MSC INDUSTRIAL DIRECT CO INC, DEF 14A, 1998-12-08

MSC INDUSTRIAL DIRECT CO INC
DEF 14A, 1998-12-08
INDUSTRIAL MACHINERY & EQUIPMENT

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<PAGE>

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:

<PAGE>

[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 8, 1999 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 seven directors of the Company to serve for
one-year terms;

2. To consider and act upon a proposal to approve the
Company's Associate Stock Purchase Plan;

3. To consider and act upon a proposal to approve an
amendment to the Company's 1998 Stock Option Plan;

4. 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 ending August 28, 1999; and

5. 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 December 1,
1998 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 8, 1998

--------------------------------------------------

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.

--------------------------------------------------

<PAGE>

[LOGO]

75 Maxess Road
Melville, New York 11747

------------------

PROXY STATEMENT FOR
Annual Meeting of Shareholders to
be held on January 8, 1999

------------------

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 8, 1999 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 8, 1998.

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 seven
nominees for the Board of Directors, FOR the proposal to approve the Company's
Associate Stock Purchase Plan, FOR the proposal to approve an amendment to the
Company's 1998 Stock Option Plan and 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.

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 employees 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 December 1, 1998 are entitled to notice of and to
vote at the Meeting. On that date, the Company had outstanding 33,709,614
shares of Class A Common Stock and 34,138,778 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.

<PAGE>

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 16, 1998 (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 of Amount & Nature Ownership
Beneficial Percent of Beneficial Percent of Common % Voting
Ownership of Class Ownership of Class(2) Stock(3) Power(2)(4)
----------- -------- --------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>

William Blair & Company, L.L.C.(5) 3,909,391 11.6% -- -- 5.8% 1.0%
Capital Research and Management(6) 2,927,400 8.7 -- -- 4.3 *
T. Rowe Price Associates, Inc.(7) 2,923,950 8.7 -- -- 4.3 *
Ohio Public Employees Retirement
System(8) 2,000,000 5.9 -- -- 2.9 *
Mitchell Jacobson(9) 77,802 * 19,482,528(10) 57.1% 28.7 52.0
Marjorie Gershwind(9) 66,316 * 11,331,500(11) 33.2 16.7 30.2
Sidney Jacobson(9) 200 * 5,215,000(12) 15.3 7.7 13.9
Joseph Getraer(9) 10,000 * 2,000,000(13) 5.9 2.9 5.3
</TABLE>

* 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 10, 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)

<PAGE>

(Footnotes continued from previous page)

(5) Information as to shares owned by William Blair & Company is as of June
1998, as set forth in a Schedule 13F filed with the Securities and
Exchange Commission. The address of William Blair & Company is 222 West
Adams Street, Chicago, Illinois 60606-5312.

(6) Information as to shares owned by Capital Research & Management is as of
June 1998, as set forth in a Schedule 13F filed with the Securities and
Exchange Commission. The address of Capital Research & Management is 333
South Hope Street, Los Angeles, California 90071-1447.

(7) Information as to shares owned by T. Rowe Price Associates, Inc. is as of
June 1998, as set forth in a Schedule 13F filed with the Securities and
Exchange Commission. The address of T. Rowe Price Associates, Inc. is 100
E. Pratt Street, Baltimore, Maryland 21202.

(8) Information as to shares owned by Ohio Public Employees Retirement System
is as of June 1997, as set forth in a Schedule 13F filed with the
Securities and Exchange Commission. The address of Ohio Public Employees
Retirement System is 277 East Town Street, Columbus, Ohio 43215.

(9) The address of each person is c/o MSC Industrial Direct Co., Inc., 75
Maxess Road, Melville, New York 11747.

(10) Includes (a) 15,482,528 shares of Class B Common Stock owned directly by
Mr. Jacobson, (b) 2,000,000 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 (c)
2,000,000 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 the shares of the Class B
Common Stock owned by such trusts.

(11) Includes (a) 7,411,500 shares of Class B Common Stock owned directly by
Ms. Gershwind, (b) 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 Seven Year Annuity Trust, (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) 2,000,000 shares of Class B Common
Stock which may be deemed to be beneficially owned by Ms. Gershwind as
Settlor of the 1998 Qualified Seven Year Annuity Trust. Ms. Gershwind
disclaims beneficial ownership of the shares of Class B Common Stock
owned by such trusts.

(12) 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.

(13) 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.

3
<PAGE>

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, by Melvin Redman who would have been one of the Company's
four most highly compensated executive officers but for the fact that Mr.
Redman, a former executive officer of the Company, was not serving as an
executive officer of the Company at the end of the Company's last fiscal year
and by all directors, nominees for director and executive officers as a group,
at the close of business on November 16, 1998. 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 Stock(2) Power(3)
--------------- -------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Shelley Boxer........... 53,552(4) * -- -- * *
Roger Fradin............ 1,000(5) * -- -- * *
Mitchell Jacobson....... 77,802 * 19,482,528(6) 57.1% 28.7% 52.0%
Sidney Jacobson......... 200 * 5,216,000(7) 15.3 7.7 13.9
Denis Kelly ............ 63,290(8) * -- -- * *
Raymond Langton......... 3,950(9) * -- -- * *
David Sandler........... 55,592(10) * -- -- * *
James Schroeder ........ 124,589(11) * -- -- * *
Melvin Redman........... 58,750(12) * -- -- * *
Steven Tudor............ 34,800(13) * -- -- * *
All directors, nominees
for director and
executive officers
as a group
(10 persons)........ 473,525 1.4% 24,698,528 72.4% 37.1% 66.0%
</TABLE>

- ------------------

*Less than 1%

(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 49,552 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.

(Footnotes continued on next page)

4
<PAGE>

(Footnotes continued from previous page)

(5) Shares of Class A Common Stock are jointly owned by Mr. Fradin and his
wife.

(6) Includes (a) 15,482,528 shares of Class B Common Stock owned directly by
Mr. Jacobson, (b) 2,000,000 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 (c)
2,000,000 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 the shares of the Class B
Common Stock owned by such trusts.

(7) 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.

(8) Includes 40,000 shares of Class A Common Stock owned directly by Mr.
Kelly and 23,290 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.

(9) Includes 200 shares of Class A Common Stock owned directly by Mr. Langton
and 3,750 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.

(10) Includes 7,498 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 46,094 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.

(11)Includes 12,000 shares of Class A Common Stock owned directly by Mr.
Schroeder and 112,589 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.

(12) Represents shares of Class A Common Stock issuable upon the exercise by
Mr. Redman of options that are presently exercisable or exercisable
within 60 days of the date of this proxy statement.

(13) Includes 800 shares of Class A Common Stock owned directly by Mr. Tudor
and 34,000 shares of Class A Common Stock issuable upon the exercise by
Mr. Tudor of options that are presently exercisable or exercisable within
60 days of the date of this proxy statement.

5
<PAGE>

ELECTION OF DIRECTORS

Seven directors will be elected at the Meeting for a term of one year
expiring at the annual meeting of shareholders to be held in 2000 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, except for Roger Fradin, who was elected by the directors in
July 1998.

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.

<TABLE>
<CAPTION>
Name of Nominee Principal Occupation Age Director Since
- ---------------------- --------------------------------------------- ----- ----------------
<S> <C> <C> <C>
Mitchell Jacobson Chairman of the Board of Directors, 47 October 1995
President and Chief Executive Officer
of the Company

Sidney Jacobson Vice Chairman of the Board of Directors 80 October 1995
of the Company

Shelley Boxer Vice President and Chief Financial Officer 51 October 1995
of the Company

James Schroeder Senior Vice President of Logistics of the 58 October 1995
Company

Denis Kelly Managing Director of Prudential Securities 49 April 1996
Incorporated

Raymond Langton President and Chief Executive Officer of SKM 53 July 1997
Applied Technology Partners

Roger Fradin President of the Ademco Group 45 July 1998
</TABLE>

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.

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. Schroder also served as Chief Operating Officer of the Company. Mr.
Schroeder has also been Vice President of Logistics of the Operating Subsidiary
since June 1982.

Shelley Boxer was appointed Vice President and Chief Financial
Officer of the Company upon its formation in October 1995. 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,

6
<PAGE>

Mr. Boxer was the Executive Vice President and Chief Financial Officer of
Kinney Systems, Inc., an automobile parking facility and real estate company.

Denis Kelly has been a director of the Company since April 1996. Mr.
Kelly is a Managing Director of Prudential Securities Incorporated, a position
he has held since July 1993. Before July 1993, Mr. Kelly was President of
Denbrook Capital Corporation. Mr. Kelly is also a director of Kenneth Cole
Productions, Inc.

Raymond Langton has been a director of the Company since July 1997.
Mr. Langton is the President and Chief Executive Officer of SKM Applied
Technology Partners, 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.

Roger Fradin has been a director of the Company since July 1998. Mr.
Fradin is the President of the ADEMCO Group, a position he has held since
1987. The ADEMCO Group is a division of the Pittway Corporation and a leading
manufacturer of electronic security products.

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 Denis Kelly, Raymond Langton and Roger Fradin. 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 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 August 29, 1998.

The Board of Directors has a standing Compensation Committee
currently comprised of Denis Kelly, Raymond Langton and Roger Fradin. 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") and 1995
Restricted Stock 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. Under the 1995 Restricted Stock Plan,
the Compensation Committee has the authority to determine the persons to whom
and the times at which awards are to be made. The Compensation Committee met
two times in the fiscal year ended August 29, 1998.

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 employees 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.

7
<PAGE>

Executive Officers

Sidney Jacobson, Mitchell Jacobson, 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.

<TABLE>
<CAPTION>
Name of Officer Position Age Executive Officer Since
- ------------------------- ---------------------------------------- ----- -----------------------
<S> <C> <C> <C>
Thomas Eccleston Vice President of Plant and Equipment 50 October 1995
and Secretary

Charles Moyer Senior Vice President of Marketing 43 January 1998
and Product Development

David Sandler Senior Vice President of Administration 41 January 1998

Steven Tudor Senior Vice President of Sales 48 January 1998
and Branch Operations
</TABLE>

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.

Charles Moyer was appointed Senior Vice President of Marketing and
Product Development of the Company in August 1997. From August 1995 to August
1997, Mr. Moyer served as Vice President of Marketing of the Company. From
1980 to August 1995, Mr. Moyer served in a variety of executive roles,
including Vice President of Marketing, for the electronics group of Premier
Industrial Corporation, a distributor of electronic and electrical components.

David Sandler was appointed Senior Vice President of Administration
of the Company in September 1998. 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. From 1993 to 1995, Mr. Sandler was the Director of
Product Management and Purchasing of the Operating Subsidiary.

Steven Tudor was appointed Senior Vice President of Sales and Branch
Operations of the Company in August 1997. From April 1996 to August 1997, Mr.
Tudor served as Vice President of Sales and National Account Manager of the
Company. From 1982 to 1996, Mr. Tudor was a Regional Manager of Motion
Industries, a division of Genuine Parts Corporation and distributor of power
transmissions.

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 or she 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 below.

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 August 29, 1998 and the fiscal
year ended August 30, 1997, except that Ms. Gershwind, Mr. Kelly and Mr.
Mitchell Jacobson each failed to file timely one report, each covering one
transaction occurring during the fiscal year ended August 29, 1998 and Messrs.
Boxer, Kelly, Eccleston, Langton and Schroeder each failed to file timely one
report, each covering one transaction occurring during the fiscal year ended
August 30, 1997.

8
<PAGE>

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 and to Melvin Redman, a former
executive officer of the Company, who would have been one of the Company's
four most highly compensated executive officers but for the fact that Mr.
Redman was not serving as an executive officer of the Company 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

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards

Name and Principal Fiscal Salary Bonus(1) Other Annual Securities Underlying All Other
Position Year Compensation Options (2) Compensation(3)
- ------------------------ ------ -------- ----------- ------------ --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mitchell Jacobson 1998 $408,400 -- $5,072(4) -- $221,171(5)
President and Chief 1997 408,400 -- 8,710(4) -- 132,842(5)
Executive Officer 1996 408,139 -- 9,110(4) -- 129,900(5)

Sidney Jacobson 1998 250,000 $ 50,000 -- -- 6,788
Vice Chairman 1997 259,615 -- 5,808(6) -- 6,788
1996 403,846 -- 4,950(6) -- 6,788

James Schroeder 1998 292,205 165,000 5,783(7) 180,000 76,350(8)
Senior Vice President, 1997 311,944 -- 5,701(7) 30,000 701,350(8)
Logistics 1996 304,326 180,000 5,542(7) 117,648 301,350(8)

David Sandler 1998 185,383 104,885 4,831(9) 30,000 312
Senior Vice President, 1997 140,750 -- 1,480(9) 24,000 306
Administration 1996 101,808 67,800 1,790(9) 58,824 142

Steven Tudor 1998 253,269 143,750 3,339(10) 30,000 522
Senior Vice President, 1997 206,538 75,000 1,575(10) 20,000 522
Sales 1996 75,000 -- -- 60,000 341

Melvin Redman 1998 235,966 200,000 -- 100,000 --
Former Chief Operating 1997 -- -- -- -- --
Officer 1996 -- -- -- -- --
</TABLE>

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) Cash bonuses are generally paid during the fiscal year following the year
of award. For fiscal 1996, the Compensation Committee and the Board of
Directors granted stock options to each of the Named Executive Officers
(other than Mitchell Jacobson, Sidney Jacobson and Melvin Redman (who was
not then an executive officer)), but did not award cash bonuses. The
bonus amount received by Steven Tudor in fiscal 1997 represents a signing
bonus awarded to Mr. Tudor in fiscal 1996.

(Footnotes continued on next page)

9
<PAGE>

(Footnotes continued from previous page)

(2) The number of securities underlying options has been restated to give
effect to the two-for-one stock split in the form of a stock dividend
declared on April 6, 1998 and distributed on May 22, 1998 to shareholders
of record as of April 24, 1998.

(3) Unless otherwise noted, amounts represent group term life insurance
benefits paid by the Company.

(4) Includes automobile allowances of approximately $4,300, $8,063, and
$6,780 paid by the Company in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and matching contributions to the Operating Subsidiary's
401(k) Plan of approximately $772, $647 and $2,330 paid by the Company in
fiscal 1998, fiscal 1997 and fiscal 1996, respectively.

(5) Includes group term life insurance benefits of approximately $522, $552
and $261 paid by the Company in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and split dollar life insurance premiums of approximately
$220,649, $132,290 and $129,639 paid by the Company in fiscal 1998,
fiscal 1997 and fiscal 1996, respectively. Under the terms of such
policies, a portion of the premiums paid by the Company in fiscal 1998,
fiscal 1997 and fiscal 1996 have been reimbursed.

(6) Represents automobile allowances paid by the Company.

(7) Includes automobile allowances of approximately $4,745, $4,718 and $3,240
paid by the Company in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and matching contributions to the Operating Subsidiary's
401(k) Plan of approximately $1,038, $983 and $2,302 paid by the Company
in fiscal 1998, fiscal 1997 and fiscal 1996, respectively.

(8) Includes group term life insurance benefits of approximately $1,350 paid
by the Company in each of fiscal 1998, fiscal 1997 and fiscal 1996. Also
includes approximately $75,000, $700,000 and $300,000 accrued by the
Company in fiscal 1998, fiscal 1997 and fiscal 1996, 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.

(9) Includes automobile allowances of approximately $2,918 paid by the
Company in fiscal 1998 and matching contributions to the Operating
Subsidiary's 401(k) Plan of approximately $1,913, $1,480 and $1,790 paid
by the Company in fiscal 1998, fiscal 1997 and fiscal 1996, respectively.

(10) Includes automobile allowances of approximately $1,839 paid by the
Company in fiscal 1998 and matching contributions to the Operating
Subsidiary's 401(k) Plan of approximately $1,500 and $1,575 paid by the
Company in fiscal 1998 and fiscal 1997, respectively.

10
<PAGE>

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 1995 Stock Option Plan by the Company during the
fiscal year ended August 29, 1998 to the Named Executive Officers. The number
of securities underlying options granted has been restated to give effect to
the two-for-one stock split in the form of a stock dividend distributed to
shareholders of record as of April 24, 1998.

<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
----------------------------------------------------- ------------------------------
Percentage
Number of of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Granted (#) Fiscal Year (%) ($/Sh) Price 5%($) 10%($)
----------- --------------- -------- ---------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>

Mitchell Jacobson......... 0 0.0% - - - -

Sidney Jacobson........... 0 0.0 - - - -

Melvin Redman............. 100,000 8.7 $19.50 12/12/07 $1,226,345 $3,107,798

David Sandler............. 30,000 2.6 19.00 11/19/07 358,470 908,433

James Schroeder........... 170,000 14.8 19.00 11/19/07 2,031,330 5,147,788

10,000 .9 20.53 1/9/08 129,113 327,195

Steven Tudor.............. 30,000 2.6 19.00 11/19/07 358,470 908,433
</TABLE>

Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values

The following table sets forth information with respect to the value
at August 29, 1998 of unexercised stock options held by the Named Executive
Officers. No stock options were exercised in fiscal 1998. The number of
securities underlying unexercised options has been restated to give effect to
the two-for-one stock split in the form of a stock dividend distributed to
shareholders of record as of April 24, 1998.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
------------------------------ ---------------------------
Underlying Unexercised In-the-Money
Options at FYE Options at FYE
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
---------------------------- ----------------------------- ----------------------------
<S> <C> <C>
Mitchell Jacobson........... 0/0 -

Sidney Jacobson............. 0/0 -

Melvin Redman............... 56,250/52,500 $ 154,950/126,375

David Sandler............... 28,330/84,494 321,142/644,721

James Schroeder............. 53,059/274,589 618,656/1,516,891

Steven Tudor................ 28,000/82,000 209,120/463,580
</TABLE>
- ---------------

(1) Fair market value of securities underlying the options at fiscal year end
minus the exercise price of the options.

11
<PAGE>

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 (which was reduced effective
October 30, 1995 from $650,000) 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 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), an annual bonus payment equal
to the product of Mr. Jacobson's annual salary and a percentage representing
the average percentage bonus granted to all other senior executives of the
Operating Subsidiary during the applicable fiscal year. 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.

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 Company accrued $75,000 in fiscal
1998. The total amount due to Mr. Schroeder is approximately $1,075,000
(including $700,000 accrued in fiscal 1997 and $300,000 accrued in fiscal
1996). 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.

12
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS

For most of the fiscal year ended August 29, 1998, the Compensation
Committee consisted of Denis Kelly and Raymond Langton, with Mitchell
Jacobson, the Chairman of the Board and the President and Chief Executive
Officer of the Company, serving as an ex officio member for the Compensation
Committee. In July 1998, following his election as a director, Roger Fradin
was appointed to the Compensation Committee. With the exception of Mr.
Jacobson, 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.

Certain Relationships and Related Transactions Involving Members of the
Compensation Committee

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 340,000 square feet. The rent paid
by the Operating Subsidiary was approximately $1,220,000 in fiscal 1998 and is
anticipated to be approximately $1,220,000 in fiscal 1999. 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 $14,530,000. Additionally, six 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 165,000 square feet. The aggregate rent paid
by the Operating Subsidiary to lease these branch offices was approximately
$482,000 in fiscal 1998 and is anticipated to be approximately $386,000 in
fiscal 1999. The aggregate rent to be paid by the Operating Subsidiary under
the remaining lease terms, the last of which expires in fiscal 2003, is
approximately $950,000. 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.

The Company is guarantor of certain loans made to Esco Management
Corp., an entity jointly controlled by the Operating Subsidiary and Mr.
Jacobson and Ms. Gershwind. The largest amount of such loans to Esco
Management Corp. that was outstanding in fiscal 1998 was approximately
$449,000 and the current amount outstanding is approximately $449,000. The
current interest rate on and maturity date of each of the loans are 6.625% and
April 27, 1999, respectively.

REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

For most of the past fiscal year, the Compensation Committee (the
"Committee") was comprised of Denis Kelly and Raymond Langton, with Mitchell
Jacobson, the Chairman of the Board and the President and Chief Executive
Officer of the Company, serving as an ex officio member of the Committee. In
July 1998, following his election as a director, Roger Fradin was appointed to
the Compensation Committee. Mr. Jacobson did not take part in any discussions
of the Committee relating to the determination of his compensation.

The Committee is responsible for recommending to the Board of
Directors the overall direction for the executive compensation strategy of the
Company and for the ongoing monitoring of the strategy's implementation. In
addition to recommending and reviewing the compensation of the executive
officers, it is the responsibility of the Committee to recommend new incentive
compensation plans and to implement changes and improvements to existing
compensation plans, all subject to approval by the Board of Directors. The
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 the members of the Committee in

<PAGE>

their review of the performance and compensation of individual executives. The
Company will engage an outside compensation consultant to assist the Committee
if the members of the Committee so request.

Overall Policy

The Committee believes that the Company's executive officers
constitute a highly qualified management team and are largely responsible for
the Company's success. The 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 stable 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 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 and restricted stock. Executive officers are also
entitled to customary benefits generally available to all employees of the
Company, including group medical and life insurance and a 401(k) plan. Base
salary, bonuses and benefits are paid by the Operating Subsidiary. 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
August 29, 1998, the Committee believes that the Company's senior executives
were paid at approximately the median 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 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 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 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 other executive officers, other than Sidney Jacobson. The
base salary for Sidney Jacobson, the Vice Chairman of the Board of Directors
of the Company, for fiscal 1998 was fixed under his employment agreement with
the Operating Subsidiary. The terms of Sidney Jacobson's employment agreement
were determined by negotiations between Mr. Jacobson and the Operating
Subsidiary and are reflective of his level of responsibility and tenure with
the Operating

14
<PAGE>

Subsidiary. A detailed description of Mr. Jacobson's employment agreement (as
well as 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 12 of this proxy statement.

Annual Incentive Bonuses

Each fiscal year, the Company establishes a bonus pool in an amount
equal to 8-1/2% of the Company's pre-tax profits for that year. All employees
of the Company, including its executive officers, are eligible to receive
bonuses, but the award of bonuses to the employees generally and to any
employee specifically are at the 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. Bonuses to the
Company's senior executive officers are based on a percentage of their annual
salaries. Pursuant to his employment agreement with the Operating Subsidiary,
Mitchell Jacobson, Chairman of the Board and the President and Chief Executive
Officer of the Company, is entitled to receive a bonus based on his annual
salary and the average percentage bonus granted to all other senior executive
officers of the Company.

The Committee does not currently establish specific performance
criteria which must be met in order to earn bonuses. The 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, the 1998 Option Plan and the Restricted Stock Plan. Stock option
grants and restricted stock awards 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 Committee, which may
designate granted options as incentive stock options, non-qualified stock
options or a combination thereof. The 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.

Restricted Stock Plan. Pursuant to the Restricted Stock Plan, the
Committee will only regrant currently outstanding restricted shares of Class A
Common Stock to selected employees of the Company, including its executive
officers. The Committee, however, will not grant any authorized but unissued
restricted shares and will only regrant issued and outstanding restricted
shares currently held by employees of the Company if and to the extent any
such restricted shares are returned to the Company through forfeiture.
Pursuant to the Restricted Stock Plan, forfeiture of restricted shares by
employees of the Company shall occur if such employee leaves the employ of the
Company for any reason other than death or permanent disability or termination
of employment without cause, at which time all restricted shares purchased by
such individual shall be returned to the Company. The shares vest in one-fifth
increments over a five-year period commencing on the first anniversary of the
date of the award. The purpose of the Restricted Stock Plan is to encourage
ownership of the Class A Common Stock by employees, thereby fostering a
"shareholder perspective" among the participants, and to provide the employees
with additional incentive to promote the Company's success, thereby promoting
executive retention and long term achievement.

15
<PAGE>

Chief Executive Officer's Fiscal 1998 Compensation

The compensation paid to the Company's Chief Executive Officer,
Mitchell Jacobson, in fiscal 1998 consisted solely of base salary and was
established pursuant to his employment agreement with the Operating
Subsidiary. The terms of the agreement are described in detail on page 12 of
this proxy statement. Under the terms of his employment agreement, Mr.
Jacobson received an annual base salary of $408,400. Mr. Jacobson did not
receive any bonus compensation in fiscal 1998. Due to his substantial stock
ownership, the Committee decided that it was not necessary to provide Mr.
Jacobson with additional long-term incentive through the grant of stock
options.

Compensation Committee

Roger Fradin
Denis Kelly
Raymond Langton

16
<PAGE>

STOCK PERFORMANCE GRAPH

The following graph compares the yearly percentage change in the total
shareholder return on the Company's Class A Common Stock during the period
beginning on December 20, 1995 (the date on which the class A common Stock began
trading publicly on the New York Stock Exchange) and ending on August 29, 1995
with the cumulative total return on Standard & Poor's MidCap 400 Index and the
Dow Jones Other Industrial & commercial Services Index. The comparison assumes
that $100 was invested on December 15, 1995 in the Class A Common Stock and on
November 30, 1995 in the foregoing indicies and assumes the reinvestment of
dividends.

[GRAPH]

Cumulative Total Return

12/15/95 8/96 8/97 8/98
-------- ---- ---- ----
<S> <C> <C> <C> <C>
MSC Industrial Direct Co., Inc. 100 167 214 230

Standard & Poor's Midcap 400 Index 100 109 131 170

Dow Jones Other Industrial &
Commercial Services Index 100 110 120 142

</TABLE>

<PAGE>

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 a Manager in the Sales Department. Mr. Gershwind is currently
compensated at the rate of $93,712 per annum. Mr. Gershwind is also entitled to
participate in all of the employee benefit plans available to all of the
Company's employees.

In fiscal 1991, the Company extended a loan to James Schroeder, a
Senior Vice President and Director of the Company, which is evidenced by a
promissory note in the principal amount of $200,000 and accrues interest at the
prime rate. The amount of such loan to Mr. Schroeder that was outstanding at
August 29, 1998 was approximately $60,000.

In fiscal 1997, the Company extended a loan to Steven Tudor, a Senior
Vice President of the Company, which is evidenced by a promissory note in the
principal amount of $818,000 and accrues interest at the prime rate. The amount
of such loan to Mr. Tudor that was outstanding at August 29, 1998 was
approximately $480,000.

See "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" for certain relationships and related party transactions
involving certain of the Company's directors.

APPROVAL OF MSC INDUSTRIAL DIRECT CO., INC.
ASSOCIATE STOCK PURCHASE PLAN

Effective as of May 4, 1998, the Board of Directors adopted, at the
recommendation of the Compensation Committee and subject to shareholder
approval, the MSC Industrial Direct Co., Inc. Associate Stock Purchase Plan (the
"Plan").

The following summary of certain features of the 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. All capitalized terms used but not defined
herein have the respective meanings ascribed to them in the Plan.

The affirmative vote of holders of a majority of the shares of Class A
Common Stock and Class B Common Stock present in person or by proxy at the
Meeting is required for approval of the Plan.

The Board of Directors recommends a vote FOR the approval of the Plan.
Each proxy received in response to this solicitation will be voted FOR the
proposal to approve the Plan, unless otherwise specified in the proxy.

Nature and Purpose of the Plan

The purpose of the Plan is to provide employees ("associates") of the
Company and its subsidiaries with an opportunity to purchase shares of Class A
Common Stock through payroll deductions. The Company intends that the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Code.
Accordingly, the provisions of the Plan are to be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

Duration and Modification

The Plan will terminate not later than October 30, 2008. The Board of
Directors may at any time and for any reason terminate or amend the Plan as it
may deem advisable. However, the Company must obtain shareholder approval of any
amendment to the Plan to the extent that such approval is necessary to comply
with Section 423 of the Code.

18
<PAGE>

Administration of the Plan

The Plan is to be administered by the Board of Directors of the
Company.

Offering Periods

Options are granted under the Plan to purchase shares of Class A Common
Stock in consecutive three-month offering periods, with a new offering period
commencing on each November 1, February 1, May 1 and August 1, unless otherwise
determined by the Company.

Securities Subject to the Plan; Market Price

The number of shares of Class A Common Stock reserved for sale under
the 1998 Purchase Plan is 500,000. If the total number of shares which would
otherwise be subject to options under the Plan exceeds the number of shares then
available under the Plan, the Company is required to make a pro rata allocation
of the shares available for option grant in as uniform and equitable a manner as
is practicable. In such event, the Company is required to give written notice of
such reduction in the number of shares subject to option to each participant
affected thereby.

The closing sale price of a share of Class A Common Stock on the New
York Stock Exchange on December 1, 1998 was $23-9/16.

Eligibility

Each associate of the Company and its participating
subsidiaries (as designated by the Board of Directors) who is customarily
employed for at least 20 hours per week and for more than five months in a
calendar year is eligible to participate under the Plan, provided that the
associate has been employed by the Company for at least 31 days on the first day
of an offering period and subject to certain limitations imposed by Section
423(b) of the Code.

Participation

An associate may become a participant in the Plan by completing a
subscription agreement authorizing payroll deductions on the form provided by
the Company and filing it with the payroll office of the Company prior to the
first day of the offering period with respect to which it is to be effective.
Payroll deductions will be equal to the percentage of compensation (not to
exceed 15%) specified by the participant. Once enrolled, a participant remains
enrolled in each subsequent offering period of the Plan at the designated
payroll deduction unless the participant withdraws by providing the Company with
written notice of withdrawal or files a new subscription agreement prior to the
applicable offering date changing the associate's designated payroll deduction.

Purchase Price

The purchase price per share at which shares of Class A Common Stock
are to be sold under the Plan is 85% of the fair market value of a share of
Class A Common Stock at the offering date (the first day of the offering
period). The fair market value of the Class A Common Stock on any offering date
means: (i) the closing sale price of the Class A Common Stock on the New York
Stock Exchange on the business day immediately 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.

Purchase of Shares

The maximum number of shares of Class A Common Stock a participant may
purchase during each offering period may not exceed 5,000 shares, subject to
certain limitations set forth in the Code and availability of shares under the
Plan.

Unless a participant withdraws from the Plan during an offering period,
his or her option to purchase shares will be exercised automatically at each
exercise date (the last business day of the offering period), and the maximum

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<PAGE>

number of full shares subject to the option will be purchased at the applicable
option price with the accumulated payroll deductions in his or her account. The
shares purchased will be issued to the participant as promptly as practicable
after the exercise date. A participant's option to purchase shares under the
Plan may be exercised only by the participant.

Voting Rights

Participants will not have any interest or voting rights in shares
covered by their options until the options have been exercised.

Adjustments

The number of shares of Class A Common Stock available for grant or
covered by each option granted under the Plan 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 Compensation Committee, in
the event of any other change affecting the number or kind of outstanding shares
of Class A Common Stock. In the event of the dissolution or liquidation of the
Company, the Board may, in its discretion, accelerate the exercisability of all
outstanding awards and/or terminate the same within a reasonable time
thereafter.

Withdrawal; Termination of Employment

A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account under the Plan at any time prior to an
exercise date by giving written notice to the Company on a form provided for
such purpose. If the participant withdraws from the Plan during an offering
period, all of the participant's payroll deductions credited to his or her
account will be paid to the participant as soon as practicable after receipt of
the notice of withdrawal and his or her option for the current offering period
will be automatically canceled, and no further payroll deductions for the
purchase of shares will be made during such offering period or subsequent
offering periods, except pursuant to a new subscription agreement filed in
accordance with the Plan.

Upon the termination of a participant's continuous status as an
employee prior to an exercise date of an offering period for any reason,
including retirement or death, he or she will be deemed to have elected to
withdraw from the Plan, the payroll deductions accumulated in his or her account
will be returned to him or her as soon as practicable after such termination or,
in the case of death, to the person or persons entitled thereto under the Plan,
and his or her option will be automatically canceled.

A participant's withdrawal from the Plan during an offering period will
not have any effect upon his or her eligibility to participate in a succeeding
offering period or in any similar plan that may hereafter be adopted by the
Company.

All payroll deductions received or held by the Company under the Plan
may be used by the Company for any corporate purpose, and the Company is not
obligated to segregate such payroll deductions.

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 Plan, and the sale of shares 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.

The Plan, and the right of participants to make purchases thereunder,
is intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant at the time
of purchase of shares. Upon disposition of the shares, the participant will be
subject to tax and the amount of the tax will depend on the length of the
holding period. If the shares are disposed of by the participant at least two
years after the beginning of an offering period and at least one year from the
date the shares are purchased,

20
<PAGE>

the lesser of (a) the excess of the fair market value of the shares at the time
of such disposition over the purchase price and (b) 15% of the fair market value
of the shares on the first day of the offering period will be treated as
ordinary income. Any additional gain will be taxed at capital gain rates. If the
shares are sold after such time and the sales price is less than the purchase
price, the participant recognizes no ordinary income but instead a capital loss.
If the shares are sold or otherwise disposed of before the expiration of such
two-year and one-year periods, the excess of the fair market value of the shares
on the exercise date over the purchase price will be treated as ordinary income.

The Company is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent of
ordinary income recognized by participants upon a disposition of shares within
two years from the date of grant or within one year of the date of purchase.

The foregoing is only a summary of the effect of Federal income
taxation upon a participant and the Company with respect to shares of Class A
Common Stock purchased under the Plan. Reference should be made to the
applicable provisions of the Code. In addition, this summary does not discuss
the tax consequences of a participant's death or the income tax laws of any
state or foreign country in which the participant may reside.

APPROVAL OF AMENDMENT TO 1998 STOCK OPTION PLAN

On November 6, 1998, the Board of Directors adopted, subject to
shareholder approval, an amendment to the 1998 Option Plan which will become
effective on January 8, 1999. The amendment provides that, notwithstanding any
other vesting provisions in the 1998 Option Plan, an option granted to an
optionee on or after January 8, 1999 (other than a non-employee director's
option) will, to the extent not already exercisable, become exercisable in full
on the optionee's 62nd birthday. The Board of Directors believes that this
amendment will provide an added incentive for more mature and experienced
employees to remain in the employ of the Company. If the amendment is not
approved by the shareholders of the Company, the 1998 Option Plan will remain as
presently in effect.

To effectuate this amendment, Section 10A of the 1998 Option Plan will
be amended to add the following sentence:

Notwithstanding the foregoing provisions of this
Section 10A, an Option granted to a Participant on or
subsequent to January 8, 1999 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.

The 1998 Option Plan authorizes the grant of up to an aggregate of
6,000,000 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 1998 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 proposal to approve
the amendment to the 1998 Option Plan. Each proxy received in response to this
solicitation will be voted FOR the proposal to approve the amendment to the 1998
Option Plan, unless otherwise specified in the proxy. Set forth below is a
summary of the 1998 Option Plan, a copy of which is on file with the Securities
and Exchange Commission.

Nature and Purpose of the 1998 Option Plan

The purpose of the 1998 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 1998 Option Plan promotes 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.

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<PAGE>

Duration and Modification

The 1998 Option Plan will terminate no later than January 8, 2008. The
Board of Directors may at any time terminate the 1998 Option Plan or make such
modifications to the 1998 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 1998 Option Plan, change the manner of determining option prices,
change the class of persons eligible to participate in the 1998 Option Plan or
extend the period during which an option may be granted or exercised.

Administration

The 1998 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 and Langton. The
Compensation Committee has discretion to determine the participants under the
1998 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 option
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.

Eligibility and Extent of Participation

The 1998 Option Plan provides for discretionary grants of options to
participants (including any director or officer who is also an employee). As of
December 2, 1998, approximately 430 persons were eligible to receive options
pursuant to the 1998 Option Plan.

No single participant (including any director or officer who is also an
employee) may receive options under the 1998 Option Plan in any one fiscal year
of the Company to purchase more than 200,000 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 1998 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 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. If the proposed amendment to the 1998 Option Plan is
approved, an option granted on or after January 8, 1999 (other than an option
granted to a non-employee director) will, to the extent not already exercisable,
become exercisable in full on an optionee's 62nd birthday. 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.

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<PAGE>

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 options
granted to non-employee directors is the fair market value of the Class A Common
Stock on the date of grant. The closing price of a share of the Class A Common
Stock on the New York Stock Exchange on December 1, 1998 was $23-9/16.

No option granted pursuant to the 1998 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 1998 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 three months 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 ceases to serve as
a director of the Company or its subsidiaries by reason of retirement on or
after his or her 65th birthday, 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 three months 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 ceases to serve as
a director of the Company or its subsidiaries for any reason other than death
or retirement, 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 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 1998 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 1998 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.

23
<PAGE>

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. 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.

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.

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.

The foregoing is only a summary of the effect of Federal income
taxation upon an optionee and the Company with respect to options to purchase
shares of Class A Common Stock granted under the Plan. Reference should be made
to the applicable provisions of the Code.

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<PAGE>

SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors, with the concurrence of the Audit Committee,
has selected Arthur Andersen LLP, independent auditors, as accountants for the
fiscal year ending August 28, 1999. 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 ending September 2,
2000, since it would be impractical to replace the Company's auditors so late
into the Company's current fiscal year.

It is expected that representatives of Arthur Andersen LLP will be
present at the Meeting, will have the opportunity to make a statement, if they
so desire, and will be available to respond to appropriate questions from
shareholders.

The Board of Directors recommends a vote FOR ratification of the
appointment of the independent certified public accountants. Proxies received in
response to this solicitation will be voted FOR ratification of the appointment
of the independent certified public accountants unless otherwise specified in
the proxy.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the annual
meeting of shareholders in 2000 must be received by August 10, 1999, in order to
be considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting. 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.

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 1998 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 8, 1998

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EXHIBIT A
---------

MSC INDUSTRIAL DIRECT CO., INC.
ASSOCIATE STOCK PURCHASE PLAN

The following are the provisions of the MSC Industrial Direct Co., Inc.
Associate Stock Purchase Plan (the "Plan").

1. Purpose.

The purpose of the Plan is to provide Associates of MSC Industrial Direct
Co., Inc. (the "Company") and its Subsidiaries with an opportunity to
purchase shares of the Company's Class A Common Stock. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423
of the Code. The provisions of the Plan will be construed so as to extend
and limit participation consistent with the requirements of the Code.

2. Definitions.

a) "Associate" shall mean any person, including an officer, who is
customarily employed by the Company or one of its Designated
Subsidiaries, for at least twenty (20) hours per week and more than
five (5) months in a calendar year.

b) "Board" shall mean the Board of Directors of the Company.

c) "Class A Common Stock" shall mean the Class A Common Stock, $.001 par
value, of the Company.

d) "Code" shall mean the Internal Revenue Code of 1986, as amended.

e) "Company" shall mean MSC Industrial Direct Co., Inc.

f) "Compensation" shall mean all regular straight time gross earnings
and commissions, and shall include payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and
other compensation.

g) "Continuous Status as an Associate" shall mean the absence of any
interruption or termination of service as an Associate. Continuous
Status as an Associate shall not be considered interrupted in the
case of a leave of absence agreed to in writing by the Company or a
Subsidiary, provided that such leave is for a period of not more than
90 days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.

h) "Contributions" shall mean all amounts credited to the account of a
participant pursuant to the Plan.

i) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board in its sole discretion as eligible to
participate in the Plan.

j) "Exercise Date" shall mean the last business day of each Offering
Period of the Plan.

k) "Fair Market Value" shall mean as of any Offering Date (i) the
closing sale price of the Class A Common Stock on the New York Stock
Exchange on the business day immediately preceding such Offering 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.

l) "Offering Date" shall mean the first day of each Offering Period of
the Plan.

m) "Offering Period" shall mean a period of three (3) months commencing
on the following dates of each year except as otherwise determined by
the Company:

i) November 1,
ii) February 1,
iii) May 1, and
iv) August 1.

n) "Purchase Price" shall mean 85% of the Fair Market Value of the Class
A Common Stock as of the Offering Date.

A-1
<PAGE>

o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.

3. Eligibility.

a) Any person who has been an Associate for thirty-one (31) days as of
the Offering Date of a given Offering Period shall be eligible to
participate in such Offering Period under the Plan, subject to the
requirements of Section 5 and the limitations imposed by Section
423(b) of the Code.

b) An Associate shall not be granted an option under the Plan, if:

i) immediately after the grant, the Associate (or any other person
whose stock would be attributed to such Associate pursuant to
Section 424(d) of the Code) would own shares and/or hold
outstanding options to purchase shares possessing five percent
(5%) or more of the total combined voting power or value of all
classes of shares of the Company; or

ii) the rate of withholding under such option would permit the
Associate's rights to purchase shares under all "employee stock
purchase plans" (described in Section 423 of the Code) of the
Company and its Subsidiaries to accrue (i.e., become
exercisable) at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) of Fair Market Value of such shares
(determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time.

4. Offering Periods.

a) The Plan shall be implemented by consecutive Offering Periods with a
new Offering Period to begin on or about November 1, February 1, May
1 and August 1 of each year (or at such other time or times as may be
determined by the Board). The first Offering Period shall begin on
November 1, 1998.

b) The Board will have the power to change the duration and/or the
frequency of an Offering Period with respect to any future offerings
without shareholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first
Offering Period to be affected.

5. Participation.

a) An Associate will become a participant in the Plan when the Associate
completes a subscription agreement provided by the Company,
determines a percentage, between one percent (1%) and fifteen percent
(15%) of such Associate's Compensation, to be withheld as a payroll
deduction and paid as his or her Contribution to the Plan, and
submits the subscription agreement to the payroll office prior to the
applicable Offering Date. Once enrolled, the Associate shall remain
enrolled in each subsequent Offering Period of the Plan at the
designated payroll deduction unless the Associate withdraws by
providing the Company with a written notice of withdrawal or files a
new subscription agreement prior to the applicable Offering Date
changing the Associate's designated payroll deduction.

b) Payroll deductions begin on the first payroll date during the
applicable Offering Period and end on the last payroll date on or
prior to the Exercise Date of the Offering Period to which the
subscription agreement is applicable, unless sooner terminated by the
participant as provided in Section 10.

6. Method of Payment of Contributions.

a) Payroll deductions shall be made on each payroll date during the
Offering Period in an amount between one percent (1%) and fifteen
percent (15%) (in whole number increments) of a participant's
Compensation on each such payroll date.

b) All payroll deductions made by a participant will be credited to his
or her account under the Plan.

c) A participant may not make any additional payments into the account.

d) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or may change the rate of his or her payroll
deduction during an Offering Period by completing and filing with the
Company a new authorization for payroll deduction, provided that the
Board may, in its discretion, impose reasonable

A-2
<PAGE>

and uniform restrictions on a participant's ability to change the
rate of payroll deductions. The change in rate shall be effective no
later than fifteen (15) days following the Company's receipt of the
new authorization. A participant may decrease or increase the amount
of his or her payroll deductions as of the beginning of an Offering
Period by completing and filing with the Company, at least fifteen
(15) days prior to the beginning of such Offering Period, a new
payroll deduction authorization.

e) Notwithstanding the foregoing, to the extent necessary, but only to
such extent, to comply with Section 423(b)(8) of the Code and Section
3(b) herein, a participant's payroll deductions may be automatically
decreased to zero percent (0%) at any time during any Offering
Period. Payroll deductions shall commence at the rate provided in
such participant's subscription agreement at the beginning of the
next succeeding Offering Period, unless terminated by the participant
as provided in Section 10.

7. Grant of Option.

a) An eligible Associate participating in an Offering Period may
purchase shares of the Company's Class A Common Stock on the Exercise
Date with the Contributions accumulated on or prior to such Exercise
Date.

b) The number of shares to be purchased on the Exercise Date shall be
determined by dividing the Purchase Price into the Contributions
accumulated in the participant's account as of the Exercise Date.

c) The maximum number of shares of the Class A Common Stock which may be
purchased during each Offering Period by a participant shall not
exceed 5,000 shares, and the purchase is subject to the limitations
set forth in Section 3(b) and 12.

8. Exercise of Option.

a) Unless a participant withdraws from the Plan as provided in Section
10, the Associate's option for the purchase of shares will be
exercised automatically on the Exercise Date of each Offering Period.

b) The maximum number of shares will be determined based on the Purchase
Price and the accumulated Contributions in the participant's account.
No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to
purchase a full share shall be retained in the participant's account
and applied to the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 10 hereof.

c) The shares purchased will be issued to the participant as promptly as
practicable after the Exercise Date.

d) The option to purchase shares hereunder is exercisable only by the
participant.

9. Delivery.

As promptly as practicable after the Exercise Date of each Offering
Period, the Company shall arrange the delivery of shares to each
participant by means of direct deposit into the participant's brokerage
account.

10. Voluntary Withdrawal; Termination of Employment.

a) A participant may withdraw all, but not less than all, of the payroll
deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time prior to an
Exercise Date by giving written notice to the Company on a form
provided for such purpose. If the participant withdraws from an
Offering Period, all of the participant's payroll deductions credited
to his or her account will be paid to the participant as promptly as
practicable after receipt of the notice of withdrawal, his or her
option for such Offering Period will be automatically canceled, and
no further payroll deductions for the purchase of shares will be made
during such Offering Period or subsequent Offering Periods, except
pursuant to a new subscription agreement filed in accordance with
Section 5 hereof.

b) Upon termination of the participant's Continuous Status as an
Associate prior to an Exercise Date of an Offering Period for any
reason, including retirement or death, the payroll deductions
accumulated in his or her account will be returned to him or her as
promptly as practicable after such termination or, in the case of
death, to the person or persons entitled thereto under Section 14,
his or her option will be automatically canceled and he or she will
be deemed to have elected to withdraw from the Plan.

A-3
<PAGE>

c) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in a succeeding
Offering Period or in any similar plan that may hereafter be adopted
by the Company.

11. Interest.

No interest shall accrue on the Contributions of a participant in the
Plan.

12. Stock.

a) The maximum number of shares of the Company's Class A Common Stock
made available for sale under the Plan is 500,000 and is subject to
adjustment upon changes in the capitalization of the Company.

b) If the total number of shares subject to options granted exceeds the
number of shares available under the Plan, the Company will make a
pro rata allocation of the shares remaining available for option
grant in a practical and equitable manner. A written notice will be
distributed to each Associate stating the reduction of the number of
shares due to the adjustment and the corresponding reduction in the
Contribution.

c) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.

d) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant.

13. Administration.

The Board, or a committee appointed by the Board, will:

a) Supervise and administer the Plan and will have full power to adopt,
amend and rescind any rules deemed desirable and appropriate and
consistent for the administration of the Plan.

b) Construe and interpret the Plan in its sole and absolute discretion,
and make all other determinations necessary or advisable for the
administration of the Plan.

14. Designation of Beneficiary.

a) A participant may file a written designation of a beneficiary who is
to receive cash, if any, from the participant's account under the
Plan in the event of such participant's death.

b) Designation of a beneficiary may be changed by the participant at any
time by written notice.

c) In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company will deliver the cash
to the executor or administrator of the estate of the participant, or
if no such executor or administrator has been appointed (to the
knowledge of the Company), then the Company, in its discretion, may
deliver the cash to the spouse or to any one or more dependents or
relatives of the participant.

15. Transferability.

a) Neither Contributions credited to a participant's account nor any
rights with regard to an option to purchase shares under the Plan may
be assigned, transferred, pledged or otherwise disposed of in any way
(except as provided in Section 14).

b) Any such attempt at assignment, transfer, pledge or other disposition
shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Section 10.

16. Use of Funds.

All Contributions received or held by the Company under the Plan may be
used by the Company for any corporate purpose, and the Company shall not
be obligated to segregate such Contributions.

A-4

<PAGE>

17. Reports.

An individual Account Statement will be given to participating Associates
promptly following each Exercise Date. The Account Statement will report:

a) amount of Contributions,
b) per share Purchase Price,
c) number of shares purchased, and
d) remaining cash balance (if any).

18. Adjustments Upon Changes in Capitalization; Corporate Transactions.

a) In the event that a dividend shall be declared upon the Class A
Common Stock payable in shares of Class A Common Stock, the number of
shares of Class A Common Stock then subject to any option and the
number of shares of Class A Common Stock which may be purchased upon
the exercise of options granted under the Plan but not yet covered by
an option shall be adjusted by adding to each share the number of
shares which would be distributed thereon if such shares had been
outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. In the event that the
outstanding shares of Class A Common Stock shall be changed into or
exchanged for a different number or kind of share 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 Class A Common Stock then subject to any option and for
each share of Class A Common Stock which may be purchased upon the
exercise of options granted under the Plan but not yet covered by an
option, the number and kind of shares of stock or other securities
into which each outstanding share of Class A Common Stock shall be so
changed or for which each such share shall be exchanged.

b) In the event that there shall be any change, other than as specified
in the first paragraph of Section 18(a) hereof, in the number or kind
of outstanding shares of 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
Board shall, in it 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 available for
issuance in accordance with the provisions of the Plan but not yet
covered by an option, such adjustment shall be made by the Board and
shall be effective and binding for all purposes of the Plan and of
each option.

c) In the case of any substitution or adjustment in accordance with the
provisions of this Section 18, the option price in each option 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 18.

d) No adjustment or substitution provided for this Section 18 shall
require the Company to issue a fractional share under any option.

e) In the event of dissolution or liquidation of the Company, or a
merger, reorganization or consolidation in which the Company is not
the surviving corporation, the Board, in its discretion, may
accelerate the exercise of each option and/or terminate the same
within a reasonable time thereafter.

19. Amendment or Termination.

The Board may at any time terminate or amend the Plan in whole or part.
Except as provided in this Section 19, no such termination may affect
options to purchase shares previously granted, nor may an amendment make
any change in any option which has been granted which adversely affects
the rights of any participant. In addition, to the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or
any applicable law or regulation), the Company shall obtain shareholder
approval in such manner as required.

20. Notices.

All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

A-5
<PAGE>

21. Conditions Upon Issuance of Shares.

a) Shares shall not be issued with respect to an option to purchase,
unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed.

b) As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the
time of any such exercise that the shares are being purchased only
for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned
applicable provisions of law.

C) Each participant agrees, by entering the Plan, to promptly give the
Company notice of any disposition of shares purchased under the Plan
where such disposition occurs within two (2) years after the date of
grant of the option pursuant to which such shares were purchased.

22. Term of Plan; Effective Date.

The Plan shall become effective November 1, 1998. Continuance of the Plan
shall be subject to approval by the shareholders of the Company no later
than January 31, 1999. Such shareholder approval shall be obtained in the
manner required under the New York Business Corporation Law. The Plan
shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 19.

A-6

<PAGE>

MSC INDUSTRIAL DIRECT CO., INC.
ANNUAL MEETING OF SHAREHOLDERS -- JANUARY 8, 1999
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 8, 1999 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 COMPANY'S ASSOCIATE STOCK
PURCHASE PLAN, FOR THE AMENDMENT TO THE COMPANY'S 1998 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.)

<PAGE>

|X| PLEASE MARK YOUR VOTES AS IN
THIS EXAMPLE

<TABLE>
<S> <C> <C> <C>
FOR WITHHOLD AUTHORITY Nominees:
1. Election of Directors all nominees listed at to vote for all nominees Shelley Boxer,
right (except as marked to listed at right Roger Fradin,
the contrary below) Mitchell Jacobson,
/ / / / Sidney Jacobson,
Denis Kelly,
Raymond Langton and
James Schroeder.
</TABLE>

(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)

---------------------------------------------------------------

2. Approval of the Associate Stock Purchase Plan.

FOR AGAINST ABSTAIN
/ / / / / /

3. Approval of amendment to the 1998 Stock Option Plan.

FOR AGAINST ABSTAIN
/ / / / / /

4. Ratification of Arthur Andersen LLP as the Company's independent certified
public accountants.

FOR AGAINST ABSTAIN
/ / / / / /

If there are any 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 8, 1999
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.)___________ _________________(L.S.)__________ Dated: _____, 199_
Signature of Shareholder Print Name Signature of Shareholder Print Name

(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).