Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MSC INDUSTRIAL DIRECT CO., INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[MSC INDUSTRIAL DIRECT CO., INC. LOGO]
75 Maxess Road
Melville, New York 11747
--------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------------
To the Shareholders of MSC Industrial Direct Co., Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of MSC
Industrial Direct Co., Inc. (the "Company"), a New York corporation, will be
held on Friday, January 4, 2002 at 9:00 a.m., local time, at the lower level
atrium of Fleet Bank at 300 Broad Hollow Road, Melville, New York 11747, for the
following purposes:
1. To elect ten directors of the Company to serve for one-year
terms;
2. To consider and act upon a proposal to ratify the
appointment of Arthur Andersen LLP as independent certified
public accountants of the Company for the fiscal year 2002;
3. To approve the adoption of the Company's 2001 Stock Option
Plan; and
4. To consider and act upon such other matters as may properly
come before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on November 30,
2001 are entitled to notice of and to vote at the meeting and any adjournments
thereof.
All shareholders are cordially invited to attend the meeting. However,
to assure your representation at the meeting, you are urged to complete, sign
and date the enclosed proxy card as promptly as possible and return it in the
postage-paid envelope provided. Any shareholder attending the meeting may vote
in person even if he or she has already returned a proxy.
By Order of the Board of Directors,
Thomas Eccleston
Secretary
Melville, New York
December 5, 2001
- --------------------------------------------------------------------------------
IMPORTANT:
The prompt return of proxies will ensure that your shares will
be voted. A self-addressed envelope is enclosed for your convenience.
No postage is required if mailed within the United States.
- --------------------------------------------------------------------------------
[LOGO]
75 Maxess Road
Melville, New York 11747
------------------
PROXY STATEMENT FOR
Annual Meeting of Shareholders to
be held on January 4, 2002
------------------
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of MSC Industrial Direct Co., Inc. (the
"Company"), a New York corporation, to be used at the Annual Meeting of
Shareholders of the Company (the "Meeting") to be held at the lower level atrium
of Fleet Bank at 300 Broad Hollow Road, Melville, New York 11747, on Friday,
January 4, 2002 at 9:00 a.m., local time, and at any adjournment or postponement
thereof. The approximate date on which this proxy statement, the foregoing
notice and the enclosed proxy were first mailed or given to shareholders was
December 5, 2001.
Shareholders who execute proxies retain the right to revoke them at any
time by notice in writing to the Secretary of the Company, by revocation in
person at the Meeting or by presenting a later dated proxy. Unless so revoked,
shares represented by proxies received by the Company, where the shareholder has
specified a choice with respect to the election of directors or the other
proposals described in this proxy statement, will be voted in accordance with
the specification(s) so made. In the absence of such specification(s), the
shares will be voted FOR the election of all ten nominees for the Board of
Directors, FOR the ratification of the selection by the Board of Directors of
Arthur Andersen LLP as the Company's independent certified public accountants
for the current fiscal year and FOR the adoption of the 2001 Stock Option Plan.
The expenses of solicitation of proxies for the Meeting will be paid by
the Company. Such solicitation may be made in person or by telephone by officers
and associates of the Company. Upon request, the Company will reimburse brokers,
dealers, banks and trustees, or their nominees, for reasonable expenses incurred
by them in forwarding material to beneficial owners of shares of the Company's
Class A common stock, par value $.001 per share (the "Class A Common Stock").
VOTING
Only holders of record of the Class A Common Stock and the Company's
Class B common stock, par value $.001 per share (the "Class B Common Stock"), at
the close of business on November 30, 2001 are entitled to notice of and to vote
at the Meeting. On that date, the Company had outstanding 36,305,736 shares of
Class A Common Stock and 33,478,778 shares of Class B Common Stock.
Under New York law and the Company's By-Laws, the presence in person or
by proxy of the holders of a majority of the shares of the Class A Common Stock
and the Class B Common Stock entitled to vote is necessary to constitute a
quorum at the Meeting. For these purposes, shares which are present or
represented by proxy at the Meeting will be counted regardless of whether the
holder of the shares or the proxy fails to vote on a proposal ("abstentions") or
whether a broker with authority fails to exercise its authority with respect
thereto (a "broker non-vote"). Abstentions and broker non-votes will not be
included, however, in the tabulation of votes cast on proposals presented to
shareholders. With regard to the election of directors, votes may be cast in
favor of or withheld from each nominee; votes that are withheld (e.g.,
abstentions and broker non-votes) will have no effect, as directors are elected
by a plurality of votes cast. On all matters to be voted upon at the Meeting and
any adjournment or postponement thereof, the holders of the Class A Common Stock
and the Class B Common Stock vote together as a single class, with each record
holder of Class A Common Stock entitled to one vote per share of Class A Common
Stock and each record holder of Class B Common Stock entitled to 10 votes per
share of Class B Common Stock.
The Board of Directors does not intend to bring any matter before the
Meeting, except as specifically indicated in the foregoing notice, nor does the
Board of Directors know of any matters which anyone else proposes to present for
action at the Meeting. If any other matters properly come before the Meeting,
however, the persons named in the enclosed proxy, or their duly constituted
substitutes acting at the Meeting, will be authorized to vote or otherwise act
thereon in accordance with their judgment on such matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information set forth on the following table is furnished as of
November 12, 2001 (except as otherwise noted), with respect to any person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) who is known
to the Company to be the beneficial owner of more than 5% of any class of the
Company's voting securities. Except as otherwise indicated, the persons listed
below have advised the Company that they have sole voting and investment power
with respect to the shares listed as owned by them.
CLASS A COMMON STOCK(1) CLASS B COMMON STOCK
-------------------------- -------------------------------
%
AMOUNT & NATURE AMOUNT & NATURE OWNERSHIP
OF BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF COMMON % VOTING
OWNERSHIP OF CLASS OWNERSHIP OF CLASS(2) STOCK(3) POWER(2)(4)
--------------- -------- ----------------- ----------- ---------- -----------
T. Rowe Price Associates, Inc.(5) 4,452,700 12.7 -- -- 6.5 1.2
Lord Abbett & Co. (6) 3,123,100 8.9 -- -- 4.5 0.8
Reich & Tang Asset Management (7) 2,834,200 8.1 -- -- 4.1 0.8
Wadell & Reed Financial, Inc. (8) 2,608,886 7.4 -- -- 3.8 0.7
Mitchell Jacobson(9) 965,152 (10) 2.7 20,229,906 (11) 60.4 30.9 55.0
Marjorie Gershwind(9) 1,060,416 (12) 3.0 12,271,094 (13) 36.7 19.4 33.4
Sidney Jacobson(9) 200 * 3,016,000 (14) 9.0 4.4 8.2
Joseph Getraer (9) 10,000 * 1,075,356 (15) 3.2 1.6 2.9
- ----------------
* Less than 1%
(1) Does not include shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock. Shares of Class B Common Stock are
convertible at any time into shares of Class A Common Stock on a
share-for-share basis.
(2) Percentages total more than 100% because of shared beneficial ownership of
certain shares of Class B Common Stock described in footnotes 11 and 13.
(3) Indicates percentage ownership of the aggregate number of outstanding
shares of Class A Common Stock and Class B Common Stock. See Note 1.
(4) Indicates percentage of aggregate number of votes which can be cast. On all
matters to be voted upon at the Meeting and any adjournment or postponement
thereof, the holders of the Class A Common Stock and the Class B Common
Stock vote together as a single class, with each record holder of Class A
Common Stock entitled to one vote per share of Class A Common Stock and
each record holder of Class B Common Stock entitled to 10 votes per share
of Class B Common Stock.
(Footnotes continued on next page)
2
(Footnotes continued from previous page)
(5) Information as to shares owned by T. Rowe Price Associates, Inc. is as of
June 2001, as set forth in an Amendment to Schedule 13G filed with the
Securities and Exchange Commission. The address of T. Rowe Price
Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.
(6) Information as to shares owned by Lord Abbett & Co. is as of September
2001, as set forth in a Schedule 13G filed with the Securities and Exchange
Commission. The address of Lord Abbett & Co. is 90 Hudson Street, Jersey
City, New Jersey 07302-3973.
(7) Information as to shares owned by Reich & Tang Asset Management is as of
June 2001, as set forth in an Amendment to Schedule 13G filed with the
Securities and Exchange Commission. The address of Reich & Tang Asset
Management is 600 Fifth Avenue, 8th Floor, New York, New York 10020.
(8) Information as to shares owned by Waddell & Reed Financial, Inc. is as of
June 2001, as set forth in an Amendment to Schedule 13G filed with the
Securities and Exchange Commission. The address of Waddell & Reed
Financial, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
(9) The address of each person is c/o MSC Industrial Direct Co., Inc., 75
Maxess Road, Melville, New York 11747.
(10) Includes (a) 81,052 shares of Class A Common Stock owned directly by Mr.
Jacobson, (b) 709,100 shares of Class A Common Stock which may be deemed to
be beneficially owned by Mr. Jacobson as a member of Platinum Investment
Management, L.L.C., a Delaware limited liability company, the owner of such
shares, and (c) 175,000 shares of Class A Common Stock which may be deemed
to be beneficially owned by Mr. Jacobson as a director of The Jacobson
Family Foundation. Mr. Jacobson disclaims beneficial ownership of 354,550
of the shares of Class A Common Stock owned by Platinum Investment
Management, L.L.C. and disclaims beneficial ownership of all the shares of
Class A Common Stock held by The Jacobson Family Foundation.
(11) Includes (a) 11,053,922 shares of Class B Common Stock owned directly by
Mr. Jacobson, (b) 7,032,000 shares of Class B Common Stock which may be
deemed to be beneficially owned by Mr. Jacobson as a member of JF-MSC,
L.L.C., a Delaware limited liability company, (c) 1,075,356 shares of Class
B Common Stock which may be deemed to be beneficially owned by Mr. Jacobson
as Settlor of the Mitchell Jacobson 1998 Qualified Seven Year Annuity Trust
and (d) 1,068,628 shares of Class B Common Stock owned by Marjorie Diane
Gershwind as Settlor of the Marjorie Diane Gershwind 1998 Qualified Seven
Year Annuity Trust of which trust Mr. Jacobson is the sole trustee and over
which shares he may be deemed to have beneficial ownership. Mr. Jacobson
disclaims beneficial ownership of 3,352,800 of the shares of Class B Common
Stock owned by JF-MSC, L.L.C. and disclaims beneficial ownership of the
shares of the Class B Common Stock owned by the trusts.
(12) Includes (a) 66,316 shares of Class A Common Stock owned directly by Ms.
Gershwind, (b) 709,100 shares of Class A Common Stock which may be deemed
to be beneficially owned by Ms. Gershwind as a member of Platinum
Investment Management, L.L.C., a Delaware limited liability company, the
owner of such shares and (c) 285,000 shares of Class A Common Stock which
may be deemed to be beneficially owned by Ms. Gershwind as a director of
The Gershwind Family Foundation. Ms. Gershwind disclaims beneficial
ownership of 354,550 of the shares of Class A Common Stock owned by
Platinum Investment Management, L.L.C. and disclaims beneficial ownership
of all the shares of Class A Common Stock held by The Gershwind Family
Foundation.
(Footnotes continued on next page)
3
(Footnotes continued from previous page)
(13) Includes (a) 4,542,466 shares of Class B Common Stock owned directly by Ms.
Gershwind, (b) 5,700,000 shares of Class B Common Stock which may be deemed
to be beneficially owned by Ms. Gershwind as a member of GF-MSC, L.L.C., a
Delaware limited liability company, (c) 960,000 shares of Class B Common
Stock which may be deemed to be beneficially owned by Ms. Gershwind as
Settlor of the Marjorie Diane Gershwind 1994 Fifteen Year Annuity Trust and
(d) 1,068,628 shares of Class B Common Stock which may be deemed to be
beneficially owned by Ms. Gershwind as Settlor of the Marjorie Diane
Gershwind 1998 Qualified Seven Year Annuity Trust. Ms. Gershwind disclaims
beneficial ownership of 3,652,000 of the shares of Class B Common Stock
owned by GF-MSC, L.L.C. and disclaims beneficial ownership of the shares of
Class B Common Stock owned by the trusts.
(14) Reflects the aggregate ownership of Class B Common Stock by four trusts for
the benefit of two of Mr. Jacobson's grandchildren. Mr. Jacobson is a
co-trustee of two of such trusts and shares voting power and investment
control over the shares held by such trusts. Mr. Jacobson is the sole
trustee of the other two trusts. Mr. Jacobson disclaims beneficial
ownership of all such shares.
(15) Reflects the ownership of Class B Common Stock by the Mitchell Jacobson
1998 Qualified Seven Year Annuity Trust of which trust Mr. Getraer is the
sole trustee and over which shares he may be deemed to have beneficial
ownership. Mr. Getraer disclaims beneficial ownership of the shares of the
Class B Common Stock owned by such trust.
4
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the Class
A Common Stock and Class B Common Stock beneficially owned by each director and
nominee for director of the Company, by the Company's Chief Executive Officer,
by each of the Company's four most highly compensated executive officers and by
all directors, nominees for director and executive officers as a group, at the
close of business on November 12, 2001. Except as otherwise indicated, the
persons listed below have advised the Company that they have sole voting and
investment power with respect to the shares listed as owned by them.
CLASS A COMMON STOCK(1) CLASS B COMMON STOCK
--------------------------- -------------------------
AMOUNT &
AMOUNT & NATURE NATURE OF
OF BENEFICIAL PERCENT BENEFICIAL PERCENT % OWNERSHIP OF % VOTING
OWNERSHIP OF CLASS OWNERSHIP OF CLASS COMMON STOCK(2) POWER(3)
--------------- -------- --------------- -------- ---------------- ----------
Shelley Boxer............... 120,798(4) * -- -- * *
Charles Boehlke............. 30,000(5) * -- -- * *
Roger Fradin................ 66,583(6) * -- -- * *
Mitchell Jacobson........... 965,152(7) 2.7 20,229,906 (8) 60.4 30.9 55.0
Sidney Jacobson............. 200 * 3,016,000 (9) 9.0 4.4 8.2
Denis Kelly................. 108,816(10) * -- -- * *
Raymond Langton............. 21,250(11) * -- -- * *
Philip Peller............... 9,084(12) * -- -- * *
David Sandler............... 269,326(13) * -- -- * *
James Schroeder............. 358,648(14) * -- -- * *
Ross Anker 134,797(15) * -- -- * *
All directors, nominees for
director and executive
officers as a group
(thirteen persons)...... 2,274,358 6.3% 23,245,906 69.4% 37.2% 63.5%
- ------------------
* Less than 1%
(1) Does not include shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock. Shares of Class B Common Stock are
convertible at any time into shares of Class A Common Stock on a
share-for-share basis.
(2) Indicates percentage ownership of the aggregate number of outstanding
shares of Class A Common Stock and Class B Common Stock. See Note 1.
(3) Indicates percentage of aggregate number of votes which can be cast. On all
matters to be voted upon at the Meeting and any adjournment or postponement
thereof, the holders of the Class A Common Stock and the Class B Common
Stock vote together as a single class, with each record holder of Class A
Common Stock entitled to one vote per share of Class A Common Stock and
each record holder of Class B Common Stock entitled to 10 votes per share
of Class B Common Stock.
(4) Includes 4,000 shares of Class A Common Stock owned directly by Mr. Boxer
and 116,798 shares of Class A Common Stock issuable upon the exercise by
Mr. Boxer of options that are presently exercisable or exercisable within
60 days of the date of this proxy statement.
(5) Represents shares of Class A Common Stock issuable upon the exercise by Mr.
Boehlke of options that are presently exercisable or exercisable within 60
days of the date of this proxy statement.
(6) Includes 52,000 shares of Class A Common Stock jointly owned by Mr. Fradin
and his wife and 14,583 shares of Class A Common Stock issuable upon the
exercise by Mr. Fradin of options that are presently exercisable or
exercisable within 60 days of the date of this proxy statement.
(Footnotes continued on next page)
5
(Footnotes continued from previous page)
(7) Includes (a) 81,052 shares of Class A Common Stock owned directly by Mr.
Jacobson, (b) 709,100 shares of Class A Common Stock which may be deemed to
be beneficially owned by Mr. Jacobson as a member of Platinum Investment
Management, L.L.C., a Delaware limited liability company, the owner of such
shares, and (c) 175,000 shares of Class A Common Stock which may be deemed
to be beneficially owned by Mr. Jacobson as a director of The Jacobson
Family Foundation. Mr. Jacobson disclaims beneficial ownership of 354,550
of the shares of Class A Common Stock owned by Platinum Investment
Management, L.L.C. and disclaims beneficial ownership of all the shares of
Class A Common Stock held by The Jacobson Family Foundation.
(8) Includes (a) 11,053,922 shares of Class B Common Stock owned directly by
Mr. Jacobson, (b) 7,032,000 shares of Class B Common Stock which may be
deemed to be beneficially owned by Mr. Jacobson as a member of JF-MSC,
L.L.C., a Delaware limited liability company, (c) 1,075,356 shares of Class
B Common Stock which may be deemed to be beneficially owned by Mr. Jacobson
as Settlor of the Mitchell Jacobson 1998 Qualified Seven Year Annuity Trust
and (d) 1,068,628 shares of Class B Common Stock owned by Marjorie Diane
Gershwind as Settlor of the Marjorie Diane Gershwind 1998 Qualified Seven
Year Annuity Trust of which trust Mr. Jacobson is the sole trustee and over
which shares he may be deemed to have beneficial ownership. Mr. Jacobson
disclaims beneficial ownership of 3,352,800 of the shares of Class B Common
Stock owned by JF-MSC, L.L.C. and disclaims beneficial ownership of the
shares of the Class B Common Stock owned by the trusts.
(9) Reflects the aggregate ownership of Class B Common Stock by four trusts for
the benefit of two of Mr. Jacobson's grandchildren. Mr. Jacobson is a
co-trustee of two of such trusts and shares voting power and investment
control over the shares held by such trusts. Mr. Jacobson is the sole
trustee of the other two trusts. Mr. Jacobson disclaims beneficial
ownership of all such shares.
(10) Includes 60,000 shares of Class A Common Stock owned directly by Mr. Kelly
and 48,816 shares of Class A Common Stock issuable upon the exercise by Mr.
Kelly of options that are presently exercisable or exercisable within 60
days of the date of this proxy statement.
(11) Includes 1,250 shares of Class A Common Stock owned directly by Mr. Langton
and 20,000 shares of Class A Common Stock issuable upon the exercise by Mr.
Langton of options that are presently exercisable or exercisable within 60
days of the date of this proxy statement.
(12) Includes 2,000 shares of Class A Common Stock owned directly by Mr. Peller
and 7,084 shares of Class A Common Stock issuable upon the exercise by Mr.
Peller of options that are presently exercisable or exercisable within 60
days of the date of this proxy statement.
(13) Includes 10,302 shares of Class A Common Stock owned directly by Mr.
Sandler, 2,000 shares of Class A Common Stock held in trust by Mr. Sandler
for the benefit of his children and 257,024 shares of Class A Common Stock
issuable upon the exercise by Mr. Sandler of options that are presently
exercisable or exercisable within 60 days of the date of this proxy
statement.
(14) Includes 12,000 shares of Class A Common Stock owned directly by Mr.
Schroeder and 346,648 shares of Class A Common Stock issuable upon the
exercise by Mr. Schroeder of options that are presently exercisable or
exercisable within 60 days of the date of this proxy statement.
(15) Includes 1,177 shares of Class A Common Stock owned directly by Mr. Anker
and 133,800 shares of Class A Common Stock issuable upon the exercise by
Mr. Anker of options that are presently exercisable or exercisable within
60 days of the date of this proxy statement.
6
ELECTION OF DIRECTORS
Ten directors will be elected at the Meeting for a term of one year
expiring at the annual meeting of shareholders to be held in 2002 and until
their respective successors shall have been elected and shall qualify. Each of
the nominees for director was previously elected a director of the Company by
the shareholders.
The election of directors requires the affirmative vote of a plurality
of the votes cast in person or by proxy at the Meeting. Each proxy received will
be cast FOR the election of the nominees named below unless otherwise specified
in the proxy.
Each nominee has indicated that he is willing to serve as a director of
the Company, if elected, and the Board of Directors of the Company has no reason
to believe that any nominee may become unable or unwilling to serve. In the
event that a nominee should become unavailable for election for any reason, the
shares represented by a properly executed and returned proxy will be voted for
any substitute nominee who shall be designated by the current Board of
Directors. There are no arrangements or understandings between any director or
nominee for director and any other person pursuant to which such person was
selected as a director or nominee for director of the Company.
NAME OF NOMINEE PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
- ----------------- -------------------------------------------- --- --------------
Mitchell Jacobson Chairman of the Board of Directors, 50 October 1995
President and Chief Executive Officer
of the Company
Sidney Jacobson Vice Chairman of the Board of Directors 83 October 1995
of the Company
David Sandler Executive Vice President and Chief Operating 44 June 1999
Officer of the Company
Charles Boehlke Senior Vice President and Chief Financial 45 January 2001
Officer of the Company
James Schroeder Senior Vice President of Logistics of the 61 October 1995
Company
Shelley Boxer Vice President of Finance of the Company 54 October 1995
Roger Fradin President of the Security and Fire Solutions 48 July 1998
Division at Honeywell Inc.
Denis Kelly Partner of Scura, Rise & Partners LLC 52 April 1996
Raymond Langton Co-founder and Chief Executive Officer of 56 July 1997
SKM Applied Tech Products
Philip Peller Retired Partner of Arthur Andersen, LLP 61 April 2000
Mitchell Jacobson was appointed Chairman of the Board of Directors of
the Company in January 1998 and was appointed President and Chief Executive
Officer of the Company upon its formation in October 1995. Mr. Jacobson has also
been President and Chief Executive Officer of Sid Tool Co., Inc., a wholly-owned
and the principal operating subsidiary of the Company (the "Operating
Subsidiary") since June 1982.
Sidney Jacobson was appointed Vice Chairman of the Board of Directors
of the Company in January 1998. Mr. Jacobson served as the Chairman of the Board
of Directors from its formation in October 1995 to January 1998. Mr. Jacobson is
a co-founder of the Operating Subsidiary and has been the Chairman of the
Operating Subsidiary since June 1982.
David Sandler was appointed Chief Operating Officer of the Company in
November 2000 and Executive Vice President of the Company in June 1999. From
September 1998 to June 1999, he served as Senior Vice President of
Administration of the Company. From September 1997 to September 1998, Mr.
Sandler was the Senior Vice President of Information Systems and Human Resources
of the Company. From September 1996 to September 1997, Mr. Sandler served as the
Vice President of Information Systems and Business Development of the Company.
From 1995 to 1996, Mr. Sandler was the Director of Business Development of the
Company.
7
From 1993 to 1995, Mr. Sandler was the Director of Product Management and
Purchasing of the Operating Subsidiary.
Charles Boehlke was appointed Chief Financial Officer and Senior Vice
President of the Company in June 2000. From April 1996 to April 2000, Mr.
Boehlke was the Vice President of Finance for North America operations at Arrow
Electronics, Inc. From January 1994 to April 1996, Mr. Boehlke was the Chief
Financial Officer of Black & Decker Mexico.
James Schroeder was appointed Senior Vice President of Logistics of the
Company in August 1997. From October 1995 to August 1997, Mr. Schroeder served
as Vice President of Logistics of the Company. From 1995 to January 1998, Mr.
Schroeder also served as Chief Operating Officer of the Company. Mr. Schroeder
has also been Vice President of Logistics of the Operating Subsidiary since
1986.
Shelley Boxer was appointed Vice President of Finance of the Company in
June 2000. Mr. Boxer was the Vice President and Chief Financial Officer of the
Company from its formation in October 1995 until June 2000. From June 1993 to
October 1995, Mr. Boxer also served as Chief Financial Officer of the Operating
Subsidiary. Mr. Boxer was the Vice President and Chief Financial Officer of
Joyce International, Inc., a distribution and manufacturing company, from 1992
to 1993. From 1987 to 1992, Mr. Boxer was the Executive Vice President and Chief
Financial Officer of Kinney Systems, Inc., an automobile parking facility and
real estate company.
Roger Fradin is the President of the Security and Fire Solutions
Division at Honeywell Inc., a position he has held since 2000. From 1987 until
2000, Mr. Fradin was the President of the ADEMCO Group.
Denis Kelly is a Partner of Scura, Rise & Partners LLC (a private
investment banking firm), a position he has held since 2001. From July 1993
until 2001, Mr. Kelly was a Managing Director of Prudential Securities
Incorporated. Before July 1993, Mr. Kelly was President of Denbrook Capital
Corporation. Mr. Kelly is also a director of Kenneth Cole Productions, Inc.
Raymond Langton is the Co-founder and Chief Executive Officer of SKM
Applied Tech Products, a leveraged buy-out firm. From 1995 to February 1997, Mr.
Langton was the President and Chief Executive Officer of Chicago Rawhide
Worldwide, a manufacturer of sealing devices and subsidiary of SKF USA Inc.
(itself a subsidiary of AB SKF of Sweden, a manufacturer of sealing devices and
ball bearings). From 1991 to 1995, Mr. Langton was President and Chief Executive
Officer of SKF North America, a manufacturer of ball bearings and subsidiary of
SKF USA, Inc. Mr. Langton has also been a director of SKF USA, Inc. since 1991
and is a director of Right Management Consultants.
Philip Peller was a partner of Andersen Worldwide S.C. and Arthur
Andersen LLP from 1970 until his retirement in 1999. Mr. Peller served as
Managing Partner of Practice Protection and Partner Affairs for Andersen
Worldwide S.C. from 1998 to 1999, and as Managing Partner of Practice Protection
from 1996 to 1998. Mr. Peller also served as the Managing Director - Quality,
Risk Management and Professional Competence for Arthur Andersen's global audit
practice.
Sidney Jacobson and Mitchell Jacobson are father and son. There are no
family relationships among any of the other directors or executive officers of
the Company.
COMMITTEES, MEETINGS AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during the last fiscal year.
Each of the directors attended at least 75% of the meetings of the Board of
Directors and committees of the Board on which they served.
The Board of Directors has a standing Audit Committee currently
comprised of Roger Fradin, Denis Kelly, Raymond Langton and Philip Peller. Mr.
Kelly is the chairman of the Audit Committee. All members of the Audit Committee
are independent, in accordance with Section 303.02 of the New York Stock
Exchange listing standards. The Board of Directors adopted a new written charter
for the Audit Committee effective April 3, 2000. The Audit Committee reviews and
evaluates the Company's internal accounting and auditing procedures; recommends
to the Board of Directors the firm to be appointed as independent accountants to
audit the Company's operations and financial statements; reviews with management
and the independent accountants the Company's year-end operating results;
reviews the scope and results of the annual financial and operational audits
with the independent accountants; reviews with management the Company's interim
operating results; and reviews any non-audit services
8
to be performed by the independent accountants and considers the effect of any
such performance on the accountants' independence. The Audit Committee met two
times in the fiscal year ended September 1, 2001.
The Board of Directors has a standing Compensation Committee currently
comprised of Roger Fradin, Denis Kelly, Raymond Langton and Philip Peller. Mr.
Langton is the chairman of the Compensation Committee. The Compensation
Committee is responsible for establishing salaries, bonuses and other
compensation for the Company's executive officers. The Compensation Committee
also administers the Company's 1995 Stock Option Plan (the "1995 Option Plan"),
1998 Stock Option Plan (the "1998 Option Plan"). Pursuant to the 1995 Option
Plan and the 1998 Option Plan, the Compensation Committee has the authority to
determine the persons to whom and the times at which options are to be granted,
the number of option shares to be granted and the price and other terms of
options and to designate whether options granted are intended to qualify as
incentive stock options or are to be non-qualified stock options. The
Compensation Committee met one time in the fiscal year ended September 1, 2001.
The Board of Directors does not have a standing Nominating Committee.
The Company's policy is not to pay compensation to directors who are
also associates of the Company. The Company grants options to purchase 5,000
shares of Class A Common Stock to non-employee directors upon their election and
reelection to the Board of Directors. Directors elected other than at an annual
meeting of shareholders receive a pro rata number of options. The Company also
pays each non-employee director compensation of $10,000 per annum and $1,500 per
board meeting attended.
EXECUTIVE OFFICERS
Sidney Jacobson, Mitchell Jacobson, Charles Boehlke, David Sandler,
James Schroeder and Shelley Boxer are executive officers of the Company, holding
the offices described above. In addition, the following individuals are also
executive officers of the Company.
NAME OF OFFICER POSITION AGE EXECUTIVE OFFICER SINCE
- --------------- ---------------------------------- --- -----------------------
Thomas Eccleston Vice President of Plant and Equipment 53 October 1995
and Secretary
Thomas Cox Senior Vice President of Sales 40 June 2000
Ross Anker Senior Vice President of Product 38 September 2001
Management and Information Systems
Thomas Eccleston was appointed Vice President of Plant and Equipment
and Secretary of the Company upon its formation in October 1995. Mr. Eccleston
has also served as the Vice President of Plant and Equipment of the Operating
Subsidiary since 1986.
Thomas Cox was appointed Senior Vice President of Sales of the Company
in April 2000. From September 1999 to April 2000, Mr. Cox was Vice President of
Sales for the North Region of the Company. From January 1998 to September 1999,
Mr. Cox served as Regional Manager for the Midwest Region of the Company. From
September 1997 to January 1998, Mr. Cox served as Director of Business
Development for the Company. From 1995 to 1997, Mr. Cox was President of Mailnet
Inc., an international delivery company.
Ross Anker was appointed Senior Vice President of Product Management
and Information Systems in September 2001. From November of 1996 to September
2001, Mr. Anker was Chief Information Officer of the Company. Prior to joining
the Company, Mr. Anker was President and founder of a consulting company based
in Cleveland, Ohio.
Each executive officer serves until his successor is appointed and
qualified or until earlier resignation, death or removal. There are no
arrangements or understandings between any executive officer and any other
person pursuant to which he was or is to be selected as an officer of the
Company. The Operating Subsidiary, however, has entered into employment
agreements with each of Mitchell Jacobson, the Chairman of the Board, President
and Chief Executive Officer of the Company and Sidney Jacobson, the Vice
Chairman of the Board of the Company, which are described on page 14 of this
proxy statement. In addition, the Company has entered into an employment
agreement with Charles Boehlke, Chief Financial Officer and Senior Vice
President of the Company, which is described on page 14 of this proxy statement.
9
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of the filings furnished to the Company
pursuant to Rule 16a-3(e) promulgated under the Exchange Act and written
representations from its executive officers, directors and persons who own
beneficially more than 10% of either the Class A Common Stock or the Class B
Common Stock, all filing requirements of Section 16(a) of the Exchange Act were
complied with during the fiscal year ended September 1, 2001.
10
EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last three fiscal
years, the aggregate compensation awarded to, earned by or paid to the Company's
Chief Executive Officer, to each of the Company's other four most highly
compensated executive officers who were serving as executive officers at the end
of the Company's last fiscal year (collectively, the "Named Executive
Officers"), for services rendered in all capacities to the Company and its
subsidiaries. All compensation noted below, other than stock options, was paid
by the Operating Subsidiary.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------------------- ---------------------
FISCAL OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION(2)
- --------------------------- ------ -------- -------- ------------ --------------------- ----------------
Mitchell Jacobson 2001 $408,400 $250,000 $9,269(3) 0 $205,827(4)
President and Chief 2000 408,400 0 9,292(3) 0 $253,122(4)
Executive Officer 1999 408,400 0 4,400(3) 0 $225,975(4)
David Sandler 2001 $351,000 $214,500 $11,595(5) 125,000 $187
Executive Vice President 2000 306,808 0 9,838(5) 200,000 187
and Chief Operating 1999 240,615 135,000 5,495(5) 200,000 318
James Schroeder 2001 $315,000 $135,000 $5,883(6) 40,000 $67,234(7)
Senior Vice President, 2000 315,000 0 5,013(6) 60,000 69,532(7)
Logistics 1999 315,000 185,000 6,420(6) 200,000 66,494(7)
Ross Anker 2001 $280,448 $140,000 $11,671(8) 60,000 $214
Senior Vice President 2000 256,439 25,000 10,899(8) 80,000 214
Product Management and 1999 238,448 104,676 13,786(8) 60,000 214
Information Systems
Charles Boehlke 2001 $274,992 $100,000 $14,200(9) 25,000 $249
Senior Vice President 2000 52,884 0 2,450(9) 125,000 35
and Chief Financial Officer
No restricted stock, stock appreciation rights or long-term incentive
plan payments, as defined in the regulations of the Exchange Act governing the
solicitation of proxies, were awarded to, earned by or paid to any of the Named
Executive Officers during any of the last three fiscal years.
(1) Amounts shown are for the year in which bonuses are paid, which is the
fiscal year following the year of award.
(2) Unless otherwise noted, amounts represent group term life insurance
benefits paid by the Company.
(Footnotes continued on next page)
11
(Footnotes continued from previous page)
(3) Includes automobile allowances of approximately $7,698, $7,792 and $2,800
paid by the Company in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively, and matching contributions to the Operating Subsidiary's
401(k) Plan of approximately $1,571, $1,500 and $1,600 paid by the Company
in fiscal 2001, fiscal 2000 and fiscal 1999 respectively.
(4) Includes group term life insurance benefits of approximately $380, $395 and
$522 paid by the Company in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively, and split dollar life insurance premiums of approximately
$205,447, $252,727 and $225,453 paid by the Company in fiscal 2001, fiscal
2000 and fiscal 1999, respectively. Under the terms of such policies, a
portion of the premiums paid by the Company in fiscal 2001, fiscal 2000 and
fiscal 1999 have been reimbursed.
(5) Includes automobile allowances of approximately $8,195, $8,338 and $3,895
paid by the Company in fiscal 2001, fiscal 2000 and fiscal 1999 and
matching contributions to the Operating Subsidiary's 401(k) Plan of
approximately $3,400, $1,500 and $1,600 paid by the Company in fiscal 2001,
fiscal 2000 and fiscal 1999, respectively.
(6) Includes automobile allowances of approximately $3,702, $3,513 and $4,820
paid by the Company in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively, and matching contributions to the Operating Subsidiary's
401(k) Plan of approximately $2,181, $1,500 and $1,600 paid by the Company
in fiscal 2001, fiscal 2000 and fiscal 1999, respectively.
(7) Includes group term life insurance benefits of approximately $1,234, $1,032
and $1,994 paid by the Company in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively. Also includes approximately $66,000, $68,500 and $64,500
accrued by the Company in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively, in respect of annual post-retirement payments to be made to
Mr. Schroeder pursuant to the terms and provisions of a written agreement
between Mr. Schroeder and the Company which was terminated by the Company
on September 1, 1997.
(8) Includes automobile allowances of approximately $10,200, $10,200 and
$13,100 paid by the Company in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively and matching contributions to the Operating Subsidiary's
401(k) Plan of approximately $1,471, $699 and $686 paid by the Company in
fiscal 2001, fiscal 2000 and fiscal 1999 respectively.
(9) Includes automobile allowances of approximately $10,800 and $2,238 paid by
the Company in fiscal 2001 and fiscal 2000, respectively and matching
contributions to the Operating Subsidiary's 401(k) Plan of approximately
$3,400 and $212 paid by the Company in fiscal 2001and fiscal 2000
respectively.
12
STOCK OPTION PLANS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant of
stock options under the 1998 Stock Option Plan by the Company during the fiscal
year ended September 1, 2001 to the Named Executive Officers listed on the
Summary Compensation Table.
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------- --------------------------
PERCENTAGE OF
TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING ASSOCIATES IN EXPIRATION
OPTIONS FISCAL YEAR PRICE EXPIRATION
NAME GRANTED (#) (%) ($/SH) DATE 5% ($) 10% ($)
- ------------------- ----------- ------------- ---------- ---------- ---------- ----------
Mitchell Jacobson......... 0 0.0% -- -- -- --
Ross Anker................ 60,000 4.5% $13.9375 11/9/10 $525,913 $1,332,767
David Sandler............. 125,000 9.5% $13.9375 11/9/10 $1,095,652 $2,776,599
James Schroeder........... 40,000 3.0% $13.9375 11/9/10 $350,609 $888,511
Charles Boehlke........... 25,000 1.9% $13.9375 11/9/10 $219,131 $555,320
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise
of stock options during the fiscal year ending September 1, 2001 and the value
at September 1, 2001 of unexercised stock options held by the Named Executive
Officers listed on the Summary Compensation Table.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FYE OPTIONS AT FYE
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------- ----------- -------- ------------------------- ----------------------------
Mitchell Jacobson............ -- -- -- --
Ross Anker................... -- -- 95,100/162,900 $391,525/$2,587,206
David Sandler................ -- -- 161,025/376,799 814,728/3,587,857
James Schroeder.............. 4,000 $37,520 265,649/242,999 697,064/1,615,514
Charles Boehlke ............. -- -- 25,000/125,000 0/96,562
- ---------------
(1) Fair market value of securities underlying the options at fiscal year end
minus the exercise price of the options.
13
EMPLOYMENT ARRANGEMENTS AND COMPENSATION PLANS
Sidney Jacobson is employed as Chairman of the Board of Directors of
the Operating Subsidiary pursuant to an employment agreement, dated as of
January 2, 1994 and amended as of October 30, 1995, which expires in January
2004. Mr. Jacobson is required to devote his full working time to the affairs of
the Operating Subsidiary. Under Mr. Jacobson's employment agreement, he receives
an annual base salary of $250,000 and is entitled to participate in employee
benefit and other fringe plans made available to the executives of the Operating
Subsidiary. If the cost of living increases by more than 6% per annum, Mr.
Jacobson's annual base salary is subject to a percentage increase equal to the 3
percentage cost of living increase. The employment agreement also provides for a
benefit of $200,000 per year until January 2, 2004 payable to Mr. Jacobson's
wife in the event of his death. Under the employment agreement, if Mr.
Jacobson's employment is terminated because he becomes incapacitated due to
physical or mental illness, he would continue to receive his salary for a six
month period following such termination and, thereafter, would receive $200,000
per year for the balance of his employment term. Mr. Jacobson would also
continue to be carried on the Operating Subsidiary's health and other insurance
plans. The employment agreement provides that Mr. Jacobson may, at his option,
elect to become a consultant and advisor to the Operating Subsidiary at an
annual fee of $300,000, in which event Mr. Jacobson will be required to be
available to the Company for up to 10 hours per week, not to exceed 40 hours in
any given month. Mr. Jacobson does not have any current intention to make such
election, and any such election would not be expected to have a material impact
on the Operating Subsidiary.
Mitchell Jacobson is employed as President and Chief Executive Officer
of the Operating Subsidiary pursuant to an employment agreement, dated as of
August 1, 1994, which expires on the earlier of August 1, 2004 or 90 days after
Mr. Jacobson's written election to terminate his employment. Mr. Jacobson is
required to devote his full working time to the affairs of the Operating
Subsidiary. Under his employment agreement, Mr. Jacobson receives an annual base
salary (currently set at $408,400). Mr. Jacobson is also entitled to participate
in employee benefit and other fringe benefit plans made available to the
executives of the Operating Subsidiary. Under the employment agreement, Mr.
Jacobson's annual base salary is subject to an annual cost of living adjustment
equal to the percentage increase, if any, in a specified Consumer Price Index.
The employment agreement also provides that in the event Mr. Jacobson's
employment is terminated because he becomes incapacitated due to physical or
mental illness, Mr. Jacobson will receive payment of salary for a six-month
period following such termination and $200,000 per year for the balance of his
employment term. In the event of Mr. Jacobson's death, the agreement provides
that his wife will receive $400,000 per year for a period of three years.
Charles Boehlke is employed as Senior Vice President and Chief
Financial Officer of the Company pursuant to an agreement, dated as of June 19,
2000. Mr. Boehlke is required to devote his full working time to the affairs of
the Company. Under his agreement, Mr. Boehlke receives an annual base salary
(currently set at $275,000) and is also entitled to participate in employee
benefit and other fringe benefit plans made available to the executives of the
Company. The agreement provides that if within two years after (i) a sale by the
Company of all or substantially all of its assets, (ii) the consolidation of the
Company, (iii) the merger of the Company with any entity as a result of which
the Company is not the surviving entity as a public company or (iv) the sale of
the Company's voting securities to one or more persons (other than Mitchell
Jacobson and Marjorie Gershwind) as a result of which any such person shall
possess more than 50% of the combined voting power of the Company's then
outstanding securities (each such event, a "Change in Control"), there is a
change in the circumstances of Mr. Boehlke's employment, such as (i) a material
reduction or change in his employment duties or reporting responsibilities, (ii)
a reduction in the annual base salary from the annual base salary received prior
to a Change in Control or (iii) a material diminution in his status, working
conditions or other economic benefits from those in effect immediately prior to
a Change in Control (each such event, a "Changed Circumstance"), Mr. Boehlke may
terminate his employment with the Company. Upon such termination, or if within
two years after a Change in Control the Company terminates Mr. Boehlke's
employment other than for cause, the Company will pay Mr. Boehlke an amount
equal to his annual base salary at the time of such termination plus the amount
of any bonus paid to him in the fiscal year ending immediately prior to such
termination. The agreement provides that in the event of the termination of Mr.
Boehlke's employment other than for cause, he is entitled to a severance payment
in an amount equal only to the highest annual base salary he received at any
time during the period of his employment. Mr. Boehlke's agreement provides that
no amount shall be paid to him if such payment would restrict the ability of the
Company to utilize the "pooling of interests" method of accounting. This method
of accounting is no longer permitted under generally accepted accounting
principles. In addition, upon the termination of the Mr. Boehlke's employment
other than for cause, the Company is to retain Mr. Boehlke to provide financial
consulting services for
14
a one-year period commencing on the date of such termination, for not more than
ten (10) hours in any calendar quarter. For such financial consulting services,
the Company is to pay Mr. Boehlke $2,500 per annum.
In January 1999, the Company entered into written agreements with each
of James Schroeder and David Sandler (each, an "Executive"). Each agreement
provides that in the event of a Change in Control, the Company shall pay to
James Schroeder and David Sandler, $2,000,000 and $1,200,000, respectively. Each
agreement further provides that if within five years after a Change in Control,
there is a Changed Circumstance, the Executive may terminate his employment with
the Company. Upon such termination, or if within five years after a Change in
Control the Company terminates the Executive's employment other than for cause,
the Company will pay the Executive a lump sum equal to the difference between
(i) the sum of (a) five times the Executive's annual base salary prior to a
change in the circumstances of the Executive's employment or termination other
than for cause and (b) five times the largest annual bonus paid to the Executive
during the three fiscal years prior to the Executive's termination and (ii) the
aggregate of all base salary and bonus amounts paid to the Executive from the
Change in Control to the Executive's termination. Each agreement provides that
no amount shall be paid to the Executives if such payment would restrict the
ability of the Company to utilize the "pooling of interests" method of
accounting. This method is no longer permitted under generally accepted
accounting principles. The Company has also agreed to indemnify each of Mr.
Schroeder and Mr. Sandler on an after tax basis (giving effect to the indemnity
payments) for certain taxes that they may become liable for on account of the
payments described above.
James Schroeder is employed as Senior Vice President of Logistics of
the Company. Mr. Schroeder and the Company are parties to a written agreement
which provides for annual benefit payments to Mr. Schroeder for seven years upon
his retirement or, his termination by the Company without cause or, in the event
of his death, to his designated beneficiary. The benefit is based upon the
growth in the Company's earnings before interest and taxes over a certain base
amount. The Company may terminate the agreement at any time and elect to prepay
Mr. Schroeder any benefits accrued by the Company up to the date of such
termination. The Company exercised its right to terminate the agreement with Mr.
Schroeder as of September 1, 1997. Under the terms of the agreement, the Company
is obligated to accrue to Mr. Schroeder's benefit the total amount that would be
due as if September 1, 1997 were Mr. Schroeder's normal retirement date.
Accordingly, the total amount due to Mr. Schroeder is approximately $1,274,000
of which approximately $66,000 represents interest accrued in fiscal 2001. This
amount will accrue interest until Mr. Schroeder's normal retirement date and may
be prepaid, at the Company's election, at any time, without penalty.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
During fiscal 2001, the Compensation Committee consisted of Roger
Fradin, Denis Kelly, Raymond Langton and Philip Peller. None of the members of
the Compensation Committee was, during such year, an officer of the Company or
any of its subsidiaries or had any relationship with the Company other than
serving as a director of the Company. In addition, no executive officer of the
Company served as a director or a member of the compensation committee of any
other entity one of whose executive officers served as a director or on the
Compensation Committee of the Company.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
During fiscal 2001, the Compensation Committee (the "Compensation
Committee") was comprised of Roger Fradin, Denis Kelly, Raymond Langton and
Philip Peller.
The Compensation Committee is responsible to review and recommend to
the Board of Directors the overall direction for the executive compensation
strategy of the Company and for the ongoing monitoring of the strategy. In
addition to recommending and reviewing the compensation of the executive
officers, it is the responsibility of the Compensation Committee to recommend
new incentive compensation plans and to recommend changes and improvements to
existing compensation plans, all subject to approval by the Board of Directors.
The Compensation Committee makes its compensation determinations based upon its
own analysis of information it compiles and the business experience of the
members. In addition, the views of Mitchell Jacobson, as Chairman of the Board
and the President and Chief Executive Officer of the Company, are, and will
continue to be, considered by
15
the members of the Compensation Committee in their review of the performance and
compensation of individual executives. The Company will engage an outside
compensation consultant to assist the Compensation Committee if its members so
request. An outside consultant was not used in fiscal 2001.
OVERALL POLICY
The Compensation Committee believes that the Company's executive
officers constitute a highly qualified management team and are largely
responsible for the Company's success. The Compensation Committee further
believes that the stability of the management team is a contributing factor to
the Company's success. In order to promote stability, the Company's strategy is
to (i) compensate its executive officers principally through a competitive base
salary set at a sufficiently high level to retain and motivate these officers,
(ii) link a portion of the executive officers' compensation to their performance
and the Company's profitability for each fiscal year, and (iii) align the
financial interests of the Company's executive officers with those of the
Company's shareholders. The compensation objectives of the Compensation
Committee and the Board of Directors are designed to provide competitive levels
of compensation consistent with the Company's annual and long-term performance
goals, recognize individual initiative and achievements and assist the Company
in attracting and retaining qualified executives.
The major elements of the executive compensation program are base
salary, annual incentive bonuses and long-term incentive compensation in the
form of stock options. Executive officers are also entitled to customary
benefits generally available to all associates of the Company, including group
medical and life insurance and a 401(k) plan. Overall compensation is intended
to be consistent with companies of similar characteristics (size, profitability,
business lines, growth, etc.) (the "peer group"). The peer group for purposes of
determining compensation of executive officers is not the same group of
companies which are included in the industry index which appears on the
performance graph contained in this proxy statement. The purpose of the industry
index is to compare the performance of the Class A Common Stock to the
performance of the stock of companies with similar businesses to the Company.
The peer group for purposes of compensation matters is based upon companies with
characteristics similar to the Company, including, but not limited to, type of
business, in order to provide a more accurate measure of the compensation paid
to executives of comparable companies. In any particular year, the Company's
executives may be paid more or less than the executives of competitors,
depending upon the Company's overall financial performance and other factors.
For the fiscal year ended September 1, 2001, the Compensation Committee believes
that the Company's senior executives were paid competitively as compared to
comparable executives in the peer group.
FEDERAL INCOME TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") limits the amount of compensation a publicly held corporation may deduct
as a business expense for Federal income tax purposes. The limit, which applies
to a company's chief executive officer and the four other most highly
compensated executive officers, is $1 million, subject to certain exceptions
(including the exclusion from the cap generally of performance-based
compensation). The Compensation Committee has determined that compensation
payable to the executive officers should generally meet the conditions required
for full deductibility under Internal Revenue Code Section 162(m). While the
Company does not expect to pay its executive officers compensation in excess of
the Section 162(m) deductibility limit, the Compensation Committee also
recognizes that in certain instances it may be in the best interest of the
Company to provide compensation that is not fully deductible.
BASE SALARY
Base salaries for the Company's senior executives are influenced by a
variety of objective and subjective factors. Particular consideration is given
to a comparison of the salaries at companies in the peer group and the
executive's level of responsibility, tenure with the Company, prior year's
compensation and effectiveness of management. The Compensation Committee has
also relied heavily on the recommendations of Mitchell Jacobson, Chairman of the
Board and the President and Chief Executive Officer of the Company, in setting
the compensation of the executive officers. A description of the employment
agreement between the Operating Subsidiary and Mitchell Jacobson, Chairman of
the Board and President and Chief Executive Officer of the Company appears on
page 14 of this proxy statement.
16
ANNUAL INCENTIVE BONUSES
Each fiscal year, the Company establishes a bonus pool in an amount up
to 8-1/2% of the Company's pre-tax profits for that year. All associates of the
Company, including its executive officers, are eligible to receive bonuses, but
the award of bonuses to the associates generally and to any associate
specifically are at the Compensation Committee's sole discretion based on the
members' qualitative and quantitative evaluation of the Company's performance
during such year. Factors considered in awarding a bonus to a specific executive
officer include level of responsibility, exhibited individual initiative,
effectiveness of management and seniority.
The Compensation Committee does not currently establish specific
performance criteria which must be met in order to earn bonuses. The
Compensation Committee may consider setting objective standards in the future.
LONG-TERM INCENTIVE COMPENSATION
The Company reinforces the importance of producing satisfactory returns
to shareholders over the long term through the operation of the 1995 Option Plan
and the 1998 Option Plan. Stock option grants provide executives with the
opportunity to acquire an equity interest in the Company and align the
executive's interest with that of the shareholders to create shareholder value
as reflected in growth in the price of the Class A Common Stock.
1995 and 1998 Option Plans. The 1995 Option Plan and 1998 Option Plan
(collectively, the "Option Plans) are administered by the Compensation
Committee, which may designate granted options as incentive stock options,
non-qualified stock options or a combination thereof. The Compensation Committee
has the discretion, subject to certain limitations, to determine the
participants under the Option Plans, the time and price at which options will be
granted, the period during which options will be exercisable and the number of
shares subject to each option. Under the Option Plans, the per share exercise
price of any option which is a non-incentive stock option may not be less than
85% of the fair market value of a share of Class A Common Stock on the date of
grant (except for non-incentive stock options granted to any person who is or
may reasonably be expected to become a "covered employee" under section
162(m)(3) of the Code, in which case the per share exercise price of such
options may not be less than 100% of such fair market value). The aggregate fair
market value of the shares of Class A Common Stock for which a participant may
be granted incentive stock options which are exercisable for the first time in
any calendar year may not exceed $100,000. No participant may be granted options
to purchase more than 1,000,000 shares of the Class A Common Stock. This
approach provides an incentive to the executive officers to increase shareholder
value over the long term, since the full benefit of the options granted cannot
be realized unless stock price appreciation occurs over a number of years.
CHIEF EXECUTIVE OFFICER'S FISCAL 2001 COMPENSATION
The compensation paid to the Company's Chief Executive Officer,
Mitchell Jacobson, in fiscal 2001 consisted solely of base salary and was
established pursuant to his employment agreement with the Operating Subsidiary.
The terms of the agreement are described on page 14 of this proxy statement.
Under the terms of his employment agreement, Mr. Jacobson received an annual
base salary of $408,400. Mr. Jacobson received a $250,000 bonus in fiscal 2001.
COMPENSATION COMMITTEE
Roger Fradin
Denis Kelly
Raymond Langton
Philip Peller
17
REPORT OF AUDIT COMMITTEE
During fiscal 2001, the Audit Committee was comprised of Roger Fradin,
Denis Kelly, Raymond Langton and Philip Peller. The Audit Committee adopted a
written charter during fiscal 2000.
As required by the charter, the Audit Committee reviewed the
Corporation's audited financial statements and met with management, as well as
with Arthur Andersen LLP, the Corporation's independent auditors, to discuss the
financial statements.
The Audit Committee received from Arthur Andersen LLP the required
disclosures regarding their independence and the report regarding the results of
their audit. In connection with its review of the financial statements and the
auditors' disclosures and report, the members of the Audit Committee discussed
with a representative of Arthur Andersen LLP their independence, as well as the
following:
o the auditors' responsibilities in accordance with generally accepted
accounting standards;
o the initial selection of, and whether there were any changes in,
significant accounting policies or their application;
o management's judgments and accounting estimates;
o whether there were any significant audit adjustments;
o whether there were any disagreements with management;
o whether there was any consultation with other accountants;
o whether there were any major issues discussed with management prior
to the auditors' retention;
o whether the auditors encountered any difficulties in performing the
audit; and
o the auditor's judgments about the quality of the Corporation's
accounting policies.
Based on its discussions with management and the Corporation's
independent auditors, the Audit Committee did not become aware of any material
misstatements or omissions in the financial statements. Accordingly, the Audit
Committee recommended to the Board of Directors that the financial statements be
included in the Annual Report on Form 10-K for the period ended September 1,
2001 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Roger Fradin
Denis Kelly
Raymond Langton
Philip Peller
18
APPROVAL OF 2001 STOCK OPTION PLAN
On September 20, 2001, the Board of Directors adopted, subject to
shareholder approval, the 2001 Option Plan which will become effective on
January 4, 2001. The 2001 Option Plan is intended to replace the 1998 Option
Plan which has insufficient shares to enable the Company to continue to provide
the proper incentive to its employees and directors. The following summary of
certain features of the 2001 Option Plan is qualified in its entirety by
reference to the full text of the Plan, which is attached to this proxy
statement as Exhibit A.
The 2001 Option Plan authorizes the grant of up to an aggregate of
5,000,000 shares of Class A Common Stock to employees of and consultants to the
Company and its subsidiaries and to directors of the Company who are not
employees. Under the 2001 Option Plan, the Company may grant to eligible
individuals incentive stock options, as defined in Section 422(b) of the Code
and/or non-incentive stock options.
The Board of Directors recommends a vote FOR the adoption of the 2001
Option Plan.
NATURE AND PURPOSE OF THE 2001 OPTION PLAN
The purpose of the 2001 Option Plan is to induce certain employees,
directors and consultants to remain in the employ, or to continue to serve as
directors and consultants, of the Company and its subsidiaries, to attract new
individuals to enter into such employment or service and to encourage such
individuals to secure stock ownership in, or increase on reasonable terms their
stock ownership in, the Company. The Board of Directors believes that the
granting of options under the 2001 Option Plan will promote continuity of
management and increased incentive and personal interest in the welfare of the
Company by those who are or may become primarily responsible for shaping and
carrying out the long-range plans of the Company and securing its continued
growth and financial success.
DURATION AND MODIFICATION
The 2001 Option Plan will terminate not later than September 19, 2011.
The Board of Directors may at any time terminate the 2001 Option Plan or make
such modifications to the 2001 Option Plan as it may deem advisable. However,
the Board may not, without approval by the shareholders of the Company, increase
the number of shares of Class A Common Stock as to which options may be granted
under the 2001 Option Plan, change the manner of determining option prices,
change the class of persons eligible to participate in the 2001 Option Plan or
extend the period during which an option may be granted or exercised.
ADMINISTRATION
The 2001 Option Plan is administered by the Compensation Committee
consisting of at least three directors. It is intended that the Compensation
Committee consist of members of the Board of Directors who are "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code. If the Compensation
Committee does not have at least three members who qualify as non-employee
directors under Rule 16b-3, the committee members will make recommendations to
the Board of Directors with respect to option grants (instead of the Committee
making the determination) and such recommendations will be subject to approval
by the full Board of Directors.
The members of the Compensation Committee are appointed annually by,
and serve at the pleasure of the Board. The present members of the Compensation
Committee are Messrs. Fradin, Kelly, Langton and Peller. The Compensation
Committee has discretion to determine the participants under the 2001 Option
Plan, the time and price at which options will be granted, the period during
which options will be exercisable, the number of shares subject to each option
and whether an option will be an incentive stock option, a non-incentive stock
option or a combination thereof. The Committee will not have the discretion to
determine any of the foregoing with respect to the non-discretionary options
granted to non-employee directors, and all options granted to non-employee
directors are non-incentive stock options.
The members of the Compensation Committee do not receive additional
compensation for serving on the Compensation Committee.
19
ELIGIBILITY AND EXTENT OF PARTICIPATION
The 2001 Option Plan provides for discretionary grants of options to
participants (including any director or officer who is also an employee). As of
November 1, 2001, approximately 2,900 persons were eligible to receive options
pursuant to the 2001 Option Plan. No single participant (including any director
or officer who is also an employee) may receive options under the 2001 Option
Plan in any one fiscal year of the Company to purchase more than 400,000 shares
of Class A Common Stock.
Directors who are not also employees of the Company receive an annual
grant of options to purchase 5,000 shares under the 2001 Option Plan at the
first meeting of the Company's Board of Directors immediately following each
annual meeting of shareholders. The exercise price of such options is the fair
market value of a share of Class A Common Stock on the date of grant (the date
of the Board meeting). Non-employee directors elected after such meeting to
receive a pro rata grant on the date of their election.
EXERCISE OF OPTIONS
Unless otherwise provided by the Compensation Committee at the time an
option is granted, and other than in the case of the annual grant of options to
non-employee directors, an option will be exercisable one-fifth on and after the
first anniversary of the date of grant, two-fifths on and after the second
anniversary of the date of grant, three-fifths on and after the third
anniversary of the date of grant, four-fifths on and after the fourth
anniversary of the date of grant and in full on and after the fifth anniversary
of the date of grant. An annual grant of options to a non-employee director will
be exercisable one-half on and after the first anniversary of the date of grant
and in full on and after the second anniversary of the date of grant.
An option may be exercised by a written notice with respect to a
specified number of shares and payment of the exercise price for the number of
shares so specified. The exercise price of an option may be paid in cash or in
shares of Class A Common Stock. The initial per share exercise price for an
incentive stock option may not be less than the fair market value thereof on the
date of grant, or 110% of such fair market value with respect to a participant
who, at such time, owns stock representing more than 10% of the total combined
voting power of all classes of stock of the Company.
The initial per share exercise price for a non-incentive stock option
may not be less than 85% of the fair market value thereof on the date of grant.
No non-incentive stock option may be granted to any person who is or may
reasonably become a "covered employee" under Section 162(m) of the Code at a
price below fair market value on the date of grant. The initial per share
exercise price for the annual grant of options to non-employee directors is the
fair market value of the Class A Common Stock on the date of grant.
No option granted pursuant to the 2001 Option Plan may be exercised
more than 10 years after the date of grant, except that incentive stock options
granted to participants who own more than 10% of the total combined voting power
of all classes of stock of the Company at the time the incentive stock option is
granted may not be exercised more than five years after the date of grant. No
participant may be granted incentive stock options which are exercisable for the
first time in any one calendar year with respect to Class A Common Stock having
an aggregate fair market value in excess of $100,000 on the date of grant.
No option granted under the 2001 Option Plan is transferable by the
optionee other than by death. In the event of the death of an optionee, each
option granted to him or her will become immediately exercisable in full, and
will terminate upon the earlier to occur of the expiration of one year from the
date of the qualification of a representative of his or her estate and the date
of termination specified in such option.
In the event that an optionee leaves the employ or service or ceases to
serve as a director of the Company or its subsidiaries by reason of retirement
on or after his or her 65th birthday and five years of service with the Company
and/or its subsidiaries, each option granted to him or her will terminate upon
the earlier to occur of the expiration of one year from the date of such
retirement or the date of termination specified in such option. In the event
that an optionee leaves the employ or service or ceases to serve as a director
of the Company or its subsidiaries by reason of his or her disability, each
option granted to him or her will immediately become exercisable in full and
will terminate upon the earlier to occur of the expiration of one year from the
date of such
20
retirement or the date of termination specified in such option. In the event
that an optionee leaves the employ or service or ceases to serve as a director
of the Company or its subsidiaries for any reason other than death, retirement
or disability, each option granted to him or her generally will, to the extent
exercisable on the date of his or her termination, terminate on the earlier to
occur of the expiration of 30 days after the date of such optionee's termination
and the date of termination specified in such option. In the event that an
optionee leaves the employ or service or ceases to serve as a director of the
Company or its subsidiaries by reason of his or her termination for "cause,"
each option granted to him or her will terminate immediately. If the fair market
value of the Class A Common Stock declines below the option price of any option
(other than options granted to non-employee directors), the Committee (with the
prior approval of the Board of Directors) may adjust, reduce, or cancel and
regrant such option or take any similar action it deems to be for the benefit of
the optionee in light of such declining value.
The number of shares available for grant under the 2001 Option Plan and
covered by each option granted thereunder will be adjusted in the event of a
stock dividend, reorganization, recapitalization, stock split-up, combination of
shares, sale of assets, merger or consolidation in which the Company is the
surviving corporation or, as may be determined by the Committee, in the event of
any other change affecting the number or kind of the Company's outstanding Class
A Common Stock. In the event of the dissolution or liquidation of the Company,
or a merger, reorganization or consolidation in which the Company is not the
surviving corporation, each outstanding but unexercised option will terminate.
FEDERAL INCOME TAX CONSEQUENCES OF ISSUANCE AND EXERCISE OF OPTIONS
The following discussion of the Federal income tax consequences of the
granting and exercise of options under the 2001 Option Plan, and the sale of
Class A Common Stock acquired as a result thereof, is based on an analysis of
the Code (as currently in effect), existing laws, judicial decisions and
administrative rulings and regulations, all of which are subject to change. In
addition to being subject to the Federal income tax consequences described
below, an optionee may also be subject to state and/or local income tax
consequences in the jurisdiction in which he or she works and/or resides.
NON-INCENTIVE STOCK OPTIONS
No income will be recognized by an optionee at the time a non-
incentive stock option is granted. Ordinary income will be recognized by an
optionee at the time a non-incentive stock option is exercised, and the amount
of such income will be equal to the excess of the fair market value on the
exercise date of the shares issued to the optionee over the exercise price. In
the case of an option granted to an employee, this ordinary (compensation)
income will also constitute wages subject to the withholding of income tax and
the Company will be required to make whatever arrangements are necessary to
ensure that the amount of the tax required to be withheld is available for
payment in money. Capital gain or loss on a subsequent sale or other disposition
of the shares of Class A Common Stock acquired upon exercise of a non-incentive
stock option will be measured by the difference between the amount realized on
the disposition and the tax basis of such shares. The tax basis of the shares
acquired upon the exercise of the option will be equal to the sum of the
exercise price of an option and the amount included in income with respect to
the option.
If an optionee makes payment of the exercise price by delivering shares
of Class A Common Stock, he or she generally will not recognize any gain with
respect to such shares as a result of such delivery, but the amount of gain, if
any, which is not so recognized will be excluded from his or her basis in the
new shares received. The Company will be entitled to a deduction for Federal
income tax purposes at such time and in the same amount as the amount included
in ordinary income by the optionee upon exercise of his or her non-incentive
stock option, subject to the usual rules as to reasonableness of compensation
and provided that the Company timely complies with the applicable information
reporting requirements.
21
INCENTIVE STOCK OPTIONS
In general, neither the grant nor the exercise of an incentive stock
option will result in taxable income to an optionee or a deduction to the
Company. However, for purposes of the alternative minimum tax, the spread on the
exercise of an incentive stock option will be considered as part of the
optionee's income. The sale of the shares of Class A Common Stock received
pursuant to the exercise of an incentive stock option which satisfies the
holding period rules will result in capital gain to an optionee and will not
result in a tax deduction to the Company. To receive incentive stock option
treatment as to the shares acquired upon exercise of an incentive-stock option,
an optionee must neither dispose of such shares within two years after the
option is granted nor within one year after the exercise of the option. In
addition, an optionee generally must be an employee of the Company (or a
subsidiary of the Company) at all times between the date of grant and the date
three months before exercise of the option. If the holding period rules are not
satisfied, the portion of any gain recognized on the disposition of the shares
acquired upon the exercise of an incentive stock option that is equal to the
lesser of (a) the fair market value of the Class A Common Stock on the date of
exercise minus the exercise price or (b) the amount realized on the disposition
minus the exercise price, will be treated as ordinary (compensation) income,
with any remaining gain being treated as capital gain. The Company will be
entitled to a deduction equal to the amount of such ordinary income.
If an optionee makes payment of the exercise price by delivering shares
of Class A Common Stock, he or she generally will not recognize any gain with
respect to such shares as a result of such delivery, but the amount of gain, if
any, which is not so recognized will be excluded from his or her basis in the
new shares received. However, the use by an optionee of shares previously
acquired pursuant to the exercise of an incentive stock option to exercise an
incentive stock option will be treated as a taxable disposition if the
transferred shares were not held by the participant for the requisite holding
period.
22
STOCK PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG MSC INDUSTRIAL DIRECT CO., INC., THE S & P MIDCAP 400 INDEX
AND THE DOW JONES INDUSTRIAL SERVICES, OTHER INDEX
[GRAPHIC OMITTED]
MSC INDL DIRECT INC
Cumulative Total Return
-------------------------------------------------------
8/96 8/97 8/98 8/99 8/00 8/01
MSC INDUSTRIAL DIRECT CO., INC. 100.00 127.95 137.40 60.63 105.12 112.13
S & P MIDCAP 400 100.00 137.28 124.40 176.13 246.14 226.13
DOW JONES INDUSTRIAL SERVICES, OTHER 100.00 104.77 96.34 122.09 129.21 95.85
*$100 INVESTED ON 8/31/1996 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 1.
23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Erik Gershwind, the nephew of Mitchell Jacobson, Chairman of the Board
and the President and Chief Executive Officer of the Company, and the son of
Marjorie Gershwind, Mr. Jacobson's sister and the beneficial owner of in excess
of 5% of the outstanding shares of Class B Common Stock, is employed by the
Company as the Director of Product Management. Mr. Gershwind is currently
compensated at the rate of $165,000 per annum. Mr. Gershwind is also entitled to
participate in all of the employee benefit plans available to all of the
Company's associates.
An entity owned and controlled by Mitchell Jacobson, the Chairman of
the Board and the President and Chief Executive Officer of the Company, and
Marjorie Gershwind, Mr. Jacobson's sister, leases a distribution center, located
in Atlanta, Georgia, to the Operating Subsidiary. The square footage of the
distribution center is approximately 380,000 square feet. The rent paid by the
Operating Subsidiary was approximately $1,220,000 in fiscal 2001 and is
anticipated to be approximately $1,220,000 in fiscal 2002. The rent to be paid
by the Operating Subsidiary under the remaining lease term, which expires or is
subject to renewal in fiscal 2010, for the Atlanta, Georgia distribution center
is approximately $10,882,000. During fiscal 2001, the Company advanced a total
of $230,223 on behalf of the entity for payments due on obligations by the
entity. Such amounts were repaid in full, with interest, by the entity prior to
September 1, 2001. Additionally, eight other entities owned or controlled by
Mitchell Jacobson and Marjorie Gershwind lease certain branch offices to the
Operating Subsidiary. The aggregate square footage of such branch offices is
approximately 120,000 square feet. The aggregate rent paid by the Operating
Subsidiary to lease these branch offices was approximately $465,000 in fiscal
2001 and is anticipated to be approximately $377,000 in fiscal 2002. The
aggregate rent to be paid by the Operating Subsidiary under the remaining lease
terms, the last of which expires in fiscal 2004, is approximately $793,800.
During fiscal 2001, the Company advanced an aggregate total of $157,391 on
behalf of certain of these and other entities owned and controlled by Mitchell
Jacobson and Marjorie Gershwind for payments due on obligations by the entities.
Such amounts were repaid in full, with interest, by the entities prior to
September 1, 2001. The Company believes that the terms of the foregoing
arrangements are at least as favorable to the Company as could have been
obtained from unaffiliated third parties.
See "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" for certain relationships and related party transactions
involving certain of the Company's directors.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 3)
The Board of Directors of the Company, on the recommendation of the Audit
Committee, has appointed the firm of Arthur Andersen LLP to serve as independent
auditors of the Company for the fiscal year 2002, subject to ratification of
this appointment by the stockholders of the Company. Although shareholder
ratification of the Board of Directors' action in this respect is not required,
the Board of Directors considers it desirable for shareholders to pass upon the
selection of auditors and, if the shareholders disapprove of the selection,
intends to reconsider the selection of auditors for the fiscal year 2003, since
it would be impractical to replace the Company's auditors so late into the
Company's current fiscal year. Arthur Andersen LLP has served as independent
auditors of the Company for many years and is considered by management of the
Company to be well qualified. The firm has advised the Company that neither it
nor any of its members has any direct or material indirect financial interest in
the Company.
For the fiscal year ended September 1, 2001, the Company paid (or will pay) the
following fees to Arthur Andersen LLP for services rendered during the year or
for the audit in respect of that year:
Audit Fees $ 170,000
Audit Related 9,500
Financial Information Systems Design and Implementation -
All Other Fees 72,000
----------
Total 251,500
The Audit Committee of the Board of Directors has considered whether the
provision of non-audit services by Arthur Andersen LLP is compatible with
maintaining auditor independence.
24
One or more representatives of Arthur Andersen LLP will be present at the Annual
Meeting of Stockholders, will have an opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR 2002.
PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED UNLESS A CONTRARY CHOICE IS
SPECIFIED IN THE PROXY.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the annual
meeting of shareholders in 2003 must be received by August 7, 2002, in order to
be considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting. The proxy or proxies designated by the Company will
have discretionary authority to vote on any matter properly presented by a
stockholder for consideration at the next Annual Meeting of Shareholders but not
submitted for inclusion in the proxy materials for such Meeting unless notice of
the matter is received by the Company not later than October 22, 2002 and
certain other conditions of the applicable rules of the Securities and Exchange
Commission are satisfied. Shareholder proposals should be directed to the
Secretary of the Company, at the address of the Company set forth on the first
page of this proxy statement.
25
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE TO EACH SHAREHOLDER, WITHOUT CHARGE AND UPON
WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K. ANY SUCH
WRITTEN REQUEST SHOULD BE DIRECTED TO THE OFFICE OF THE CHIEF FINANCIAL OFFICER,
MSC INDUSTRIAL DIRECT CO., INC., 75 MAXESS ROAD, MELVILLE, NEW YORK 11747.
Copies of the 2001 Annual Report to Shareholders are being mailed
simultaneously with this proxy statement. If you want to save the Company the
cost of mailing more than one Annual Report to the same address, the Company
will discontinue, at your request to the Secretary of the Company, mailing of
the duplicate copy to the account or accounts you select.
By Order of the Board of Directors,
Thomas Eccleston
Secretary
Melville, New York
December 5, 2001
26
EXHIBIT A
MSC INDUSTRIAL DIRECT CO., INC.
2001 STOCK OPTION PLAN
(EFFECTIVE SEPTEMBER 20, 2001 SUBJECT TO SHAREHOLDER APPROVAL)
1. PURPOSE.
The purposes of the 2001 Stock Option Plan (the "Plan") are to induce
certain employees, directors and consultants to remain in the employ, or to
continue to serve as directors and consultants, of MSC Industrial Direct Co.,
Inc. (the "Company") and its present and future subsidiary corporations (each a
"Subsidiary"), as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code"), to attract new individuals to enter into such
employment or service and to encourage such individuals to secure stock
ownership in, or to increase on reasonable terms their stock ownership in, the
Company. The Board of Directors of the Company (the "Board") believes that the
granting of stock options (the "Options") under the Plan will promote continuity
of management and increased incentive and personal interest in the welfare of
the Company by those who are or may become primarily responsible for shaping and
carrying out the long range plans of the Company and securing its continued
growth and financial success. Options granted hereunder are intended to be
either (a) "incentive stock options" (which term, when used herein, shall have
the meaning ascribed thereto by the provisions of Section 422(b) of the Code),
(b) options which are not incentive stock options ("non-incentive stock
options") or (c) a combination thereof, as determined by the Committee (as
hereinafter defined) referred to in Section 4 hereof at the time of the grant
thereof.
2. EFFECTIVE DATE OF THE PLAN.
The Plan, as adopted by the Board on September 20, 2001, shall become
effective on September 20, 2001, subject to ratification by the shareholders of
the Company within 12 months of such date.
3. STOCK SUBJECT TO PLAN.
5,000,000 of the authorized but unissued shares of the Class A common
stock, $.001 par value, of the Company (the "Class A Common Stock") are hereby
reserved for issuance upon the exercise of Options granted under the Plan;
provided, however, that the number of shares so reserved may from time to time
be reduced to the extent that a corresponding number of issued and outstanding
shares of the Class A Common Stock are purchased by the Company and set aside
for issuance upon the exercise of Options. If any Options expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for the purposes of the Plan. For the
purposes of this Section 3, the number of shares purchased upon the exercise of
an Option shall be determined without giving effect to the use by a Participant
(as hereinafter defined) of the right set forth in Section 10C to deliver shares
of the Class A Common Stock in payment of all or a portion of the option price
or the use by a Participant of the right set forth in Section 14C to
cause the Company to withhold from the shares of the Class A Common Stock
otherwise deliverable to him or her upon the exercise of an Option shares of the
Class A Common Stock in payment of all or a portion of his or her withholding
obligation arising from such exercise.
4. COMMITTEE.
The Plan shall be administered by a committee consisting of three or
more members of the Board (the "Committee") all of whom are intended to be
"non-employee directors" within the meaning of Rule 16b-3(b)(3) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
"outside directors" within the contemplation of Section 162(m)(4)(C)(i) of the
Code. In the event that there shall not be at least three members of the
Committee who qualify as "non-employee" directors within the meaning of Rule
16b-3 of the Exchange Act, all Option grants under the Plan will be made by the
Board on the recommendation of the Committee. The Committee shall be appointed
annually by the Board, which may at any time and from time to time remove any
members of the Committee, with or without cause, and, in accordance with the
requirements set forth in the first sentence of this Section 4, appoint
additional members to the Committee and fill vacancies, however caused, on the
Committee. A majority of the members of the Committee shall constitute a quorum.
All determinations of the Committee shall be made by a majority of its members
present at a meeting duly called and held or by unanimous written consent. Any
decision or determination of the Committee made by unanimous written consent
shall be fully as effective as if it had been made at a meeting duly called and
held.
5. ADMINISTRATION.
Subject to the express provisions of the Plan, the Committee shall have
complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the respective option agreements or certificates (which need
not be identical), to determine the individuals (each a "Participant") to whom
and the times and the prices at which Options shall be granted, the periods
during which each Option shall be exercisable, the number of shares of the Class
A Common Stock to be subject to each Option and whether such Option shall be an
incentive stock option or a non-incentive stock option and to make all other
determinations necessary or advisable for the administration of the Plan;
provided, however, that directors of the Company who are not employed by the
Company or any of the Subsidiaries (each a "Non-Employee Director") shall only
be granted Options in accordance with the provisions of Section 6B. In making
such determinations, the Committee may take into account the nature of the
services rendered by the respective employees and consultants, their present and
potential contributions to the success of the Company and the Subsidiaries and
such other factors as the Committee in its discretion shall deem relevant. The
Committee's determination on the matters referred to in this Section 5 shall be
conclusive. Any dispute or disagreement which may arise under or as a result of
or with respect to any Option shall be determined by the Committee, in its sole
discretion, and any interpretations by the Committee of the terms of any Option
shall be final, binding and conclusive.
6. ELIGIBILITY.
A. An Option may be granted only to (i) an employee or consultant of
the Company or a Subsidiary, (ii) to the extent provided in Section 6B, a
Non-Employee Director and (iii) employees of a corporation or other business
enterprise which has been acquired by the Company or a Subsidiary, whether by
exchange or purchase of stock, purchase of assets, merger or reverse merger or
otherwise, who hold options with respect to the stock of such corporation which
the Company has agreed to assume.
B. (i) At the first meeting of the Board immediately following each
annual meeting of the shareholders of the Company, each Non-Employee Director
shall be granted an Option (a "Non-Employee Director's Formula Option") to
purchase 5,000 shares of the Class A Common Stock at the initial per share
option price equal to the fair market value of a share of the Class A Common
Stock on the date of grant; provided, however, that if a Non-Employee Director
shall receive a grant pursuant to Section 6B of the Company's 1998 Stock Option
Plan for any year, he or she shall not be entitled to receive a Non-Employee
Director's Formula Option for such year under this Section 6B.
(ii) Each Non-Employee Director who first becomes a director
subsequent to the date of any annual meeting of the shareholders of the Company,
and prior to the date of the next succeeding annual meeting of the shareholders
of the Company, shall be granted, on the date he or she becomes a director, a
Non-Employee Director's Formula Option to purchase the number of shares of the
Class A Common Stock equal to the product of (a) 5,000 and (b) a fraction, the
numerator of which is the number of full calendar months prior to the next
scheduled annual meeting of shareholders and the denominator of which is 12, at
the initial per share option price equal to the fair market value of a share of
the Class A Common Stock on the date of grant.
(iii) A Non-Employee Director may not exercise a Non-Employee
Director's Formula Option during the period commencing on the date of the
granting of such Option to him or her and ending on the day immediately
preceding the first anniversary of such date. A Non-Employee Director may (a)
during the period commencing on the first anniversary of the date of the
granting of a Non-Employee Director's Formula Option to him or her and ending on
the day immediately preceding the second anniversary of such date, exercise such
Option with respect to one-half of the shares granted thereby, and (b) during
the period commencing on such second anniversary, exercise such Option with
respect to all of the shares granted thereby.
7. OPTION PRICES.
A. Except as otherwise provided in Section 17, the initial per share
option price of any Option which is an incentive stock option shall be the price
determined by the Committee, but not less than the fair market value of a share
of the Class A Common Stock on the date of grant; provided, however, that, in
the case of a Participant who owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of the two classes of the
Company's common stock (the "Common Stock") at the time an Option which is an
incentive stock option is granted to him or her, the initial per share option
price shall not be less than 110% of the fair market value of a share of the
Class A Common Stock on the date of grant.
B. Except as otherwise provided in Section 17, the initial per share
option price of any Option which is a non-incentive stock option shall not be
less than 85% of the fair market value of a share of the Class A Common Stock on
the date of the grant; provided, however, that, in the case of a non-incentive
stock option granted to a person who is, or in the judgment of the Committee may
reasonably be expected to become, a "covered employee" within the meaning of
Section 162(m)(3) of the Code, and in the case of a Non-Employee Director's
Formula Option, the initial per share option price shall not be less than the
fair market value of a share of the Class A Common Stock on the date of grant.
C. For all purposes of the Plan, the fair market value of a share of
the Class A Common Stock on any date shall be equal to (i) the closing sale
price of the Class A Common Stock on the New York Stock Exchange on the business
day preceding such date or (ii) if there is no sale of the Class A Common Stock
on such Exchange on such business day, the average of the bid and asked prices
on such Exchange at the close of the market on such business day.
8. OPTION TERM.
Participants shall be granted Options for such term as the Committee
shall determine, not in excess of 10 years from the date of the granting
thereof; provided, however, that, except as otherwise provided in Section 17, in
the case of a Participant who owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of the Common Stock of
the Company at the time an Option which is an incentive stock option is granted
to him or her, the term with respect to such Option shall not be in excess of
five years from the date of the granting thereof; provided further, however,
that the term of each Non-Employee Director's Formula Option shall be 10 years
from the date of the granting thereof.
9. LIMITATIONS ON AMOUNT OF OPTIONS GRANTED.
A. Except as otherwise provided in Section 17, the aggregate fair
market value of the shares of the Class A Common Stock for which any Participant
may be granted incentive stock options which are exercisable for the first time
in any calendar year (whether under the terms of the Plan or any other stock
option plan of the Company) shall not exceed $100,000.
B. Except as otherwise provided in Section 17, no Participant shall,
during any fiscal year of the Company, be granted Options to purchase more than
400,000 shares of the Class A Common Stock.
10. EXERCISE OF OPTIONS.
A. Except as otherwise provided in Section 17 and except as otherwise
determined by the Committee at the time of the grant of an Option other than a
Non-Employee Director's Formula Option, a Participant may not exercise an Option
during the period commencing on the date of the granting of such Option to him
or her and ending on the day immediately preceding the first anniversary of such
date. Except as otherwise set forth in Sections 9A and 17 and in the preceding
sentence, a Participant may (i) during the period commencing on the first
anniversary of the date of the granting of an Option to him or her and ending on
the day immediately preceding the second anniversary of such date, exercise such
Option with respect to one-fifth of the shares granted thereby, (ii) during the
period commencing on such second anniversary and ending on the day immediately
preceding the third anniversary of the date of the granting of such
Option, exercise such Option with respect to two-fifths of the shares granted
thereby, (iii) during the period commencing on such third anniversary and ending
on the day immediately preceding the fourth anniversary of the date of the
granting of such Option, exercise such Option with respect to three-fifths of
the shares granted thereby, (iv) during the period commencing on such fourth
anniversary and ending on the day immediately preceding the fifth anniversary of
the date of the granting of such Option, exercise such Option with respect to
four-fifths of the shares granted thereby and (v) during the period commencing
on such fifth anniversary, exercise such Option with respect to all of the
shares granted thereby. Notwithstanding the foregoing provisions of this Section
10A, an Option granted to a Participant other than a Non-Employee Director's
Formula Option will, to the extent not already exercisable, become exercisable
in full on the Participant's 62nd birthday.
B. Except as hereinbefore otherwise set forth, an Option may be
exercised either in whole at any time or in part from time to time.
C. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of the Class A
Common Stock and payment to the Company of the amount of the option price for
the number of shares of the Class A Common Stock so specified; provided,
however, that, if the Committee shall in its sole discretion so determine at the
time of the grant of any Option, all or any portion of such payment may be made
in kind by the delivery of shares of the Class A Common Stock having a fair
market value equal to the portion of the option price so paid; provided further,
however, that no portion of such payment may be made by delivering shares of the
Class A Common Stock acquired upon the exercise of an Option if such shares
shall not have been held by the Participant for at least six months; and
provided further, however, that, subject to the requirements of Regulation T (as
in effect from time to time) promulgated under the Exchange Act, the Committee
may implement procedures to allow a broker chosen by a Participant to make
payment of all or any portion of the option price payable upon the exercise of
an Option and receive, on behalf of such Participant, all or any portion of the
shares of the Class A Common Stock issuable upon such exercise.
D. Except in the case of a Non-Employee Director's Formula Option, the
Committee may, in its discretion, permit any Option to be exercised, in whole or
in part, prior to the time when it would otherwise be exercisable.
E. Notwithstanding any other provision of the Plan to the contrary,
including, but not limited to, the provisions of Section 10B, if any Participant
shall have effected a "Hardship Withdrawal" from a "401(k) Plan" maintained by
the Company and/or one or more of the Subsidiaries, then, during the period of
one year commencing on the date of such Hardship Withdrawal, such Participant
may not exercise any Option using cash. For the purpose of this Section 10E, a
Hardship Withdrawal shall mean a distribution to a Participant provided for in
Reg. ss. 1.401(k)-1(d)(1)(ii) promulgated under Section 401(k)(2)(B)(i)(iv) of
the Code and a 401(k) Plan shall mean a plan which is a "qualified plan" within
the contemplation of section 401(a) of the Code which contains a "qualified cash
or deferred arrangement" within the contemplation of section 401(k)(2) of the
Code.
F. Notwithstanding the provisions of Section 10A, in the event that a
Change of Control of the Company shall occur, then, each Option theretofore
granted to any Participant which shall not have theretofore expired or otherwise
been cancelled or become unexercisable shall become immediately exercisable in
full. For purposes hereof a "Change in Control" of the
Company shall occur or be deemed to have occurred only if any of the following
events occurs: (i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the shareholders of the Company
in substantially the same proportion as the ownership of stock of the Company)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 50% of the combined voting power of the Company's then outstanding
securities; (ii) individuals who, as of the date of grant of an Option,
constitute the Board (as of the Date of Grant, the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of this
Plan, considered as though such person were a member of the Incumbent Board; or
(iii) the shareholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than (x) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 60% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation or (y) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than 50% of the combined voting power of
the Company's then outstanding securities; or (iv) the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets. In the event that a Change in Control shall occur, then, from
and after the time of such event, neither the provisions of this Section 10F nor
any of the rights of any Participant thereunder shall be modified or amended in
any way.
11. TRANSFERABILITY.
No Option shall be assignable or transferable except by will and/or by
the laws of descent and distribution and, during the life of any Participant,
each Option granted to him or her may be exercised only by him or her.
12. TERMINATION OF EMPLOYMENT.
A. In the event a Participant leaves the employ of the Company and the
Subsidiaries or ceases to serve as a consultant to the Company and the
Subsidiaries and/or as a Non-Employee Director of the Company, whether
voluntarily or otherwise but other than by reason of his or her retirement,
permanent disability or death, each Option theretofore granted to him or her
which shall not have theretofore expired or otherwise been cancelled shall, to
the extent exercisable on the date of such termination of employment or service
and not theretofore exercised, terminate upon the earlier to occur of the
expiration of 30 days after the date of such
Participant's termination of employment or service and the date of termination
specified in such Option. Notwithstanding the foregoing, if a Participant's
employment by the Company and the Subsidiaries or service as a consultant and/or
as a Non-Employee Director of the Company is terminated for "cause" (as defined
herein), each Option theretofore granted to him or her which shall not have
theretofore expired or otherwise been cancelled shall, to the extent not
theretofore exercised, terminate immediately.
B. In the event a Participant leaves the employ of the Company and the
Subsidiaries or ceases to serve as a consultant to the Company and the
Subsidiaries and/or as a Non-Employee Director of the Company by reason of his
or her retirement on or after his or her 65th birthday and five years of service
with the Company and/or the Subsidiaries, each Option theretofore granted to him
or her which shall not have theretofore expired or otherwise been cancelled
shall, to the extent not theretofore exercised, terminate upon the earlier to
occur of the expiration of one year after the date of such retirement and the
date of termination specified in such Option.
C. In the event a Participant's employment with the Company and the
Subsidiaries or service as a consultant and/or as a Non-Employee Director of the
Company terminates by reason of his or her permanent disability (within the
meaning of Section 22(e)(3) of the Code), each Option theretofore granted to him
or her which shall not have theretofore expired or otherwise been cancelled
shall immediately become exercisable in full and shall, to the extent not
theretofore exercised, terminate upon the earlier to occur of one year after the
date of such termination of employment or service and the date of termination
specified in such option.
D. If a Participant's employment with the Company and the Subsidiaries
or service as a consultant to the Company and the Subsidiaries and/or as a
Non-Employee Director of the Company terminates by reason of his or her death,
each Option theretofore granted to him or her which shall not have theretofore
expired or otherwise been cancelled shall become immediately exercisable in full
and shall, to the extent not theretofore exercised, terminate upon the earlier
to occur of the expiration of one year after the date of the qualification of a
representative of his or her estate and the date of termination specified in
such Option.
E. For purposes of the foregoing, the term "cause" shall mean: (i) the
commission by a Participant of any act or omission that would constitute a
felony under federal, state or equivalent foreign law, (ii) the commission by a
Participant of any act of moral turpitude, (iii) disloyalty, fraud, dishonesty,
embezzlement, theft, disclosure of trade secrets or confidential information or
other acts or omissions that result in a breach of any fiduciary or other
material duty to the Company and/or the Subsidiaries or (iv) continued alcohol
or other substance abuse that renders a Participant incapable of performing his
or her material duties to the satisfaction of the Company and/or the
Subsidiaries.
13. ADJUSTMENT OF NUMBER OF SHARES.
A. If a dividend shall be declared upon the Class A Common Stock
payable in shares of the Class A Common Stock, the number of shares of the Class
A Common Stock then subject to any Option and the number of shares of the Class
A Common Stock reserved for issuance in accordance with the provisions of the
Plan but not yet covered by an Option and the number of shares set forth in
Sections 6B and 9B shall be adjusted by adding to each share the number of
shares which would be distributable thereon if such shares had been outstanding
on
the date fixed for determining the shareholders entitled to receive such stock
dividend. If the outstanding shares of the Class A Common Stock shall be changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, sale of
assets, merger or consolidation in which the Company is the surviving
corporation, then, there shall be substituted for each share of the Class A
Common Stock then subject to any Option and for each share of the Class A Common
Stock reserved for issuance in accordance with the provisions of the Plan but
not yet covered by an Option and for each share of the Class A Common Stock
referred to in Sections 6B and 9B, the number and kind of shares of stock or
other securities into which each outstanding share of the Class A Common Stock
shall be so changed or for which each such share shall be exchanged.
B. If there shall be any change, other than as specified in Section
13A, in the number or kind of outstanding shares of the Class A Common Stock, or
of any stock or other securities into which the Class A Common Stock shall have
been changed, or for which it shall have been exchanged, then, if the Committee
shall, in its sole discretion, determine that such change equitably requires an
adjustment in the number or kind of shares then subject to any Option and the
number or kind of shares reserved for issuance in accordance with the provisions
of the Plan but not yet covered by an Option and the number or kind of shares
referred to in Sections 6B and 9B, such adjustment shall be made by the
Committee and shall be effective and binding for all purposes of the Plan and of
each stock option agreement or certificate entered into in accordance with the
provisions of the Plan.
C. In the case of any substitution or adjustment in accordance with the
provisions of this Section 13, the option price in each stock option agreement
or certificate for each share covered thereby prior to such substitution or
adjustment shall be the option price for all shares of stock or other securities
which shall have been substituted for such share or to which such share shall
have been adjusted in accordance with the provisions of this Section 13.
D. No adjustment or substitution provided for in this Section 13 shall
require the Company to sell a fractional share under any stock option agreement
or certificate.
E. In the event of the dissolution or liquidation of the Company, or a
merger, reorganization or consolidation in which the Company is not the
surviving corporation, then, except as otherwise provided in the second sentence
of Section 13A, each Option, to the extent not theretofore exercised, shall
terminate forthwith.
14. PURCHASE FOR INVESTMENT, WITHHOLDING AND WAIVERS.
A. Unless the shares to be issued upon the exercise of an Option by a
Participant shall be registered prior to the issuance thereof under the
Securities Act of 1933, as amended, such Participant will, as a condition of the
Company's obligation to issue such shares, be required to give a representation
in writing that he or she is acquiring such shares for his or her own account as
an investment and not with a view to, or for sale in connection with, the
distribution of any thereof.
B. In the event of the death of a Participant, a condition of
exercising any Option shall be the delivery to the Company of such tax waivers
and other documents as the Committee shall determine.
C. In the case of each non-incentive stock option, a condition of
exercising the same shall be the entry by the person exercising the same into
such arrangements with the Company with respect to withholding as the Committee
may determine. A Participant may, in the discretion of the Committee and subject
to such rules as the Committee may adopt, elect to satisfy his or her
withholding obligation arising as a result of the exercise of a non-incentive
option, in whole or in part, by electing to deliver to the Company shares of the
Class A Common Stock (other than shares of the Class A Common Stock which were
issued under the Company's 1998 Restricted Stock Plan as to which the
restrictions have not lapsed) having a fair market value, determined as of the
date that the amount to be withheld is determined, equal to the amount required
to be so withheld. Such Participant shall pay the Company in cash for any
fractional share that would otherwise be required to be delivered.
15. NO SHAREHOLDER STATUS.
Neither any Participant nor his or her legal representatives, legatees
or distributees shall be or be deemed to be the holder of any share of the Class
A Common Stock covered by an Option unless and until a certificate for such
share has been issued. Upon payment of the purchase price thereof, a share
issued upon exercise of an Option shall be fully paid and non-assessable.
16. NO RESTRICTIONS ON CORPORATE ACTS.
Neither the existence of the Plan nor any Option shall in any way
affect the right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Class A Common Stock or the
rights thereof, or dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding whether of a similar character or otherwise.
17. OPTIONS GRANTED IN CONNECTION WITH ACQUISITIONS.
If the Committee determines that, in connection with the acquisition by
the Company or a Subsidiary of another corporation which will become a
Subsidiary or division of the Company or a Subsidiary (such corporation being
hereafter referred to as an "Acquired Subsidiary"), Options may be granted
hereunder to employees and other personnel of an Acquired Subsidiary in exchange
for then outstanding options to purchase securities of the Acquired Subsidiary.
Such Options may be granted at such option prices, may be exercisable
immediately or at any time or times either in whole or in part, and may contain
such other provisions not inconsistent with the Plan, or the requirements set
forth in Section 20 that certain amendments to the Plan be approved by the
shareholders of the Company, as the Committee, in its discretion, shall deem
appropriate at the time of the granting of such Options.
18. DECLINING MARKET PRICE.
If the fair market value of the Class A Common Stock declines below the
option price set forth in any Option, the Committee may, at any time, adjust,
reduce, cancel and regrant any unexercised Option or take any similar action it
deems to be for the benefit of the Participant
in light of the declining fair market value of the Class A Common Stock;
provided, however, that none of the foregoing actions may be taken without the
prior approval of the Board and none of the foregoing actions may be taken with
respect to a Non-Employee Director's Formula Option.
19. NO EMPLOYMENT OR SERVICE RIGHT.
Neither the existence of the Plan nor the grant of any Option shall
require the Company or any Subsidiary to continue any Participant in the employ
of the Company or such Subsidiary or require the Company to continue any
Participant as a director of the Company.
20. TERMINATION AND AMENDMENT OF THE PLAN.
The Board may at any time terminate the Plan or make such modifications
of the Plan as it shall deem advisable; provided, however, that the Board may
not without further approval by a majority vote of the shareholders entitled to
vote on the matter present in person or by proxy at any special or annual
meeting of the shareholders, increase the number of shares as to which Options
may be granted under the Plan (as adjusted in accordance with the provisions of
Section 13), or change the manner of determining the option prices, or extend
the period during which an Option may be granted or exercised; and provided
further, however, the provisions of the Plan governing the grant of Non-Employee
Director's Formula Options may not be amended except by the vote of a majority
of the members of the Board and by the vote of a majority of the members of the
Board who are employees of the Company or a Subsidiary. Except as otherwise
provided in Section 13, no termination or amendment of the Plan may, without the
consent of the Participant to whom any Option shall theretofore have been
granted, adversely affect the rights of such Participant under such Option.
21. EXPIRATION AND TERMINATION OF THE PLAN.
The Plan shall terminate on September 19, 2011 or at such earlier time
as the Board may determine. Options may be granted under the Plan at any time
and from time to time prior to its termination. Any Option outstanding under the
Plan at the time of the termination of the Plan shall remain in effect until
such Option shall have been exercised or shall have expired in accordance with
its terms.
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
MSC INDUSTRIAL DIRECT CO., INC.
JANUARY 4, 2002
Please Detach and Mail in the Envelope Provided
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A [X] Please mark your votes as in this example.
FOR all nominees WITHHOLD
listed at right (except AUTHORITY
as marked to the to vote for all nominees
contrary below) listed at right.
1. Election of
Directors [ ] [ ]
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- ---------------------------------------------------------------
NOMINEES: Mitchell Jacobson
Sidney Jacobson
David Sandler
Charles Boehlke
James Schroeder
Shelley Boxer
Roger Fradin
Denis Kelly
Raymond Langton
Phillip Peller
FOR AGAINST ABSTAIN
2. Approval of the 2001 Stock Option Plan. [ ] [ ] [ ]
3. Ratification of Arthur Andersen LLP as the [ ] [ ] [ ]
Company's independent certified public
accountants.
If there are amendments or variations to the matters proposed at the
meeting or at any adjournments or postponements thereof, or if any other
business properly comes before the meeting, this proxy confers discretionary
authority on the proxy nominees named herein and each of them to vote on such
amendments, variations or other business.
The undersigned acknowledges receipt of the accompanying Notice of Annual
Meeting of Shareholders and Proxy Statement for the January 4, 2002 meeting.
MSC INDUSTRIAL DIRECT CO., INC.
75 MAXESS ROAD
MELVILLE, NEW YORK 11747
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE.
(L.S.)
- --------------------------------------- ----------------------------------
SIGNATURE OF SHAREHOLDER PRINT NAME
(L.S.)
- --------------------------------------- ---------------------------------
SIGNATURE OF SHAREHOLDER PRINT NAME
Dated:
-----------------------------------
Note: Please sign exactly as name or names appear hereon. Full title of one
signing in representative capacity should be clearly designated after
signature. If a corporation, please sign in full corporate name by
President or the authorized officer(s). If a partnership, please sign
in partnership name by authorized person. If stock is in the name of
two or more persons, each should sign. Joint owners should each sign.
Names of all joint holders should be written even if signed by only
one.
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MSC INDUSTRIAL DIRECT CO., INC.
ANNUAL MEETING OF SHAREHOLDERS - JANUARY 4, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Shelley Boxer and Thomas Eccleston
as the undersigned's proxy, with full power of substitution, to vote all shares
of Class A Common Stock of MSC Industrial Direct Co., Inc. (the "Company") which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders of the Company to be held on Friday, January 4, 2002 at
9:00 A.M. local time, at the lower level atrium of Fleet Bank at 300 Broad
Hollow Road, Melville, New York 11747, and at any adjournments or postponements
thereof and, without limiting the generality of the power hereby conferred, the
proxy nominees named above and each of them are specifically directed to vote as
indicated below.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL OF THE BOARD OF DIRECTORS' NOMINEES
FOR DIRECTOR, FOR THE APPROVAL OF THE AMENDMENT TO THE COMANY'S 2001 STOCK
OPTION PLAN AND FOR THE RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR.
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
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