STARRETT L S CO (Form: 10-Q, Received: 02/07/2013 12:02:08)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended	December 31, 2012

OR

o	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 incorporation or organization)		(I.R.S. Employer Identification No.)

121 CRESCENT STREET, ATHOL, MASSACHUSETTS	01331-1915
(Address of principal executive offices)	(Zip Code)

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

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

YES x NO o

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

YES x NO o

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

Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o Smaller Reporting Company o

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

YES o NO x

Common Shares outstanding as of		January 31, 2013

Class A Common Shares		6,060,253

Class B Common Shares		739,674

THE L. S. STARRETT COMPANY

			Page No.

Part I.	Financial Information:

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets - December 31, 2012 (unaudited) and June 30, 2012	3

		Condensed Consolidated Statements of Operations - three and six months ended December 31, 2012 and December 31, 2011 (unaudited)	4

		Condensed Consolidated Statements of Comprehensive Income (Loss) – three and six months ended December 31, 2012 and December 31, 2011 (unaudited)	5

		Condensed Consolidated Statements of Stockholders' Equity - six months ended December 31, 2012 and December 31, 2011(unaudited)	6

		Condensed Consolidated Statements of Cash Flows - six months ended December 31, 2012 and December 31, 2011(unaudited)	7

		Notes to Unaudited Condensed Consolidated Financial Statements	8-13

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13-16

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

	Item 4.	Controls and Procedures	16

Part II.	Other Information:

	Item 1A.	Risk Factors	17

	Item 5.	Other Information	17

	Item 6.	Exhibits	17-18

SIGNATURES			19

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Condensed Consolidated Balance Sheets

(in thousands except share data)

	December 31, 2012 ( unaudited )			June 30, 2012

ASSETS
Current assets:
Cash	$	14,577		$	17,502
Short-term investments		8,124			6,282
Accounts receivable (less allowance for doubtful accounts of $760 and $965, respectively)		33,674			42,167
Inventories		72,205			69,895
Current deferred income tax asset		7,469			7,620
Prepaid expenses and other current assets		8,190			7,764
Total current assets		144,239			151,230

Property, plant and equipment, net		53,167			53,597
Taxes receivable		3,711			3,814
Deferred tax asset, net		29,926			29,842
Intangible assets, net		8,666			8,755
Goodwill		3,034			3,034
Other assets		2,205			1,894
Total assets	$	244,948		$	252,166

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities	$	1,619		$	1,800
Accounts payable and accrued expenses		16,161			20,912
Accrued compensation		4,046			7,299
Total current liabilities		21,826			30,011
Deferred tax liabilities		2,882			2,530
Other tax obligations		10,192			10,590
Long-term debt		29,913			29,387
Postretirement benefit and pension obligations		52,782			51,810
Total liabilities		117,595			124,328

Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized); 6,050,572 outstanding at 12/31/2012 and 6,017,227 outstanding at 6/30/2012		6,051			6,017
Class B Common stock $1 par (10,000,000 shares authorized); 742,394 outstanding at 12/31/2012 and 753,307 outstanding at 6/30/2012		742			753
Additional paid-in capital		52,222			51,941
Retained earnings		93,427			94,661
Accumulated other comprehensive loss		(25,089	)		(25,534	)
Total stockholders' equity		127,353			127,838
Total liabilities and stockholders’ equity	$	244,948		$	252,166

See Notes to Unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Operations

(in thousands except per share data) (unaudited)

	3 Months Ended						6 Months Ended
	12/31/2012			12/31/2011			12/31/2012			12/31/2011

Net sales	$	59,829		$	62,219		$	116,766		$	125,603
Cost of goods sold		41,076			40,112			80,324			81,906
Gross margin		18,753			22,107			36,442			43,697
% of Net sales		31.3	%		35.5	%		31.2	%		34.8	%


Selling, general and administrative expenses		17,899			18,907			36,470			38,570

Operating income/(loss)		854			3,200			(28	)		5,127

Other income		267			34			411			1,858

Earnings before income taxes		1,121			3,234			383			6,985

Income tax expense		645			1,519			258			3,021

Net earnings	$	476		$	1,715		$	125		$	3,964



Basic and diluted earnings per share	$	.07		$	.25		$	.02		$	.59

Average outstanding shares used in per share calculations:
Basic		6,793			6,754			6,788			6,747
Diluted		6,836			6,768			6,831			6,762



Dividends per share	$	.10		$	.10		$	.20		$	.20

See Notes to Unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands) (unaudited)

	3 Months Ended						6 Months Ended
	12/31/2012			12/31/2011			12/31/2012			12/31/2011

Net earnings	$	476		$	1,715		$	125		$	3,964
Other comprehensive income (loss), net of tax:
Translation gain (loss)		(167	)		(308	)		468			(11,223	)
Pension and postretirement plans		(12	)		(15	)		(23	)		(31	)
Other comprehensive income (loss)		(179	)		(323	)		445			(11,254	)

Total comprehensive income (loss)	$	297		$	1,392		$	570		$	(7,290	)

See Notes to Unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Stockholders' Equity

For the Six Months Ended December 31, 2012 and December 31, 2011

(in thousands except per share data) (unaudited)

	Common Stock Outstanding						Addi- tional Paid-in			Retained			Accumulated Other Com-prehensive
	Class A			Class B			Capital			Earnings			Loss			Total
Balance June 30, 2011	$	5,933		$	801		$	51,411		$	96,477		$	(1,961	)	$	152,661
Net earnings											3,964						3,964
Other comprehensive loss														(11,254	)		(11,254	)
Dividends ($0.20 per share)											(1,350	)					(1,350	)
Issuance of stock under ESOP		17						159									176
Issuance of stock under ESPP					9			72									81
Stock-based compensation								81									81
Conversion		27			(27	)											-
Balance December 31, 2011	$	5,977		$	783		$	51,723		$	99,091		$	(13,215	)	$	144,359

Balance June 30, 2012	$	6,017		$	753		$	51,941		$	94,661		$	(25,534	)	$	127,838
Net earnings											125						125
Other comprehensive income														445			445
Dividends ($0.20 per share)											(1,359	)					(1,359	)
Purchase of stock		(5	)					(57	)								(62	)
Issuance of stock under ESOP		14						148									162
Issuance of stock under ESPP					14			94									108
Stock-based compensation								96									96
Conversion		25			(25	)											-
Balance December 31, 2012	$	6,051		$	742		$	52,222		$	93,427		$	(25,089	)	$	127,353

Cumulative Balance:
Translation loss													$	(15,437	)
Pension and postretirement plans net of taxes														(9,652	)
													$	(25,089	)

See Notes to Unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Cash Flows

(in thousands of dollars) (unaudited)

	6 Months Ended
	12/31/2012			12/31/2011

Cash flows from operating activities:
Net earnings	$	125		$	3,964
Non-cash operating activities:
Depreciation		4,384			4,504
Amortization		580			146
Other tax obligations		(278	)		105
Deferred taxes		478			(125	)
Unrealized transaction gain		(6	)		(29	)
Equity gain on investment		(319	)		(23	)
Working capital changes:
Receivables		8,811			1,767
Inventories		(1,431	)		(14,098	)
Other current assets		(726	)		(1,689	)
Other current liabilities		(8,596	)		(3,023	)
Postretirement benefit and pension obligations		596			383
Other		288			938
Net cash provided by (used in) operating activities		3,906			(7,180	)

Cash flows from investing activities:
Business acquisition, net of cash acquired		-			(15,187	)
Additions to property, plant and equipment		(4,519	)		(5,688	)
Increase in short-term investments		(1,637	)		-
Net cash used in investing activities		(6,156	)		(20,875	)

Cash flows from financing activities:
Proceeds from short-term borrowings		-			5,942
Short-term debt repayments		(171	)		(25	)
Proceeds from long-term borrowings		1,500			14,547
Long-term debt repayments		(979	)		(300	)
Proceeds from common stock issued		270			257
Shares purchased		(62	)		-
Dividends paid		(1,359	)		(1,350	)
Net cash provided by (used in) financing activities		(801	)		19,071

Effect of exchange rate changes on cash		126			(1,384	)

Net decrease in cash		(2,925	)		(10,368	)
Cash, beginning of period		17,502			21,572
Cash, end of period	$	14,577		$	11,204

Supplemental cash flow information:

Interest paid	$	495		$	196
Income taxes paid, net		1,349			3,082

See Notes to Unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Notes to Unaudited Condensed Consolidated Financial Statements

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

The condensed balance sheet as of June 30, 2012, which has been derived from audited financial statements, and the unaudited interim condensed financial statements have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited condensed financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year.

As discussed further in Note 3, on November 22, 2011, the Company acquired all the assets of Bytewise Development Corporation. The results of operations for this acquired business are included in the Company’s results of operations as presented herein since such date.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2012 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. There were no changes in any of the Company’s significant accounting policies during the six months ended December 31, 2012.

Note 2: Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04 to amend fair value measurements and related disclosures; the guidance becomes effective on a prospective basis for interim and annual periods beginning after December 15, 2012. This new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between International Financial Reporting Standards (“IFRS”) and U.S. GAAP. The new guidance also changes some fair value measurement principles and enhances disclosure requirements related to activities in Level 3 of the fair value hierarchy. The adoption of this updated authoritative guidance is not expected to have any impact on our consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08 to amend the impairment assessment criteria for goodwill. The guidance permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is then necessary to perform the two-step goodwill impairment test. The more likely than not threshold is defined as having a likelihood of more than 50%. The guidance is effective for this second quarter of fiscal 2013. The Company has applied the provisions of this ASU to the Company’s fiscal year 2013 annual impairment assessment of goodwill which was carried out as of October 1, 2012. As a result of this assessment, management concluded that the goodwill of $3.0 million resulting from its acquisition of Bytewise was not impaired.

On November 22, 2011 a wholly-owned subsidiary of the Company entered into an asset purchase agreement (the “Purchase Agreement”) with Bytewise Development Corporation (“Bytewise”) pursuant to which the wholly-owned subsidiary of the Company purchased all of the assets of Bytewise for $15.4 million in cash plus the assumption of certain liabilities. The asset purchase was financed through a term loan under the Company’s existing security agreement. The Purchase Agreement contains customary representations, warranties and covenants. Under the Purchase Agreement, the former owners of Bytewise will be entitled to a 40% share of any profits from Bytewise’s operations over each of the three years following consummation of the transaction so long as they remain employed by the Company. The Company has accrued for such profit sharing as an expense based on Bytewise’s results of operations since the date of acquisition.

Bytewise designs, develops and manufactures non-contact, industrial measurement systems and software that capture the external geometric profile of a product and analyze that data to meet measurement and/or quality control requirements.

The acquisition was accounted for under the acquisition method of accounting. The total purchase price was allocated to Bytewise’s net tangible assets and identifiable intangible assets based on their estimated fair value as of November 22, 2011. The allocation of the purchase price is based upon management’s valuation and was finalized in the fourth quarter of fiscal 2012.

The table below presents the allocation of the purchase price to the acquired net assets of Bytewise (in thousands):

Cash	$	298
Accounts receivable		1,897
Inventories		1,674
Other current assets		74
Intangibles		9,300
Goodwill		3,034
Other long-term assets		69
Accounts payable		(379	)
Accrued compensation costs		(270	)
Accrued expenses		(329	)
Cash paid to sellers	$	15,368

The allocation for definite-lived amortizable intangible assets acquired include approximately $4.95 million for customer relationships, $1.48 million for trademarks and trade names, $2.0 million for completed technology, $0.6 million for non-compete agreements and $0.26 million for order backlog.

The acquisition was completed on November 22, 2011 and, accordingly, results of operations from such date have been included in the Company’s Statements of Operations.

Supplemental Pro Forma Information

The following information reflects the Bytewise acquisition as if the transaction had occurred as of the beginning of the Company’s fiscal 2012. The unaudited pro forma information does not necessarily reflect the actual results that would have occurred had the Company and Bytewise been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies.

The following table represents select unaudited consolidated pro forma data (in thousands except per share amounts):

	3 Months Ended		6 Months Ended
	12/31/2011		12/31/2011

Unaudited consolidated pro forma revenue	$	63,919	$	129,491
Unaudited consolidated pro forma net earnings	$	1,999	$	4,433
Unaudited consolidated pro forma diluted earnings per share	$	.30	$	.66

Note 4: Stock-based Compensation

During the quarter ended December 31, 2012, the Company implemented The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”), which was adopted by the Board of Directors September 5, 2012 and approved by shareholders October 17, 2012. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.

Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of December 31, 2012, there were 20,500 stock options and 8,200 restricted stock units outstanding. In addition, there were 471,300 shares available for grant under the 2012 Stock Plan as of December 31, 2012.

For the stock option grant, the fair value of each grant was estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend yield and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant.

The fair value of stock options granted during the six months ended December 31, 2012 of $3.82 was estimated using the following weighted-average assumptions:

Risk-free interest rate	1.0	%
Expected life (years)	6.0
Expected stock volatility	52.3	%
Expected dividend yield	4.0	%

The weighted average contractual term for stock options outstanding as of December 31, 2012 was 10.0 years. The aggregate intrinsic value of stock options outstanding as of December 31, 2012 was $.1 million. There were no options exercisable as of December 31, 2012.

The Company accounts for RSU awards by expensing the fair value to selling, general and administrative expenses ratably over vesting periods generally ranging from one year to three years. During the six months ended December 31, 2012 the Company granted 8,200 RSU awards with approximate fair values of $10.08 per RSU award. There were no RSU awards prior to December 17, 2012.

There were no RSU awards settled during the six months ended December 31, 2012. The aggregate intrinsic value of RSU awards outstanding as of December 31, 2012 was $.1 million. There were no RSU awards vested as of December 31, 2012

Compensation expense related to stock-based plans (including the ESPP) for the six month periods ended December 31, 2012 was $0.1 million and was recorded as selling, general and administrative expense. As of December 31, 2012, there was $0.2 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of 2.9 years.

Inventories consist of the following (in thousands):

	12/31/2012			6/30/2012
Raw material and supplies	$	35,843		$	35,803
Goods in process and finished parts		24,949			24,044
Finished goods		39,937			37,553
		100,729			97,400
LIFO Reserve		(28,524	)		(27,505	)
Inventories	$	72,205		$	69,895

LIFO inventories were $19.4 million and $19.7 million at December 31, 2012 and June 30, 2012, respectively, or approximately $28.5 million and $27.5 million, respectively, less than their respective balances if costed on a FIFO basis. The use of LIFO, as compared to FIFO, resulted in a $1.0 million increase in cost of sales for the six months ended December 31, 2012 compared to a $0.1 million reduction in cost of sales in the six months ended December 31, 2011. The use of LIFO, as compared to FIFO, resulted in a $1.0 million increase in cost of sales for the three months ended December 31, 2012 compared to a $0.7 million reduction in cost of sales in the three months ended December 31, 2011.

Note 6: Goodwill and Intangibles

The Company has chosen to perform a qualitative analysis in accordance with ASU 2011-08 for its Bytewise reporting unit for its October 1, 2012 annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of the reporting units is not less than their respective carrying amount, relevant events and circumstances were taken into account, with greater weight assigned to events and circumstances that most affect Bytewise’s fair value or the carrying amounts of its assets. Items that were considered include, but were not limited to, the following: macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel, and other Bytewise specific events. After assessing these and other factors the Company determined that it was more likely than not that the fair value of the Bytewise reporting unit was not less than the carrying amount as of October 1, 2012.

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

	12/31/2012			6/30/2012
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,292			2,292
Customer relationships		4,950			4,950
Backlog		-			260
Software development		232			-
Other intangible assets		324			6,276
Total	$	9,878		$	15,858
Accumulated amortization		(1,212	)		(7,103	)
Total net balance	$	8,666		$	8,755

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

The estimated useful lives of the intangible assets subject to amortization are 14 years for trademarks and trade names, 8 years for non-compete agreements, 10 years for completed technology, 8 years for customer relationships and 5 years for software development.

The estimated aggregate amortization expense for the remainder of fiscal 2013, for each of the next five years and thereafter, is as follows (in thousands):

2013 (Remainder of year)	$	565
2014	$	1,136
2015	$	1,136
2016	$	1,136
2017	$	1,136
Thereafter	$	3,557

Note 7: Pension and Post Retirement Benefits

Net periodic benefit costs for the Company's defined benefit pension plans consist of the following (in thousands):

	Three Months Ended						Six Months Ended
	12/31/2012			12/31/2011			12/31/2012			12/31/2011
Service cost	$	738		$	572		$	1,476		$	1,147
Interest cost		1,493			1,650			2,987			3,314
Expected return on plan assets		(1,406	)		(1,656	)		(3,008	)		(3,308	)
Amortization of prior service cost		58			58			117			117
Amortization of net gain		-			(1	)		-			(2	)
	$	883		$	623		$	1,572		$	1,268

Net periodic benefit costs for the Company's postretirement medical plan and life insurance consists of the following (in thousands):

	Three Months Ended						Six Months Ended
	12/31/2012			12/31/2011			12/31/2012			12/31/2011
Service cost	$	128		$	96		$	256		$	192
Interest cost		137			156			273			312
Amortization of prior service credit		(93	)		(227	)		(372	)		(453	)
Amortization of accumulated loss		39			5			79			10
	$	211		$	30		$	236		$	61

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

Debt, including capitalized lease obligations, is comprised of the following (in thousands):

	12/31/2012		6/30/2012
Notes payable and current maturities
Loan and Security Agreement	$	1,318	$	1,289
Short-term foreign credit facility		58		231
Capitalized leases		243		280
	$	1,619	$	1,800
Long-term debt
Loan and Security Agreement		29,619	$	28,985
Capitalized leases		294		402
		29,913		29,387
	$	31,532	$	31,187

The Company completed the negotiations for an amended Loan and Security Agreement (Line of Credit) and executed the new agreement as of April 25, 2012. The new Line of Credit is effective for three years commencing April 25, 2012 and expires on April 30, 2015. The new agreement continues the previous line of $23.0 million and interest rate of LIBOR plus 1.5%. On September 7, 2012, the Company completed another amendment to change the financial covenants. The material financial covenants of the amended Loan and Security Agreement are: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses, cannot exceed 1.45 to 1, 2) annual capital expenditures cannot exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.

The effective interest rate on the Line of Credit under the Loan and Security Agreement for the six-months ended December 31, 2012 was 1.78% and 1.89% for the six months ended December 31, 2011.

On November 22, 2011, in conjunction with the Bytewise acquisition, the Company entered into a $15.5 million term loan (the “Term Loan”) under the existing Loan and Security Agreement with TD Bank N.A. The term loan is a ten year loan bearing a fixed interest rate of 4.5% and is payable in fixed monthly payments of principal and interest of $160,640. The term loan, which had a balance of $14.1 million at December 31, 2012, is subject to the same financial covenants as the Loan and Security Agreement.

The Company was in compliance with its debt covenants as of December 31, 2012.

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

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

The effective tax rate for the second quarter of fiscal 2013 was 57.5%. The effective tax rate for the second quarter of 2012 was 47.0%. For the first half of 2013 it was 67.4% and for the first half of 2012 it was 43.2%. No tax benefit has been recognized for losses in certain foreign subsidiaries which, along with the reduction in income in fiscal 2013, are the primary reasons for the increase in the current year tax rate. Discrete items impacting the fiscal 2013 effective tax rate included a reduction in the Company’s net tax expense for uncertain tax positions of $91,000.

U.S. Federal tax returns through fiscal 2008 are generally no longer subject to review by tax authorities; however, tax loss carry forwards from years before fiscal 2009 are still subject to review. As of December 31, 2012, the Company has been notified of one state income tax audit and is in the process of negotiating an audit in that state for earlier years. There were no other local or federal income tax audits in progress as of December 31, 2012. In international jurisdictions including Argentina, Australia, Brazil, Canada, China, UK, Germany, New Zealand, Singapore, Japan and Mexico, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. Brazil is subject to audit for the years 2008 – 2012.

The Company has identified no new uncertain tax positions during the six month period year ended December 31, 2012 for which it is currently likely that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

No valuation allowance has been recorded for the Company’s domestic federal net operating loss (NOL) carry forwards. The Company continues to believe that due to forecasted future taxable income and certain tax planning strategies available, it is more likely than not that it will be able to utilize the federal NOL carry forwards

Note 10: Contingencies

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

Note 11: Subsequent Events

On February 5, 2013, the Board of Directors amended and restated the By-laws of the Company and adopted amendments to the Company’s Rights Agreement dated as of November 2, 2010. See ITEM 5 for further description of these amendments.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three Months Ended December 31, 2012 and December 31, 2011

Political and economic uncertainty domestically coupled with weakness in the global economy continued to adversely impact capital investment in the industrial sector, which is the prime target for the Company’s products.

Net sales declined $2.4 million or 3.9% from $62.2 million in fiscal 2012 to $59.8 million in fiscal 2013 as a result of weak domestic demand for capital equipment and a weakening Brazilian Real. However, sequential sales increased $2.9 million or 5% compared to the first quarter of fiscal 2013 based upon a resurgence in sales in Brazil. Operating income declined $2.3 million as a $3.3 million reduction in gross margin was only partially offset by a $1.0 million savings in selling, general and administrative expenses.

North American sales declined $2.2 million or 7% from $31.7 million in fiscal 2012 to $29.5 million in fiscal 2013 as a softening demand for capital equipment in the semiconductor sector offset incremental gains of $1.2 million related to the Bytewise acquisition.

International sales declined a modest $0.2 million from $30.5 million in fiscal 2012 to $30.3 million in fiscal 2013 as growth of $3.3 million or 11% in constant currency exchanges rates was offset by a unfavorable exchange rates of $3.1 million in Brazil.

Gross margin declined $3.4 million or 15% from 36% of sales in fiscal 2012 to 31% of sales in fiscal 2013 with lower revenues and margin erosion representing $0.8 million and $2.5 million, respectively. Unfavorable exchange rates and LIFO inventory valuation were the key drivers in the $2.5 million margin decline.

North American gross margins declined $1.8 million from $10.4 million or 33% of sales in fiscal 2012 to $8.6 million or 29% of sales in fiscal 2013. An unfavorable LIFO inventory valuation swing from a credit of $0.7 million in fiscal 2012 to an expense of $1.0 million in fiscal 2013 was the principal factor contributing to the lower gross margins.

International gross margins declined $1.6 million from 38% of sales in fiscal 2012 to 33% of sales in fiscal 2013 with unfavorable exchange rates contributing $1.1 million or 69% of the gross margin decline.

Selling, General and Administrative Expenses

Selling, general and administrative expense declined $1.0 million or 5% from $18.9 million in fiscal 2012 to $17.9 million in fiscal 2013.

North American expenses declined $0.5 million from $9.0 million in fiscal 2012 to $8.5 million in fiscal 2013 as a result of savings in professional fees and sales commissions.

International expenses declined $0.5 million as a $0.4 million increase in local currency spending was offset by a favorable currency exchange of $0.9 million.

Other income improved $0.2 million principally related to equity income from an investment in a software company.

The Company recorded net earnings of $0.5 million or $0.07 per share in the second quarter of fiscal 2013 compared to net earnings of $1.7 million or $0.25 per share in fiscal 2012 principally due to lower sales, the unfavorable impact of LIFO inventory valuation and a higher effective tax rate.

Six Months Ended December 31, 2012 and December 31, 2011

The effects of a sluggish domestic economy, the debt crisis in Europe and the strengthening of the U, S. dollar weighed heavily on the Company’s performance for the first half of fiscal 2013. Net sales declined $8.8 million or 7% from $125.6 million in fiscal 2012 to $116.8 million in fiscal 2013 with unfavorable exchange rates contributing $6.9 million. Operating income decreased $5.1 million as a gross margin decline of $7.2 million was only partially offset by a $2.1 million reduction in selling, general and administrative expenses.

North American sales declined $1.8 million or 3% from $61.6 million in fiscal 2012 to $59.9 million in fiscal 2013 as demand for capital equipment products slowed. In addition, the product lines supporting the manufacturing sector were sluggish. Bytewise, acquired in the second quarter of fiscal 2012, contributed a comparative revenue gain of $3.8 million.

International sales declined $7.0 million or 11% from $64.0 million in fiscal 2012 to $57.0 million in fiscal 2013 with unfavorable exchange rates representing $6.9 million of the decline. Revenue in local currencies posted gains in Latin America, Souteast Asia and China.

Gross margin declined $7.3 million or 17% from 35% of sales in fiscal 2012 to 31% of sales in fiscal 2013 with lower revenues and margin erosion representing $2.3 million and $4.3 million, respectively. Unfavorable exchange rates accounted of $3.0 million coupled with a LIFO inventory valuation charge accounted for $1.0 million or 77% of the margin erosion.

North American gross margins declined $1.4 million from $19.4 million or 31% of sales in fiscal 2012 to $18.0 million or 30% of sales in fiscal 2013. An unfavorable LIFO inventory valuation swing from a credit of $0.1 million in fiscal 2012 to an expense of $1.0 million in fiscal 2013 was the principal factor contributing to the lower gross margins.

International gross margins declined $5.9 million from 38% of sales in fiscal 2012 to 32% of sales in fiscal 2013 with lower revenues and margin erosion accounting for $2.7 million and $3.2 million, respectively. Unfavorable exchange rates contributing $2.3 million or 72% of the margin erosion.

Selling, General and Administrative Expenses

Selling, general and administrative expense declined $2.1 million or 5% from $38.6 million in fiscal 2012 to $36.5 million in fiscal 2013.

North American expenses increased $0.4 million with expenses for the Bytewise division, acquired in the second quarter of fiscal 2012, representing $1.6 million partially offset by savings of $0.4 million from the shutdown of the Dominican Republic in the second quarter of fiscal 2012, professional fees of $0.3 million and overall reduced spending in all major divisions.

International expenses declined $1.7 million as a $0.5 million increase in local currency spending was offset by a favorable currency exchange of $2.2 million.

Other income declined $1.4 million due principally to a $1.4 million in currency gains recorded in Latin America in the first quarter of fiscal 2012.

The Company recorded net earnings of $0.1 million or $0.02 per share in the first half of fiscal 2013 compared to net earnings of $4.0 million or $0.59 per share in fiscal 2012 principally due to lower sales, the unfavorable impact of LIFO inventory valuation and a higher effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Six Months
	12/31/2012			12/31/2011

Cash provided by (used in) operating activities	$	3,906		$	(7,180	)
Cash used in investing activities		(6,156	)		(20,875	)
Cash provided by (used in) financing activities		(801	)		19,071
Effect of exchange rate changes on cash		126			(1,384	)

Net decrease in cash	$	(2,925	)	$	(10,368	)

Net cash declined $2.9 million as a $3.9 million contribution from operations was more than offset by disbursements for capital equipment and dividends.

Net cash flows in fiscal 2013 improved $7.4 million compared to fiscal 2012 due to significant improvements in working capital, particularly inventory, as compared to the prior year, which negated the unfavorable impact of lower profits.

Liquidity and Credit Arrangements

The Company believes it maintains sufficient liquidity and has the resources to fund its operations. In addition to its cash and investments, the Company maintains a $23 million line of credit in connection with its Loan and Security Agreement, of which, $16.8 million was outstanding as of December 31, 2012. Availability under the agreement is further reduced by open letters of credit totaling $0.2 million. The Loan and Security Agreement matures in April of 2015. The Loan and Security Agreement was modified in the first quarter of fiscal 2013 at which time certain financial covenants were amended. As of December 31, 2012, the Company was in compliance with all debt covenants related to its Loan and Security Agreement.

The effective interest rate on the short term borrowings under the Loan and Security Agreement during the six months ended December 31, 2012 was 1.78%.

The Company has experienced modest inflation relative to its material cost, much of which cannot be passed on to the customer through increased prices.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in qualitative and quantitative disclosures about market risk from what was reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of December 31, 2012, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

SAFE HARBOR STATEMENT

UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s business, competition, sales, expenditures, foreign operations, plans for reorganization, interest rate sensitivity, debt service, liquidity and capital resources, and other operating and capital requirements. In addition, forward-looking statements may be included in future Company documents and in oral statements by Company representatives to securities analysts and investors. The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements. You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2012. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2012.

ITEM 5. OTHER INFORMATION

On February 5, 2013, the Board of Directors amended and restated the By-laws of the Company. The amendments, among other things, (i) established the third Wednesday of October as the date on which the annual meeting of stockholders will normally be held (which means the 2013 annual meeting of stockholders is scheduled to be held on Wednesday, October 16, 2013), (ii) revised the notice requirements for stockholder proposals and director nominations to, among other things, require the disclosure of all direct or indirect ownership positions in the Company, (iii) permit directors of the Company to serve on no more than three board of directors of business corporations and (iv) certain other changes to conform the By-laws with modern practices.

In connection with an evaluation of the Company’s Rights Agreement dated as of November 2, 2010, as amended (the “Rights Agreement”), between the Company and Computershare Shareowner Services LLC, as rights agent, the Board of Directors adopted amendments to the Rights Agreement pursuant to Amendment No. 1 to Rights Agreement dated as of February 5, 2013 (“Amendment No. 1 to Rights Agreement”). Amendment No. 1 to Rights Agreement, among other things, amends the definition of “Acquiring Person” to include shares owned by those acting in concert with the Acquiring Person, and related conforming changes.

The foregoing descriptions of the amendments to the By-laws and the Rights Agreement do not purport to be complete and are qualified in their entirety by the complete text of the Amended and Restated By-laws and Amendment No. 1 to Rights Agreement, copies of which are attached hereto as Exhibit 3 (ii) and Exhibit 4, respectively.

3 (ii)

Amended and Restated By-laws.

4	Amendment No. 1 to Rights Agreement dated as of February 5, 2013 by and between The L.S. Starrett Company and Computershare Shareowner Services LLC.

10.1*

The L.S. Starrett Company 2012 Employees’ Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to The L.S. Starrett Company’s Registration Statement on Form S-8 (File No. 333-184934) filed November 14, 2012).

10.2*

The L.S. Starrett Company 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.2 to The L.S. Starrett Company’s Registration Statement on Form S-8 (File No. 333-184934) filed November 14, 2012).

10.3	Form of Non-Statutory Stock Option Agreement under The L.S. Starrett Company 2012 Long-Term Incentive Plan.

10.4	Form of Director Non-Statutory Stock Option Agreement under The L.S. Starrett Company 2012 Long-Term Incentive Plan

10.5	Form of Restricted Stock Unit Agreement under The L.S. Starrett Company 2012 Long-Term Incentive Plan.

10.6	Form of Direcctor Restricted Stock Unit Agreement under The L.S. Starrett Company 2012 Long-Term Incentive Plan.

31a	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31b	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32	Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders' Equity, (v)the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

* Management contract or compensatory plan.

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	February 7, 2013	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO

Date	February 7, 2013	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO

AMENDED AND RESTATED BY-LAWS

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 October in each year, unless a different date or time 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 as shall be fixed by the president or the directors. Any adjourned session of any meeting of the stockholders shall be held 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 corporation. The provisions of Chapter 110F of the Massachusetts General Laws shall not apply to the corporation.

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) (i) (A) the class or series and number of shares of the corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the corporation or with a value derived in whole or in part from the value of any class or series of shares of the corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any shares of any security of the corporation, (D) any short interest in any security of the corporation (for purposes of this by-Law a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the corporation, (F) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (G) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), and (d) any other 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 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 Participation in Meetings By Conference Telephone or Other Communications Equipment; Notice . Members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors or committee thereof by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other director, and such participation shall constitute presence in person at the meeting. 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, (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise 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 (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K of the Securities Act of 1933, as amended, if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant, and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) (A) the class or series and number of shares of the corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, (B) any Derivative Instrument directly or indirectly owned beneficially by such stockholder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any shares of any security of the corporation, (D) any short interest in any security of the corporation (for purposes of this by-Law a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the corporation, (F) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (G) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date). 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 and any person nominated to serve as a Director shall not serve as a director on more than three board of directors of business corporations (including this corporation). 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.

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 the Board elects to have a chairman of the board of directors, 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 [Reserved].

7.3 Stock Certificates . The Board of Directors may authorize the issue without certificates of some or all of the shares of any or all of the corporation's classes or series of stock. Except to the extent the Board of Directors has determined to issue shares without certificates, a shareholder shall be entitled to a certificate stating the number, the class and the designation of the series, if any, of the shares the certificate represents, in such form as shall, in conformity with law, be prescribed from time to time by the Board of Directors. Such certificate shall be signed (a) by the chairman of the Board of Directors, the president or a vice president and (b) by the treasurer or an assistant treasurer or the clerk or an assistant clerk. Such signatures may be facsimiles. If the person who signed, either manually or in facsimile, a share certificate no longer holds office when the certificate is issued, the certificate shall be nevertheless valid.

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 y fix in advance a time, which shall not be more than 60 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 extent legally permissible, indemnify each of its directors and officers (including persons who serve at its request as directors, officers or trustees of another organization or who serve at its request in any capacity with respect to any employee benefit plan) against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which he may be involved or with which he may be threatened, while in office or thereafter, by reason of his being or having been such a director or officer, except with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation or, to the extent that such matter related to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan: provided, however, that as to any matter disposed of by a compromise payment by such director or officer, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the corporation, after notice that it involves such indemnification: (a) by a disinterested majority of the directors then in office; or (b) by a majority of the disinterested directors then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such director or officer appears to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation; or (c) by the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested director or officer. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director or officer may be entitled. As used in this Section, the terms "director" and "officer" include their respective heirs, executors and administrators, and an "interested" director or officer is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending. Nothing contained in this Section shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law.

Expenses, including but not limited to counsel fees and disbursements, incurred by any director or officer in defending any such action, suit or other proceeding may be paid from time to time by the corporation in advance of the final disposition of such action, suit or other proceeding upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under this section, which undertaking may be accepted without reference to the financial ability of such person to make repayments.

If in an action, suit or other proceeding brought by or in the name of the corporation, a director of the corporation is held not liable for monetary damages whether because that director is relieved of personal liability under the exculpatory provisions of Article 6.8 of the Articles of Organization of the corporation or otherwise, that director shall be deemed to have met the standard of conduct required for, and consequently shall be entitled to, indemnification for expenses reasonably incurred in the defense of such action, suit or other proceeding.

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 thirtieth day of 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.

Amendment No. 1 to Rights Agreement

This Amendment No. 1 to the Rights Agreement (this “ Amendment ”) is made and entered into as of February 5, 2013 by and between The L.S. Starrett Company, a Massachusetts corporation (the “ Company ”), and Computershare Shareowner Services LLC (formerly known as Mellon Investor Services LLC), a New Jersey limited liability company, as rights agent (the “ Rights Agent ”), amending that certain Rights Agreement, dated as of November 2, 2010, as amended and in effect from time to time, between the Company and the Rights Agent (the “ Rights Agreement ”). Capitalized terms used herein without definition shall have the meanings ascribed to them in the Rights Agreement.

WITNESSETH

The Board of Directors of the Company has deemed it reasonable and in the best interests of the Company to amend the Rights Agreement in accordance with Section 27 of the Rights Agreement to revise the definition of Acquiring Person and certain other provision of the Rights Agreement. Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

Section 1(a) of the Rights Agreement is hereby amended and restated in its entirety as follows:

“(a) “ Acquiring Person ” shall mean any Person who or which, together with all Affiliates and Associates of such Person and with any other Person with whom such Person is Acting in Concert, shall be the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding, but shall not include (1) the Company, (2) any Subsidiary of the Company or (3) any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an “Acquiring Person” as the result of an acquisition of Common Shares by the Company that, by reducing the number of Common Shares of the Company outstanding, increases the proportionate number of Common Shares of the Company beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided , however , that, if a Person, together with all Affiliates or Associates of such Person, shall become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an “Acquiring Person.” Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph (a), (i) has become such inadvertently or (ii) has become such as the result of contractual obligations that are or purport to be legally binding entered into prior to, and not materially amended or modified after, the date of this Agreement and has not acquired 1% or more of the Common Shares of the Company then outstanding by means other than such contractual obligations since the date of this Agreement, and in either of case (i) or (ii), such Person divests as promptly as practicable (but in the case of clause (ii), in no event later than 60 calendar days following the date of the acquisition of beneficial ownership that would otherwise cause such Person to be an Acquiring Person) a sufficient number of Common Shares so that such Person would no longer be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be an “Acquiring Person” for any purposes of this Agreement.

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

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

The final paragraph of Section 11(a)(ii) of the Rights Agreement is hereby amended and restated in its entirety as follows:

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

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Section 11(a)(iii) of the Rights Agreement is hereby amended and restated in its entirety as follows:

“(iii) Subject to Section 24 hereof, in lieu of issuing shares of Class A Common Stock in accordance with Section 11(a)(ii) hereof, the Company may, if a majority of the Board of Directors then in office determines that such action is necessary or appropriate and not contrary to the interests of the holders of Rights (other than any Acquiring Person, or any Affiliate or Associate of such Acquiring Person or any Person Acting in Concert with such Acquiring Person), elect to (and, in the event that the Board of Directors has not exercised the exchange right contained in Section 24 hereof and there are not sufficient authorized but unissued and unreserved for other purposes shares of Class A Common Stock to permit the exercise in full of the Rights in accordance with subparagraph (ii) above, the Company shall) take all such action as may be necessary to authorize, issue or pay, upon the exercise of each Right: (A) cash; (B) a reduction in Purchase Price; (C) property; (D) other securities of the Company (including, without limitation, shares of Class B Common Stock or a number of shares of Class A Common Stock or fraction thereof such that the current per share market price of one share of Class A Common Stock multiplied by such number or fraction is equal to the current per share market price of one share of Class A Common Stock as of the date of issuance of such shares of Class A Common Stock or fraction thereof); or (E) any combination of the foregoing, in each case having an aggregate value equal to the value of the shares of Class A Common Stock that otherwise would have been issuable pursuant to Section 11(a)(ii) hereof, which aggregate value shall be determined in good faith by the Board of Directors. For purposes of the preceding sentence, the value of the shares of Class A Common Stock shall be determined pursuant to Section 11(d) hereof. As soon as practicable, the Company shall provide the Rights Agent with written notice of any election made pursuant to this Section 11(a)(iii).”

The Rights Agent notice information in Section 26 of the Rights Agreement is hereby amended and restated in its entirety as follows:

Computershare Shareowner Services LLC

111 Founders Plaza, 11th Floor

East Hartford, CT 06108

Attn: John J. Boryczki

Facsimile No.: (860) 528-6472

With a copy to:

Computershare Shareowner Services LLC

480 Washington Boulevard, 29th Floor

Jersey City, New Jersey 07310

Attn: Legal Department

-3-

Miscellaneous Provisions .

5.1 Effect of Amendment . In the event of any conflict or inconsistency between the terms of this Amendment and the terms of the Rights Agreement, the terms of this Amendment will control. Except to the extent expressly modified herein or in conflict with the terms of this Amendment, the terms of the Rights Agreement shall remain in full force and effect. Without limiting the generality of the foregoing, whenever the phrase “the date of this Agreement” or similar language appears in Section 1, 2, or 3 of this Amendment, it shall mean November 2, 2010.

5.2 Counterparts . This Amendment may be executed in two counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument.

5.3 No Amendment . No amendment, alteration or modification of any of the provisions of this Amendment will be binding unless made in writing and signed by each of the parties hereto.

5.4 Entire Agreement . This Amendment and the Rights Agreement embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.

5.5 Governing Law . This Amendment shall be governed by, and construed in accordance with, the law of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts; provided, however, that all provisions regarding the rights, duties and obligations of the Rights Agent shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such state.

[Signature Page Follows]

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IN WITNESS WHEREOF, each of the undersigned has executed this Amendment as of the date first above written.

The L.S. Starrett Company		Attest:


By: /s/ D.A. Starrett		By: /s/ Francis J. O’Brien
Name: Douglas A. Starrett		Name: Francis J. O’Brien
Title: Chief Executive Officer		Title: Chief Financial Officer


Computershare Shareowner Services LLC


By: /s/ Michael J. Lang
Name: Michael J. Lang
Title: Senior Vice President

[Signature Page to Amendment No. 1]

Name:	[●]
Number of Shares of Stock subject to Option:	[●]
Price Per Share:	$[●]
Date of Grant:	[●]

the l.s. starrett company

2012 Long-Term Incentive Plan

Non-statutory Stock Option Agreement

This agreement (the “ Agreement ”) evidences a stock option granted by The L.S. Starrett Company (the “ Company ”) to the undersigned (the “ Optionee ”), pursuant to and subject to the terms of The L.S. Starrett Company 2012 Long-Term Incentive Plan (as amended from time to time, the “ Plan ”), which is incorporated herein by reference.

1. Grant of Stock Option . The Company grants to the Optionee on the date set forth above (the “ Date of Grant ”) an option (the “ Stock Option ”) to purchase, on the terms provided herein and in the Plan (including, without limitation, the exercise provisions in Section 6(b)(3) of the Plan), the number of shares of Stock of the Company set forth above (the “ Shares ”) with an exercise price per Share as set forth above, in each case subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.

The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that is not to be treated as a stock option described in subsection (b) of Section 422 of the Code) and is granted to the Optionee in connection with the Optionee’s employment by the Company and its qualifying subsidiaries. For purposes of the immediately preceding sentence, “qualifying subsidiary” means a subsidiary of the Company as to which the Company has a “controlling interest” as described in Treas. Regs. §1.409A-1(b)(5)(iii)(E)(1).

2. Meaning of Certain Terms . Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan. The following terms have the following meanings:

(a)

“ Beneficiary ” means, in the event of the Optionee’s death, the beneficiary named in the written designation (in form acceptable to the Administrator) most recently filed with the Administrator by the Optionee prior to the Optionee’s death and not subsequently revoked, or, if there is no such designated beneficiary, the executor or administrator of the Optionee’s estate. An effective beneficiary designation will be treated as having been revoked only upon receipt by the Administrator, prior to the Optionee’s death, of an instrument of revocation in form acceptable to the Administrator.

(b)

“ Option Holder ” means the Optionee or, if as of the relevant time the Stock Option has passed to a Beneficiary, the Beneficiary.

3. Vesting; Method of Exercise; Treatment of the Stock Option Upon Cessation of Employment .

(a)

Vesting . As used herein with respect to the Stock Option or any portion thereof, the term “vest” means to become exercisable and the term “vested” as applied to any outstanding Stock Option means that the Stock Option is then exercisable, subject in each case to the terms of the Plan. Unless earlier terminated, forfeited, relinquished or expired, the Stock Option shall become vested as to 33.3% of the total number of Shares subject to the Stock Option on each of the first three anniversaries of the Date of Grant. Notwithstanding the foregoing, Shares subject to the Stock Option shall not vest on any vesting date unless the Optionee has remained in continuous Employment from the Date of Grant through such vesting date. [Notwithstanding the foregoing, immediately prior to a “Change of Control,” as such term is defined in the Change of Control Agreement between the Optionee and the Company, dated [________], the provisions of Section [3(b)]/[4(d)] of that Change of Control Agreement shall apply.] 1

(b)

Exercise of the Stock Option . No portion of the Stock Option may be exercised until such portion vests. Each election to exercise any vested portion of the Stock Option will be subject to the terms and conditions of the Plan and shall be in writing, signed by the Option Holder (or in such other form as is acceptable to the Administrator). Each such written exercise election must be received by the Company at its principal office or by such other party as the Administrator may prescribe and be accompanied by payment in full as provided in the Plan. The exercise price may be paid (i) by cash or check acceptable to the Administrator, (ii) to the extent permitted by the Administrator, through a broker-assisted cashless exercise program acceptable to the Administrator, (iii) by such other means, if any, as may be acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment. In the event that the Stock Option is exercised by a person other than the Optionee, the Company will be under no obligation to deliver shares hereunder unless and until it is satisfied as to the authority of the Option Holder to exercise the Stock Option and compliance with applicable securities laws. The latest date on which the Stock Option or any portion thereof may be exercised will be the 10th anniversary of the Date of Grant (the “ Final Exercise Date ”); provided , however , if at such time the Optionee is prohibited by applicable law or written Company policy applicable to similarly situated employees from engaging in any open-market sales of Stock, the Final Exercise Date will be automatically extended to thirty (30) days following the date the Optionee is no longer prohibited from engaging in such open-market sales. If the Stock Option is not exercised by the Final Exercise Date the Stock Option or any remaining portion thereof will thereupon immediately terminate.

1 This provision should only be included for Optionees who are subject to a Change of Control Agreement.

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(c)

Treatment of the Stock Option Upon Cessation of Employment . If the Optionee’s Employment ceases, the Stock Option, to the extent not already vested will be immediately forfeited, and any vested portion of the Stock Option that is then outstanding will be treated as follows:

(i) Subject to clauses (ii) and (iii) below and Section 4 of this Agreement, the Stock Option, to the extent vested immediately prior to the cessation of the Optionee’s Employment, will remain exercisable until the earlier of (A) the date which is 60 days after the date of such cessation of Employment, or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 3(c)(i) will thereupon immediately terminate.

(ii) Subject to clause (iii) below and Section 4 of this Agreement, the Stock Option, to the extent vested immediately prior to the cessation of the Optionee’s Employment due to death or disability, will remain exercisable until the earlier of (A) the first anniversary of the Optionee’s death or (B) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 3(c)(ii) will thereupon immediately terminate.

(iii) If the Optionee’s Employment is terminated by the Company and its subsidiaries in connection with an act or failure to act constituting Cause (as the Administrator, in its sole discretion, may determine), or such termination occurs in circumstances that in the determination of the Administrator would have entitled the Company and its subsidiaries to terminate the Optionee’s Employment for Cause, the Stock Option (whether or not vested) will immediately terminate and be forfeited upon such termination.

4. Forfeiture; Recovery of Compensation .

(a)

The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Stock Option at any time if the Optionee is not in compliance with all applicable provisions of this Agreement and the Plan.

(b)

The Stock Option is subject to Section 6(a)(5) of the Plan. The Stock Option (whether or not vested or exercisable) is subject to forfeiture, termination and rescission, and the Optionee will be obligated to return to the Company the value received with respect to the Stock Option (including Shares delivered under the Stock Option, and any gain realized on a subsequent sale or disposition of Shares), (ii) in accordance with Company policy relating to the recovery of erroneously-paid incentive compensation, as such policy may be amended and in effect from time to time, or (ii) as otherwise required by law or applicable stock exchange listing standards, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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5. Transfer of Stock Option . The Stock Option may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

6. Withholding . The exercise of the Stock Option will give rise to “wages” subject to withholding. The Optionee expressly acknowledges and agrees that the Optionee’s rights hereunder, including the right to be issued shares upon exercise, are subject to the Optionee promptly paying to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) all taxes required to be withheld. No shares will be transferred pursuant to the exercise of this Stock Option unless and until the person exercising this Stock Option has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local withholding tax requirements, or has made other arrangements satisfactory to the Company with respect to such taxes. The Optionee authorizes the Company and its subsidiaries to withhold such amount from any amounts otherwise owed to the Optionee, but nothing in this sentence shall be construed as relieving the Optionee of any liability for satisfying his or her obligation under the preceding provisions of this Section.

7. Effect on Employment . Neither the grant of the Stock Option, nor the issuance of shares upon exercise of the Stock Option, will give the Optionee any right to be retained in the employ of the Company or any of its Affiliates, affect the right of the Company or any of its Affiliates to discharge or discipline such Optionee at any time, or affect any right of such Optionee to terminate his or her Employment at any time.

8. Governing Law . This Agreement and all claims or disputes arising out of or based upon this Agreement or relating to the subject matter hereof will be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

By acceptance of the Stock Option, the undersigned agrees to be subject to the terms of the Plan. The Optionee further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Optionee.

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Executed as of the ___ day of [●].

Company:	THE L.S. STARRETT COMPANY


	By:
	Name:
	Title:

Optionee:
	Name:

	Address:

[Signature Page to Non-Statutory Option Agreement]

Name:	[●]
Number of Shares of Stock subject to Option:	[●]
Price Per Share:	$[●]
Date of Grant:	[●]

the l.s. starrett company

2012 Long-Term Incentive Plan

Director Non-statutory Stock Option Agreement

The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that is not to be treated as a stock option described in subsection (b) of Section 422 of the Code) and is granted to the Optionee in connection with the Optionee’s service to the Company and its qualifying subsidiaries. For purposes of the immediately preceding sentence, “qualifying subsidiary” means a subsidiary of the Company as to which the Company has a “controlling interest” as described in Treas. Regs. §1.409A-1(b)(5)(iii)(E)(1).

2. Meaning of Certain Terms . Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan. The following terms have the following meanings:

(a)

(b)

“ Option Holder ” means the Optionee or, if as of the relevant time the Stock Option has passed to a Beneficiary, the Beneficiary.

3. Vesting; Method of Exercise; Treatment of the Stock Option Upon Cessation of Service .

(a)

(b)

Exercise of the Stock Option . No portion of the Stock Option may be exercised until such portion vests. Each election to exercise any vested portion of the Stock Option will be subject to the terms and conditions of the Plan and shall be in writing, signed by the Option Holder (or in such other form as is acceptable to the Administrator). Each such written exercise election must be received by the Company at its principal office or by such other party as the Administrator may prescribe and be accompanied by payment in full as provided in the Plan. The exercise price may be paid (i) by cash or check acceptable to the Administrator, (ii) to the extent permitted by the Administrator, through a broker-assisted cashless exercise program acceptable to the Administrator, (iii) by such other means, if any, as may be acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment. In the event that the Stock Option is exercised by a person other than the Optionee, the Company will be under no obligation to deliver shares hereunder unless and until it is satisfied as to the authority of the Option Holder to exercise the Stock Option and compliance with applicable securities laws. The latest date on which the Stock Option or any portion thereof may be exercised will be the 10th anniversary of the Date of Grant (the “ Final Exercise Date ”); provided , however , if at such time the Optionee is prohibited by applicable law or written Company policy from engaging in any open-market sales of Stock, the Final Exercise Date will be automatically extended to thirty (30) days following the date the Optionee is no longer prohibited from engaging in such open-market sales. If the Stock Option is not exercised by the Final Exercise Date the Stock Option or any remaining portion thereof will thereupon immediately terminate.

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(c)

4. Forfeiture; Recovery of Compensation .

(a)

(b)

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5. Transfer of Stock Option . The Stock Option may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

6. Withholding . The Optionee shall be responsible for satisfying and paying all taxes arising from or due in connection with the exercise of the Option. The Company and its subsidiaries shall have no liability or obligation related to the foregoing.

7. Effect on Service or Employment . Neither the grant of the Stock Option, nor the issuance of shares upon exercise of the Stock Option, will give the Optionee any right to be retained as a member of the Board or any of its Affiliates, affect the right of the Company or any of its Affiliates to discharge or discipline such Optionee at any time, or affect any right of such Optionee to terminate his or her Employment at any time.

[The remainder of this page is intentionally left blank]

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Executed as of the ___ day of [●].

Company:	THE L.S. STARRETT COMPANY


	By:
	Name:
	Title:

Optionee:
	Name:

	Address:

[Signature Page to Non-Statutory Option Agreement]

Name:	[●]
Number of Restricted Stock Units:	[●]
Date of Grant:	[●]

The L.S. Starrett Company

2012 Long-Term Incentive Plan

Restricted stock unit Agreement

This Restricted Stock Unit Agreement (the “Agreement”), is made, effective as of the [●] th day of [●] , [●] (the “Grant Date”) between The L.S. Starrett Company (the “Company”), and [●] (the “Participant”).

1. Restricted Stock Unit Award . The Participant is hereby awarded, pursuant to The L.S. Starrett Company 2012 Long-Term Incentive Plan (as amended from time to time, the “Plan”), and subject to its terms, a Restricted Stock Unit award (the “Award”) giving the Participant the conditional right to receive, without payment but subject to the conditions and limitations set forth in this Agreement and in the Plan, [●] shares of common stock of the Company, par value $1.00 per share (the “Shares”), subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.

2. Vesting .

During the Participant’s Employment, the Award, unless earlier terminated, shall become vested as to one-third (1/3rd) of the total number of Shares subject to the Award on each of the first, second and third anniversaries of the Grant Date, such that the Award shall be fully vested on the third anniversary of the Grant Date. Notwithstanding the foregoing, Shares subject to the Award shall not vest on any vesting date unless the Participant has remained in continuous Employment through the applicable vesting date. [Notwithstanding the foregoing, immediately prior to a “Change of Control,” as such term is defined in the Change of Control Agreement between the Participant and the Company, dated [__________], the Award shall be fully vested.] 1

3. Delivery of Shares . The Company shall, as soon as practicable upon the vesting of any portion of the Award (but in no event later than March 15 of the year following such vesting) effect delivery of the Shares with respect to such vested portion to the Participant (or, in the event of the Participant’s death, to the Beneficiary). No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator.

4. Dividends; Other Rights . The Award shall not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any Affiliate prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award or to receive or be credited with any dividends declared and payable on any Share prior to the date on which such Shares are delivered to the Participant hereunder. The Participant shall have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award.

1 This provision should only be included for Participants who are subject to a Change of Control Agreement.

5. Recovery of Compensation .

(a) The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan.

(b) The Award is subject to Section 6(a)(5) of the Plan. The Shares acquired hereunder are subject to forfeiture, termination and rescission, and the Participant will be obligated to return to the Company the value received with respect to the Shares (including any gain realized on any subsequent sale or disposition of Shares) (i) in accordance with Company policy relating to the recovery of erroneously-paid incentive compensation, as such policy may be amended and in effect from time to time, or (ii) as otherwise required by law or applicable stock exchange listing standards, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

6. Certain Tax Matters . The Participant expressly acknowledges that because this Award consists of an unfunded and unsecured promise by the Company to deliver Shares in the future, subject to the terms hereof, it is not possible to make a so-called “83(b) election” with respect to the Award. The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued Shares upon the vesting and settlement of the Award (or any portion thereof), are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion, including, without limitation, if permitted by applicable law and Company policy and if approved by the Compensation Committee of the Company, withholding of Shares from the Shares otherwise deliverable to the Participant, up to the greatest number of whole Shares with an aggregate fair market value not exceeding the minimum required withholding applicable to the amount so vesting) all taxes required to be withheld, if any. No Shares will be required to be transferred pursuant to the vesting and settlement of the Award (or any portion thereof) unless and until the Participant or the person then holding the Award has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local requirements with respect to tax withholdings then due and has committed (and by holding this Award the Participant shall be deemed to have committed) to pay in cash all tax withholdings required at any later time in respect of the transfer of such Shares, or has made other arrangements satisfactory to the Administrator with respect to such taxes. The Participant also authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant of any liability for satisfying his or her obligations under the preceding provisions of this Section.

7. Nontransferability . The Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

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8. Effect on Employment or Service Rights . Neither the grant of this Award, nor the delivery of Shares under this Award in accordance with the terms of this Agreement, shall give the Participant any right to be retained in the employ or service of the Company or its Affiliates, affect the right of the Company or its Affiliates to discharge or discipline such Participant at any time, or affect any right of such Participant to terminate his or her Employment at any time.

9. Amendments . No amendment of any provision of this Agreement shall be valid unless the same shall be in writing.

10. Governing Law . This Agreement and all claims or disputes arising out of or based upon this Agreement or relating to the subject matter hereof will be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

11. Definitions . Initially capitalized terms not otherwise defined herein shall have the meaning provided in the Plan, and, as used herein, the following terms shall have the meanings set forth below:

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

“Beneficiary” means, in the event of the Participant’s death, the beneficiary named in the written designation (in form acceptable to the Administrator) most recently filed with the Administrator by the Participant prior to the Participant’s death and not subsequently revoked, or, if there is no such designated beneficiary, the executor or administrator of the Participant’s estate. An effective beneficiary designation will be treated as having been revoked only upon receipt by the Administrator, prior to the Participant’s death, of an instrument of revocation in form acceptable to the Administrator.

“Person” shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization or other entity.

13. General . For purposes of this Award and any determinations to be made by the Administrator hereunder, the determinations by the Administrator shall be binding upon the Participant and any transferee.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-3-

By acceptance of the Award, the undersigned agrees to be subject to the terms of the Plan. The Participant further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.

Executed as of the ___ day of [●], [●].

Company:	THE L.S. STARRETT COMPANY


	By:
	Name:
	Title:

Participant:
	Name:

	Address:

[Signature Page to Restricted Stock Unit Agreement]

Name:	[●]
Number of Restricted Stock Units:	[●]
Date of Grant:	[●]

The L.S. Starrett Company

2012 Long-Term Incentive Plan

Director Restricted stock unit Agreement

2. Vesting .

5. Recovery of Compensation .

7. Nontransferability . The Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

9. Amendments . No amendment of any provision of this Agreement shall be valid unless the same shall be in writing.

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

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“Person” shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization or other entity.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-3-

Executed as of the ___ day of [●], [●].

Company:	THE L.S. STARRETT COMPANY


	By:
	Name:
	Title:

Participant:
	Name:

	Address:

[Signature Page to Restricted Stock Unit Agreement]

I, Douglas A. Starrett, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 7, 2013	/S/	Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer

I, Francis J. O’Brien, certify that:

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

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

Date: February 7, 2013	/S/	Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

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

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

The Quarterly Report on Form 10-Q for the quarter ended December 31, 2012 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date	February 7, 2013	/S/ Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer

Date	February 7, 2013	/S/ Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

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

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