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GRAYBAR(R)
INFORMATION STATEMENT
May 14, 2007
GRAYBAR ELECTRIC COMPANY, INC.
34 North Meramec Avenue
Clayton, Missouri 63105
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INFORMATION STATEMENT
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This Information Statement is furnished to each holder of record of Common
Stock of Graybar Electric Company, Inc. (the "Company") and each owner of Voting
Trust Interests issued under the Voting Trust Agreement referred to below in
connection with the Annual Meeting of Shareholders of the Company. That meeting
is to be held at 9:30 A.M. on June 14, 2007 at the Commerce Bank Building, 8000
Forsyth Boulevard, Clayton, Missouri 63105.
The record holders of Common Stock outstanding at the close of business on
April 26, 2007 will be entitled to attend and to vote at the meeting. On April
26, 2007, there were _________________ outstanding shares of Common Stock. Each
share is entitled to one vote.
On April 26, 2007, __________________ of the issued and outstanding shares
of Common Stock of the Company, constituting approximately 79% of the total
outstanding, were held of record in the names of the Voting Trustees under the
Voting Trust Agreement referred to below under "Beneficial Ownership of More
Than 5% of the Outstanding Common Stock". The Voting Trustees as a group possess
the voting power associated with the shares held of record under the Voting
Trust Agreement, and such voting power is sufficient to assure the taking of the
following actions, all as more fully described herein:
(1) Election of the persons nominated by the Board of Directors for
election as directors; and
(2) Approval of the Three-Year Common Stock Purchase Plan.
The Voting Trustees have indicated as a group that they presently intend
to vote the shares of Common Stock held by them FOR the persons nominated by the
Board of Directors for election as directors and FOR approval of the Three-Year
Common Stock Purchase Plan. In addition, the Voting Trustees are authorized to
vote in their discretion with respect to such other matters as may properly come
before the meeting. The Voting Trust Agreement terminates on March 15, 2017,
unless sooner terminated by the vote of a majority of the Voting Trustees or the
vote of the owners of Voting Trust Interests representing at least seventy-five
percent (75%) of the number of shares of Common Stock deposited thereunder.
This Information Statement will be sent to holders of Common Stock and
owners of Voting Trust Interests on or about May 14, 2007.
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WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
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BENEFICIAL OWNERSHIP OF MORE THAN 5%
OF THE OUTSTANDING COMMON STOCK
The following table sets forth certain information as of April 26, 2007,
with respect to the beneficial ownership of the only person known to the Company
to be the beneficial owner of more than 5% of the outstanding shares of Common
Stock. Such beneficial ownership relates solely to voting power because the
Voting Trustees do not have any power to dispose of or direct the disposition of
the shares of Company Common Stock held under the Voting Trust Agreement.
Name and Address of Beneficial Owner Number of Shares Percent of Class
------------------------------------ ---------------- ----------------
D. E. DeSousa, L. R. Giglio, T. S. Gurganous,
R. D. Offenbacher and R. A. Reynolds, Jr.
as Voting Trustees under a Voting Trust
Agreement dated as of March 16, 2007
34 North Meramec Avenue
Clayton, Missouri 63105 79%
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the ownership
of Voting Trust Interests representing shares of Common Stock held in the Voting
Trust as of April 26, 2007 by the persons nominated by the Board of Directors
for election as directors, all of whom are presently directors of the Company,
and by all executive officers and directors of the Company as a group. On April
26, 2007, no single director or executive officer owned beneficially more than
1% of the Voting Trust Interests. No director or executive officer owns shares
of Common Stock of record. The Voting Trustees, when acting in that capacity, as
a group possess the voting power associated with approximately 79% of the
outstanding shares of Common Stock but possess no power of disposition with
respect to such shares.
Name Number of Shares
- ---- ----------------
R. A. Cole .................................................. 6,481
D. B. D'Alessandro .......................................... 4,848
D. E. DeSousa ............................................... 4,572
T. F. Dowd .................................................. 5,764
L. R. Giglio ................................................ 7,590
T. S. Gurganous ............................................. 8,494
F. H. Hughes ................................................ 0
R. C. Lyons ................................................. 1,585
K. M. Mazzarella ............................................ 4,611
R. L. Nowak ................................................. 8,408
R. D. Offenbacher ........................................... 10,361
R. A. Reynolds, Jr. ......................................... 16,531
K. B. Sparks ................................................ 9,802
Executive officers and directors
as a group (15 persons) ..................................... 98,729(1.5%)
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DIRECTORS
Nominees for Election as Directors
Thirteen directors are to be elected to serve until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified. The persons nominated by the Board of Directors for election as
directors, each of whom is currently a director, are named in the table below.
All of the nominees are presently employees of the Company or one of its
subsidiaries. Accordingly, for purposes of serving on the Board or any
committee, none of the directors is deemed to be independent within the meaning
of the listing standards of the New York Stock Exchange, which the Board has
elected to use for purposes of determining independence. Certain additional
information concerning the nominees is set forth below.
Year in
which
became a
Name Age Business Experience Last Five Years Director
- ---- --- ----------------------------------- --------
R. A. Cole 57 Employed by Company in 1972; Group Vice President, November 2001 to July 2003; 1998
District Vice President, July 2003 to present.
D. B. D'Alessandro 46 Employed by Company in 1983; Vice President, IT Strategy Project, June 2001 to 2004
February 2003; Vice President and Chief Information Officer, February 2003 to May
2005; Senior Vice President and Chief Financial Officer, May 2005 to present.
D. E. DeSousa 48 Employed by Company in 1981; Senior Vice President, Sales and Marketing, November 2000
2001 to January 2003; Senior Vice President, Comm/Data Business, January 2003 to
June 2003; Senior Vice President, Sales and Distribution, June 2003 to present.
T. F. Dowd 63 Employed by Company in 1997; Vice President, Secretary and General Counsel, 1997
September 1997 to December 2005; Senior Vice President, Secretary and General
Counsel, December 2005 to present.
L. R. Giglio 52 Employed by Company in 1978; Vice President, Investment and Inventory Management, 2002
April 2001 to April 2002; Senior Vice President, Operations, April 2002 to
present.
T. S. Gurganous 57 Employed by Company in 1973; Group Vice President, November 2001 to July 2003; 1995
District Vice President, July 2003 to present.
F. H. Hughes 60 President and Chief Executive Officer of our majority-owned subsidiary, Graybar 2004
Electric Canada Limited, and its wholly owned subsidiary, Graybar Canada Limited,
January 2001 to present.
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Year in
which
became a
Name Age Business Experience Last Five Years Director
- ---- --- ----------------------------------- --------
R. C. Lyons 50 Employed by Company in 1979; District Vice President-Electrical Sales, January 2006
2002 to January 2003; Vice President-Electrical Sales, January 2003 to July 2003;
District Vice President, July 2003 to present.
K. M. Mazzarella 47 Employed by Company in 1980; Vice President, Strategic Planning, June 2001 to 2004
January 2004; Vice President, Human Resources and Strategic Planning, January
2004 to December 2005; Senior Vice President, Human Resources and Strategic
Planning, December 2005 to present.
R. L. Nowak 60 Employed by Company in 1970; District Vice President-Electrical Sales, January 2006
2002 to January 2003; Vice President-Electrical Sales, January 2003 to July 2003;
District Vice President, July 2003 to present.
R. D. Offenbacher 56 Employed by Company in 1968; Group Vice President, November 2001 to June 2003; 1994
Senior Vice President, Comm/Data Business, June 2003 to February 2004; Senior
Vice President, Sales and Marketing, February 2004 to present.
R. A. Reynolds, Jr. 58 Employed by Company in 1972; President and Chief Executive Officer, July 2000 to 1993
present; Chairman of the Board, April 2001 to present.
K. B. Sparks 61 Employed by Company in 1968; Group Vice President, November 2001 to July 2003; 2001
District Vice President, July 2003 to present.
Transactions with Director
F. H. Hughes, a director of the Company, is a director, officer and more
than 10% shareholder of a company that leases ten warehouse and office
facilities to our Canadian indirect, majority-owned subsidiary, Graybar Canada
Limited, of which Mr. Hughes is President and Chief Executive Officer. The
leases have been in effect since we acquired the predecessor of Graybar Canada
Limited in 1991. The annual rent for these facilities aggregated $1,323,332
(Canadian) in 2006. Under the terms of the leases, the subsidiary is responsible
for all taxes, insurance and maintenance expenses related to the use of the
facilities. In addition, Graybar Canada Limited has entered into an agreement to
purchase these leased facilities at fair market value as determined by mutual
agreement or through an appraisal process with the first purchase being
scheduled for January of 2009. The remaining nine purchases are scheduled for
January of 2011. T. F. Dowd and K. M. Mazzarella, acting in their capacity as
directors of the Canadian subsidiary, have reviewed these transactions and
concluded that the lease terms are comparable to those that could have been
obtained in arms-length transactions with unaffiliated third parties based on a
study done of market rents of
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similar properties in each area and, as to the other terms, a comparison to
leases entered into by the Company generally. The agreement to purchase the
leased properties was reviewed and approved by the Executive Committee of our
Board of Directors.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE MATTERS
Our business is managed with the direction of our Board of Directors. The
Board conducts its business through meetings of the Board and its committees.
The Board of Directors met six times in 2006. All incumbent directors attended
more than 75% of the total number of meetings of the Board and all Board
committees of which they were members. A meeting of the Board of Directors is
typically scheduled in conjunction with the annual meeting of shareholders, and
it is expected that all directors will attend the annual meeting absent a
schedule conflict or other valid reason. Eleven of the twelve directors in
office at the time attended the 2006 Annual Meeting.
Our Code of Business Conduct and Ethics requires any Vice President or
other officer who is not a member of the Board to obtain the approval of the
President prior to engaging in any conduct that might result in or be perceived
to result in a conflict between the personal interest of the officer and our
best interest. The President and any member of the Board must obtain the
approval of a majority of the disinterested directors before entering into any
such conduct.
Board Committees
The Board of Directors has designated an Executive Committee consisting of
Ms. Mazzarella and Messrs. D'Alessandro, DeSousa, Dowd, Giglio, Offenbacher and
Reynolds. Except as otherwise provided by law and the Company's Certificate of
Incorporation, the Executive Committee has all the authority of the Board and
all Board Committees.
The Company has an Audit Committee, which met seven times in 2006. Ms.
Mazzarella and Messrs. Cole, Dowd, Gurganous, Lyons, Nowak and Sparks are the
current members of the Audit Committee. The Audit Committee is governed by a
written charter approved by the Board of Directors, which is available at
www.graybar.com within the "About Us" page under Graybar's Audit Committee
Charter. The Audit Committee and the Board of Directors review and assess the
adequacy of the charter at least annually. None of the members of the Audit
Committee is an audit committee financial expert as that term is defined in the
rules promulgated by the Securities and Exchange Commission (SEC). See "Audit
Committee Report".
The Board of Directors has also appointed an advisory Compensation
Committee, which met seven times in 2006. Ms. Mazzarella and Messrs.
D'Alessandro, DeSousa, Giglio and Offenbacher currently serve on the
Compensation Committee that, in consultation with independent compensation
specialists, reviews the Company's compensation policy and makes recommendations
to the President and the Board of Directors with respect to program changes. The
Compensation Committee is governed by a written charter approved by the Board of
Directors, which is available at www.graybar.com within the "About Us" page
under Graybar's Compensation Committee Charter. See "Compensation Committee
Report".
The Company has no nominating committee. The Board of Directors has
determined that it is appropriate for the entire Board to participate in the
consideration of director nominees who, for the most part, historically have
been long-time employees of the Company, or one of its subsidiaries, with a
broad range of management experience within the Company. When identifying a
nominee to fill a vacancy or new
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position on the Board, the directors consider the recommendation of the Chief
Executive Officer, the background and reputation of the candidate in terms of
character, personal and professional integrity, his or her business experience,
including positions held as an employee of the Company, or one of its
subsidiaries, and how the person would complement the other directors in terms
of expertise and experience. The Board of Directors does not have a policy with
regard to consideration of potential candidates recommended for consideration by
holders of Common Stock and owners of Voting Trust Interests. The Board of
Directors believes that the procedure used traditionally, which generally has
been for the Board to select employees who have been promoted throughout their
careers until they reach a relatively senior management position either in the
field or at corporate headquarters, has served the Company and its
employee-shareholders well.
Compensation Committee Interlocks and Insider Participation
At December 31, 2006, all members of the Compensation Committee were
officers, directors and employees of the Company.
Director Compensation
Directors are paid a meeting fee of $300 for each regular Board meeting
attended.
AUDIT COMMITTEE REPORT
We constitute the Audit Committee of the Board of Directors of the
Company. We oversee the Company's financial reporting process on behalf of the
Board of Directors. Other members of management have the primary responsibility
for the financial statements and the reporting process, including the systems of
internal control over financial reporting. In fulfilling our oversight
responsibilities, we reviewed the audited financial statements with these
members of management, including a discussion of the quality, not just the
acceptability, of the accounting principles used, the reasonableness of the
significant judgments made and the clarity of the disclosures contained in the
financial statements.
We reviewed with the independent auditors, Ernst & Young LLP, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee by Statement on Auditing Standards No. 61, as amended by
Statement on Auditing Standards No. 90 (Communications with Audit Committees).
In addition, we discussed with the independent auditors the auditors'
independence from management and the Company, including the matters in the
written disclosures required by the Independence Standards Board Standard No. 1,
and have considered the compatibility of non-audit services with the auditors'
independence.
We discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. We met with the internal
and independent auditors to discuss the results of their examinations, their
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting.
In reliance on the reviews and discussions referred to above, we
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended December 31, 2006
for filing with the SEC. The Board approved such inclusion.
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Submitted by:
T. S. Gurganous, Chair
R. A. Cole
T. F. Dowd
R. C. Lyons
K. M. Mazzarella
R. L. Nowak
K. B. Sparks
Members of the Audit Committee
COMPENSATION DISCUSSION AND ANALYSIS
Named Executive Officers
The names and titles of our "named executive officers" for SEC
compensation reporting purposes are:
Name Title
R. A. Reynolds, Jr. Chairman, President and Chief Executive Officer
D. B. D'Alessandro Senior Vice President and Chief Financial Officer
D. E. DeSousa Senior Vice President, Sales and Distribution
T. F. Dowd Senior Vice President, Secretary and General Counsel
R. D. Offenbacher Senior Vice President, Sales and Marketing
Compensation Philosophy and Objectives
Our compensation philosophy is to reward achievement of specific, annual
financial goals, to be internally equitable among our executives and all other
employees, and to foster long-term employment relationships with key personnel.
The principles that underlie the Company's compensation elements for employees
also apply to the compensation of the named executive officers.
We do not grant stock options or other equity-based compensation. All
stock owned by the named executive officers, as is the case with all other
employees, has been purchased by them under employee common stock purchase plans
or has been received as a stock dividend on shares so purchased.
We use the following objectives to evaluate and determine compensation for
the named executive officers:
o Total compensation is a combination of base salary, annual cash
incentive, and retirement, health, and welfare benefits designed to
attract, motivate and retain a highly qualified executive team in a
manner consistent with our being an employee-owned company.
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o A significant portion of executive compensation should be at risk,
by being tied to our business performance, and each individual's
contribution to that performance.
Executive Compensation Elements
Applying this philosophy and set of objectives, we have established a
total compensation program for the named executive officers that includes the
same elements that are used for all our management employees. Named executive
officers also receive director's fees for their board participation.
The primary compensation elements for our named executive officers are as
follows:
Base Salary. Base salary is the fixed pay element that compensates the
named executive officers for services rendered during the fiscal year.
Named executive officer salaries, including that of the Chief Executive
Officer, are reviewed annually and are determined based on a number of
factors, including the relative level of responsibility of the position
within the Company, the position's impact on profitability and the
executive's achievement of performance and development objectives. See
"Executive Compensation Process" below.
Performance-Based Non-Equity Incentive Compensation. Our Management
Incentive Plan (MIP) is a performance-based annual cash incentive award
designed to motivate eligible management employees to achieve specific
pre-defined annual financial goals set for their respective business units
and to reward the achievement of such goals. Those goals are Company-wide
for the named executive officers and other participants whose
responsibilities are at the corporate level.
The same MIP formula is used for the named executive officers as for other
management employees except for structural differences related to each
business unit (Corporate, District, or Branch). MIP has been an integral
part of our management compensation program for more than 30 years.
Amounts payable under MIP vary based on level of responsibility.
Therefore, the most senior executive officers have the highest percentage
of their total compensation contingent upon the achievement of the annual
corporate-wide financial goals.
o Annual incentive award payments under MIP are based on actual
performance against budget for sales, gross margin and net profit.
Each year, the Board of Directors approves budgets consistent with
Company growth and other strategic objectives. Parameters used to
set the growth objectives include the growth that we can finance
internally, the expected growth in the markets we serve and an
increase in market share.
o Named executive officers have a guideline incentive, ranging from
65% to, in the case of the Chief Executive Officer, 80% of base
salary. To receive any incentive award under MIP, performance
against net profit and gross margin budgets must be at least 60%
which yields two points per category. The maximum amount payable
under MIP is 150% (150 points) of the applicable guideline
incentive. Results falling between 60% and 110% of the budgeted
amount (net profit and gross margin amounts) are assigned points
according to an index provided to all participants in advance of
each MIP year.
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Incentive awards payable to all Corporate MIP participants, including the
named executive officers, are calculated based on their guideline incentive
(eligible base salary multiplied by the applicable guideline percentage), which
ranges from 20% to 80% multiplied by the Corporate performance index. The
Corporate performance index is calculated based on the aggregate performance of
all Districts against budget.
The following table sets forth the base components of the 2006 MIP
performance index for the named executive officers:
Net Profit Gross Margin Sales
Points (GM) Points Points
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Corporate Up to 70 Up to 70 Up to 10
(Location for named executive officers)
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Net Profit = Actual results vs. budgeted net profit before tax, MIP, and
profit sharing.
Gross Margin = Actual results vs. budgeted gross margin dollars.
Sales = One point for each one percent of sales that exceeds the
sales budgets, up to a maximum of 10 points.
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NOTE: For both the Net Profit and Gross Margin components, up to 6 points can be
earned for achieving 60% of budget, up to 50 points for achieving 100% of budget
and up to 70 points for achieving 110% of budget.
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In 2006, the Districts attained more than 110% of net profit budget, more
than 100% of gross margin budget and more than 100% of sales budget. The sum of
the points awarded (performance index) for Corporate's attainment of the 2006
goals was 141.
As an example, a named executive officer with a guideline percentage of
65% and a performance index of 141 for 2006 would earn an MIP payment of 65%
times 141% times base salary.
Deferral of Base Salary and MIP Compensation. Named executive officers are
not eligible to participate to the same extent in the savings opportunities
afforded all other employees under the Company's qualified profit sharing and
savings plan due to income limitations imposed by the Internal Revenue Code
(IRC). To accommodate this difference, the named executive officers are offered
a savings replacement opportunity that allows them to voluntarily elect to defer
a portion of their base salary or incentive award compensation to a nonqualified
plan. If they do so, a portion of any profit sharing contribution may also be
deferred as described under "Retirement Plans". See the Nonqualified Deferred
Compensation table under "Executive Compensation" for details.
Health and Welfare Benefits. Health and welfare benefits are designed to
provide competitive, basic health, life and disability insurance for all
eligible employees, including the named executive officers. The Company
periodically reviews the competitiveness of its benefits against the benefits
offered by broader general industry.
Perquisites and other Personal Benefits. We reimburse the named executive
officers and other management employees for social and country club memberships
when used primarily to conduct our business activities. Named executive officers
and other executives may also receive spousal travel
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benefits when our interests warrant spousal attendance at specific meetings or
functions related to the executives' duties. See "All Other Compensation".
Retirement Plans.
o Profit Sharing and Savings Plan. The Company's tax-qualified profit
sharing and savings plan permits company contributions, based on the
performance of the Company, to be allocated on the same basis to all
eligible employees, including the named executive officers. See the
All Other Compensation table under "Executive Compensation" below.
To the extent that an employee's or a named executive officer's
annual allocated profit sharing contribution amount under the plan
exceeds the limitations imposed by Sections 401 and 415 of the IRC,
such excess benefits may be paid in cash or deferred for later
payment under the Company's nonqualified, unfunded, noncontributory
plan, depending upon the election to defer compensation, made by
each named executive officer in the year prior to the plan year. See
the Nonqualified Deferred Compensation table under "Executive
Compensation" for more details.
o Pension Plan. The Company also provides a tax-qualified defined
benefit pension plan to all eligible employees, including the named
executive officers. As explained in more detail in the Pension
Benefits table, pension benefits may be paid from the Company's
nonqualified, unfunded, noncontributory plan for any employees,
including the named executive officers, to the extent their pension
plan benefit exceeds the limitations imposed by Sections 401(a)(17)
and 415 of the IRC.
Executive Compensation Process
Annually, the Compensation Committee engages an outside compensation
consultant (Towers Perrin, in 2006) to provide competitive market data against
which the Chief Executive Officer's compensation is compared. On a periodic
basis, including 2006, the outside consultant also provides market data for
other executives, including the other named executive officers. The Compensation
Committee uses this data to make recommendations to the Board of Directors
regarding changes to the compensation program.
This market data is one consideration when establishing executive pay
levels. Other factors evaluated are overall individual responsibilities,
performance, contribution, and internal equity among executives. The
Compensation Committee considers all of this data when making pay
recommendations to the Board of Directors for the Chief Executive Officer. In
turn, the Chief Executive Officer reviews similar data in setting compensation
for other senior management personnel, including the remaining named executive
officers. Pay levels are established after reviewing the elements of
compensation independently, and in the context of total compensation.
The primary competitive market is a peer group of publicly traded
companies (the "Peer Group") in the wholesale distribution industry. A secondary
source used by the Company is the broader general industry for companies of
similar size. The Peer Group, which is periodically reviewed and updated by the
Committee, for 2006 consisted of:
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o Advance Auto Parts, Inc.
o Agilysys, Inc.
o Airgas, Inc.
o Anixter International, Inc.
o Applied Industrial Technologies, Inc.
o Arrow Electronics, Inc.
o Avnet, Inc.
o Bell Microproducts, Inc.
o BlueLinx Holdings, Inc.
o Brightpoint, Inc.
o CDW Computer Centers, Inc.
o Genuine Parts Co.
o Grainger (WW), Inc.
o Schein Henry, Inc.
o SYNNEX Corp.
o Thermo Fisher Scientific, Inc.
o United Stationers, Inc.
o Watsco, Inc.
o WESCO International, Inc.
The 2006 study of Peer Group proxy data provided by our outside
consultant, similar to recent historical surveys, indicated that although
comparability varies slightly by position, generally the Company's named
executive officers and other executives are compensated below the median market
level for total compensation. This is a result of the fact that the Company
relies exclusively on annual cash compensation and provides no equity
incentives, which are a significant element of compensation for most of the
other members of the Peer Group. As is the case with all employees, the named
executive officers do not receive a discretionary bonus or stock awards or
options.
In 2006, the outside consultant also performed a competitive review of our
employee benefits (excluding profit sharing) compared against the general
industry. Our benefits (as a percentage of pay) were found to be generally
comparable to the median of the competitive market.
Employment Agreements, Severance and Change-In-Control Benefits
We do not have employment agreements, change-in-control benefits or
executive severance benefits for any of the named executive officers. Named
executive officers are eligible for the same severance programs provided to all
employees of the Company. See "Executive Compensation - Potential
Post-Employment Payments".
COMPENSATION COMMITTEE REPORT
We constitute the Compensation Committee of the Board of Directors of the
Company. We have responsibility for recommending, implementing, and continually
monitoring adherence to the Company's compensation philosophy, objectives,
policies and practices.
We have reviewed and discussed the foregoing Compensation Discussion and
Analysis with management and, based on such review and discussion, have
recommended to the Board of Directors inclusion of the Compensation Discussion
and Analysis in this Information Statement and, through incorporation by
reference from this Information Statement, in the Company's Annual Report on
Form 10-K for the year ended December 31, 2006.
Submitted by:
K. M. Mazzarella, Chair
D. B. D'Alessandro
D. E. DeSousa
L. R. Giglio
R. D. Offenbacher
Members of the Compensation Committee
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EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth information regarding all elements of the
compensation paid or earned by each of the named executive officers for the
fiscal year ended December 31, 2006.
Change in
Pension Value
Non-Equity & Nonqualified
Incentive Plan Deferred All Other
Name and Compensation Compensation Compensation
Principal Position Salary ($) (1) ($) (2) Earnings ($) (3) ($) (4) Total ($)
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R. A. Reynolds, Jr.
Chairman, President &
Chief Executive Officer $535,608 $604,166 $251,786 $175,922 $1,567,482
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D. B. D'Alessandro
Senior Vice President &
Chief Financial Officer $200,193 $183,478 $124,258 $ 57,925 $ 565,854
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D. E. DeSousa
Senior Vice President,
Sales & Distribution $248,904 $228,120 $157,132 $ 72,469 $ 706,625
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T. F. Dowd
Senior Vice President,
Secretary &
General Counsel $225,803 $206,948 $ 55,078 $ 64,164 $ 551,993
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R. D. Offenbacher
Senior Vice President,
Sales & Marketing $225,391 $206,571 $139,271 $ 67,466 $ 638,699
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(1) Amounts earned in 2006 and deferred by certain named executive officers
pursuant to deferred compensation agreements with the Company.
(2) Payments made in 2007 for the fiscal year 2006 under the MIP. Includes
amounts deferred by certain named executive officers pursuant to deferred
compensation agreements with the Company.
(3) Amounts related to changes in pension values from 2005 to 2006. See the
Pension Benefits table below.
(4) Amounts (including any that have been deferred) include annual amounts
contributed by the Company to the profit sharing and savings plan,
perquisites and other personal benefits, and other miscellaneous items.
See "All Other Compensation".
All Other Compensation
The table below itemizes the value of All Other Compensation received by
the named executive officers for 2006 as shown in the Summary Compensation
Table.
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Registrant
Perquisites and Contributions to
Other Personal Defined Contribution Tax
Name Benefits (1) Plans (2) Reimbursements (3) Other (4)
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R. A. Reynolds, Jr. $33,078 $138,368 $3,276 $1,200
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D. B. D'Alessandro $11,293 $ 45,432 $ 0 $1,200
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D. E. DeSousa $11,717 $ 59,183 $ 369 $1,200
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T. F. Dowd $ 9,027 $ 53,937 $ 0 $1,200
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R. D. Offenbacher $12,136 $ 53,497 $ 633 $1,200
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(1) Amounts paid by the Company for dues for memberships in social clubs, dues
for memberships in country clubs and occasional spousal travel as
explained in "Compensation Discussion and Analysis - Executive
Compensation Elements".
(2) Total qualified and nonqualified Company contributions made under our
profit sharing and savings plan on April 2, 2007 for 2006.
(3) Amounts for taxes reimbursed for spousal travel.
(4) Annual director's fees.
This table sets forth additional information regarding the range of
possible MIP payouts for 2006. The actual payment is shown in the Summary
Compensation Table under the heading "Non-Equity Incentive Plan Compensation".
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards
--------------------------------------------------------
Name Threshold ($) (1) Target ($) (1) Maximum ($) (1)
- --------------------------------------------------------------------------------
R. A. Reynolds, Jr. $25,709 $428,486 $642,729
- --------------------------------------------------------------------------------
D. B. D'Alessandro $ 7,808 $130,125 $195,188
- --------------------------------------------------------------------------------
D. E. DeSousa $ 9,707 $161,788 $242,682
- --------------------------------------------------------------------------------
T. F. Dowd $ 8,806 $146,772 $220,158
- --------------------------------------------------------------------------------
R. D. Offenbacher $ 8,790 $146,504 $219,756
- --------------------------------------------------------------------------------
(1) Threshold represents the amount payable if actual results were 60% of the
net profit, gross margin and sales budgets, target represents 100% of
those budgets and maximum represents 110% of net profit and gross margin
budgets and 105% of the sales budgets. No MIP payment would have been due
if the threshold had not been reached.
- 13 -
Pension Benefits
The Company has a qualified defined benefit pension plan covering all
eligible employees, including the named executive officers. The plan provides
retirement benefits based on an employee's final average earnings and years of
service. Employees become fully vested after five years of service regardless of
age and generally, employees may retire and begin receiving full pensions at the
age of 65, at age 55 with 20 years or more of service or any age with 30 years
of service under the plan. Employees may also receive reduced early retirement
benefits at age 50 with 25 years of service.
While the formula for executives is the same for all employees,
compensation under the qualified plan is limited by the Internal Revenue Code
(IRC) and does not include amounts deferred under a deferred compensation
agreement. Therefore, to the extent that an employee's or a named executive
officer's annual pension benefit under the plan exceeds the limitations imposed
by Sections 401(a)(17) and 415 of the IRC, such excess benefits are to be paid
as a supplemental pension benefit under the Company's nonqualified, unfunded,
supplemental plan.
The annual benefit formula for the pension plans (qualified and
nonqualified) is defined as the greater of (a) minus (b), where
(a) is 1% of the Annual Eligible Pay multiplied by years of Company
service, and
(b) is 1% of his annual social security amount multiplied by years of
Company service, up to a maximum of 33-1/3% of such annual social
security amount.
The formula below provides a simplified illustration as to how the benefits are
calculated:
Annual Years of Annual Social Years of
[1% X Eligible X Company ] minus [1% X Security X Company ]
Pay Service Amount Service
o Annual Eligible Pay includes an employee's average annual earnings
(base pay, overtime and incentive payments) for the highest
consecutive 60 months of Company service. There is a minimum benefit
of $18 per month per year of service, up to a maximum of $540 per
month.
o Benefits may be adjusted for pre-retirement spouse's protection and
certain early retirement penalties.
o Qualified plan benefits are available in several alternate annuity
payment forms, which are actuarially equivalent, or are payable as a
lump sum. Nonqualified pension plan benefits are paid in
installments beginning the January following termination or
retirement based on the plan schedule, which may be up to ten years,
depending on the value of the benefits.
The following table sets forth information regarding the present value of
the accumulated benefits under our qualified defined benefit pension plan and
the nonqualified supplemental plan. No payments were made to any named executive
officer under those plans during 2006.
- 14 -
Number of Years Present Value of
Name Plan Name Credited Service (#) Accumulated Benefit ($)
- ------------------------------------------------------------------------------------------
R. A. Reynolds, Jr. Qualified Plan 34.6 $1,022,154
Nonqualified Plan 34.6 $2,897,556
- ------------------------------------------------------------------------------------------
D. B. D'Alessandro Qualified Plan 23.8 $ 452,283
Nonqualified Plan 23.8 $ 71,385
- ------------------------------------------------------------------------------------------
D. E. DeSousa Qualified Plan 25.9 $ 682,534
Nonqualified Plan 25.9 $ 424,716
- ------------------------------------------------------------------------------------------
T. F. Dowd Qualified Plan 9.8 $ 222,373
Nonqualified Plan 9.8 $ 116,173
- ------------------------------------------------------------------------------------------
R. D. Offenbacher Qualified Plan 38.6 $1,166,812
Nonqualified Plan 38.6 $ 525,716
- ------------------------------------------------------------------------------------------
Assumptions. The change in pension values provided in the Summary
Compensation Table and the present value of accumulated benefits provided in the
Pension Benefits table are based on the following assumptions:
o Accumulated benefits for all named executive officers are based on
years of Company service and Annual Eligible Pay through December
31, 2006.
o If the named executive officer was not yet eligible for an unreduced
benefit as of December 31, 2006, it is assumed that the participant
will remain employed until the date when he is first eligible for an
unreduced early retirement benefit, and then the benefit commences
immediately. As of December 31, 2006, Messrs. Reynolds and
Offenbacher were eligible for an unreduced early retirement benefit
under both the qualified and nonqualified plans.
o Participants are assumed to select the lump sum optional form of
payment, which is based on a combination of the Pension Benefit
Guaranty Corporation (PBGC) interest rate used to calculate lump sum
payments, the 30-year Treasury rate, and the mortality assumptions
prescribed by Section 417(e) of the IRC. The lump sum interest rate
for payments as of January 1, 2007 is 3.3% and is assumed to
increase to a normative level of 5.5% over 15 years.
o As required for the named executive officers who are not eligible
for an unreduced early benefit on December 31, 2006, pension
benefits have been calculated with salary and service through
December 31, 2006 but assumed not to be payable until the date when
they are first eligible. Therefore, the lump sum payable at the
participant's earliest unreduced commencement date has been
discounted back to the reporting date (12/31/2006) using the
discount rate used for financial reporting purposes (5.75% for
12/31/2006). No adjustment has been made for pre-retirement spouse's
protection.
Contingent Benefits. If the participant terminates employment prior to
retirement eligibility, an annuity is payable at age 65, or an actuarially
reduced benefit is payable between ages 55-65 for
- 15 -
participants who terminated with at least 20 years of Company service. A
pre-retirement spousal annuity is payable if a married participant dies while
employed or prior to commencing payment of benefits. Participants on long-term
disability continue to earn credit toward pension benefits.
Nonqualified Deferred Compensation
As discussed in the Compensation Discussion and Analysis, certain
executives, including named executive officers, may voluntarily defer 2% to 15%
of base salary and/or 2% to 25% of incentive payments pursuant to their
individual deferred compensation agreements. The Company does not fund or match
any of these voluntary employee contributions. In addition, the deferred
compensation accounts include Company contributions that would have been paid to
the qualified profit sharing and savings plan except for the annual limitations
imposed by the Internal Revenue Code.
At the end of each calendar quarter, deferred compensation accounts are
credited with interest based on the average crediting rate for the prior
calendar quarter under the stable value fund, (fixed income) of the Company's
profit sharing and savings plan. Nonqualified deferred compensation payments are
made in installments beginning in the January following termination or
retirement based on the plan schedule, which may be up to ten years, depending
on the value of the benefits.
The following table provides information with respect to the nonqualified
deferred compensation accounts for each of the named executive officers. No
withdrawals or distributions were paid to any of the named executive officers
during 2006.
Executive Registrant Aggregate Aggregate
Contributions in Contributions in Earnings in Balance at Last
Name Last FY ($) (1) Last FY ($) (2) Last FY ($) FYE ($) (3)
- ------------------------------------------------------------------------------------------
R. A. Reynolds, Jr. $ 0 N/A $57,706 $1,270,747
- ------------------------------------------------------------------------------------------
D. B. D'Alessandro $ 5,978 $12,432 $ 643 $ 17,148
- ------------------------------------------------------------------------------------------
D. E. DeSousa $ 0 N/A $ 0 $ 0
- ------------------------------------------------------------------------------------------
T. F. Dowd $16,094 $20,937 $ 6,963 $ 158,247
- ------------------------------------------------------------------------------------------
R. D. Offenbacher $55,529 $20,497 $19,955 $ 458,423
- ------------------------------------------------------------------------------------------
(1) Amounts of base salary and incentive payment deferred in 2006.
(2) The portion of Company profit sharing contributions exceeding the limits
imposed with respect to the qualified plan that were credited to deferred
compensation accounts for 2006 for those named executive officers electing
to defer compensation earned during 2006.
(3) These balances, as of December 31, 2006, include interest, deferred salary
and incentive payments and deferred profit sharing contributions accrued
and reported in prior years but do not include the nonqualified profit
sharing contributions that were paid on April 2, 2007 discussed in the
preceding note.
- 16 -
Potential Post-Employment Payments
Each named executive officer participates in the same benefit plans with
the same options available to him or her as all employees of the Company upon
voluntary or involuntary termination (with or without cause), early or normal
retirement, disability or death. Termination following a change of control would
be treated the same as any other termination.
Payments Made Upon Voluntary Termination, Retirement or Disability. In the
case of a voluntary termination, retirement or disability, named executive
officers are entitled to receive all compensation and benefits earned, accrued
and vested during their term of employment.
Payments Made Upon Involuntary Termination (with or without cause). If a
named executive officer were terminated without cause (layoff), compensation and
benefits paid would be the same as for a voluntary termination, retirement or
disability. In addition, a severance payment would be made in a single lump sum
payment equal to one week of base pay for each year of completed service.
Assuming a termination was effective for reason of layoff as of December 31,
2006, the severance amount that would have been payable to the named executive
officers was: R. A. Reynolds, Jr. - $355,584, D. B. D'Alessandro - $96,597, D.
E. DeSousa - $126,214, T. F. Dowd - $39,207, R. D. Offenbacher - $180,256.
If a named executive officer were terminated with cause from the Company's
employment, earned, accrued and vested compensation would be paid with the
exception of earned vacation and earned floating holiday compensation.
Payments Made Upon Death. In the event of the death of an employee,
including a named executive officer, compensation and benefits would be paid the
same as for a voluntary termination, retirement or disability.
In addition, death benefits for each of the named executive officers at
December 31, 2006 were as follows:
o $250,000 under the Company's basic life insurance plan,
o $250,000 under the Company's basic life accidental death and
dismemberment insurance plan, if applicable, and
o $500,000 under the Company's business travel insurance plan, if
applicable.
Payments Made Upon a Change of Control. The Company has not entered into
Change of Control Severance Agreements with any of the named executive officers
or any other employee.
APPROVAL OF THE THREE-YEAR COMMON STOCK PURCHASE PLAN
The Board of Directors will submit to the Annual Meeting of Shareholders
for shareholder approval the Three-Year Common Stock Purchase Plan (the "Plan")
pursuant to which the Company will offer to eligible employees, including
officers, of the Company and its wholly owned subsidiary, Commonwealth Controls
Corporation, the right to subscribe for shares of Common Stock of the Company at
a price of $20.00 per share in each of the years 2007, 2008 and 2009. The
maximum number of shares that may
- 17 -
be issued pursuant to the Plan is two million (2,000,000). The Plan was
unanimously approved by our Board of Directors of the Company on March 8, 2007.
Each annual offering will afford eligible active, full-time employees of the
Company and Commonwealth Controls Corporation, and certain eligible retirees who
were active, full-time employees on March 31 of the year in which the offering
is made, an opportunity to purchase shares of Common Stock. Holders of Common
Stock or owners of Voting Trust Interests who are not active, full-time
employees of the Company or Commonwealth Controls Corporation will not be
entitled to participate in the Plan, with the exception of employees who retire
on a pension (except a deferred pension) on or after March 31 and prior to
October 1 of the year in which the offering is made. The eligibility conforms
with the policy initially adopted when the company's active employees acquired
all of its Common Stock from Western Electric Company and followed continuously
since then. The number of shares of Common Stock to be offered in each of the
years will be determined by the Board of Directors. It is contemplated that the
terms of each of the 2007, 2008 and 2009 offerings will be substantially as
described below.
It is presently contemplated that the subscription period for an offering
under the Plan would run from a date in October to one in December of the
applicable year as determined by the Board of Directors. Subscribers would have
the option of paying in full on or before a date set by the Board of Directors
in January of the following year for the shares subscribed for or agreeing to
make payments for the shares subscribed for in equal installments through
payroll deductions (or direct monthly payments in certain cases where
subscribers are no longer on the Company's or Commonwealth Controls
Corporation's regular payroll). Installment payments would commence with the
second payroll payment date in January of the year following the offering and
end with the last payroll payment date in November of that year. Subscribers who
elect to use payroll deduction have the right at any time to pay the full
remaining amount due, and upon any such accelerated payment, certificates will
be issued representing the fully paid shares and the payroll deduction will no
longer apply. Shares paid for in full will be issued as of the date paid in
full. Shares paid for in installments will be issued of record by the tenth day
of March, June, September and December to the extent they have been fully paid
for.
Additional information with respect to the terms of the offering and the
number of shares for which each eligible employee or retiree of the Company or
Commonwealth Controls Corporation will be entitled to subscribe are set forth in
the Plan, a copy of which is annexed to this Information Statement as Exhibit A.
The total purchase price to be paid will equal that number of shares multiplied
by $20.00. The number of shares to be offered to each eligible employee or
retiree of the Company in any offering will be determined by dividing the base
salary of that employee or retiree at March 31 of the applicable year by a
dollar amount determined by the Board of Directors for each offering and
multiplying that amount by the applicable multiplier shown in the following
table:
Grade/Band Classifications Multiplier
-------------------------- ----------
Executives EX1 through EX5 3.00
Grades 17, 18, 19 and 20 and Band M1 2.50
Grades 15 and 16 and Band M2 2.25
Grades P and Q 1.90
Grades N and O 1.85
Grade 14 or below covered either by
the Management Incentive Plan or the
Sales Incentive Plan and Band M3 1.75
Grades J, K, L and M 1.50
All others 1.25
- 18 -
The Board of Directors will also determine the appropriate number of shares to
be offered to each eligible employee and eligible retiree of Commonwealth
Controls Corporation using salary classifications comparable to those listed in
the table above.
Shares of Common Stock purchased pursuant to the terms of the Plan will,
upon issuance, be deposited in the Voting Trust established by the Voting Trust
Agreement and Voting Trust Interests will be issued in respect thereof, except
that subscribers who prior to the offering are already shareholders of record
who elected not to participate in the Voting Trust Agreement will receive stock
certificates representing the shares for which they subscribe.
All subscribed shares of Common Stock will be issued and held subject to
the terms, provisions, restrictions and qualifications set forth in the Restated
Certificate of Incorporation of the Company, as amended, which, among other
things, provide the Company the option to repurchase shares of its Common Stock
at the price at which such shares were issued, with appropriate adjustment for
current dividends, in the event any holder of Common Stock wants to sell,
transfer or otherwise dispose of any of his or her shares of such Common Stock,
or in the event of his or her death or in the event of termination of his or her
employment other than by retirement on a pension (except a deferred pension).
The Voting Trust Interests to be issued under the Voting Trust Agreement will
provide, in substance, that every Voting Trust Interest is issued and held upon
and subject to the same terms and conditions (including all restrictions) upon
which Common Stock of the Company is issued and held. Each subscriber by
executing a Subscription Agreement will specifically agree to be bound by the
provisions of the Restated Certificate of Incorporation and will agree that all
Common Stock or Voting Trust Interests held by such subscriber shall be subject
to these provisions.
The Plan provides that no corporate action that would result in a
distribution of Common Stock or other assets of the Company to its shareholders
(except the payment of cash dividends or the issuance of shares of Common Stock
pursuant to the installment payment method) will be taken without first giving
notice of such proposed action to subscribers who have not then completed their
installment payments on the Common Stock for which they have subscribed. Such
subscribers will be granted not less than twenty (20) days to accelerate their
payments on such Common Stock in order that they may obtain the benefits of such
action.
As and when payments are received from subscriptions, they will be added
to the general funds of the Company.
The last Common Stock Purchase Plan of the Company, in connection with
which 506,662 shares of Common Stock were subscribed for, ran from October 26,
2006 to December 1, 2006. Under that plan, each of the directors, other than Mr.
Hughes who was not entitled to participate and all directors and officers as a
group purchased the number of shares set forth below:
Name Number of Shares
- ---- ----------------
R. A. Cole ............................ 726
D. B. D'Alessandro .................... 990
D. E. DeSousa ......................... 1,236
T. F. Dowd ............................ 1,131
L. R. Giglio .......................... 1,074
T. S. Gurganous ....................... 915
F. H. Hughes .......................... 0
R. C. Lyons ........................... 657
K. M. Mazzarella ...................... 990
R. L. Nowak ........................... 765
R. D. Offenbacher ..................... 1,119
R. A. Reynolds, Jr. ................... 2,589
K. B. Sparks .......................... 885
All directors and officers as a group
(15 persons) .......................... 14,508
- 19 -
The affirmative vote of the holders of at least a majority of the issued
and outstanding shares of Common Stock is required to approve the Plan. The
Voting Trustees have indicated they presently intend to vote the shares of
Common Stock held by them in favor of, and thereby approve, the Plan. Upon
shareholder approval, the Company and the Voting Trustees intend to file a
Registration Statement with the SEC with respect to the shares of Common Stock
to be offered in 2007 under the Plan and the Voting Trust Interests to be issued
in respect thereof and the offering will be made pursuant thereto. The expenses
of each offering will be paid by the Company.
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP audited the financial statements of the Company and its
subsidiaries in 2006 and will be considered for reappointment by the Board of
Directors in June 2007. Ernst & Young LLP has advised the Company that neither
the firm nor any of its members or associates has any direct financial interest
or any material indirect financial interest in the Company or any of its
affiliates other than as accountants. No representative of Ernst & Young LLP is
expected to attend the Annual Meeting of Shareholders.
The fees billed to the Company by Ernst & Young LLP with respect to the
years 2006 and 2005 were as follows:
2006 2005
---- ----
Audit Fees $ 695,740 $ 569,594
Audit-Related Fees $ 37,180 $ 32,490
Tax Fees $ 179,487 $ 706,894
All Other Fees -- --
Audit Fees include amounts billed for the audit of the Company's annual
consolidated financial statements, the timely review of the financial statements
included in the Forms 10-Q filed by the Company during each year, general
consultations on accounting and disclosure matters, and international statutory
audits. Audit-Related Fees include audits of the Company's employee benefit
plans, advisory services related to the management report on internal controls,
and other audit-related services. Tax Fees include services rendered for tax
compliance, tax advice, and tax planning. It is expected that Ernst & Young LLP
will provide similar non-audit services during the year 2007. In connection with
its review and evaluation of non-audit services, the Audit Committee has
considered and concluded that the provision of the non-audit services is
compatible with maintaining the independence of Ernst & Young LLP.
The Audit Committee has established procedures for the pre-approval of all
audit and non-audit services to be performed by the independent auditor retained
to audit the Company's financial statements. Under these procedures, types of
services and an estimated range of fees are established and pre-approved
annually. Invoices for pre-approved services that are within the pre-approved
range may be paid by the Senior Vice President and Chief Financial Officer and
the Vice President and Controller. If the fees for any type of service are
expected to exceed the pre-approved limit, a request must be submitted to the
Audit Committee Chair. Services other than those included in the annual
- 20 -
pre-approval must be considered and authorized in advance by the Audit Committee
on an engagement-by-engagement basis.
MISCELLANEOUS
Effective December 1, 2006, the Company renewed the insurance covering
directors and officers, along with the fiduciary liability which covers certain
other employees against liabilities imposed on them as a result of their
employment with the Company. This coverage is provided by National Union Fire
Insurance Company (a member of the AIG Group) and St. Paul Insurance Company for
a total premium of $177,884 through November 30, 2007.
Owners of Common Stock and Voting Trust Interests may communicate directly
with the Board of Directors by mail at Graybar Board of Directors, 34 North
Meramec Avenue, Clayton, Missouri 63105. All such communications will be
received directly by the Chairman of the Board and the Senior Vice President,
Secretary and General Counsel and reviewed with the other directors as they deem
appropriate.
The management of the Company knows of no other matters to be brought
before the meeting.
By Order of the Board of Directors
THOMAS F. DOWD
Secretary
May 14, 2007
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year 2006 will be made available without charge
upon written request addressed to the Secretary of the Company at its principal
executive offices. A copy is also accessible at www.graybar.com within the
"About Us" page under "Graybar SEC Filings". Additionally, a copy of the
Company's report can be obtained at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.
Also, a copy of our electronically filed materials can be obtained at
www.sec.gov.
- 21 -
EXHIBIT A
THREE-YEAR COMMON STOCK PURCHASE PLAN
DATED AS OF JUNE 14, 2007
RELATING TO UP TO 2,000,000 SHARES OF COMMON STOCK OF
GRAYBAR ELECTRIC COMPANY, INC.
--------------------------------
1. General; Employees entitled to subscribe.
1.1 This Plan provides for offerings in each of the years 2007, 2008 and
2009 (each, an "Applicable Year") to eligible employees, including officers, of
Graybar Electric Company, Inc. (the "Company"), and its wholly owned subsidiary,
Commonwealth Controls Corporation, and retirees who were active, full-time
employees of the Company or Commonwealth Controls Corporation on March 31 of the
Applicable Year, of the right to subscribe for shares of the Company's common
stock, par value $1.00 per share with a stated value of $20.00 per share (the
"Common Stock"), at a price of $20.00 per share. The aggregate number of shares
of Common Stock to be offered in each year and the terms of such offering shall
be determined by the Board of Directors. The maximum number of shares of Common
Stock that may be issued pursuant to this Plan is 2,000,000. This Plan shall
remain in effect until January 31, 2010 unless terminated prior thereto by the
Board of Directors of the Company, and thereafter insofar as the provisions
relate to shares of Common Stock subscribed for under the Payroll Deduction
Method as described in Section 4.2.
1.2 Each person who on September 30 of the year in which an offering is
conducted (the "Applicable Year") is (a) an active, full-time employee of the
Company or Commonwealth Controls Corporation continuously employed by the
Company or Commonwealth Controls Corporation since March 31 of the Applicable
Year or (b) a person who on March 31 of the Applicable Year is an active,
full-time employee of the Company or Commonwealth Controls Corporation and who
retires on a pension (except a deferred pension) after March 31 and prior to
October 1 of the Applicable Year (a "Qualified Retiree") will be entitled to
subscribe at the price of $20.00 per share for the number of shares of the
Company's Common Stock determined pursuant to Section 3. Such persons are
sometimes referred to as "eligible participants" or "Qualified Retirees" and
after executing a Subscription Agreement are referred to as "subscribers";
provided, however, that the term "eligible participants" shall not be deemed to
include in any Applicable Year: any person (a) who receives a pension (unless he
or she is an active, full-time employee on March 31 of an Applicable Year and
retired on a pension (except a deferred pension) after said March 31 and prior
to October 1 of the Applicable Year), (b) who is employed solely on a contract
basis or who by written agreement has released all stock subscription rights, or
(c) who is included in a collective bargaining unit represented by a labor
organization where the agreement between the Company and the labor organization
excludes such person from subscribing for Common Stock of the Company.
2. Period for and method of making subscription.
Any eligible participant desiring to subscribe for shares of Common Stock
offered for sale under this Plan shall either sign a Subscription Agreement
substantially in the form set forth herein, or otherwise approved by the Board
of Directors for such purpose for an offering to be made in an Applicable Year,
and file it, on or before the date specified for each Applicable Year, with the
Secretary at the executive offices
A-1
of the Company, 34 North Meramec Avenue, Clayton, Missouri 63105 or complete and
submit an on-line subscription in the manner set forth at
______________________________________. No subscription shall be effective and
binding unless and until accepted by the Company at its executive offices. No
subscription will be accepted after the close of business on the date specified
in the applicable Subscription Agreement.
3. Determination of number of shares for which an eligible participant is
entitled to subscribe.
The maximum number of shares for which an eligible participant may
subscribe shall be determined as hereinafter provided:
3.1. The Subscription Right of each eligible participant, subject to
increase as provided in Section 3.2 and reduction as provided in Section 3.3,
shall be determined by dividing the annual salary rate of each eligible
participant in effect on March 31 of the Applicable Year by a dollar amount
determined by the Board of Directors for each Applicable Year (or such other
dollar amount or other ratio as may hereafter be established with respect to an
offering of shares for an Applicable Year by the Board of Directors). Fractional
shares resulting from this computation shall be disregarded.
3.2. The number of shares determined in accordance with Section 3.1 shall,
in the case of eligible participants who on March 31 of the Applicable Year were
in the salary classifications listed below, be multiplied as follows (or using
such other multiple as hereafter may be established with respect to an offering
of shares for an Applicable Year by the Board of Directors):
3.2.1. Eligible Company participants in Executive classifications EX
1 through EX 5 - 3.00 times;
3.2.2. Eligible Company participants in Grades 17 through 20 and
Band M1 -- 2.50 times;
3.2.3. Eligible Company participants in Grades 15 and 16 and Band M2
-- 2.25 times;
3.2.4. Eligible Company participants in Grades P and Q -- 1.90
times;
3.2.5. Eligible Company participants in Grades N and O -- 1.85
times;
3.2.6. Eligible Company participants in Grade 14 or below who are
covered either by the Management Incentive Plan or the Sales
Incentive Plan and Band M3 -- 1.75 times;
3.2.7. Eligible Company participants in Grades J, K, L and M -- 1.50
times;
3.2.8. All other eligible Company participants -- 1.25 times; and
3.2.9. Eligible participants who are employees of Commonwealth
Controls Corporation -- As determined by the Board of
Directors for each participant using the closest comparable
salary classification then in effect at Commonwealth Controls
Corporation.
A-2
Fractional shares resulting from the above computations shall be disregarded.
3.3 In the unlikely event the aggregate number of shares subscribed for by
all eligible participants in an offering for an Applicable Year were to exceed
the number of shares that the Board of Directors determines shall be offered in
such Applicable Year, the number of shares that each eligible participant would
be entitled to purchase shall be reduced to a number determined by multiplying
the number of shares for which such eligible participant has subscribed (but in
no event more than the number to which such employee is entitled to subscribe
under this Section) by a fraction, the numerator of which is the number of
shares being offered and the denominator of which is the aggregate number of
shares subscribed for by all eligible participants. Fractional shares resulting
from such computation shall be disregarded.
4. Payments for issuance of stock.
Payments for shares subscribed for may be made pursuant to either of the
following methods (or such other method as hereafter may be established by the
Board of Directors with respect to any offering):
4.1. Full Payment: Payment in full for the shares subscribed for on or
before the date in January of the year following the Applicable Year set by the
Board of Directors, in which case the shares paid for will be issued as of that
date.
4.2. Payroll Deduction: Payments in equal installments made at each of the
regular pay periods commencing with the second pay period in January of the year
following the Applicable Year and ending with the last pay period in November of
that year. The Company shall issue no later than the tenth day of March, June,
September and December of the year following the Applicable Year a share
certificate to the Voting Trustees or Non-Participating Shareholders (as such
terms are defined in Section 5.2), whichever is appropriate, for such number of
full shares of Common Stock as have been fully paid for prior to such issue
date.
4.2.1. Payments shall be made, in the case of a subscriber on the
Company's or Commonwealth Controls Corporation's payroll, through payroll
deductions authorized by the subscriber and, in the case of a subscriber
who is no longer on the Company's or Commonwealth Controls Corporation's
payroll but whose subscription has not been cancelled in accordance with
Section 5.4, through pension deductions authorized by the subscriber or
monthly payments made directly by such person to the Treasurer of the
Company on or before the last day of each month. Except as provided in
Section 5.4, subscriptions made under the Payroll Deduction Method and the
obligations of subscribers to make full payment for all shares subscribed
for (including any authorization to the Company or Commonwealth Controls
Corporation to make payroll deductions) shall be irrevocable.
4.2.2. No interest shall be paid on amounts deducted from a
participant's salary or pension or paid directly to the Treasurer.
4.2.3. A subscriber, at his or her option exercised at any time, may
pay the balance due on all or any portion of the number of shares
subscribed for, and upon such payment, shares will be issued for which
payment is so made.
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5. Conditions of subscription.
Each subscription for shares of Common Stock hereunder is expressly
subject to, among other things, the following terms, and every subscriber shall
agree to all of them by executing a Subscription Agreement:
5.1. Right to receive stock not transferable.
No subscriber may sell, pledge or in any manner alienate or suffer to be
alienated his or her right to purchase Common Stock under the Plan, including
the right to receive Voting Trust Interests or stock certificates representing
shares of Common Stock. A violation of this provision shall constitute a
withdrawal by the subscriber from his or her Subscription Agreement, in which
event the only right of the subscriber or his or her assignee shall be to have
the Company return to the person entitled thereto the total amount paid under
said Subscription Agreement. Such return shall operate as a cancellation and
satisfaction of all rights under the Subscription Agreement.
5.2. Issuance of stock certificates and Voting Trust Interests.
A stock certificate or certificates representing the shares subscribed for
and purchased pursuant to this Plan by subscribers who are or who, upon
executing a Subscription Agreement, become parties to the Voting Trust Agreement
(the "Voting Trust Agreement") dated as of March 16, 2007, relating to shares of
Common Stock of the Company, shall be issued to, and deposited by the Company
with, the Voting Trustees thereunder (the "Voting Trustees") in accordance with
the provisions of Section 4.05 of the Voting Trust Agreement. The Voting
Trustees will record ownership of Voting Trust Interests for such subscribers
representing the number of shares subscribed for and purchased by them and
deposited in the Voting Trust. Stock certificates representing the shares
subscribed for and purchased pursuant to this Plan by subscribers who are
shareholders prior to such subscription and who are not parties to the Voting
Trust Agreement ("Non-Participating Shareholders") shall be issued and delivered
directly to such subscribers.
5.3. Subscribers bound by provisions in Restated Certificate of
Incorporation, as amended.
All shares of Common Stock subscribed for shall be issued and held subject
to all the terms, provisions, restrictions and qualifications set forth in the
Restated Certificate of Incorporation, as amended, of the Company, which
provides, among other things, that the Company has the option to repurchase
outstanding shares of Common Stock at the price at which such shares were
issued, with appropriate adjustment for current dividends, in the event any
shareholder shall desire to sell, transfer or otherwise dispose of any of his or
her shares, or in the event of his or her death (in which case the option is
exercisable beginning one year after the date of death) or in the event of
termination of his or her employment other than by retirement on a pension.
Eligibility for or entitlement to a deferred pension under the Graybar Electric
Company, Inc. Pension Plan does not constitute a retirement on a pension for
purposes of this Section 5.3 or for purposes of the Restated Certificate of
Incorporation. The Voting Trust Interests issued and to be issued under the
Voting Trust Agreement provide, in substance, that every Voting Trust Interest
is issued and held upon and subject to the same terms and conditions upon which
shares of Common Stock are issued and held. Each subscriber, by executing a
Subscription Agreement, specifically agrees to be bound by all provisions of
this Section 5.3 and agrees that all stock certificates or Voting Trust
Interests owned by such subscriber shall be subject to such provisions.
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5.4. Cancellation of subscription on termination of employment.
In the event of the death of a subscriber or the termination of his or her
employment other than by retirement on a pension (except a deferred pension) or
the subscriber receives a "hardship" withdrawal from Account K under the
Company's Profit Sharing Plan before any or all of the shares of Common Stock
subscribed for are issued, his or her subscription shall be cancelled as to
shares not then issued, and the subscriber or the subscriber's estate shall be
entitled to receive the total amount of the purchase price, if any, then held by
the Company for unissued shares under this Plan, without interest. Payment of
such amount by the Company shall operate as a cancellation and satisfaction of
all rights under his or her Subscription Agreement. Refund of any balance due
employees who terminate service or make a hardship withdrawal shall be made in
the quarter following termination. Eligibility for or entitlement to a deferred
pension under the Graybar Electric Company, Inc. Pension Plan does not
constitute a retirement on a pension for purposes of this Section 5.4.
5.5. Interpretation and implementation; amendment.
The determination of the Board of Directors of the Company upon any
question concerning the application or interpretation of any of the provisions
of this Plan or, of the Subscription Agreement or any offering conducted under
this Plan shall be final, and no director shall incur any liability or
obligation by reason of any error of fact or of law or of any matter or thing
done or suffered or omitted to be done in connection with any such determination
or interpretation or otherwise, except any attributable to that director's own
willful misconduct. This Plan may be amended, in whole or in part, by the Board
of Directors, provided, however that, any amendment to Section 1 or Section 6
shall require the consent of the Shareholders of the Company. The Executive
Committee of the Board of Directors shall have the power to exercise all
authority granted to the Board of Directors by the Plan and to take any action
the Board of Directors may take under or with respect to the Plan.
6. Certain corporate action not to be taken without notice.
The Company will not take any action that would result in a distribution
to its shareholders of shares of Common Stock or other assets (except the
payment of cash dividends on shares of Common Stock or the issuance of shares of
Common Stock pursuant to installment payments made under Section 4.2) without
first giving notice of such proposed action to all subscribers who elected the
Payroll Deduction Method and have not then paid their subscriptions in full and
granting such subscribers an opportunity within such time (not to be less than
20 days) and in such manner as the Board of Directors may determine to be
reasonable, to complete their payments on all shares subscribed for by them and
thereby to become shareholders entitled to the benefit of and subject to such
action.
7. Right of the Company to issue and sell additional shares of Common Stock.
Nothing in this Plan shall be construed to limit or restrict in any way
the right of the Company from time to time hereafter to sell any of the shares
offered pursuant to this Plan and not issued pursuant to subscriptions made
hereunder or any shares that may now or hereafter be authorized or may now or
hereafter be reacquired by the Company upon exercise of the repurchase option
described in Section 5.3 or otherwise.
Set forth below is the form of the Subscription Agreement approved for use
in connection with the Plan:
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SUBSCRIPTION AGREEMENT
1. I hereby subscribe to purchase ______ shares of common stock, par value
$1.00 per share with a stated value of $20.00 per share (the "Common Stock"), of
Graybar Electric Company, Inc., a New York corporation (the "Company"), under
and pursuant to the terms and conditions stated below and of the Three-Year
Common Stock Purchase Plan dated as of June 14, 2007 of the Company (the
"Plan"). I agree to pay $20.00 for each such share as follows:
Number of Shares
----------------
Full Payment: Payment in full on or before January ___, 200___-------------- ---------------
Payroll Deduction: Payment in __________ (__) equal installments payable by
payroll deduction at each regular payroll date commencing in
January ________. Upon acceptance of this subscription, (i) I
direct that, during such time as I shall be on the Company's
or Commonwealth Controls Corporation's payroll, I hereby
authorize periodic payroll deductions to be made from my
salary in accordance with this Agreement and the Plan and
applied to the purchase price of the shares subscribed for
until such shares are fully paid for or until my subscription
is cancelled in accordance with Section 5.4 of the Plan; and
(ii) I promise that during such time as I shall no longer be
on the Company's or Commonwealth Controls Corporation's
payroll I will make monthly payments either through authorized
pension deductions or directly to the Treasurer of the Company
in accordance with the Plan, to be applied to the purchase
price of the shares subscribed for by me, until such shares
are fully paid for or until my subscription is cancelled in
accordance with Section 5.4 of the
Plan. -------------------------------------------------------- ---------------
Total shares subscribed for: --------------------------------- ===============
2. I understand that the number of shares I hereby subscribe for may be
reduced as provided in Section 3.3 of the Plan.
3. If I am a party to the Voting Trust Agreement dated as of March 16,
2007 (the "Voting Trust Agreement") relating to shares of Common Stock of the
Company, or if I become a party to the Voting Trust Agreement pursuant to
Section 4 of this Subscription Agreement, I agree and direct that certificates
for the shares of Common Stock purchased by me pursuant hereto, when issuable
pursuant to the Plan, be issued to and deposited with the Voting Trustees under
the Voting Trust Agreement who will issue Voting Trust Interests in my name for
the certificates so deposited that, unless I request otherwise, will be
uncertificated and evidenced by a book-entry system maintained by the Voting
Trustees.
4. This Section 4 does not apply to subscribers who prior to signing this
Agreement are already parties to the Voting Trust Agreement or to subscribers
who prior to signing this Agreement are already shareholders of record of Common
Stock and are not parties to the Voting Trust Agreement.
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(a) I hereby represent and warrant that I have received a copy of
the Voting Trust Agreement, that I am familiar with its terms
and provisions and that I desire to become a party to the Voting
Trust Agreement and be bound thereby.
(b) I hereby authorize M. J. Beagen or K. M. Higgins as my
attorney-in-fact, both with full power of substitution, to
execute and deliver the Voting Trust Agreement on my behalf.
(c) I recognize that this power of attorney constitutes an election
to participate in the Voting Trust Agreement, which is given in
consideration of a similar election made by other employees of
the Company or Commonwealth Controls Corporation and is
therefore irrevocable.
5. I have read the Plan and, for the considerations stated therein and for
the privilege of subscribing for such shares of Common Stock, I agree to be
bound by all of the provisions of the Plan, including without limitation all the
terms set forth in Section 5 of the Plan.
6. I request and direct that any Voting Trust Interests or stock
certificates issued in my name pursuant to this subscription be registered in
the same name as Voting Trust Interests or stock certificates previously issued
to me or, if I am not currently an owner of Voting Trust Interests or stock
certificates, in my name as shown on the payroll records of the Company or
Commonwealth Controls Corporation.
____________________________
Signature of Subscriber
Dated: ____________________________________, 200______
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