Before HASTINGS, Chief Judge, KNOCH and MAJOR, Circuit Judges.
MAJOR, C. J.: This appeal is from a judgment of the District Court, entered February 25, 1960, (1) dismissing plaintiff's action seeking to recover declared but unpaid dividends on his 297 shares of preferred stock and 610 shares of common stock, after June 30, 1953, and to obtain issuance to plaintiff of a common stock certificate for his 610 common shares represented by Voting Trust Certificates under an expired Voting Trust; and (2) granting defendant's counterclaim for declaratory judgment that defendant had exercised an option to purchase all of plaintiff's stock following his resignation on June 30, 1953, as an employee of defendant, and for specific performance.
The Court made detailed findings of fact relative to defendant's option right which was made a condition to plaintiff's purchase of defendant's stock. There is little if any dispute regarding such findings other than on the issue as to whether defendant properly exercised its option, subsequently discussed.
A summary of the findings, together with undisputed evidence offered by defendant, will suffice. Defendant (referred to as Graybar) has been owned exclusively by its active employees and pensioners since January 1, 1929, when its employees purchased all its common stock from a subsidiary of Western Electric Company, Inc. (referred to as Western Electric). The sale was accomplished by organizing a holding corporation, Graybar Management Corporation (referred to as Graybar Management), to purchase all of defendant's common stock. The employees subscribed for the common stock of Graybar Management. On December 30, 1939, Graybar Management and defendant were consolidated into Graybar. Graybar's employees thereby became its direct owners and Graybar Management ceased to exist.
Such employee-ownership was vital to defendant's existence and essential to its prosperity. It enabled defendant to attract high caliber personnel, inspired great loyalty and industry, encouraged long tenure of service and improved customer relations. Defendant prospered under this relationship, reaching annual sales of over $490,000,000, and a net income after taxes of over $10,000,000.
Any employee, including plaintiff, who became a stockholder was able not only to obtain numerous employee benefits but substantial rewards from his stock ownership. Thus, plaintiff, with an investment of only $6,800 in defendant's stock received $19,537.65 in cash dividends, plus stock for which he can now receive an additional $11,340, at the option price, or a total return of over $30,000 on his $6,800 investment.
Stock was purchasable only by employees, with an express condition granting defendant an option to repurchase on death, sale to a third party or cessation of employment other than by retirement on a pension. The Court expressly found, "The option was essential to the maintenance of Graybar as a corporation owned only by its active and retired employees." Graybar always exercised its option when an employee resigned or died, which prevented ownership of stock by non-employees. Through September 1958, 2,403 employees and the estates of employees and pensioners honored the options and sold Graybar a total of 275,873 shares. Plaintiff is the first and only stockholder in thirty years to repudiate the option.
Plaintiff was an employee from 1925 until June 30, 1953, when he voluntarily resigned. At that time he owned 297 shares of preferred and 610 shares of common stock. The latter was represented by Voting Trust Certificates under a 10-year Voting Trust dated January 15, 1948. The preferred stock was not in a Voting Trust but was held by plaintiff directly.
Of such 610 shares of common stock, plaintiff subscribed for 340 shares in various stock purchase plans at $20.00 a share. The remaining 270 shares and the 297 shares of preferred stock were issued as stock dividends. By reason of such stock dividends, plaintiff's average purchase price for all of his stock was about $7.50 a share. All of the stock was worth more than $20.00 a share at the time it was acquired by plaintiff; some of it had a value greatly in excess of that amount. Plaintiff as well as other employees could purchase at this low price because of the option which was expressly related thereto. Each employee, including plaintiff, at the time of the purchase of stock, common or preferred, granted defendant an option to purchase his stock at $20.00 a share, on cessation of employment.
Plaintiff's obligation relative to the option granted by him to Graybar is evidenced by numerous instruments.It was contained in the Certificate of Incorporation of Graybar Management, dated November 2, 1928, and was included in Graybar's charter consisting of the Certificate of Consolidation, dated December 30, 1939, as amended by the "Certificate of Increase in Number and Classification of Shares," dated December 10, 1947.
Graybar's charter among other things provided:
"(c) In the event that any holder of Common Stock ceases to be an employee of the corporation, * * * for any cause other than death or retirement on a pension allowed by the corporation * * *, the corporation is hereby given an option to purchase all the Common Stock held by such stockholder at the price provided in paragraph (a) of this Section B."
The charter contained a similar option provision relative to preferred stock. The option price was "the price for which said shares were issued by the corporation," or $20.00 a share, plus accumulated dividends. Plaintiff signed numerous subscription agreements covering all of his purchase of stock. The agreement signed November 10, 1950 is typical.Plaintiff thereby subscribed for stock on the terms and conditions contained in the Stock Purchase Plan, and specifically agreed, "for the privilege of subscribing for such shares of stock at the said price," he would be bound by all the provisions of the plan and, in particular, defendant's option to repurchase his stock "in the event of the termination of my employment by the company other than by retirement on a pension."
The Stock Purchase Plan of October 1, 1950, to which plaintiff specifically agreed to be bound, commenced with a reaffirmation of the fact that "the company is 100% owned by its active and retired employees," and expressly provided that the subscriber agreed to the charter provisions granting defendant the purchase option "in the event any holder of stock shall desire to sell, transfer or otherwise dispose of any of his shares of such stock, or in the event of his death or the termination of his employment other than by retirement on a pension." All other stock purchase plans containing the option were agreed to by plaintiff.
By agreement of all parties, common stock purchased by defendant's employees, including plaintiff, was placed in a Voting Trust and Voting Trust Certificates issued to shareholders. Each certificate stated in bold faced and large print that it was subject to "certain options to the corporation to purchase the shares represented thereby." Thus, each time plaintiff accepted a Voting Trust Certificate he again consented to the option. Each stock certificate for plaintiff's 297 shares of preferred stock issued directly to him also contained on its face the option agreement, printed in large, bold faced letters, and on the back, the option provision as contained in the corporate charter.
Plaintiff, both on deposition and at the trial, testified in detail relative to the plan by which Graybar permitted its employees to purchase stock, and particularly the option provision. In the interest of brevity, we adopt a statement from Graybar's brief as to plaintiff's admissions: "Defendant is a corporation wholly owned by its active and retired employees, called pensioners; plaintiff, a former employee of defendant, acquired his stock over a 25-year period either by purchase or as stock dividends; each time he acquired stock he voluntarily granted defendant the option to purchase his stock if he ceased to be an employee; the first option was granted in 1928 and the last in 1950; the option was incorporated in the subscription agreements and stock purchase plans under which plaintiff bought, in defendant's charter and in each certificate issued to plaintiff; the same option was required of all employee-stockholders as a condition of obtaining stock, whether by purchase or stock dividends, and no employee could acquire stock unless he granted defendant the option; plaintiff fully understood the option and its importance in maintaining defendant's status as an employee-owned corporation; the option was always exercised whenever an employee resigned or died so that stock never fell into the hands of an outsider; plaintiff voluntarily resigned as an employee to establish his own business; this was an event which made the option exercisable; he understood defendant wanted his stock back on such resignation; defendant exercised its option to purchase all his stock in writing on two occasions, first, in a letter signed by the Chicago District Manager and again in a letter from the home office in New York, and made other efforts to obtain his stock; plaintiff refused to sell the stock; and his sole reason for repudiating the option was because the stock was worth more than the option price and he wanted more money."
The only denial which plaintiff makes concerning this resume of his oral admissions is that "defendant exercised its option to purchase all his stock in writing on two occasions, first, in a letter signed by the Chicago District Manager and again in a letter from the home office in New York, and made other efforts to obtain his stock."
The District Court made findings which support Graybar's position that it properly exercised its option to purchase plaintiff's stock. Plaintiff contends that such findings are clearly erroneous and should be rejected. With this contention we do not agree.
The Court, after finding that Graybar became entitled to exercise its option upon plaintiff's voluntary resignation as a Graybar employee as of June 30, 1953, further found:
"39. Graybar duly exercised its said option by a letter dated July 20, 1953 to Martin from Mr. W. E. Guy, then Martin's superior as Chicago District Manager and a Director of Graybar.
"40. As Graybar's Chicago District Manager, Mr. Guy was practically autonomous in dealing with matters in his district, including matters pertaining to termination of employment such as settling the employee's accounts and ...