Business Context and Reporting Period
Company: MSC Industrial Direct Co., Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: December 27, 2005
Event: Entry into Material Definitive Agreements (Change in Control Agreements)
The registrant entered into new or amended change in control agreements with its senior management team. These agreements were executed to comply with Section 409A of the Internal Revenue Code, impose stricter non-competition and confidentiality obligations, and secure management retention and stability.
Key Financial Metrics
This filing does not report operational financial metrics such as revenue, profit, cash flow, margins, debt, or liquidity. The document focuses exclusively on executive compensation structures and contractual terms.
Material Changes and Agreement Details
The filing details specific severance and change in control provisions for three groups of executives:
- Amended Agreements (Sandler, Schroeder, Boxer, Eccleston):
- Lump sum payments upon change in control: $1,200,000 (Sandler), $2,000,000 (Schroeder), $800,000 (Boxer), $525,000 (Eccleston).
- Additional payments if terminated without cause or resign due to "Change in Circumstance" within five years: 5x (Annual Base Salary + Largest Annual Bonus of preceding 3 years), minus amounts paid post-change in control.
- Includes excise tax gross-up and two-year non-compete/non-solicit agreements.
- Amended Agreement (Boehlke, CFO):
- Payments if terminated without cause or "Change in Circumstance" within two years: 2x (Annual Salary + Targeted Bonus) + pro rata bonus + auto allowance/lease.
- Standard severance (non-change in control): Highest annual base salary received during employment + 1 year auto/medical benefits + 1 year consulting role ($2,500/year cap).
- Includes outplacement services (6 months) and healthcare coverage (18 months).
- New Agreements (Cox, McGuire, Jones, Gershwind, Polli, Lufrano):
- Payments if terminated without cause or "Change in Circumstance" within two years: 2x (Salary + Targeted Bonus) for SVPs; 1.5x (Salary + Targeted Bonus) for VPs (Polli, Lufrano).
- Includes pro rata bonus, auto allowance/lease, excise tax gross-up, outplacement (6 months), and healthcare (18 months).
- Agreements have an initial three-year term with automatic renewal.
Guidance, Risks, and Contingencies
Definition of Change in Control: The agreements define a "Change in Control" as occurring upon:
- Acquisition of >50% ownership or voting power by a person/group (excluding the Jacobson or Gershwind families).
- Replacement of a majority of the Board within a 12-month period without prior Board endorsement.
- Acquisition of assets with a Gross Fair Market Value equal to or exceeding 80% of the Registrant's total assets.
Management Commentary: The Registrant views these agreements as critical for retaining its management team and promoting long-term strategic planning.
Investor Verification Checklist
- Verify the total potential liability exposure for change in control scenarios based on current executive salaries and bonus targets.
- Confirm the specific definitions of "Change in Circumstance" within the individual contracts to understand resignation triggers.
- Review the impact of Section 409A compliance on the timing and structure of deferred compensation payments.
- Assess the financial impact of the "gross-up" provisions for excise taxes in a potential acquisition scenario.
- Check for any subsequent filings regarding the actual execution of these severance terms or changes in executive leadership.