue during the period Indemnitee is serving and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was serving in an Indemnified Position. 4. Notification and Defense of Claim. Not later than 30 days after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof but the omission so to notify the Corporation will not relieve the Corporation from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: a. The Corporation will be entitled to participate therein at its own expense; b. Except as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Corporation to Indemnitee of its election so as to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his or her counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded that there is a material conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such action which would impair the ability of the Corporation to adequately defend the interests of the Indemnitee, or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the reasonable fees and expenses of Indemnitee's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Corporation or as to which Indemnitee shall have made the conclusion provided for in (ii) above; and c. The Corporation shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Corporation nor Indemnitee will unreasonably withhold its consent to any proposed settlement. 5. Advancement and Repayment of Expenses. a. Expenses, including counsel fees ("Expenses"), reasonably incurred by Indemnitee in connection with the defense or disposition of any Proceeding shall be paid from time to time by the Corporation in advance of the final disposition thereof upon receipt of an undertaking by Indemnitee to repay the amounts so paid if Indemnitee ultimately shall be adjudicated to be not entitled to indemnification pursuant to this Agreement. Such an undertaking may be accepted without reference to the financial ability of Indemnitee to make repayment. b. Notwithstanding the foregoing, the Corporation shall not be required to advance such expense to Indemnitee if he or she: i. commences any Proceeding as a plaintiff unless such advance is specifically approved by a majority of the Board of Directors of the Corporation; ii. is a party to any Proceeding brought by the Corporation which alleges willful misappropriation of corporate assets by Indemnitee, disclosure of confidential information in violation of his or her fiduciary or contractual obligations to the Corporation or any other willful and deliberate breach in bad faith of his or her duty to the Corporation or its stockholders; iii. in the case of persons serving at the request of the Corporation with respect of any employee benefit plan, is a party to any Proceeding brought by the Corporation which alleges willful misappropriation of the assets of such employee benefit plan by Indemnitee, disclosure of confidential information in violation of his or her fiduciary or contractual obligations to such employee benefit plan or any other willful and deliberate breach in bad faith of his or her duty to such employee benefit plan or its participants or beneficiaries. c. The Corporation shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within seven business days of such request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Corporation under this Agreement or any other agreement or By- law of the Corporation now or hereafter in effect; or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Corporation, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. d. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Indemnified Position, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. 6. Procedure for Determination of Entitlement to Indemnification. a. To obtain indemnification under this Agreement, Indemnitee shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Clerk of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. b. Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: i. if a Change in Control (as defined in Annex A) shall have occurred, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; ii. if a Change of Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, or (B) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board, by the stockholders of the Corporation; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within seven days after such determination. The Corporation and the Indemnitee shall each cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation (irrespective of the determination as to Indemnitee's entitlement to indemnification), and the Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom. c. In the event the determination of entitlement to indemnification is to be made by independent legal counsel pursuant to Section 6(b) hereof, the independent legal counsel shall be selected by the Board, provided, however, if a Change of Control shall have occurred, the independent legal counsel shall be selected by Indemnitee. For purposes of this Agreement, "independent legal counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and would not have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Corporation agrees to pay the reasonable fees of the independent legal counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. d. The Corporation shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Corporation has undertaken to defend if the Corporation assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential liability. The Corporation shall not be liable for any amount paid by the Indemnitee in settlement of any Proceeding that is not defended by the Corporation, unless the Corporation has consented to such settlement, which consent shall not be unreasonably withheld. 7. Enforcement. a. The Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligation imposed on the Corporation hereby in order to induce Indemnitee to continue to serve in an Indemnified Position, and acknowledges that Indemnitee is relying upon this Agreement in continuing in such capacity. b. In the event Indemnitee is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Corporation shall reimburse Indemnitee for all Indemnitee's reasonable fees and expenses in bringing and pursuing such action. 8. Remedies of Indemnitee. In the event that (i) a determination is made pursuant to this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of expenses is not timely made pursuant to this Agreement, or (iii) no determination of entitlement to indemnification shall have been made pursuant to this Agreement within 90 days after receipt by the Corporation of the request for indemnification, Indemnitee shall be entitled to an adjudication by any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. 9. Presumptions and Effect of Certain Proceedings. a. In making a determination with respect to entitlement to indemnification or the advancement of Expenses hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification or advancement of expenses under this Agreement if Indemnitee has submitted a request for indemnification or the advancement of expenses in accordance with Section 5(a) of this Agreement, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. b. If the person, persons or entity empowered or selected under Section 6 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 60 days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or a prohibition of such indemnification under applicable law; provided, however, that the foregoing provisions of this Section 9(b) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to this Agreement and if: i. within 15 days after receipt by the Corporation of the request for such determination, the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within 75 days after such receipt and such determination is made thereat; or ii. a special meeting of stockholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat. c. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is based on: i. the records or books of account of the Corporation or relevant enterprise, including financial statements; or ii. information supplied to Indemnitee by the officers of the Corporation or relevant enterprise in the course of their duties; or iii. the advice of legal counsel for the Corporation or relevant enterprise; or iv. information or records given in reports made to the Corporation or relevant enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or relevant enterprise. d. The provisions of this Section shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. 10. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 11. Non-Exclusivity of Rights. The right of indemnification hereby provided shall not be exclusive. Nothing contained herein shall affect any other rights to indemnification to which Indemnitee may be entitled by contract, by any entity's charter or by-laws or otherwise under law. 12. Survival of Rights. The rights conferred on Indemnitee by this Agreement shall continue after he or she has ceased to serve in an Indemnified Position and shall inure to the benefit of Indemnitee's heirs, executors and administrators. 13. Severability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any or all of the provisions hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 14. No Employment Contract. This Agreement shall not be deemed an employment contract between the Corporation (or any of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Corporation (or any of its subsidiaries), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Corporation (or any of its subsidiaries), other applicable severance policies adopted by the Corporation, or, with respect to service as a director or officer of the Corporation, by the Corporation's Articles of Organization, By-laws, and applicable law. 15. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. 16. Binding Effect. This Agreement shall be binding upon Indemnitee and upon the Corporation, its successors and assigns, and shall inure to the benefit of Indemnitee, his or her heirs, personal representative and assigns and to the benefit of the Corporation, its successors and assigns. 17. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the date first above written. THE L.S. STARRETT COMPANY By: _____________________________________ Name: Douglas R. Starrett Title: Chairman and CEO INDEMNITEE: _____________________________________ Name: ANNEX A For the purposes of this Agreement, a "Change of Control" means: a. The acquisition by any person, corporation, partnership, limited liability company or other entity (a "Person", which term shall include a group within the meaning of the Exchange Act) of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly of 30% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any such acquisition directly from the Corporation, except for acquisition of securities upon conversion of other securities of the Corporation (ii) any such acquisition by the Corporation, (iii) any such acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (iv) any such acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Annex A; or b. Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election, by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or c. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation in one or a series of transactions (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the Corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the Corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or d. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. -----END PRIVACY-ENHANCED MESSAGE-----