STARRETT L S CO, DEF 14A, 1997-08-18

STARRETT L S CO
DEF 14A, 1997-08-18
CUTLERY, HANDTOOLS & GENERAL HARDWARE

Previous: SEALED AIR CORP, 8-K, 1997-08-18

Next: STRATTON GROWTH FUND INC, N-30D, 1997-08-18

<PAGE>

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [_]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

The L.S. Starrett Company
------------------------------------------------
(Name of Registrant as Specified In Its Charter)

------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box):

[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

________________________________________________________________________

(2) Aggregate number of securities to which transaction applies:

________________________________________________________________________

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

________________________________________________________________________

(4) Proposed maximum aggregate value of transaction:

________________________________________________________________________

(5) Total fee paid:

________________________________________________________________________

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

________________________________________________________________________

(2) Form, Schedule or Registration Statement No.:

________________________________________________________________________

(3) Filing Party:

________________________________________________________________________

(4) Date Filed:

________________________________________________________________________

<PAGE>

THE L.S. STARRETT COMPANY

ATHOL, MASSACHUSETTS 01331

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 17, 1997

NOTICE IS HEREBY GIVEN that the Annual Meeting of the stockholders of The
L.S. Starrett Company will be held at the office of the Company in Athol,
Massachusetts, on Wednesday, September 17, 1997 at 2:00 p.m. for the following
purposes:

1. To elect a class of two directors, each to hold office for a term of
three years and until his successor is chosen and qualified.

2. To approve the 1997 Employees' Stock Purchase Plan described in the
attached Proxy Statement.

3. To amend the Company's Restated Articles of Organization to increase the
aggregate number of shares of Class A Common Stock, $1.00 par value,
that the Company shall have authority to issue, from 10,000,000 shares
to 20,000,000 shares.

4. To consider and act upon any other matter that may properly come before
the meeting or any adjournment or adjournments thereof.

The Board of Directors has fixed July 25, 1997 as the record date for the
determination of stockholders entitled to vote at the Annual Meeting, or any
adjournments thereof, and to receive notice thereof. The transfer books of the
Company will not be closed.

You are requested to execute and return the enclosed proxy, which is
solicited by the management of the Company.

Peter MacDougall, Clerk

Athol, Massachusetts
August 15, 1997

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE DATE,
SIGN AND PROMPTLY RETURN THE ENCLOSED FORM OF PROXY IN THE ENCLOSED STAMPED
AND ADDRESSED ENVELOPE. IF YOU DESIRE TO VOTE YOUR SHARES IN PERSON AT THE
ANNUAL MEETING, YOUR PROXY WILL BE RETURNED TO YOU.
<PAGE>

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

THE L.S. STARRETT COMPANY

ATHOL, MASSACHUSETTS 01331

The enclosed form of proxy and this Proxy Statement have been mailed to
stockholders on or about August 15, 1997 in connection with the solicitation
by the Board of Directors of The L.S. Starrett Company (the "Company") of
proxies for use at the Annual Meeting of Stockholders to be held at the office
of the Company in Athol, Massachusetts on Wednesday, September 17, 1997 at
2:00 p.m., or at any adjournments thereof, for the purposes set forth in the
accompanying notice of annual meeting of stockholders.

It is the intention of the persons named as proxies to vote shares
represented by duly executed proxies for the proposals described in this Proxy
Statement unless contrary specification is made. Any such proxy may be revoked
by a stockholder at any time prior to the voting of the proxy by a written
revocation received by the Clerk of the Company, by properly executing and
delivering a later-dated proxy, or by attending the meeting, requesting return
of the proxy and voting in person. A PROXY, WHEN EXECUTED AND NOT SO REVOKED,
WILL BE VOTED AT THE MEETING, INCLUDING ANY ADJOURNMENTS THEREOF; AND IF IT
CONTAINS ANY SPECIFICATIONS, IT WILL BE VOTED IN ACCORDANCE THEREWITH.

Stockholders of record as at the close of business on July 25, 1997 will be
entitled to vote at this meeting. On that date, the Company had outstanding
and entitled to vote 5,037,316 shares of Class A Stock and 1,899,962 shares of
Class B Stock. Each outstanding share of Class A Stock entitles the record
holder thereof to one vote and each outstanding share of Class B Stock
entitles the record holder thereof to ten votes. The holders of Class A Stock
are entitled to elect 25% of the Company's directors to be elected at each
meeting and such holders voting together with the holders of Class B Stock as
a single class are entitled to elect the remaining directors to be elected at
the meeting. Except for the foregoing and except as provided by law, all
actions submitted to a vote of stockholders will be voted on by the holders of
Class A and Class B Stock voting together as a single class. Pursuant to
Massachusetts law, the Company's Board of Directors is divided into three
classes with one class to be elected at each annual meeting of stockholders.

I. ELECTION OF DIRECTORS

The Board of Directors has fixed the number of directors at seven and
designated Andrew B. Sides, Jr., Douglas R. Starrett and Roger U. Wellington,
Jr. to serve as Class I Directors; Douglas A. Starrett and William S. Hurley
to serve as Class II Directors; and George B. Webber and Richard B. Kennedy to
serve as Class III Directors; and, in the case of each director, until his
successor is chosen and qualified.

1
<PAGE>

It is the intention of the persons named in the proxy to vote for the
election of the two persons named below as Class II Directors, each to hold
office for a term of three years and until his successor is chosen and
qualified.

The names and ages of the nominees for directors proposed by the management,
their principal occupation, the significant business directorships they hold,
the years in which they first became directors of the Company and the amount
of securities of the Company beneficially owned by them as of July 25, 1997
are as follows:

The following table sets forth the names and ages of the Class I and III
Directors, their principal occupations, the significant business directorships
they hold, the years in which they first became directors of the Company and
the amount of securities of the Company beneficially owned by them as of July
25, 1997:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
PRINCIPAL (PERCENT OF CLASS)
OCCUPATION DIRECTOR -----------------------
NAME(AGE) DIRECTORSHIPS SINCE CLASS A CLASS B
--------- ------------------------------------ -------- --------- ---------
<S> <C> <C> <C> <C>
CLASS III--DIRECTORS
SERVING UNTIL 1998
ANNUAL MEETING
OF STOCKHOLDERS:
Richard B. Kennedy(54).. Vice President, Abrasives Marketing 1996 100(6) --
Group, Norton Company, Worcester, (*) (*)
Massachusetts, producer of abrasives
and engineered materials.
George B. Webber(76).... Vice President, Webber Gage Division 1962 68,649(5) 79,435(5)
of the Company. 1.4% 4.2%
CLASS I--DIRECTOR SERVING
UNTIL 1999 ANNUAL MEETING
OF STOCKHOLDERS:
Andrew B. Sides, Consultant; formerly CEO of Rhode 1986 250 250
Jr.(72)................ Island Tool Company, Providence, (*) (*)
Rhode Island, producer of forgings;
Director, Colonial Gas Company.
Douglas R. Starrett(77). Chairman and CEO of the Company. 1952 53,686(3) 50,240(3)
1.1% 2.6%
Roger U. Wellington, Treasurer and Chief Financial 1987 7,137(4) 2,988(4)
Jr.(56)................ Officer of the Company. (*) (*)
</TABLE>

2
<PAGE>

- --------
(1) Includes shares beneficially owned as defined in applicable rules of the
Securities and Exchange Commission, whether or not interest in such shares
is disclaimed by the nominee. All shares are held with sole voting and
investment power except as indicated below for certain nominees.
(2) Includes 414 Class A and 550 Class B shares held with shared voting and
investment power and 5,544 Class A and 1,776 Class B shares held with sole
voting power only. Douglas A. Starrett is the son of Douglas R. Starrett.
(3) Includes 9,495 Class A and 21,158 Class B shares held with shared voting
and investment power, 3,272 Class A and 676 Class B shares held with
shared voting power only and 5,555 Class A and 4,369 Class B shares held
with sole voting power only.
(4) Includes 916 Class A and 944 Class B shares held with shared voting and
investment power and 6,221 Class A and 2,044 Class B shares held with sole
voting power only.
(5) Includes 4,431 Class A and 2,621 Class B shares held with sole voting
power only.
(6) Shares are held with shared voting and investment power.
* Less than 1%

At July 25, 1997, the directors' and officers' beneficial ownership of the
Company's Common Stock consisted of 143,952 Class A and 154,350 Class B shares
(2.9% and 8.1%, respectively, of the outstanding shares). Of these shares,
James S. Carey, Vice President Sales of the Company, owned 3,674 Class A and
640 Class B shares. All shares beneficially owned by the directors and
officers were held with sole voting and investment power, except that 11,616
Class A and 22,652 Class B shares were held with shared voting and investment
power, 3,272 Class A and 676 Class B shares were held with shared voting power
only and 24,934 Class A and 11,450 Class B shares were held with sole voting
power only.

Richard Newton, Douglas A. Starrett and Roger U. Wellington, Jr., as
Trustees under the Company's 401(k) Stock Savings Plan and Employee Stock
Ownership Plan, c/o the Company, 121 Crescent Street, Athol, Massachusetts
01331, at July 25, 1997 owned beneficially 1,007,642 Class A and 368,285 Class
B shares (20.0% and 19.4%, respectively, of the outstanding shares) of Common
Stock of the Company, all of which were held with sole dispositive power
subject to the terms of the respective Plans. Except for an aggregate of
25,023 Class A and 11,486 Class B shares allocated to the accounts of Douglas
A. Starrett, Roger U. Wellington, Jr., George B. Webber and Douglas R.
Starrett in the Plans, such shares are not reflected in the holdings in the
above table.

All of the nominees and directors listed above have had the principal
occupations listed for at least five years except for Douglas R. Starrett who
was President of the Company until 1994, Douglas A. Starrett who was Executive
Vice President of the Company until 1994 and except for William S. Hurley who
was Vice President Controller of Bolt Beranek and Newman, Inc. until 1996.

3
<PAGE>

The following table sets forth the persons or groups known by the Company to
be beneficial owners of more than 5% of the Company's Common Stock.

<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS AND NATURE OF
OF BENEFICIAL BENEFICIAL
TITLE OF CLASS OWNER OWNERSHIP PERCENT OF CLASS
- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Class A.............. David L. Babson & Co., 635,600 shares* 12.6
Inc. One Memorial Drive
Cambridge, MA 02142
</TABLE>

* 400,300 shares are held with sole voting and investment power and 235,300
shares are held with shared voting and sole investment power.

During the fiscal year ended June 28, 1997, there were five meetings of the
Company's Board of Directors, three meetings of the Audit Committee and one
meeting of the Salary (Compensation) Committee. The members of the Audit
Committee during fiscal 1997 were Messrs. Kennedy, Hurley and Sides. In
general, the Audit Committee recommends to the Board of Directors the
independent auditors to be selected and confers with the Company's independent
auditors to review the audit scope, the Company's internal controls, financial
reporting issues, results of the audit and the range of non-audit services.
See also "Relationship with Independent Accountants" below. The members of the
Salary Committee during fiscal 1997 were Messrs. Kennedy, Hurley, Sides and
Douglas R. Starrett. The function of the Salary Committee is to review the
salaries of key management personnel. The Company does not have a standing
nominating committee.

Directors who are not employees of the Company receive an annual retainer
fee of $6,000 payable in quarterly installments and a fee of $700, plus
expenses, for each Board of Directors and committee meeting that they attend.
Only one meeting attendance fee is paid for attending two meetings on the same
day. All directors attended at least 75% of the aggregate number of all
meetings of the Board of Directors and of all committees on which they served.
Non-employee directors may elect to defer part or all of their director's fees
in which event such deferred fees and interest thereon will generally be
payable in five equal annual installments after they cease to be a director.

A. COMPENSATION COMMITTEE REPORT

During fiscal 1997, the Compensation Committee of the Company was chaired by
William S. Hurley. The members of the Committee are all the outside directors
and the Chairman and CEO of the Company. The Committee reviews and sets
compensation for all the executive officers listed in the proxy statement. The
Chairman and CEO is not present when his compensation is considered.

Setting compensation is not done by formula. It is a subjective judgment
based on the following factors.

We do not look at the performance of just one year, but for a number of
years, and consider the economic climate in all areas of the world where we
operate. We look at how both stockholders and employees at all locations have
fared during these periods.

In particular, we look at stockholders' equity, which shows the value of the
Company to the stockholders. We also look at the dividend policy of the
Company to make sure that it is consistent or

4
<PAGE>

improving, since this is important to all stockholders. At the same time, we
must see that there are funds left in the Company to provide for growth.

We consider stock price movement, bearing in mind that the stock market is
generally short-term oriented and subjected to pressures that are not under
the control of executive officers.

Compensation is primarily made up of basic salary. We make a judgment based
on competitive compensation of companies of similar size and in similar
fields, as shown by a national survey, The National Executive Compensation
Survey. This is the most comprehensive survey of its kind. It covers top
executive positions for manufacturing organizations by sales volume. We also
draw on our knowledge of the market cost of any executive who might have to be
replaced.

There are also long-term incentives for everyone in the Company, including
the officers, to own company stock. This is available by way of an ESOP, a
401(k) plan, and stock option plans approved by stockholders. All officers
participate in these plans.

The Company does not have special perks for executives that are not
available to everyone in the Company, and we maintain a common sense
relationship between executive pays and average pays.

The performance of the Company in the early years of the 90's was hurt by
the poor economic climate in most of the world. Even though competition is
fierce in our product lines, the Company has remained stable, profitable, and
the equity of the Company has increased each year. The Company has remained in
good shape to meet the future, but in recognition of the economic climate in
the first part of this decade, the salary for the CEO and most other
executives was held steady for the five years through fiscal 1995.

During the past two years there has been a definite improvement in the
worldwide performance of the Company, attributable more to efforts within the
Company than to rising economies. During fiscal year 1996 there were modest
increases in total compensation of the CEO and other officers as outlined in
last year's report. However, all executive pays were essentially held level
during the 1997 fiscal year, even though the results last year were fairly
exceptional. This is the reason. We have previously stated that our executive
pays lagged behind competitive executive pays by almost any measure, and we
expect to provide the opportunity to close this gap through an incentive plan
based on the performance of the whole Company.

Compensation Committee

William S. Hurley, Chairman
Richard B. Kennedy
Andrew B. Sides, Jr.
Douglas R. Starrett

Compensation Committee Interlocks and Insider Participation:

There were no Compensation Committee interlocks during the last fiscal year.
Douglas R. Starrett, Chairman and CEO of the Company, served as a member of
the Company's Compensation Committee during fiscal 1997.

5
<PAGE>

B. REMUNERATION

The following information is given on an accrual basis for the last three
fiscal years with respect to the executive officers of the Company who earned
at least $100,000 in fiscal 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
PROFIT ALL OTHER
NAME AND POSITION YEAR SALARY SHARING (1) OPTIONS COMPENSATION (2)
----------------- ---- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
D.R. Starrett........... 1995 $250,000 -- 300 $4,469
Chairman and CEO 1996 270,883 $10,625 300 2,521
1997 275,000 10,670 300 2,938
D.A. Starrett........... 1995 152,500 -- 300 2,542
President 1996 170,883 6,650 400 2,847
1997 172,000 6,675 300 2,841
G.B. Webber............. 1995 130,000 -- 400 4,091
Vice President--Webber 1996 110,000 4,600 109 1,788
Gage Division 1997 90,000 3,495 200 1,552
R.U. Wellington, Jr..... 1995 143,000 -- 1,245 2,383
Treasurer and CFO 1996 150,833 5,955 61 2,514
1997 152,000 5,900 2,071 2,604
</TABLE>
- --------
(1) Under the Company's Profit-Sharing Plan, most domestic employees of the
Company with at least one year's service share in proportion to their base
compensation in a fund equal to 20% of the excess of pre-tax domestic
operating profits over 10% of domestic sales, subject to certain
limitations. Payments are made annually in cash. No amounts were payable
under such plan for fiscal 1995. In addition to payments under such plan,
the fiscal 1996 profit sharing amounts include a one-time discretionary
bonus paid to all employees entitled for fiscal 1996 to participate in the
Plan, which amounted to 1% of their base salary.
(2) Consists of the market value of the one-third matching shares allocated
under the Company's 401(k) plan.

C. RETIREMENT PLAN

The Company's Employees' Retirement Plan covers all domestic employees who
have at least one year of service and have attained age 21. Benefits under the
Retirement Plan are determined by reducing a formula amount calculated under
the Retirement Plan by 90% of the annuity value of the employee's vested
account balance, if any, under The L.S. Starrett Company Employee Stock
Ownership Plan (the "ESOP"). See below, "Employee Stock Savings and Ownership
Plans." At no time will the combined benefit of any participant under the
Retirement Plan and the ESOP be less than such participant's benefits, if any,
under the Retirement Plan before establishment of the ESOP. The formula amount
calculated under the Retirement Plan is based on the sum of 1.25% of the
employee's average base salary up to his Social Security Covered Compensation
plus 1.70% of the

6
<PAGE>

employee's average base salary over Covered Compensation, times the number of
years of service up to but not exceeding 33 years (35 years for retirements
after June 30, 1998). An employee's average base salary is his average base
salary for the five consecutive highest paid of his last ten years of
employment.

Pursuant to provisions of the Internal Revenue Code of 1986, as amended, not
more than $160,000 of a participant's annual compensation may be taken into
account in computing a participant's benefit under the plan and annual annuity
benefits may not exceed a specified dollar limit (in general for 1997,
$120,000). However, this limitation shall not operate to reduce the benefits
of any employee accrued prior to the 1994 plan year. The Company has
established a Supplemental Executive Retirement Plan ("SERP") to provide on an
unfunded basis out of the general assets of the Company benefits earned under
the Retirement Plan formula that are in excess of Internal Revenue Code
limits. Amounts paid under the Company's Profit-Sharing Plan are not included
in base salary. At July 1, 1997, under the Retirement Plan and SERP the
credited years of service of certain executive officers of the Company and
their credited salaries for the fiscal year then ended were as follows:
Douglas R. Starrett--33 years, $275,000; George B. Webber--33 years, $90,000;
Douglas A. Starrett--19 years, $172,000; and Roger U. Wellington, Jr.--11
years, $152,000.

The following table sets forth estimates of the pre-offset formula benefit
amount determined under the Retirement Plan for employees in various salary
and years-of-service categories, calculated as a benefit payable as if an
employee retired in 1997 at age 65. In the case of any employee with a vested
account balance under the ESOP, the formula benefit amount under the
Retirement Plan, estimates of which are shown below, would be subject to
offset by 90% of the annuity value of the ESOP vested account balance, but no
deduction would be made for Social Security benefits or other offset amounts.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ANNUAL ----------------------------------------------------------------------
EARNINGS 15 25 35
-------------- -------- -------- --------
<S> <C> <C> <C>
$125,000 29,897 49,828 69,760
150,000 36,272 60,453 84,635
175,000 42,647 71,078 99,510
200,000 49,022 81,703 114,385
225,000 55,397 92,328 129,260
250,000 61,772 102,953 144,135
275,000 68,147 113,578 159,010
</TABLE>

D. EMPLOYEE STOCK SAVINGS AND OWNERSHIP PLANS

The Company has for its domestic employees an Employee Stock Ownership Plan
(ESOP), established in 1984, and a 401(k) Stock Savings Plan (401(k) Plan),
which was established in 1986. Both are designed to supplement retirement
benefits provided under the Company's Retirement Plan and to enable employees
to share in the growth of the Company.

In November 1984 the ESOP purchased 800,000 shares of stock from the Company
using funds obtained from borrowings guaranteed by the Company that were
repaid over a ten year period.

7
<PAGE>

Contributions made by the Company as well as dividends paid on the ESOP's
stock holdings were used to repay the ESOP indebtedness. As the indebtedness
was repaid, the stock was allocated to accounts of participants in the ESOP.
Additional cash contributions were made by the Company to make up for the
dividends that were used to pay debt service. All employees of the Company are
participants in the ESOP after completing one year of service and attaining
age 21. Allocations to a participant's account under the ESOP are made in
proportion to the ratio that the participant's compensation bears to the
aggregate compensation of all participants. As of June 25, 1994, all available
ESOP shares had been allocated and, consequently, no allocations other than
forfeitures have been made during the past three years.

Employees who retire, die, or otherwise terminate employment under the ESOP
will be entitled to receive their vested account balance, which will generally
be distributed at the same time that the employee is eligible to begin
receiving a benefit under the Retirement Plan. An amount equal to 90% of an
employee's vested ESOP account balance, expressed in annuity form, will be
used to offset the employee's benefit under the Retirement Plan. See above,
"Retirement Plan."

The 401(k) Plan is a savings and salary deferral plan that is intended to
qualify for favorable tax treatment under Section 401(k) of the Internal
Revenue Code. To be a participant an employee must have completed six months
of service and be at least 18 years old. Plan participants may authorize
deferral of a portion of their salary through payroll deductions. Participants
may elect to have up to 15% of their compensation (as determined under the
Plan) contributed to a trust fund established for the Plan as a salary
deferral contribution.

The Company may contribute to the Plan quarterly on behalf of each
participant a matching contribution in Common Stock of the Company equal to a
portion of the participant's salary deferral contribution. At present, the
matching contribution is equal to one-third of the participant's salary
deferral contribution. Salary deferral contributions vest immediately.
Matching contributions vest immediately for participants with five or more
years of service or at death, disability or retirement if earlier.

Participants in the 401(k) Plan are not subject to Federal or state income
tax on salary deferral contributions or on Company matching contributions or
the earnings thereon until such amounts are withdrawn from the Plan. Amounts
contributed to the Plan are invested in the Company's Common Stock.
Withdrawals from the Plan may only be made upon termination of employment,
attainment of age 59 1/2 or in connection with certain provisions of the Plan
that permit hardship withdrawals. The Plan also permits loans to participants.

For the last three fiscal years ended June 28, 1997, Company matching
contributions for all executive officers of the Company as a group were 1,783
shares and for all employees of the Company as a group were 61,041 shares.

E. STOCK OPTION AND PURCHASE PLANS

The Company currently has in effect for the benefit of eligible employees
the 1992 Employees' Stock Purchase Plan (the "1992 Plan") to provide a
convenient means for these employees to acquire an interest in the future of
the Company by purchasing up to 800,000 shares of Common Stock. At June 28,
1997, there were 1,728 employees eligible to participate in the 1992 Plan.

<PAGE>

The option price to purchase shares of the Company's Common Stock under the
1992 Plan is the lower of 85% of the market price on the date of grant or 85%
of the market price on the date of exercise (two years from the date of
grant). The Company also sells treasury shares to employees under an
Employees' Stock Purchase Plan adopted in 1952 (the "1952 Plan"). The Company,
from time to time, purchases these shares in the open market to be held in
treasury. The Company pays brokerage and other expenses incidental to
purchases and sales under the 1952 Plan and employees may authorize regular
payroll deductions for purchases of shares.

The following table sets forth information regarding options for shares of
the Company's Common Stock under the terms of the Company's stock option and
purchase plans for the executive officers of the Company:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
CLASS OF STOCK AS %
AND NUMBER OF TOTAL MARKET GRANT
OF OPTIONS EMPLOYEE PRICE AT EXERCISE EXPIRATION DATE
NAME GRANTED GRANTS GRANT DATE PRICE(1) DATE VALUE(2)
---- -------------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
D.R. Starrett........... 200 Class A .8 $27.25 $23.17 11/18/98 1,400
100 Class B .7 30.38 25.82 05/05/99 800
D.A. Starrett........... 200 Class A .8 27.25 23.17 11/18/98 1,400
100 Class B .7 30.38 25.82 05/05/99 800
G.B. Webber............. 100 Class A .4 27.25 23.17 11/18/98 700
R.U. Wellington, Jr. ... 2,071 Class A 8.8 27.25 23.17 11/18/98 14,600
</TABLE>
- --------
(1) Exercise price represents 85% of market price on dates of grant. Exercise
price will be 85% of market price on date of exercise, if lower.
(2) Based on the Black-Scholes option pricing model (assuming volatility of
17% and an interest rate of 6.0%).

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER FISCAL YEAR FISCAL YEAR
OF SHARES VALUE END (NONE END (NONE
ACQUIRED REALIZED EXERCISABLE) EXERCISABLE)
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
D.R. Starrett...................... 300 $ 2,770 600 $ 5,683
D.A. Starrett...................... 300 2,770 700 6,901
G.B. Webber........................ 200 1,700 209 1,908
R.U. Wellington, Jr................ 1,245 10,583 2,132 18,264
</TABLE>

9
<PAGE>

F. STOCK PERFORMANCE GRAPH

The following graph sets forth information comparing the cumulative total
return to holders of the Company's Common Stock over the last five fiscal
years with (1) the cumulative total return of the Standard & Poor's 500 Index
("S&P 500") and (2) an index reflecting the cumulative total returns of the
following companies ("Peer Group"): Danaher, Regal Beloit, Kennametal, WD-40,
Stanley, Black & Decker, IMO Industries and Brown & Sharpe.

<TABLE>
<CAPTION>
[CHART APPEARS HERE]

<S> <C> <C> <C> <C> <C> <C>
6/92 6/93 6/94 6/95 6/96 6/97
Peer Group 100 106.75 111.80 151.06 201.66 238.81

Starrett 100 101.75 92.80 100.72 119.14 149.87

S&P 100 113.67 115.20 145.14 182.78 246.08
</TABLE>

II. 1997 EMPLOYEES' STOCK PURCHASE PLAN

The Company proposes to offer to its eligible employees rights to subscribe
for up to 800,000 shares of its Common Stock over a five year period
commencing September 17, 1997 in accordance with The L.S. Starrett Company
1997 Employees' Stock Purchase Plan (the "1997 Plan"). Like previous Plans
that have been in effect for many years, the primary purpose of the 1997 Plan
is to provide a convenient means for eligible employees to acquire an interest
in the future of the Company by purchasing its Common Stock at an option
price. The Company has had great success with its previous employees' stock
plans, both by providing additional interest and security on the part of the
participants and, from the point of view of stockholders, by the resulting
improved performance. The new Plan contains substantially the same operative
provisions as the 1992 Employees' Stock Purchase Plan (the "1992 Plan").

10
<PAGE>

The 1997 Plan provides that the options may cover shares of Class A or Class
B Stock as the Company shall determine. The principal difference between the
Class A Stock and the Class B Stock is their respective voting rights, as
described above on page 1. Class B Stock is otherwise identical to the Class A
Stock except (i) that it is generally non-transferable except to lineal
descendants, (ii) cannot receive more dividends per share than the Class A
Stock and (iii) can be converted to Class A Stock at any time. It is expected
that any issuances of Class B Stock pursuant to the 1997 Plan, by increasing
the voting power of the Company's employees and management, would make it more
difficult for a potential acquiror to acquire control of the Company through
unsolicited takeover attempts or hostile takeover tactics. This measure would
thereby discourage offers for the Company, and create greater stability for
the Company, its employees and stockholders.

The 1992 Plan expires on September 16, 1997, and no options under that Plan
may be granted thereafter. The new Plan will give new employees an opportunity
to participate in the success of the Company and allow present employee
stockholders to invest further if they so desire. Your management feels that a
further financial interest of this type on the part of those who work in the
Company and its subsidiaries gives it an added edge that makes a difference in
Company performance. At June 28, 1997 there were 1,728 employees eligible to
participate in the Plan. Based on the closing market price for the Company's
Common Stock on July 31, 1997 of $31.50 per share, the aggregate market value
of the 800,000 shares of Common Stock issuable under the Plan would be $25
million.

Since September 16, 1992, employees have been granted options for 202,268
shares under the 1992 Plan including options for 77,786 shares which were
canceled or terminated or which expired unexercised through June 28, 1997.
Information concerning options granted to officers and directors of the
Company is set forth above under "Election of Directors." From September 16,
1992 through July 31, 1997, employees purchased 166,560 shares of Common Stock
under the 1987 Employees' Stock Purchase Plan (the "1987 Plan") and 1992 Plan,
and in this period officers and directors purchased 13,771 shares under the
1987 and 1992 Plans. From September 16, 1992 through July 31, 1997, employees
purchased 3,710 shares of Common Stock under the 1952 Plan, and in this period
officers and directors purchased 130 shares under the 1952 Plan.

The 1997 Plan is intended to qualify under the provisions of Section 423 of
the Internal Revenue Code as an "employee stock purchase plan," which requires
that the Plan be approved by the Company's common stockholders. The
affirmative vote of a majority of the votes cast at the Annual Meeting is
required for such approval.

The principal features of the Plan and its tax consequences are described
below under separate headings.

PRINCIPAL FEATURES OF THE PLAN

1. Scope of Plan. A total of not more than 800,000 authorized but unissued
shares of Class A or Class B Common Stock of the Company may be issued under
the Plan, and the Company, from time to time over the next five years, may
grant options to its employees and the employees of designated subsidiaries to
purchase such shares.

2. Eligible Employees. Each employee of the Company (and of its subsidiaries
designated to participate in the plan) having at least six months of
continuous service on the date of grant of an

11
<PAGE>

option will be eligible to participate in the Plan. However, directors of the
Company or of a subsidiary who are not employees of the Company or of a
subsidiary and employees owning or deemed to own 5% or more of the Common
Stock are not eligible to participate. Messrs. Douglas R. Starrett (Chairman
and CEO and a director of the Company), Douglas A. Starrett (President and a
director of the company) George B. Webber (Vice President Webber Gage Division
and a director of the Company), and Roger U. Wellington, Jr. (Treasurer and
Chief Financial Officer and a director of the Company) are eligible to
participate in the Plan.

3. Term of Option. Each option under the Plan will, unless exercised, expire
two years from the date of its grant.

4. Purchase Price. The option price for shares under the Plan will be the
lower of 85% of the fair market value of the stock at the time of grant or 85%
of said value at the time of exercise.

5. Number of Shares. Each employee will be entitled to purchase a maximum of
9,600 shares under the Plan, subject to proportionate reduction in the event
the number of shares then being offered under the Plan is over-subscribed.

6. Method of Participation. The Company will notify eligible employees of
its intention to grant options and each employee will indicate the number of
shares for which he or she wishes to subscribe. Thereafter, the Company will
formally grant options for a specified number of shares, exercisable on a
specified date two years from the date of grant.

7. Method of Payment. An employees who receives an option will authorize
payroll deductions to be made from his or her compensation over the two year
term of the option. The employee may make advance cash payments in any amount
at any time during the two years.

8. Rights as Shareholders. The employee will not have any rights as a
shareholder and will not receive dividends with respect to any shares subject
to option until he or she has been issued certificates representing such
shares.

9. Exercise of Option. The employee may exercise an option by giving written
notice to the Company specifying the number of shares he or she wishes to
purchase, and representing that the stock is being acquired for investment and
not with any existing intention to resell said stock. The Company is obligated
as soon as practicable after receipt of this notice to apply the employee's
accumulated payroll deductions and any additional cash contributions to the
purchase price of the shares and to issue and deliver certificates and return
any surplus payments, subject to the receipt of any required governmental
approval and to applicable New York Stock Exchange requirements.

10. Interest. Interest will be payable by the Company on any payroll
deductions and additional cash contributions accumulated under the Plan.
Interest shall be computed at such reasonable rate as the Company shall
determine.

11. Right to Cancel. An employee may cancel all or any part of his or her
options under the Plan at any time prior to exercise, but if he or she holds
more than one option, the options must be canceled in reverse chronological
order of their dates of grant. Upon such cancellation, payments made by the
employee with respect to the canceled options will be returned to the employee
with interest.

<PAGE>

12. Termination of Employment. If an employee holds an option at the time
his or her employment with the Company or its subsidiaries is terminated
either through retirement with the consent of the Employer within three months
of the date such option becomes exercisable, or by death whenever occurring,
such employee or his legal representative by written notice delivered to the
Company on or before the option exercise date may either cancel the option and
receive, with interest, the total amount of payments made by the employee or
pay the amount which is necessary to complete payment for the shares. The
failure of the employee or his or her legal representative to file such a
written notice shall be treated as an election to cancel the options and
receive the payments due on such cancellation. Upon termination of employment
with the Company for any other reason, all options held by an employee will
terminate and any payments made with respect thereto will be returned to the
employee with interest.

13. Employee's Rights Not Transferable. All employees granted options under
the Plan will have the same rights and privileges. Each employee's rights will
be exercisable during the employee's lifetime only by the employee and may not
be sold, pledged, assigned or otherwise transferred. An employee's violation
of these restrictions may lead to termination of his or her options by the
Company.

14. Employment Rights. Nothing in the Plan is to be construed so as to give
any employee the right to be retained in the service of the Company or any
subsidiary nor to give the Company or any subsidiary the right to require the
employee to remain in its service or to interfere with an employee's right to
terminate employment at any time.

15. Change in Capitalization. In the event there is a change in the
outstanding stock of the Company due to a stock dividend, stock split or
reorganization, the aggregate number and class of shares available under the
Plan and under any outstanding options, as well as the option price, will be
appropriately adjusted, but only if the Company determines that such
adjustment will not constitute a modification of options granted under the
Plan or otherwise disqualify the Plan under Section 423 of the Internal
Revenue Code.

16. Administration of Plan. The Company will administer the Plan, determine
all questions arising thereunder and adopt, administer and interpret such
rules and regulations relating to the Plan as it deems necessary or advisable.

17. Amendment and Termination of Plan. The Company will have the right to
amend the Plan at any time, but cannot make a Plan amendment relating to the
aggregate number of shares available under the Plan and the class of employees
eligible to participate without the approval of the holders of the Company's
Common Stock. The Company may suspend or terminate the Plan at any time, but
such termination will not affect the rights of employees and others holding
options at the time of termination.

TAX CONSEQUENCES

The Plan is intended to qualify as an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
The Federal tax treatment of such plans is as follows: An employee who has
purchased shares pursuant to an option and who disposes of such shares within
12 months after the transfer of shares to the employee, or within two years
from

<PAGE>

the date of grant of the option, will realize ordinary income for Federal
income tax purposes, based on the difference between the option price and the
fair market value of the shares on the date of exercise of the option. If an
employee disposes of such shares at any time after satisfying these holding
periods or if the employee should die while owning such shares, ordinary
income for Federal income tax purposes will be realized, based upon the lesser
of (i) the excess of the fair market value of the shares at the time of
disposition or death over the price paid for the shares or (ii) the excess of
the fair market value of the shares at the time the option was granted over
the option price, computed as if the option had been exercised at such time.

For purposes of computing capital gain or loss on the sale or exchange of
shares by the employee, the employee's tax basis for the shares is equal to
the price which he or she paid for the shares plus the amount of any ordinary
income realized by the employee as a result of the disposition of the shares.
A sale or exchange of the shares will give rise to capital gain to the extent
that the amount received exceeds the employee's basis, or capital loss to the
extent that the amount received is less than his basis. Such capital gain or
loss will be taxable as a long-term capital gain or loss if the employee has
owned the shares for more than 12 months on the date of disposition. If, on
the date of the disposition, the employee has not held the shares for the 12
months' period, the capital gain or loss will be taxable as short-term capital
gain or loss. Under the Taxpayer Relief Act of 1997, special rules and lower
tax rates apply to long-term capital gains and losses with respect to property
held for more than 18 months, and to property bought after 2000 and held for
more than five years.

The Company is entitled to a deduction under Section 162 of the Internal
Revenue Code with respect to the ordinary income realized by an employee as a
result of the disposition of stock issued to a participant in an "employee
stock purchase plan" only in the event that the disposition occurs prior to
satisfaction of the holding periods described in the first paragraph of this
Section.

Approval of the Plan requires the affirmative vote of a majority of the
votes cast at the Annual Meeting.

The Board of Directors unanimously recommends a vote FOR the approval of the
1997 Employees' Stock Purchase Plan.

III. PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF
ORGANIZATION TO INCREASE THE AGGREGATE NUMBER OF
SHARES OF CLASS A COMMON STOCK THAT THE COMPANY
SHALL HAVE THE AUTHORITY TO ISSUE FROM 10,000,000
SHARES TO 20,000,000 SHARES

The Board of Directors has unanimously approved and proposed for submission
to stockholders an amendment to the Company's Restated Articles of
Organization pursuant to which the aggregate number of shares of Class A
Common Stock, $1.00 par value, that the Company shall have the authority to
issue would be increased from 10,000,000 to 20,000,000 shares. If the above
amendment is approved, Section 3 of the Company's Restated Articles of
Organization would be amended to read as follows:

14
<PAGE>

"3. The total number of shares and the par value, if any, of each class
of stock which the corporation is authorized to issue is as follows:

<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
-------------- ----------------- ---------------- ---------
<S> <C> <C> <C>
Preferred....................... None None
Common
Class A....................... None 20,000,000 $1.00
Class B....................... None 10,000,000 $1.00"
</TABLE>

Subject to favorable stockholder action, the proposed amendment would become
effective upon the filing of Articles of Amendment with the Secretary of The
Commonwealth of Massachusetts, which would be expected to occur shortly after
stockholder approval of this amendment. Upon filing of such amendment, all
stockholders of the Company would be bound by the amendment, whether or not
they voted for it.

As of July 25, 1997, 5,037,316 shares of the Company's Class A Common Stock
were issued and outstanding. An additional 748,224 shares were reserved for
issuance upon purchase or exercise of employee stock options under the 1952
and 1992 Plans, 735,022 shares were reserved for issuance under the 401(k)
Plan and 2,162,913 shares were reserved for issuance upon conversion of the
outstanding shares of Class B Common Stock, leaving 1,316,525 authorized
shares available for issuance for proper corporate purposes. In addition, in
the event that the 1997 Plan is adopted (see Section II above), 800,000 shares
would be reserved for the future grant of options under such plan. In the
event the proposed amendment to the Company's Restated Articles of
Organization is also adopted, not less than 10,516,525 unreserved shares of
Class A Common Stock (and, in addition, those shares currently reserved for
issuance under the 1992 Plan, which will expire September 16, 1997) would then
be available for issuance for proper corporate purposes, assuming full
reservation of shares for all plans.

The Board of Directors believes that the increased number of authorized
shares of Class A Common Stock contemplated by the proposed amendment is
desirable to permit additional shares to be available for issuance from time
to time, without further action or authorization by the stockholders (except
as required by law or by the rules of the New York Stock Exchange), if needed
for such proper corporate purposes as may be determined by the Board of
Directors. Such corporate purposes might include the split of the Company's
stock by declaration of a stock dividend, the raising of additional capital
funds through the issuance of additional shares, and/or the acquisition by the
Company of other companies. While the Company has no immediate plans, nor are
there any existing or proposed agreements or understandings to issue any of
the additional shares of Class A Common Stock that are the subject of this
proposal, except pursuant to the 1997 Plan (See Section II above), the
increase in authorized shares will allow the Board of Directors to move
promptly to issue additional shares if appropriate opportunities or corporate
purposes should arise. Depending upon the circumstances, the issuance of the
additional authorized shares may be authorized by the Board of Directors
without any requirement for further stockholder approval, and stockholders
have no preemptive rights under the Company's charter to subscribe to newly
issued shares. The additional shares of Class A Common Stock authorized under
the proposed amendment would be part of the existing class of Class A Common
Stock and, if and when issued, would have the same rights and privileges as
shares of Class A Common Stock currently outstanding.

15
<PAGE>

In addition to the more traditional uses described above, the authorization
of additional shares of a company's stock may be used in the context of
defenses against possible or threatened hostile takeovers. For example, shares
of Class A Common Stock could be used by the Board of Directors of the Company
in connection with the Company's Common Stock Rights Agreement, whereby each
holder of Class A or Class B Common Stock is granted the right to purchase one
share of Class A Common Stock upon the occurrence of certain stock acquisition
events. Authorized and unissued shares could also be issued in an effort to
defeat certain takeover attempts since the issuance of additional shares could
dilute the ownership of interest of a substantial stockholder, increase the
total amount of consideration necessary for a person to obtain control, or
increase the voting power of friendly third parties. These uses could have the
effect of making it more difficult for a third party to remove incumbent
management or to accomplish a given transaction, even if such actions would
generally be beneficial to stockholders. The Board of Directors has concluded,
however, that the advantages of the additional authorized shares outweigh any
potential disadvantages. Assuming the proposed increase is approved by the
stockholders, the Company intends to use the additional shares for the
purposes described above, and has no intention to use them to deter takeovers.

The Board does not intend to issue any Class A Common Stock to be authorized
under the amendment except upon terms that the Board deems to be in the best
interests of the Company. The issuance of additional shares of Class A Common
Stock without further stockholder approval may, among other things, have a
dilutive effect on earnings per share and on equity of the present holders of
Class A Common Stock and their voting rights.

The Class A Common Stock of the Company is currently listed on the New York
Stock Exchange and the Company intends to apply for listing of any additional
shares of Class A Common Stock when such shares are issued. The New York Stock
Exchange currently requires stockholder approval as a prerequisite to listing
shares in several instances, including acquisition transactions, when the
issuance or potential issuance of shares could result in an increase by at
least 20% in the number of shares of common stock outstanding.

Financial statements are omitted from the Proxy Statement as not being
material for the exercise of prudent judgment by the stockholders in regard to
the proposed amendment. The Company's consolidated financial statements and
management's discussion and analysis of results of operations and financial
condition are included in the Company's Annual Report to Stockholders for the
fiscal year ended June 28, 1997.

It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the proposed amendment to the Company's
Restated Articles of Organization, unless instructed to the contrary. If the
proposed amendment is not approved by the stockholders, the increase in
authorized Class A Common Stock will not take effect. The affirmative vote of
a majority of the votes of holders of all issued and outstanding shares of
Class A and Class B Common Stock of the Company entitled to vote at the
meeting is required to authorize the proposed amendment.

The Board of Directors unanimously recommends a vote FOR the proposed
amendment.

16
<PAGE>

IV. RELATIONSHIP WITH INDEPENDENT AUDITORS

During the year ended June 28, 1997, Deloitte & Touche was engaged to
perform the annual audit. Representatives of Deloitte & Touche are expected to
be present at the Annual Meeting and will have the opportunity to make a
statement if they desire to do so; they will be available to respond to
appropriate questions.

The Company presently expects to engage Deloitte & Touche as auditors for
the 1998 fiscal year, but the selection will not be made until the September
1997 meeting of the Company's Board of Directors.

V. GENERAL

A. SOLICITATION AND VOTING

In case any person or persons named herein for election as a director should
not be available for election at the Annual Meeting, proxies in the enclosed
form (in the absence of express contrary instructions) may be voted for a
substitute or substitutes as well as for other persons named herein.

As of the date of this statement your management knows of no business that
will be presented to the Annual Meeting that is not referred to in the
accompanying notice, other than the approval of the minutes of the last
meeting of stockholders, which action will not be construed as approval or
disapproval of any of the matters referred to in such minutes.

As to other business, if any, that may properly come before the Annual
Meeting, it is intended that proxies in the attached form that do not contain
specific instructions to the contrary will be voted in respect thereof in
accordance with the judgment of the persons voting the proxies.

A summary of the Annual Meeting of the Stockholders of the Company will be
sent to each stockholder.

The enclosed proxy is solicited by the Board of Directors of the Company.
The cost of solicitation will be borne by the Company. Such solicitation will
be made by mail and may also be made by the Company's officers and employees
personally or by telephone or telegram. The Company will, on request,
reimburse brokers, custodians and nominees for their expenses in sending
proxies and proxy material to beneficial owners. A proxy that is executed but
that does not specify a vote for, against or in abstention will be voted in
accordance with the recommendation of the Board of Directors contained herein.

Consistent with state law and under the Company's by-laws, a majority of the
shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the Annual Meeting will be counted by persons appointed
by the Company to act as election tellers for the Annual Meeting. The two
nominees for election as directors at the Annual Meeting who receive the
greatest number of votes properly cast for the election of directors shall be
elected directors.

The election tellers will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director or that reflect
abstentions and "broker non-votes" (i.e., shares

<PAGE>

represented at the meeting held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have the
discretionary voting power on a particular matter) only as shares that are
present and entitled to vote on the matter for purposes of determining the
presence of a quorum. Abstentions and broker non-votes will not be counted in
favor of or against, and will have no other effect on either the election of
directors (Section I) or the adoption of the 1997 Employees' Stock Purchase
Plan (Section II). Abstentions and broker non-votes will have the effect of a
vote against the amendment to the Restated Articles of Organization (Section
III).

B. SUBMISSION OF STOCKHOLDER PROPOSALS

Stockholder proposals for inclusion in the Company's proxy statement for its
1998 Annual Meeting must be received by the Company no later than April 15,
1998.

IN ORDER THAT THE PRESENCE OF A QUORUM MAY BE ASSURED IT IS IMPORTANT THAT
THE PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS ARE URGED TO EXECUTE
AND RETURN THE ENCLOSED PROXY IN THE STAMPED ENVELOPE ADDRESSED TO THE COMPANY
AT ATHOL, MASSACHUSETTS. Stockholders who send in proxies, but attend the
Annual Meeting in person, may withdraw their proxies and vote directly if they
prefer or may allow their proxies to be voted with the similar proxies sent in
by other stockholders.

August 15, 1997

18
<PAGE>

THE L.S. STARRETT COMPANY

DIRECTIONS UNDER 401(K) STOCK SAVINGS PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
OF THE L.S. STARRETT COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 17, 1997

The undersigned hereby directs Douglas A. Starrett, Roger U. Wellington,
Jr. and Richard C. Newton, and each of them, as trustees under the 401(k) Stock
Savings Plan and Employee Stock Ownership Plan (the "Plans") of The L.S.
Starrett Company (the "Company"), to vote and act in the manner designated below
at the Annual Meeting of Stockholders to be held on the 17th day of September,
1997 at 2:00 p.m. at the office of the Company in Athol, Massachusetts, and any
adjournments thereof, upon and in respect of all of the shares of the Class A
and B Common Stock of the Company allocated to the undersigned under the Plans.
The undersigned hereby revokes any other directions previously given to vote the
same shares of stock for said meeting.

The Shares represented hereby will be voted as directed herein but, if no
directions are indicated hereon, they will be voted FOR Items 1, 2 and 3.

This instrument delegates discretionary authority with respect to matters
not known or determined at the time of solicitation of this instrument.

<PAGE>
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:

1. ELECTION OF DIRECTORS: As set forth in the Proxy Statement.

Class A Stockholders: William S. Hurley Class A and B Stockholders: Douglas A. Starrett

</TABLE>
[_] FOR [_] WITHHELD [_] FOR [_] WITHHELD

2. APPROVAL OF 1997 EMPLOYEES' STOCK PURCHASE PLAN.

[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF AMENDMENT TO THE COMPANY'S RESTATED
ARTICLES OF ORGANIZATION.

[_] FOR [_] AGAINST [_] ABSTAIN

PLEASE MARK, SIGN, DATE AND RETURN THIS INSTRUMENT PROMPTLY IN THE ENCLOSED
ENVELOPE.

Dated: ________________________, 1997
(Please Date)

____________________________________

____________________________________
Sign Here

Note: Please sign exactly as name(s)
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If signer is a corporation,
please sign corporate name in full
by authorized officer.
<PAGE>

FOR VOTING CLASS B COMMON STOCK ONLY PROXY CARD
THE L.S. STARRETT COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE L.S. STARRETT COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 17, 1997

The undersigned hereby constitutes and appoints Douglas A. Starrett,
Douglas R. Starrett, and George B. Webber, and each of them, as attorneys and
proxies of the undersigned, with full power of substitution, to vote and act in
the manner designated below at the Annual Meeting of Stockholders of The L.S.
Starrett Company (the "Company") to be held on the 17th day of September, 1997
at 2:00 p.m. at the office of the Company in Athol, Massachusetts, and any
adjournments thereof, upon and in respect of all of the shares of the Class B
Common Stock of the Company as to which the undersigned may be entitled to vote
or act, with all powers the undersigned would possess if personally present, and
without limiting the general authorization hereby given, the undersigned directs
that his vote be cast as specified in the Proxy. The undersigned hereby revokes
any proxy previously granted to vote the same shares of stock for said meeting.

The Shares represented hereby will be voted as directed herein but, if no
directions are indicated hereon, they will be voted FOR Items 1, 2 and 3.

This instrument delegates discretionary authority with respect to matters
not known or determined at the time of solicitation of this instrument.

<PAGE>

MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:

1. ELECTION OF DIRECTORS: As set forth in the Proxy Statement.

Nominee: Douglas A. Starrett

[_] FOR [_] WITHHELD

2. APPROVAL OF 1997 EMPLOYEES' STOCK PURCHASE PLAN.

[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF AMENDMENT TO THE COMPANY'S RESTATED
ARTICLES OF ORGANIZATION.

[_] FOR [_] AGAINST [_] ABSTAIN

PLEASE MARK, SIGN, DATE AND RETURN THIS INSTRUMENT PROMPTLY IN THE ENCLOSED
ENVELOPE.

Dated: ________________________, 1997
(Please Date)

____________________________________

____________________________________
Sign Here

<PAGE>

THE L.S. STARRETT COMPANY PROXY CARD

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE L.S. STARRETT COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 17, 1997

The undersigned hereby constitutes and appoints Douglas A. Starrett,
Douglas R. Starrett, and George B. Webber, and each of them, as attorneys and
proxies of the undersigned, with full power of substitution, to vote and act in
the manner designated below at the Annual Meeting of Stockholders of The L.S.
Starrett Company (the "Company") to be held on the 17th day of September, 1997
at 2:00 p.m. at the office of the Company in Athol, Massachusetts, and any
adjournments thereof, upon in respect of all of the shares of the Class A and
Class B Common Stock of the Company as to which the undersigned may be entitled
to vote or act, with all powers the undersigned would possess if personally
present, and without limiting the general authorization hereby given, the
undersigned directs that his vote be cast as specified in the Proxy. The
undersigned hereby revokes any proxy previously granted to vote the same shares
of stock for said meeting.

The Shares represented hereby will be voted as directed herein but, if no
directions are indicated hereon, they will be voted FOR Items 1, 2 and 3.

This instrument delegates discretionary authority with respect to matters
not known or determined at the time of solicitation of this instrument.

<PAGE>

MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:

1. ELECTION OF DIRECTORS: As set forth in the Proxy Statement.
<TABLE>
<CAPTION>
<S>
<C>
Class A Stockholders: William S. Hurley Class A and B Stockholders: Douglas A. Starrett

</TABLE>

[_] FOR [_] WITHHELD [_] FOR [_] WITHHELD

2. APPROVAL OF 1997 EMPLOYEES' STOCK PURCHASE PLAN.

[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED ARTICLES OF ORGANIZATION.

[_] FOR [_] AGAINST [_] ABSTAIN

PLEASE MARK, SIGN, DATE AND RETURN THIS INSTRUMENT PROMPTLY IN THE ENCLOSED
ENVELOPE.

Dated: ________________________, 1997
(Please Date)

____________________________________

____________________________________
Sign Here

THE L.S. STARRETT COMPANY PROXY CARD

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE L.S. STARRETT COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 17, 1997

The undersigned hereby constitutes and appoints Douglas A. Starrett,
Douglas R. Starrett, and George B. Webber, and each of them, as attorneys and
proxies of the undersigned, with full power of substitution, to vote and act in
the manner designated below at the Annual Meeting of Stockholders of The L.S.
Starrett Company (the "Company") to be held on the 17th day of September, 1997
at 2:00 p.m. at the office of the Company in Athol, Massachusetts, and any
adjournments thereof, upon and in respect of all of the shares of the Class A
and Class B Common Stock of the Company as to which the undersigned may be
entitled to vote or act, with all powers the undersigned would possess if
personally present, and without limiting the general authorization hereby given,
the undersigned directs that his vote be cast as specified in the Proxy. The
undersigned hereby revokes any proxy previously granted to vote the same shares
of stock for said meeting.

The Shares represented hereby will be voted as directed herein but, if no
directions are indicated hereon, they will be voted FOR Items 1, 2 and 3.

This instrument delegates discretionary authority with respect to matters
not known or determined at the time of solicitation of this instrument.

<PAGE>

MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:

1. ELECTION OF DIRECTORS: As set forth in the Proxy Statement.
<TABLE>
<CAPTION>
<S>
<C>
Class A Stockholders: William S. Hurley Class A and B Stockholders: Douglas A. Starrett

</TABLE>
[_] FOR [_] WITHHELD [_] FOR [_]WITHHELD

2. APPROVAL OF 1997 EMPLOYEES' STOCK PURCHASE PLAN.

[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED ARTICLES OF ORGANIZATION.

[_] FOR [_] AGAINST [_] ABSTAIN

PLEASE MARK, SIGN, DATE AND RETURN THIS INSTRUMENT PROMPTLY IN THE ENCLOSED
ENVELOPE.

Dated: ________________________, 1997
(Please Date)

____________________________________

____________________________________
Sign Here

FOR VOTING CLASS A COMMON STOCK ONLY PROXY CARD
THE L.S. STARRETT COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE L.S. STARRETT COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 17, 1997

The undersigned hereby constitutes and appoints Douglas A. Starrett,
Douglas R. Starrett, and George B. Webber, and each of them, as attorneys and
proxies of the undersigned, with full power of substitution, to vote and act in
the manner designated below at the Annual Meeting of Stockholders of The L.S.
Starrett Company (the "Company") to be held on the 17th day of September, 1997
at 2:00 p.m. at the office of the Company in Athol, Massachusetts, and any
adjournments thereof, upon and in respect of all of the shares of the Class A
Common Stock of the Company as to which the undersigned may be entitled to vote
or act, with all powers the undersigned would possess if personally present, and
without limiting the general authorization hereby given, the undersigned directs
that his vote be cast as specified in the Proxy. The undersigned hereby revokes
any proxy previously granted to vote the same shares of stock for said meeting.

The Shares represented hereby will be voted as directed herein but, if no
directions are indicated hereon, they will be voted FOR Items 1, 2 and 3.

This instrument delegates discretionary authority with respect to matters
not known or determined at the time of solicitation of this instrument.

<PAGE>

MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:

1. ELECTION OF DIRECTORS: As set forth in the Proxy Statement.

Nominees: William S. Hurley
Douglas A. Starrett

[_] FOR [_] WITHHELD
both nominees from both nominees
For, except vote withheld from the following nominee:

[_] _______________________________________

2. APPROVAL OF 1997 EMPLOYEES' STOCK PURCHASE PLAN.

[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED ARTICLES OF ORGANIZATION.

[_] FOR [_] AGAINST [_] ABSTAIN

PLEASE MARK, SIGN, DATE AND RETURN THIS INSTRUMENT PROMPTLY IN THE ENCLOSED
ENVELOPE.

Dated: ________________________, 1997
(Please Date)

____________________________________

____________________________________
Sign Here