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
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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
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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
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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
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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
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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
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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
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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
<PAGE>
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
<PAGE>
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
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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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-24-2000
<PERIOD-END> SEP-25-1999
<CASH> 424
<SECURITIES> 15,356
<RECEIVABLES> 44,518
<ALLOWANCES> 2,380
<INVENTORY> 75,699
<CURRENT-ASSETS> 135,597
<PP&E> 144,497
<DEPRECIATION> 71,003
<TOTAL-ASSETS> 244,345
<CURRENT-LIABILITIES> 23,112
<BONDS> 3,300
0
0
<COMMON> 6,697
<OTHER-SE> 182,647
<TOTAL-LIABILITY-AND-EQUITY> 244,345
<SALES> 58,412
<TOTAL-REVENUES> 58,412
<CGS> 42,257
<TOTAL-COSTS> 42,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 4,317
<INCOME-TAX> 1,442
<INCOME-CONTINUING> 2,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,875
<EPS-BASIC> .43
<EPS-DILUTED> .43
</TABLE>
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.
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.
