Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the fiscal year ended December 31, 1997
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from............to.................
Commission file number 1-4482
ARROW ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1806155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25 Hub Drive
Melville, New York 11747
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 391-1300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- -------------------------------- ----------------------------
Common Stock, $1 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 6, 1998 was $3,336,528,009.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value: 97,274,399 shares outstanding at March 6, 1998.
The following documents are incorporated herein by reference:
1. Proxy Statement filed in connection with Annual Meeting of Shareholders to
be held May 13, 1998(incorporated in Part III).
<PAGE>
PART I
Item 1. Business.
---------
Arrow Electronics, Inc. (the "company") is the world's largest distributor of
electronic components and computer products to industrial and commercial
customers. As the global electronics distribution industry's leader in state-
of-the-art operating systems, employee productivity, value-added programs, and
total quality assurance, the company is the distributor of choice for over 600
suppliers.
The company's global distribution network spans the world's three dominant
electronics markets - North America, Europe, and the Asia/Pacific region. The
company is the largest electronics distributor in each of these vital
industrialized regions, serving a diversified base of original equipment
manufacturers (OEMs) and commercial customers worldwide. OEMs include
manufacturers of computer and office products, industrial equipment (including
machine tools, factory automation, and robotic equipment), telecommunications
products, aircraft and aerospace equipment, and scientific and medical devices.
Commercial customers are mainly value-added resellers (VARs) of computer
systems. The company maintains over 200 sales facilities and 26 distribution
centers in 33 countries.
In January 1997, the company acquired the volume electronic component
distribution businesses of Premier Farnell plc with operations in 15 countries.
In February 1997, the company, through its subsidiary, Gates/Arrow
Distributing, Inc. ("Gates/Arrow"), acquired a majority interest in Consan
Incorporated, a leading technical distributor of mass storage products in the
United States. In November 1997, the company formed a joint venture,
Arrow/Altech Industries (Pty) Ltd., with Allied Technologies Limited , a member
of the Altron Group, to distribute electronic components throughout South
Africa. In December 1997, the company, through Gates/Arrow, acquired a
majority interest in Support Net, Inc., one of the preeminent technical
distributors of IBM mid-range products in the United States.
On January 5, 1998, the company implemented the previously announced
realignment of its North American components operations and created the
following business units:
* Arrow Contract Manufacturing Services (CMS) Distribution Group - exclusively
serving contract manufacturing customers, the group offers a broad line card
of semiconductors and industrial computer products, as well as passive,
electromechanical and connector devices.
* Arrow Alliance Group - focuses on delivering the full line card, including
semiconductors, passives, connectors, and industrial computer products, to
large customers with complex needs. The group offers tailored solutions and
innovative programs from a single point of contact.
* Arrow Industrial Computer Products Group - focuses on providing demand
creation, fulfillment, and value-added services to industrial customers who
mainly buy subsystems and industrial computer products.
* Arrow Semiconductor Group - concentrates on core semiconductor customers,
offering a broad semiconductor line card to drive demand creation and
fulfillment and providing customers with value-added solutions.
* Arrow Supplier Services Group - manages all semiconductor supplier
relationships, including line card strategy, marketing programs, purchasing,
asset management, and market price programs, as well as Arrow's value-added
programs and the technical resource center.
* Arrow Passive Electromechanical Connector (PEMCO) Group - formerly called
Capstone Electronics, specializes in providing high-quality passive,
electromechanical, and connector products to original equipment
manufacturers (other than those customers of the Arrow CMS Distribution
Group and the Arrow Alliance Group).
* Arrow/Zeus Electronics - is a fully-dedicated specialist serving the high-
reliability, military and aerospace markets.
* Gates/Arrow - is a full-line technical distributor of computer systems,
peripherals, and software to value-added resellers in the U.S. and Canada.
Through its wholly-owned subsidiary, Arrow Electronics Distribution Group-
Europe B.V., Arrow is the largest pan-European electronics distributor. In its
Northern European region, the company is among the largest distributors in
Britain, Denmark, Finland, Norway and Sweden. In its Central European region
the company is the largest distributor in Germany, Austria, Switzerland,
Belgium and the Netherlands and in its Southern European region it is the
largest distributor in Italy, France, Spain and Portugal.
Arrow is the largest electronics distributor in the Asia/Pacific region.
Components Agent Limited (C.A.L.), the Lite-On Group, and the Melbourne-based
Veltek and Zatek companies in Australia are the region's leading multi-national
distributors. C.A.L., headquartered in Hong Kong, maintains additional
facilities in key cities in Singapore, Malaysia, the People's Republic of
China, India, and South Korea. Lite-On, headquartered in Taipei, serves
customers in Taiwan, South Korea, Singapore, and Malaysia. Arrow Ally serves
customers in Taipei and Arrow Components (NZ) services customers in New
Zealand.
The company distributes a broad range of electronic components, computer
products, and related equipment. About 63 percent of the company's
consolidated sales are comprised of semiconductor products; industrial and
commercial computer products, including microcomputer boards and systems,
design systems, desktop computer systems, terminals, printers, disk drives,
controllers, and communication control equipment account for about 27 percent;
and the remaining sales are of passive, electromechanical, and interconnect
products, principally capacitors, resistors, potentiometers, power supplies,
relays, switches, and connectors.
Most manufacturers of electronic components and computer products rely on
independent authorized distributors, such as the company, to augment their
product marketing operations. As a stocking, marketing, and financial
intermediary, the distributor relieves manufacturers of a portion of the costs
and personnel associated with stocking and selling their products (including
otherwise sizable investments in finished goods inventories and accounts
receivable), while providing geographically dispersed selling, order
processing, and delivery capabilities. At the same time, the distributor
offers a broad range of customers the convenience of diverse inventories and
rapid or scheduled deliveries as well as other value-added services such as
kitting and memory programming capabilities. The growth of the electronics
distribution industry has been fostered by the many manufacturers who recognize
their authorized distributors as essential extensions of their marketing
organizations.
The company and its affiliates serve approximately 160,000 industrial and
commercial customers. Industrial customers range from major original equipment
manufacturers to small engineering firms, while commercial customers include
value-added resellers, small systems integrators, and large end-users.
Most of the company's customers require delivery of the products they have
ordered on schedules that are generally not available on direct purchases from
manufacturers, and frequently their orders are of insufficient size to be
placed directly with manufacturers. No single customer accounted for more than
two percent of the company's 1997 or 1996 sales.
The electronic components and other products offered by the company are sold by
field sales representatives, who regularly call on customers in assigned market
areas, and by telephone from the company's selling locations, from which inside
sales personnel with access to pricing and stocking data provided by computer
display terminals accept and process orders. Each of the company's North
American selling locations, warehouses, and primary distribution centers is
electronically linked to the business' central computer, which provides fully
integrated, on-line, real-time data with respect to nationwide inventory levels
and facilitates control of purchasing, shipping, and billing. The company's
foreign operations utilize Arrow's Worldwide Stock Check System, which affords
access to the company's on-line, real-time inventory system.
There are approximately 600 manufacturers whose products are sold by the
company. Intel Corporation accounted for approximately 16 percent of the
business' purchases. No other supplier accounted for more than 8 percent of
1997 purchases. The company does not regard any one supplier of products to be
essential to its operations and believes that many of the products presently
sold by the company are available from other sources at competitive prices.
Most of the company's purchases are pursuant to authorized distributor
agreements which are typically cancelable by either party at any time or on
short notice.
Approximately 63 percent of the company's inventory consists of semiconductors.
It is the policy of most manufacturers to protect authorized distributors, such
as the company, against the potential write-down of such inventories due to
technological change or manufacturers' price reductions. Under the terms of the
related distributor agreements, and assuming the distributor complies with
certain conditions, such suppliers are required to credit the distributor for
inventory losses incurred through reductions in manufacturers' list prices of
the items. In addition, under the terms of many such agreements, the
distributor has the right to return to the manufacturer for credit a defined
portion of those inventory items purchased within a designated period of time.
A manufacturer who elects to terminate a distributor agreement is generally
required to purchase from the distributor the total amount of its products
carried in inventory. While these industry practices do not wholly protect the
company from inventory losses, management believes that they currently provide
substantial protection from such losses.
The company's business is extremely competitive, particularly with respect to
prices, franchises, and, in certain instances, product availability. The
company competes with several other large multi-national, national, and
numerous regional and local distributors. As the world's largest electronics
distributor, the company's financial resources and sales are greater than those
of its competitors.
The company and its affiliates employ over 9,800 people worldwide.
<PAGE>
Executive Officers
The following table sets forth the names and ages of, and the positions and
offices with the company held by, each of the executive officers of the
company.
Name Age Position or Office Held
---- --- -----------------------
Stephen P. Kaufman 56 Chairman and Chief Executive Officer
Robert E. Klatell 52 Executive Vice President, General Counsel,
and Secretary
Francis M. Scricco 48 Executive Vice President and Chief
Operating Officer
Carlo Giersch 60 Chief Executive Officer of Spoerle Electronic
Gerald Luterman 54 Senior Vice President, Chief Financial
Officer, and Treasurer
Steven W. Menefee 53 Senior Vice President
Betty Jane Scheihing 49 Senior Vice President
Jan M. Salsgiver 41 Vice President
Set forth below is a brief account of the business experience during the past
five years of each executive officer of the company.
Stephen P. Kaufman has been Chairman since May 1994 and President and Chief
Executive Officer of the company for more than five years prior thereto.
Robert E. Klatell has been Executive Vice President since July 1995 and has
served as Senior Vice President, General Counsel, and Secretary of the company
for more than five years. He also served as Chief Financial Officer from
January 1992 to April 1996 and Treasurer from 1990 to April 1996.
Francis M. Scricco joined the company in September 1997 as Executive Vice
President and Chief Operating Officer. From March 1994 through August 1997 he
was a Group Vice President at Fischer Scientific International, Inc. Prior
thereto he was President of Whirlpool Canada.
Carlo Giersch has been Chief Executive Officer of Spoerle Electronic for more
than five years.
Gerald Luterman has been Senior Vice President, Chief Financial Officer, and
Treasurer of the company since April 1996. Prior thereto he was Executive Vice
President and Chief Financial Officer of American Express Travel Related
Services Consumer Card Group for more than five years.
Steven W. Menefee has been a Senior Vice President of the company since July
1995 and prior thereto a Vice President of the company since November 1990.
Betty Jane Scheihing became Senior Vice President in May 1996 and has served as
Vice President of the company for more than five years prior thereto.
Jan M. Salsgiver has been a Vice President of the company since September 1993
and President of the Arrow Supplier Services Group since its inception in
January 1998. Prior thereto she was President of the Arrow/Schweber
Electronics Group since November 1995 and President of Zeus Electronics from
July 1993 to November 1995. Prior to July 1993, she held a variety of senior
marketing positions in the company.
<PAGE>
Item 2. Properties.
-----------
The company's executive office, located in Melville, New York, is owned by the
company. The company occupies additional locations under leases due to expire
on various dates to 2053. Five additional facilities are owned by the company,
and another facility has been sold and leased back in connection with the
financing thereof.
Item 3. Legal Proceedings.
------------------
Through a wholly-owned subsidiary, the company was previously engaged in the
refining and selling of lead. The subsidiary was sold in 1988, except for a
battery-breaking site used by the subsidiary in Plant City, Florida, which had
been placed on the National Priorities List under the Federal Super Fund
program. The company remains liable for the environmental remediation of the
site, and in 1992 entered into a consent decree setting forth the terms of that
remediation with the U.S. EPA and the State of Florida.
The environmental remediation of the site has been substantially completed. All
contaminated soils on the site have been collected, treated and stabilized, and
the EPA has acknowledged that the soil stabilization aspects of the consent
decree have been met. Groundwater on the site has been treated and is being
monitored, as required by the consent decree, to ensure that it continues to
meet the standards set forth in the decree. Approximately 11 acres of wetlands
have been recreated and are being managed in accordance with the requirements
of the consent decree. Final approval of the wetlands phase of the remediation
is expected shortly.
The company believes that the amount expected to be expended in any year in
connection with the continued monitoring of the site and the completion of
activities thereon will not have a material adverse impact on the company's
liquidity, capital resources or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and
---------------------------------------------
Related Stockholder Matters.
----------------------------
Market Information
The company's common stock is listed on the New York Stock Exchange (trading
symbol: "ARW"). The high and low sales prices during each quarter of 1997 and
1996 were as follows (restated to reflect the two-for-one stock split
effective October 15, 1997):
Year High Low
- ---- ---- ---
1997:
Fourth Quarter $36 $25-1/8
Third Quarter 32-1/16 26-5/16
Second Quarter 29-7/16 25-3/4
First Quarter 29-7/8 25-7/8
1996:
Fourth Quarter $27-11/16 $21-1/2
Third Quarter 23-9/16 18-3/4
Second Quarter 26-13/16 21-1/8
First Quarter 25 17-5/8
Holders
On March 6, 1998, there were approximately 4,000 shareholders of record of the
company's common stock.
Dividend History and Restrictions
The company has not paid cash dividends on its common stock during the past
five years. While the board of directors considers the payment of dividends
on the common stock from time to time, the declaration of future dividends
will be dependent upon the company's earnings, financial condition, and other
relevant factors.
The terms of the company's global multi-currency credit facility, senior notes,
and senior debentures (see Note 4 of the Notes to Consolidated Financial
Statements) limit, among other things, the payment of cash dividends and the
incurrence of additional borrowings and require that working capital, net
worth, and certain other financial ratios be maintained at designated levels.
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
------------------------
The following table sets forth certain selected consolidated financial data and should be
read in conjunction with the company's consolidated financial statements and related notes
appearing elsewhere in this annual report.
SELECTED FINANCIAL DATA
(In thousands except per share data)
For the year: 1997(a) 1996 1995 1994(b)(c) 1993(b)(d)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $7,763,945 $6,534,577 $5,919,420 $4,649,234 $3,560,856
Operating income 374,721 400,627 423,209 255,974 226,089
Equity in earnings
(loss) of affiliated
companies 781 (97) 2,493 - 1,673
Interest expense 67,117 37,959 46,361 36,168 26,573
- -----------------------------------------------------------------------------------------
Net income $ 163,656 $ 202,709 $202,544 $ 111,889 $ 106,559
- -----------------------------------------------------------------------------------------
Diluted earnings
per share (e) $ 1.64 $ 1.98 $ 2.03 $ 1.16 $ 1.12
- -----------------------------------------------------------------------------------------
At year-end:
- -----------------------------------------------------------------------------------------
Accounts receivable and
inventories $2,475,407 $1,947,719 $1,979,160 $1,422,457 $1,094,175
Total assets 3,537,873 2,710,351 2,701,016 2,038,774 1,569,152
Total long-term debt and
subordinated debentures 823,099 344,562 451,706 349,398 314,859
Shareholders' equity 1,360,758 1,358,482 1,195,881 837,885 701,799
- -----------------------------------------------------------------------------------------
(a) Net income includes special charges totaling $59.5 million associated with the
realignment of Arrow's North American components operations and the acquisition and
integration of the volume electronic component distribution businesses of Premier
Farnell plc. Excluding these charges, operating income, net income, and net income
per share on a diluted basis were $434.2 million, $204.1 million, and $2.05,
respectively.
(b) In 1994, Arrow acquired Gates/FA Distributing, Inc. ("Gates") and Anthem
Electronics, Inc. ("Anthem") in transactions accounted for as poolings of
interests. Accordingly, all financial information for years prior thereto have
been restated to include the operations of Gates and Anthem. Also, 1994 includes
special charges of $45.3 million associated with the acquisition and integration of
Gates and Anthem. Excluding these charges, operating income, net income, and net
income per share on a diluted basis were $301.3 million, $140.7 million, and $1.44,
respectively.
(c) Includes results of Silverstar which was accounted for under the equity method
prior to January 1994.
(d) Net income is after a restructuring charge of $7.8 million associated with the
disposition of a business unit by Anthem. Excluding this charge, operating income,
net income, and net income per share on a diluted basis were $233.9 million, $111.1
million, and $1.17, respectively.
(e) All per share amounts have been restated to reflect the two-for-one stock split
effective October 15, 1997.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
For an understanding of the significant factors that influenced the company's
performance during the past three years, the following discussion should be read
in conjunction with the consolidated financial statements and other information
appearing elsewhere in this report.
Sales
In 1997, consolidated sales increased to $7.8 billion, an increase of 19 percent
over 1996 sales of $6.5 billion. This sales growth was due to increased
activity levels throughout the world and acquisitions, principally the volume
electronic component distribution businesses of Premier Farnell plc offset,
in part, by the impact of a stronger U.S. dollar.
Consolidated sales of $6.5 billion in 1996 were 10 percent higher than 1995
sales of $5.9 billion. This sales growth was principally due to increased sales
of commercial computer products and microprocessors. The sales of semiconductor
products were characterized by an oversupply of product, competitive pricing
pressures, and reductions in memory prices.
In 1995, consolidated sales increased to $5.9 billion, a 27 percent increase
over 1994 sales of $4.6 billion. This sales growth reflected strong activity
levels in each of the company's businesses as well as the impact of key
strategic acquisitions and alliances forged around the world during 1994.
Operating Income
In 1997, the company's consolidated operating income decreased to $374.7
million, compared with operating income of $400.6 million in 1996, principally
as a result of special charges of $37.9 million associated with the realignment
of the North American components operations and $21.6 million associated with
the acquisition and integration of the volume electronic component distribution
businesses of Premier Farnell plc. The improvement in operating income,
excluding the special charges, reflects the impact of increased sales,
acquisitions, and continuing economies of scale offset, in part, by lower gross
profit margins caused by competitive pricing pressures and a greater sales mix
of commercial computer products. Operating expenses, excluding the special
charges, as a percent of sales declined to 9.7 percent in 1997, the lowest in
the company's history.
The company's consolidated operating income decreased to $400.6 million in 1996,
compared with operating income of $423.2 million in 1995. The reduction in
operating income reflected a further decline in gross margins due to
proportionately higher sales of lower margin commercial computer products and
microprocessors throughout the world and competitive pricing pressures in Europe
and the Asia/Pacific region offset, in part, by the impact of increased sales
and the benefits of continuing economies of scale. Operating expenses as a
percent of sales declined to 9.8 percent in 1996.
In 1995, the company's consolidated operating income increased to $423.2
million, compared with operating income of $256 million in 1994. Included in
the 1994 results were special charges of $45.3 million associated with the
acquisition and integration of Gates and Anthem into Arrow. The improvement in
operating income outpaced the growth in sales as the company benefited from cost
savings following the integration of Gates and Anthem. These cost savings
principally reflected reductions in personnel performing duplicative functions
and the elimination of duplicative administrative facilities, computer and
telecommunications equipment, and selling and stocking locations. Operating
expenses as a percentage of sales declined to 10.3 percent in 1995.
Interest
In 1997, interest expense increased to $67.1 million from $38 million in 1996,
reflecting increases in borrowings associated with acquisitions, the repurchase
of the company's common stock, and investments in working capital.
Interest expense of $38 million in 1996 decreased by $8.4 million from the 1995
level. The decrease reflected the conversion of the company's 5 3/4%
convertible subordinated debentures in October 1995, lower borrowings resulting
from improved working capital usage, and lower borrowing costs offset, in part,
by borrowings to fund purchases of common stock.
In 1995, interest expense increased to $46.4 million from $36.2 million in 1994,
reflecting increases in working capital required to support higher sales,
interest related to borrowings associated with acquisitions, and capital
expenditures.
Income Taxes
In 1997, the company recorded a provision for taxes at an effective tax rate of
41 percent, excluding the special charges, compared with 39.9 percent in 1996.
The increased rate for 1997 is due to increased earnings in countries with
higher marginal tax rates and the non-deductibility of goodwill amortization.
The company recorded a provision for taxes at an effective tax rate of 39.9
percent in 1996, compared with 40.4 percent in 1995. The lower effective rate
was the result of decreased earnings in countries with higher tax rates.
In 1995, the company recorded a provision for taxes at an effective tax rate of
40.4 percent compared with 40.6 percent, excluding the special charges
associated with the Gates and Anthem acquisitions, in 1994.
Net Income
In 1997, the company's net income advanced to $204.1 million from $202.7 million
in 1996, before the special charges of $59.5 million ($40.4 million after
taxes). The increase in net income is attributable to higher operating income
offset, in part, by an increase in interest expense.
Net income in 1996 was $202.7 million, an increase from $202.5 million in 1995.
The increase in net income was attributable to decreases in interest expense,
income taxes, and minority interest offset, in part, by lower operating income.
In 1995, the company's net income advanced to $202.5 million from $140.7 million
in 1994, before the special charges of $45.3 million ($28.8 million after taxes)
associated with Gates and Anthem. The significant improvement in net income was
principally the result of the increase in operating income offset, in part, by
higher interest expense.
Liquidity and Capital Resources
The company maintains a high level of current assets, primarily accounts
receivable and inventories. Consolidated current assets as a percentage of
total assets were approximately 74 percent and 78 percent in 1997 and 1996,
respectively.
Working capital increased by $160 million, or 13 percent, in 1997 compared with
1996, primarily as a result of increased sales and acquisitions. This
percentage increase was less than the percentage increase of sales as a result
of improvements in working capital usage.
The net amount of cash used for the company's operating activities in 1997 was
$14.2 million, principally reflecting earnings offset by increased working
capital requirements supporting higher sales. The net amount of cash used for
investing activities was $410.8 million, including $381.5 million for
acquisitions and investments. The net amount of cash provided by financing
activities was $422.1 million, principally reflecting the $392.8 million of
proceeds from the issuance of the company's senior notes and senior debentures
and increases in the company's credit facilities offset, in part, by the
purchase of the company's common stock.
In January 1997, the company issued $200 million of 10 year senior notes bearing
interest at 7% and $200 million of 30 year senior debentures bearing interest at
7 1/2%. The net proceeds of $392.8 million were used primarily to fund
acquisitions, working capital, and other general corporate purposes.
In 1996, working capital increased by five percent, or $56 million, compared
with 1995. This percentage increase was less than the percentage increase of
sales as a result of improvements in working capital usage.
The net amount of cash provided by operations in 1996 was $308.6 million, the
principal element of which was the cash flow resulting from net earnings and
improved working capital usage. The net amount of cash used by the company for
investing purposes was $57.1 million, including $38.9 million for various
acquisitions. Cash flows used for financing activities were $202.6 million,
principally reflecting the reduction in the company's borrowings, purchases of
common stock, and distributions to partners.
Working capital increased by $349 million, or 40 percent, in 1995 compared with
1994, primarily as a result of increased sales and, to a lesser extent,
acquisitions in Europe and the Asia/Pacific region.
The net amount of cash used for the company's operating activities in 1995 was
$114.1 million, as the growth in accounts receivable and inventories outpaced
the increase in net income. The net amount of cash used for investing
activities was $132.7 million, including $90.7 million for various investments
and acquisitions. The net amount of cash provided by financing activities was
$228.1 million, principally reflecting the company's borrowings to finance
investments and acquisitions, distributions to partners, and the repayment of
certain debt.
In October 1995, the company redeemed its 5 3/4% convertible subordinated
debentures due 2002, which resulted in the issuance of 7,544,508 shares of
common stock and eliminated approximately $125 million in long-term debt and
$7.2 million in annual interest charges.
<PAGE>
Market and Other Risks
- ----------------------
The company, as a large international organization, faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material impact on the
company's financial results in the future. The company's primary exposure
relates to transactions in which the currency collected from customers is
different from the currency utilized to purchase the product sold in Europe
and the Asia/Pacific region. At the present time, the company hedges only
these currency exposures and does not hedge anticipated foreign currency cash
flows and earnings or its investments in businesses in Europe and the
Asia/Pacific region as in many instances there are natural offsetting
positions. The translation of the financial statements of the non-North
American operations is impacted by fluctuation in foreign currency exchange
rates. Had the various average foreign currency exchange rates remained the
same during 1997 as compared with 1996, 1997 sales and operating income would
have been approximately $182 million and $11 million higher, respectively,
than the actual results for 1997.
The company's interest expense is sensitive to the general level of short-term
interest rates in the United States and Europe. To mitigate the impact of
fluctuations in interest rates, at December 31, 1997, the company has
approximately 48 percent of its debt as fixed rate long-term borrowings and 52
percent of its debt subject to short-term floating rates. Interest expense
would fluctuate by approximately $5 million if average short-term interest
rates had changed by one percentage point in 1997. This amount was determined
by considering the impact of a hypothetical interest rate on the company's
borrowing cost. This analysis does not consider the effect of the level of
overall economic activity that could exist in such an environment. Further,
in the event of a change of such magnitude, management could likely take
actions to further mitigate any potential negative exposure to the change.
However, due to the uncertainty of the specific actions that would be taken
and their possible effects, the sensitivity analysis assumes no changes in the
company's financial structure.
The Company has initiated a comprehensive, worldwide review of its computer
systems so as to identify all "Year 2000" issues and has implemented a plan to
resolve those issues. The company believes that, after modifications to its
systems, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not completed, the Year 2000 issue may have
a material impact on the operations of the company. The costs associated with
the required systems modifications is expected to be less than $20 million over
the next two years.
<PAGE>
Information Relating to Forward-Looking Statements
This report includes forward-looking statements that are subject to
certain risks and uncertainties which could cause actual results or facts to
differ materially from such statements for a variety of reasons, including, but
not limited to: industry conditions, changes in product supply, pricing, and
customer demand, competition, other vagaries in the computer and electronic
components markets, and changes in relationships with key suppliers.
Shareholders and other readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. The company undertakes no obligation to update publicly or revise any
forward-looking statements.
Accounting Matters
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," and Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosure about Segments of an Enterprise and Related Information." SFAS 130
requires that changes in comprehensive income be shown in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS 131 specifies new guidelines for determining a company's operating segments
and related requirements for disclosure. Both statements are effective for
fiscal years beginning after December 15, 1997 and will be adopted in the
fiscal year ending December 31, 1998.
<PAGE>
Item 8. Financial Statements.
---------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Arrow Electronics, Inc.
We have audited the accompanying consolidated balance sheet of Arrow
Electronics, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, cash flows, and shareholders' equity for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
financial statements and the schedule are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Arrow
Electronics, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 16, 1998
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Arrow Electronics, Inc. have been
prepared by management, which is responsible for their integrity and objectivity
These statements, prepared in accordance with generally accepted accounting
principles, reflect our best use of judgment and estimates where appropriate.
Management also prepared the other information in the annual report and is
responsible for its accuracy and consistency with the consolidated financial
statements.
The company's system of internal controls is designed to provide reasonable
assurance that company assets are safeguarded from loss or unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and are properly recorded. In establishing the basis for
reasonable assurance, management balances the costs of the internal controls
with the benefits they provide. The system contains self-monitoring mechanisms,
and compliance is tested through an extensive program of site visits and audits
by the company's operating controls staff.
The Audit Committee of the board of directors, consisting entirely of outside
directors, meets regularly with the company's management, operating controls
staff, and independent auditors and reviews audit plans and results as well as
management's actions taken in discharging its responsibilities for accounting,
financial reporting, and internal controls. Members of management, the
operating controls staff, and the independent auditors have direct and
confidential access to the Audit Committee at all times.
The company's independent auditors, Ernst & Young LLP, were engaged to audit the
consolidated financial statements in accordance with generally accepted auditing
standards. These standards include a study and evaluation of internal controls
for the purpose of establishing a basis for reliance thereon relative to the
scope of their audit of the consolidated financial statements.
Stephen P. Kaufman
Chairman and Chief Executive Officer
Gerald Luterman
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
Years Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales $7,763,945 $6,534,577 $5,919,420
---------- ---------- ----------
Costs and expenses:
Cost of products sold 6,574,415 5,492,556 4,888,746
Selling, general and administrative expenses 712,213 604,412 574,166
Depreciation and amortization 43,096 36,982 33,299
Integration charge 21,600 - -
Realignment charge 37,900 - -
---------- ---------- ----------
7,389,224 6,133,950 5,496,211
---------- ---------- ----------
Operating income 374,721 400,627 423,209
Equity in earnings (loss)
of affiliated companies 781 (97) 2,493
Interest expense, net 67,117 37,959 46,361
---------- ---------- ----------
Earnings before income taxes
and minority interest 308,385 362,571 379,341
Provision for income taxes 131,617 144,667 153,139
---------- ---------- ----------
Earnings before minority interest 176,768 217,904 226,202
Minority interest 13,112 15,195 23,658
---------- ---------- ----------
Net income $ 163,656 $ 202,709 $ 202,544
========== ========== ==========
Per common share:
Basic $ 1.67 $ 2.01 $ 2.15
========== ========== ==========
Diluted $ 1.64 $ 1.98 $ 2.03
========== ========== ==========
Average number of common shares and common
share equivalents outstanding:
Basic 98,006 100,972 94,174
========== ========== ==========
Diluted 99,769 102,380 101,736
========== ========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
-----------------------
1997 1996
ASSETS ---- ----
<S> <C> <C>
Current assets:
Cash and short-term investments $ 112,665 $ 136,400
Accounts receivable, less allowance for doubtful
accounts ($46,055 in 1997 and $39,753 in 1996) 1,245,354 902,878
Inventories 1,230,053 1,044,841
Prepaid expenses and other assets 42,268 36,004
---------- ----------
Total current assets 2,630,340 2,120,123
---------- ---------
Property, plant and equipment at cost
Land 9,699 8,712
Buildings and improvements 75,431 77,257
Machinery and equipment 143,030 127,633
---------- ----------
228,160 213,602
Less accumulated depreciation and amortization 113,923 98,377
---------- ----------
114,237 115,225
---------- ----------
Investment in affiliated companies 54,914 34,200
Cost in excess of net assets of companies acquired,
less accumulated amortization ($69,899 in 1997
and $57,802 in 1996) 645,152 388,787
Other assets 93,230 52,016
---------- ----------
$3,537,873 $2,710,351
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 767,088 $ 594,474
Accrued expenses 285,673 180,129
Short-term borrowings, including current maturities of
long-term debt 143,723 71,504
---------- ----------
Total current liabilities 1,196,484 846,107
---------- ----------
Long-term debt 823,099 344,562
Other liabilities 87,254 68,488
Minority interest 70,278 92,712
Shareholders' equity:
Common stock, par value $1:
Authorized--120,000,000 shares in 1997 and 1996
Issued--102,949,640 and 102,392,770 shares in 1997 and 1996 102,950 102,392
Capital in excess of par value 506,656 498,717
Retained earnings 968,998 805,342
Foreign currency translation adjustment (35,881) 8,753
---------- ----------
1,542,723 1,415,204
Less: Treasury stock (6,011,903 and 2,139,398 shares
in 1997 and 1996), at cost 164,207 49,065
Unamortized employee stock awards 17,758 7,657
---------- ----------
Total shareholders' equity 1,360,758 1,358,482
---------- ----------
$3,537,873 $2,710,351
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $163,656 $202,709 $202,544
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Integration charge 21,600 - -
Realignment charge 37,900 - -
Minority interest in earnings 13,112 15,195 23,658
Depreciation and amortization 47,057 39,453 35,192
Equity in undistributed (earnings) loss of
affiliated companies (781) 97 (2,493)
Deferred income taxes (9,814) 10,280 14,210
Change in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable (219,488) 45,845 (221,840)
Inventories (94,144) (8,426) (288,301)
Prepaid expenses and other assets (8,048) (2,893) (8,675)
Accounts payable 36,784 26,276 139,257
Accrued expenses (4,917) (23,870) (3,848)
Other 2,913 3,926 (3,791)
-------- -------- --------
Net cash provided by (used for) operating activities (14,170) 308,592 (114,087)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (29,335) (28,596) (42,254)
Proceeds from sale of building - 10,442 -
Cash consideration paid for acquired businesses (364,499) (38,851) (59,119)
Investment in affiliates (16,973) 1,734 (31,538)
Other - (1,791) 190
-------- -------- --------
Net cash used for investing activities (410,807) (57,062) (132,721)
-------- -------- --------
Cash flows from financing activities:
Change in short-term borrowings 55,018 (53,992) 49,976
Change in credit facilities 122,830 (96,906) 289,680
Proceeds from long-term debt 392,844 - 5,701
Repayment of long-term debt (338) (7,097) (102,370)
Proceeds from exercise of stock options 20,209 12,323 13,717
Distributions to minority partners (17,464) (7,967) (28,590)
Purchases of common stock (151,010) (48,993) -
-------- -------- --------
Net cash provided by (used for) financing activities 422,089 (202,632) 228,114
-------- -------- --------
Effect of exchange rate changes on cash (20,847) (6,445) 7,035
-------- -------- --------
Net increase (decrease) in cash and
short-term investments (23,735) 42,453 (11,659)
Cash and short-term investments at
beginning of year 136,400 93,947 105,606
-------- -------- --------
Cash and short-term investments at end of year $112,665 $136,400 $ 93,947
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $121,251 $130,834 $142,101
Interest 52,265 38,118 44,019
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Common Foreign Unamortized
Stock Capital in Currency Employee
at Par Excess of Retained Translation Treasury Stock Awards
Value Par Value Earnings Adjustment Stock and Other Total
-------- --------- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 92,336 $342,745 $400,089 $ 6,367 $ (13) $ (3,639) $ 837,885
Net income - - 202,544 - - - 202,544
Conversion of subordinated
debentures 7,546 114,911 - - - - 122,457
Exercise of stock options 1,134 12,583 - - - - 13,717
Tax benefits related to
exercise of stock options - 4,758 - - - - 4,758
Restricted stock awards, net 280 4,679 - - (11) (4,948) -
Amortization of employee
stock awards - - - - - 2,313 2,313
Other - - - - - 176 176
Translation adjustments - - - 12,031 - - 12,031
-------- -------- -------- -------- --------- --------- ---------
Balance at December 31, 1995 101,296 479,676 602,633 18,398 (24) (6,098) 1,195,881
Net income - - 202,709 - - - 202,709
Exercise of stock options 924 11,774 - - (375) - 12,323
Tax benefits related to
exercise of stock options - 3,345 - - - - 3,345
Restricted stock awards, net 172 3,922 - - 327 (4,421) -
Amortization of employee
stock awards - - - - - 2,862 2,862
Purchases of common stock - - - - (48,993) - (48,993)
Translation adjustments - - - (9,645) - - (9,645)
-------- -------- -------- -------- --------- --------- ----------
Balance at December 31, 1996 $102,392 $498,717 $805,342 $ 8,753 $ (49,065) $ (7,657) $1,358,482
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Common Foreign Unamortized
Stock Capital in Currency Employee
at Par Excess of Retained Translation Treasury Stock Awards
Value Par Value Earnings Adjustment Stock and Other Total
-------- --------- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $102,392 $498,717 $805,342 $ 8,753 $ (49,065) $ (7,657) $1,358,482
Net income - - 163,656 - - - 163,656
Exercise of stock options 198 (8,626) - - 28,637 - 20,209
Tax benefits related to
exercise of stock options - 7,074 - - - - 7,074
Restricted stock awards, net 360 9,491 - - 7,231 (17,082) -
Amortization of employee
stock awards - - - - - 6,981 6,981
Purchases of common stock - - - - (151,010) - (151,010)
Translation adjustments - - - (44,634) - - (44,634)
-------- -------- -------- -------- --------- -------- ----------
Balance at December 31, 1997 $102,950 $506,656 $968,998 $(35,881) $(164,207) $(17,758) $1,360,758
======== ======== ======== ========= ========== ========= ==========
See accompanying notes.
</TABLE>
<PAGE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiaries. The company's investments in affiliated
companies which are not majority-owned are accounted for using the equity
method. All significant intercompany transactions are eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Short-term Investments
- -------------------------------
Short-term investments which have a maturity of ninety days or less at time of
purchase are considered cash equivalents in the consolidated statement of cash
flows. The carrying amount reported in the consolidated balance sheet for short-
term investments approximates fair value.
Financial Instruments
- ---------------------
The company uses various financial instruments, including derivative financial
instruments, for purposes other than trading. The company does not use
derivative financial instruments for speculative purposes. Derivatives used as
part of the company's risk management strategy are designated at inception as
hedges and measured for effectiveness both at inception and on an ongoing basis.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method.
Property and Depreciation
- -------------------------
Depreciation is computed on the straight-line method for financial reporting
purposes and on accelerated methods for tax reporting purposes. Leasehold
improvements are amortized over the shorter of the term of the related lease or
the life of the improvement.
Cost in Excess of Net Assets of Companies Acquired
- --------------------------------------------------
The cost in excess of net assets of companies acquired is being amortized on a
straight-line basis, principally over 40 years.
Foreign Currency
- ----------------
The assets and liabilities of foreign operations are translated at the exchange
rates in effect at the balance sheet date, with the related translation gains or
losses reported as a separate component of shareholders' equity. The results of
foreign operations are translated at the monthly weighted average exchange
rates.
Income Taxes
- ------------
Income taxes are accounted for under the liability method. Deferred taxes
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Stock Split
- -----------
The company's board of directors authorized a two-for-one stock split effected
in the form of a 100 percent stock dividend distributed on October 15, 1997, to
shareholders of record on October 3, 1997. Shareholders' equity has been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying from capital in excess of par value to common stock the par value
of the additional shares arising from the split.
All references in the financial statements and the related notes to the number
of shares and per share amounts have been restated to reflect the two-for-one
stock split in all years.
Net Income Per Share
- --------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which modifies
the way in which earnings per share ("EPS") is calculated in 1997. Accordingly,
all prior period EPS data presented has been restated. Basic EPS is computed
by dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the company.
Diluted EPS for 1995 has been calculated assuming that the 5 3/4% convertible
subordinated debentures were converted into common stock at the beginning of
the year and the related interest expense, net of taxes, was eliminated.
2. Acquisitions
During 1997, the company acquired the volume electronic component distribution
businesses of Premier Farnell plc for approximately $298,000,000 and a majority
interest in Consan Incorporated and Support Net, Inc. During 1997, the company
increased its holdings in Spoerle Electronic Handelsgesellschaft mbH ("Spoerle")
to 80 percent; Silverstar Ltd., S.p.A. ("Silverstar") to 98 percent; and TH:s
Elektronik AB, Exatec A/S, Amitron S.A., and ATD Electronica S.A. to 100
percent. The aggregate cost of these acquisitions was $364,499,000.
A summary of the allocation of the aggregate consideration paid for the
aforementioned acquisitions, excluding amounts paid for increases in majority
holdings, to the fair market value of the assets acquired and liabilities
assumed is as follows (in thousands):
Current assets:
Accounts receivable $166,109
Inventory 127,016
Other 4,011 $297,136
--------
Property, plant and equipment 6,756
Cost in excess of net assets
of companies acquired 264,266
Other assets 445
-------
568,603
Current liabilities:
Accounts payable 162,056
Accrued expenses 61,334
Other 20,698 244,088
-------- --------
Net consideration paid $324,515
========
In September 1997, the company recorded a special charge of $21,600,000 before
taxes ($.17 per share on a diluted basis) associated with the integration of the
volume electronic component distribution businesses of Premier Farnell plc and
related transaction fees. Such integration costs include real estate
termination costs, severance and other expenses related to personnel performing
duplicative functions, professional fees, and the disposal of duplicative
fixed assets.
During 1996, the company increased its holding in Spoerle to 75 percent and
Silverstar to 93 percent.
The cost of each acquisition has been allocated among the net assets acquired on
the basis of the respective fair values of the assets acquired and liabilities
assumed. For financial reporting purposes, the acquisitions are accounted for
as purchase transactions beginning in the respective month of acquisition. The
aggregate consideration paid for all acquisitions exceeded the net assets
acquired by $296,379,000 and $20,674,000 in 1997 and 1996, respectively.
In connection with certain acquisitions, the company may be required to make
additional payments that are contingent upon the acquired businesses achieving
certain operating goals. During 1996, the company made additional payments of
$9,675,000 which have been capitalized as cost in excess of net assets of
companies acquired.
3. Investment in Affiliated Companies
During 1997, the company acquired a 50 percent interest in Altech Industries
(Pty) Ltd., a joint venture with Allied Technologies Limited, a South African
electronics distributor. The company also has a 45 percent interest in Strong
Electronics Co., Ltd., a joint venture with Lite-On Inc., a Taiwan-based
electronics distributor.
4. Debt
Long-term debt consisted of the following at December 31 (in thousands):
1997 1996
-------- --------
Global multi-currency credit facility $377,765 $267,512
7% senior notes, due 2007 196,033 -
7 1/2% senior debentures, due 2027 197,623 -
8.29% senior notes 75,000 75,000
Other obligations with various
interest rates and due dates 1,678 2,254
-------- --------
848,099 344,766
Less installments due within one year 25,000 204
-------- --------
$823,099 $344,562
======== ========
The company's revolving credit agreement (the "global multi-currency credit
facility") was amended in September 1996 to increase to $650,000,000 the amount
of available credit, to reduce the applicable borrowing rates, and to extend the
maturity date to September 2001. The interest rate for loans under this
facility is at the applicable eurocurrency rate (5.71875 percent for U.S.
dollar denominated loans at December 31, 1997) plus a margin of .20 percent.
The company may also utilize the facility's competitive advance option to obtain
loans, generally at a lower rate. The company pays the banks a facility fee of
.08 percent per annum.
The 8.29% senior notes are payable in three equal annual installments commencing
in 1998. The 7% senior notes and the 7 1/2% senior debentures are not
redeemable prior to their maturity.
The global multi-currency credit facility, the senior notes, and the senior
debentures limit, among other things, the payment of cash dividends and the
incurrence of additional borrowings and require that working capital, net worth,
and certain other financial ratios be maintained at designated levels.
The company maintains uncommitted lines of credit with a group of banks under
which up to $100,000,000 could be borrowed at December 31, 1997 on such terms as
the company and the banks may agree. Borrowings under the lines of credit are
classified as long-term debt as the company has the ability to renew them or
refinance them under the global multi-currency credit facility. There are no
fees or compensating balances associated with these borrowings. There were no
outstanding borrowings under the lines of credit at December 31, 1997.
Short-term borrowings are principally utilized to support the working capital
requirements of certain foreign operations. The weighted average interest rates
of these borrowings at December 31, 1997 and 1996 were 8 percent and 9 percent,
respectively.
At December 31, 1997, the estimated fair market value of the 7% senior notes was
103 percent of par, the 7 1/2% senior debentures was 107 percent of par, and the
8.29% senior notes was 104 percent of par. The balance of the company's
borrowings approximate their fair value.
5. Income Taxes
The provision for income taxes consists of the following (in thousands):
1997 1996 1995
-------- -------- --------
Current
Federal $ 81,278 $ 78,715 $ 78,639
State 19,679 21,482 19,989
Foreign 31,096 29,507 37,330
-------- -------- --------
132,053 129,704 135,958
-------- -------- --------
Deferred
Federal (9,321) 4,758 2,625
State (2,130) 1,087 600
Foreign 11,015 9,118 13,956
-------- -------- --------
(436) 14,963 17,181
-------- -------- --------
$131,617 $144,667 $153,139
======== ======== ========
The principal causes of the difference between the U.S. statutory and effective
income tax rates are as follows (in thousands):
1997 1996 1995
-------- -------- --------
Provision at statutory rate $107,935 $126,900 $132,769
State taxes, net of federal
benefit 11,407 14,670 13,383
Foreign tax rate differential 2,499 6,625 4,959
Other 9,776 (3,528) 2,028
-------- -------- --------
$131,617 $144,667 $153,139
======== ======== ========
For financial reporting purposes, income before income taxes attributable to the
United States was $216,993,000 in 1997, $279,149,000 in 1996, and $252,894,000
in 1995, and income before income taxes attributable to foreign operations was
$91,392,000 in 1997, $83,422,000 in 1996, and $126,447,000 in 1995.
The significant components of the company's deferred tax assets, which are
included in other assets, are as follows (in thousands):
1997 1996
------- -------
Inventory reserves $14,407 $12,730
Allowance for doubtful accounts 10,803 8,045
Accrued expenses 7,789 5,675
Realignment reserve 11,002 -
Integration reserve 20,807 7,151
Other (1,076) (5,101)
------- -------
$63,822 $28,500
======= =======
Included in other liabilities are deferred tax liabilities of $40,327,000 and
$36,156,000 at December 31, 1997 and 1996, respectively. The deferred tax
liabilities are principally the result of the differences in the bases of the
German assets and liabilities for tax and financial reporting purposes.
6. Shareholders' Equity
The company has 2,000,000 authorized shares of serial preferred stock with a par
value of $1.
In 1988, the company paid a dividend of one preferred share purchase right on
each outstanding share of common stock. Each right, as amended, entitles a
shareholder to purchase one one-hundredth of a share of a new series of
preferred stock at an exercise price of $50 (the "exercise price"). The rights
are exercisable only if a person or group acquires 20 percent or more of the
company's common stock or announces a tender or exchange offer that will result
in such person or group acquiring 30 percent or more of the company's common
stock. Rights owned by the person acquiring such stock or transferees thereof
will automatically be void. Each other right will become a right to buy, at the
exercise price, that number of shares of common stock having a market value of
twice the exercise price. The rights, which do not have voting rights, and may
be redeemed by the company at a price of $.01 per right at any time until ten
days after a 20 percent ownership position has been acquired. In the event that
the company merges with, or transfers 50 percent or more of its consolidated
assets or earning power to, any person or group after the rights become
exercisable, holders of the rights may purchase, at the exercise price, a number
of shares of common stock of the acquiring entity having a market value equal
to twice the exercise price. As amended in 1998, the rights expire on
March 1, 2008.
7. Realignment Charge
During 1997, the company announced the realignment of its North American
components operations into seven operating groups based upon customer needs.
The company recorded a special charge of $37,900,000 before taxes ($.24 per
share on a diluted basis) for costs associated with the realignment, including
real estate termination costs, severance and other expenses related to personnel
as well as costs of communicating the realignment to customers, suppliers, and
employees.
8. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings
per share for the years ended December 31 (in thousands):
1997 1996 1995
-------- -------- --------
Net income for basic EPS $163,656(a) $202,709 $202,544
Add interest on 5 3/4%
convertible subordinated
debentures, net of income
taxes - - 3,471
-------- -------- --------
Net income for diluted EPS $163,656(a) $202,709 $206,015
======== ======== ========
Weighted average common shares
outstanding for basic EPS 98,006 100,972 94,174
Net effect of dilutive stock
options and restricted stock awards 1,763 1,408 1,504
Assumed conversion of 5 3/4%
convertible subordinated
debentures - - 6,058
-------- -------- --------
Weighted average common shares
outstanding for diluted EPS 99,769 102,380 101,736
======== ======== =======
Basic EPS $ 1.67(a) $ 2.01 $ 2.15
======== ======== =======
Diluted EPS $ 1.64(a) $ 1.98 $ 2.03
======== ======== =======
(a) Net income includes special charges totaling $59,500,000 ($40,435,000 after
taxes) associated with the realignment of the North American components
operations and the acquisition and integration of the volume electronic
component distribution businesses of Premier Farnell plc. Excluding these
charges, net income and net income per share on a basic and diluted basis were
$204,091,000, $2.08, and $2.05, respectively.
9. Employee Stock Plans
Restricted Stock Plan
- ---------------------
Under the terms of the Arrow Electronics, Inc. Restricted Stock Plan (the
"Plan"), a maximum of 3,960,000 shares of common stock may be awarded at the
discretion of the board of directors to key employees of the company.
Shares awarded under the Plan may not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, except as provided in the Plan. Shares
awarded become free of vesting restrictions generally over a four-year period.
The company awarded 99,000 shares of common stock in early 1998 to 60 key
employees in respect of 1997, 292,304 shares of common stock to 209 key
employees during 1997, 239,720 shares of common stock to 81 key employees during
1996, and 212,700 shares of common stock to 79 key employees during 1995.
Forfeitures of shares awarded under the Plan were 31,250, 49,274, and 20,850,
during 1997, 1996, and 1995, respectively. The aggregate market value of
outstanding awards under the Plan at the respective dates of award is being
amortized over the vesting period, and the unamortized balance is included in
shareholders' equity as unamortized employee stock awards.
Stock Option Plan
- -----------------
Under the terms of the Arrow Electronics, Inc. Stock Option Plan (the "Option
Plan"), both nonqualified and incentive stock options for an aggregate of
21,000,000 shares of common stock were authorized for grant to key employees at
prices determined by the board of directors at its discretion or, in the case of
incentive stock options, prices equal to the fair market value of the shares at
the dates of grant. Effective May 1997, future options granted under the plan
become exercisable in equal installments over a four-year period. Previously,
options became exercisable over a two- or three-year period. Options currently
outstanding have terms of ten years.
The company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for the
Option Plan. Accordingly, no compensation expense has been recognized in the
company's accounts for this plan.
The following information relates to the option plan for the years ended
December 31:
Average Average Average
Exercise Exercise Exercise
1997 Price 1996 Price 1995 Price
--------- -------- --------- -------- --------- --------
Options outstanding at
beginning of year 7,107,042 $20.25 4,877,150 $16.69 4,328,076 $13.91
Granted 2,648,340 29.51 3,267,920 23.67 1,834,900 20.64
Exercised (1,316,962) 15.34 (923,970) 13.75 (1,133,008) 12.11
Forfeited (206,611) 22.16 (114,058) 18.88 (152,818) 18.07
--------- ------ --------- ------ --------- ------
Options outstanding
at end of year 8,231,809 $24.00 7,107,042 $20.25 4,877,150 $16.69
Prices per share of ========= ====== ========= ====== ========= ======
options outstanding $1.81-32.25 $1.81-27.69 $1.81-27.69
Options available for future grant:
Beginning of year 432,700 3,586,562 5,334,778
End of year 6,962,805 432,700 3,586,562
The following table summarizes information about stock options outstanding
at December 31, 1997:
Options Outstanding Options Exercisable
- ------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Maximum Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
- -------- ----------- ---------------- -------- -------------- ----------
$20.00 1,472,040 72 months $15.86 1,447,431 $15.86
25.00 2,335,003 91 months 21.31 1,435,190 21.11
30.00 3,221,766 111 months 26.69 1,075,994 26.00
35.00 1,203,000 119 months 31.98 - -
--------- ---------
All 8,231,809 103 months $24.00 3,958,615 $20.52
========= =========
Had stock-based compensation costs been determined as prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," net income would have been reduced by $7.6 million ($.06 per
share on a diluted basis) in 1997 and $5.2 million ($.04 per share on a diluted
basis) in 1996.
The estimated weighted average fair value, utilizing the Black-Scholes option-
pricing model, at date of option grant during 1997 and 1996 was $9.41 and $5.99,
per option, respectively. The weighted average fair value was estimated using
the following assumptions:
1997 1996
---- ----
Expected life (months) 47 31
Risk-free interest rate (percent) 5.8 5.6
Expected volatility (percent) 29 30
There is no expected dividend yield.
Stock Ownership Plan
- --------------------
The company maintains a noncontributory employee stock ownership plan which
enables most North American employees to acquire shares of the company's common
stock. Contributions, which are determined by the board of directors, are in
the form of common stock or cash which is used to purchase the company's common
stock for the benefit of participating employees. Contributions to the plan for
1997, 1996, and 1995 amounted to $5,147,000, $4,218,000, and $3,878,000,
respectively.
10. Retirement Plans
The company has a defined contribution plan for eligible employees, which
qualifies under Section 401(k) of the Internal Revenue Code. The company's
contribution to the plan, which is based on a specified percentage of employee
contributions, amounted to $4,988,000, $4,608,000, and $3,966,000 in 1997, 1996,
and 1995, respectively. Certain domestic and foreign subsidiaries maintain
separate defined contribution plans for their employees and made contributions
thereunder, which amounted to $1,915,000, $1,162,000, and $822,000 in 1997,
1996, and 1995, respectively.
The company maintains an unfunded supplemental retirement plan for certain
executives. The company's board of directors determines those employees
eligible to participate in the plan and their maximum annual benefit upon
retirement.
11. Lease Commitments
The company leases certain office, warehouse, and other property under
noncancelable operating leases expiring at various dates through 2053. Rental
expenses of noncancelable operating leases amounted to $29,190,000 in 1997,
$29,390,000 in 1996, and $27,594,000 in 1995. Aggregate minimum rental
commitments under all noncancelable operating leases, exclusive of real estate
taxes, insurance, and leases related to facilities closed in connection with the
North American realignment and the integration of the acquired businesses,
approximate $153,039,000. Such commitments on an annual basis are: 1998-
$29,004,000; 1999-$23,453,000; 2000-$16,546,000; 2001-$12,400,000; 2002-
$10,986,000; and $60,650,000 thereafter.
12. Financial Instruments
The company enters into foreign exchange forward contracts (the "contracts") to
mitigate the impact of changes in foreign currency exchange rates, principally
French francs, German deutsche marks, Italian lira, and British pound sterling.
These contracts are executed to facilitate the netting of offsetting foreign
currency exposures resulting from inventory purchases and sales, and generally
have terms of no more than three months. Gains or losses on these contracts are
deferred and recognized when the underlying future purchase is recognized. The
company does not enter into forward contracts for trading purposes. The risk of
loss on a contract is the risk of nonperformance by the counterparties which the
company minimizes by limiting its counterparties to major financial
institutions. The fair value of the contracts is estimated using market quotes.
The notional amount of the contracts at December 31, 1997 and December 31, 1996,
was $97,321,000 and $53,462,000, respectively. The carrying amount, which is
nominal, approximated fair value at December 31, 1997 and 1996.
13. Segment and Geographic Information
The company is engaged in one business, the distribution of electronic
components, systems, and related products. The geographic distribution of
consolidated sales, operating income (loss), and identifiable assets is as
follows (in thousands):
Sales to Identifiable
Unaffiliated Operating Assets at
Customers Income (Loss) December 31,
------------ ------------ ------------
1997
- ----
North America $4,964,660 $322,813 $1,847,976
Europe 2,279,951 117,918 1,394,456
Asia/Pacific 519,334 11,617 199,884
Realignment and
integration charges - (59,500) -
Corporate - (18,127) 40,643
Investment in affiliated
companies - - 54,914
---------- -------- ----------
$7,763,945 $374,721 $3,537,873
========== ======== ==========
1996
- ----
North America $4,309,839 $317,846 $1,463,528
Europe 1,855,821 101,326 1,040,326
Asia/Pacific 368,917 96 155,830
Corporate - (18,641) 16,467
Investment in affiliated
company - - 34,200
---------- -------- ----------
$6,534,577 $400,627 $2,710,351
========== ======== ==========
1995
- ----
North America $3,929,016 $295,941 $1,476,420
Europe 1,719,523 135,519 1,018,755
Asia/Pacific 270,881 8,884 134,947
Corporate - (17,135) 34,863
Investment in affiliated
company - - 36,031
---------- -------- ----------
$5,919,420 $423,209 $2,701,016
========== ======== ==========
14. Quarterly Financial Data (Unaudited)
A summary of the company's quarterly results of operations follows (in thousands
except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
1997
- ----
Sales $1,855,333 $1,848,742 $1,949,396 $2,110,474
Gross profit 285,561 293,390 291,546 319,033
Net income 50,294 51,779 9,282(a) 52,301
Per common share:
Basic .51 .52 .10(a) .54
Diluted .50 .52 .09(a) .53
1996
- ----
Sales $1,703,318 $1,601,651 $1,597,379 $1,632,229
Gross profit 281,817 265,336 243,985 250,883
Net income 56,808 54,097 43,756 48,048
Per common share:
Basic .56 .53 .43 .48
Diluted .56 .53 .43 .47
(a) Net income includes special charges totaling $59,500,000 ($40,435,000 after
taxes) associated with the realignment of the North American components
operations and the acquisition and integration of the volume electronic
component distribution businesses of Premier Farnell plc. Excluding these
charges, net income and net income per share on a basic and diluted basis were
$49,717,000, $.51, and $.50, respectively.
<PAGE>
Item 9. Changes In and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
------------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
See "Executive Officers" in the response to Item 1 above. In addition, the
information set forth under the heading "Election of Directors" in the
company's Proxy Statement filed in connection with the Annual Meeting of
Shareholders scheduled to be held May 13, 1998 hereby is incorporated herein
by reference.
Item 11. Executive Compensation.
-----------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 13, 1998 hereby is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The information on page 3 and under the heading "Election of Directors" in
the company's Proxy Statement filed in connection with the Annual Meeting of
Shareholders scheduled to be held May 13, 1998 hereby is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 13, 1998 hereby is
incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a)1. Financial Statements.
---------------------
The financial statements listed in the accompanying index to financial
statements and financial statement schedule are filed as part of this annual
report.
2. Financial Statement Schedule.
-----------------------------
The financial statement schedule listed in the accompanying index to
financial statements is filed as part of this annual report.
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the notes thereto.
<PAGE>
ARROW ELECTRONICS, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
----
Report of Ernst & Young LLP, independent auditors 14
Management's responsibility for financial reporting 15
Consolidated statement of income for the years ended
December 31, 1997, 1996 and 1995 16
Consolidated balance sheet at December 31, 1997 and 1996 17
For the years ended December 31, 1997, 1996 and 1995:
Consolidated statement of cash flows 18
Consolidated statement of shareholders' equity 19
Notes to consolidated financial statements for
the years ended December 31, 1997, 1996 and 1995 21
Consolidated schedule for the three years
ended December 31, 1997:
II - Valuation and qualifying accounts 41
<PAGE>
3. Exhibits.
(2)(a)(i) Share Purchase Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Aquarius
Investments Ltd., Andromeda Investments Ltd., and the other persons named
therein (incorporated by reference to Exhibit 2.2 to the company's
Registration Statement on Form S-3, Registration No. 33-42176).
(ii) Standstill Agreement, dated as of October 10, 1991,
among Arrow Electronics, Inc., Aquarius Investments Ltd., Andromeda
Investments Ltd., and the other persons named therein (incorporated by
reference to Exhibit 4.1 to the company's Registration Statement on Form S-3,
Registration No. 33-42176).
(iii) Shareholder's Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Giorgio Ghezzi,
Germano Fanelli, and Renzo Ghezzi (incorporated by reference to Exhibit
2(f)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-4482).
(b) Agreement and Plan of Merger, dated as of June 24,
1994, by and among Arrow Electronics, Inc., AFG Acquisition Company and
Gates/FA Distributing, Inc. (incorporated by reference to Exhibit 2 to the
company's Registration Statement on Form S-4, Commission File No. 35-54413).
(c) Agreement and Plan of Merger, dated as of
September 21, 1994, by and among Arrow Electronics, Inc., MTA Acquisition
Company and Anthem Electronics, Inc. (incorporated by reference to Exhibit 2
to the company's Registration Statement on Form S-4, Commission File No. 33-
55645).
(d) Master Agreement, dated as of December 20, 1996,
among Premier Farnell plc and Arrow Electronics, Inc. relating to the sale and
purchase of the Farnell Volume Business.(incorporated by reference to Exhibit
2(d) to the company's Annual Report on Form 10K for the year ended December
31, 1996, Commission File No. 1-4482).
(3)(a)(i) Restated Certificate of Incorporation of the
company, as amended (incorporated by reference to Exhibit 3(a) to the
company's Annual Report on Form 10-K for the year ended December 31, 1994
Commission File No. 1-4482).
(ii) Certificate of Amendment of the Certificate of
Incorporation of Arrow Electronics, Inc., dated as of August 30, 1996
(incorporated by reference to Exhibit 3 to the company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, Commission File No. 1-
4482).
(b) By-Laws of the company, as amended (incorporated by
reference to Exhibit 3(b) to the company's Annual Report on Form 10-K for the
year ended December 31, 1986, Commission File No. 1-4482).
(4)(a)(i) Rights Agreement dated as of March 2, 1988 between
Arrow Electronics, Inc. and Manufacturers Hanover Trust Company, as Rights
Agent, which includes as Exhibit A a Certificate of Amendment of the Restated
Certificate of Incorporation for Arrow Electronics, Inc. for the Participating
Preferred Stock, as Exhibit B a letter to shareholders describing the Rights
and a summary of the provisions of the Rights Agreement and as Exhibit C the
forms of Rights Certificate and Election to Exercise (incorporated by
reference to Exhibit 1 to the company's Current Report on Form 8-K dated
March 3, 1988, Commission File No. 1-4482).
(ii) First Amendment, dated June 30, 1989, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(b)
to the Company's Current Report on Form 8-K dated June 30, 1989, Commission
File No. 1-4482).
(iii) Second Amendment, dated June 8, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(i)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
(iv) Third Amendment, dated July 19, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(i)(iv) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
(v) Fourth Amendment, dated August 26, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(I)
(v) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
(vi) Fifth Amendment, dated February 25, 1998, to the
Rights Agreement in (4)(i)above (incorporated by reference to Exhibit 7 to the
company's current report on Form 8 A/A dated March 2, 1998, Commission File
No. 1-4482).
(b)(i) Indenture, dated as of January 15, 1997, between
the company and the Bank of Montreal Trust Company, as Trustee. (incorporated
by reference to Exhibit 4 (b)(i) to the company's Annual Report on Form 10K
for the year ended December 31, 1996, Commission File No. 1-4482).
(ii) Officers' Certificate, as defined by the
Indenture in 4(b)(i) above, dated as of January 22, 1997, with respect to the
company's $200,000,000 7% Senior Notes due 2007 and $200,000,000 7 1/2% Senior
Debentures due 2027. (incorporated by reference to Exhibit 4 (b)(ii) to the
company's Annual Report on Form 10K for the year ended December 31, 1996,
Commission File No. 1-4482).
(10)(a)(i) Arrow Electronics Savings Plan, as amended and
restated through December 28, 1994 (incorporated by reference to Exhibit
10(a)(iii) to the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, Commission File No. 1-4482).
(ii) Amendment No. 1, dated March 29, 1996, to the
Arrow Electronics Savings Plan in (10)(a)(i) above (incorporated by reference
to Exhibit 10(a)(iv) to the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 1-4482).
(iii) Arrow Electronics Stock Ownership Plan, as
amended and restated through December 28, 1994 (incorporated by reference to
Exhibit 10(a)(i) to the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 1-4482).
(iv) Amendment No. 1, dated March 29, 1996, to the
Arrow Electronics Stock Ownership Plan in (10)(a)(iii) above (incorporated by
reference to Exhibit 10(a)(ii) to the company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, Commission File No. 1-4482).
(b)(i) Employment Agreement, dated as of October 16,
1990, between the company and John C. Waddell (incorporated by reference to
Exhibit 10(c)(i) to the company's Annual Report on Form 10-K for the year
ended December 31, 1990, Commission File No. 1-4482).
(ii) Employment Agreement, dated as of February 22,
1995, between the company and Stephen P. Kaufman (incorporated by reference to
Exhibit 10(c)(ii) to the company's Annual Report on Form 10-K for the year
ended December 31, 1995, Commission File No. 1-4482).
(iii) Employment Agreement, dated as of January 1,
1998 between the company and Robert E. Klatell.
(iv) Form of agreement between the company and the
employees parties to the Employment Agreements listed in 10(b)(i)-(iii) above
providing extended separation benefits under certain circumstances
(incorporated by reference to Exhibit 10(c)(iv) to the company's Annual Report
on Form 10-K for the year ended December 31, 1988, Commission File No. 1-
4482).
(v) Employment Agreement, dated as of January 1,
1998, between the company and Betty Jane Scheihing.
(vi) Employment Agreement, dated as of September 1,
1997, between the company and Jan M. Salsgiver.
(vii) Employment Agreement, dated as of September 1,
1997, between the company and Francis M. Scricco.
(viii) Employment Agreement, dated as of April 15,
1996, between the company and Gerald Luterman (incorporated by reference to
Exhibit 10(c)(vi) to the company's Annual Report on Form 10K for the year
ended December 31, 1996, Commission File No. 1-4482).
(ix) Employment Agreement, dated as of September 21,
1994, between the company and Robert S. Throop (incorporated by reference to
Exhibit 10(c)(x) to the company's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File No. 1-4482).
(x) Employment Agreement, dated as of September 1,
1994 between the company and Steven W. Menefee (incorporated by reference to
Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File No. 1-4482).
(xi) Form of agreement between the company and all
corporate Vice Presidents, including the employees parties to the Employment
Agreements listed in 10(b)(v)-(x) above, providing extended separation
benefits under certain circumstances (incorporated by reference to Exhibit
10(c)(ix) to the company's Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 1-4482).
(xii) Form of agreement between the company and non-
corporate officers providing extended separation benefits under certain
circumstances (incorporated by reference to Exhibit 10(c)(x) to the company's
Annual Report on Form 10-K for the year ended December 31, 1988, Commission
File No. 1-4482).
(xi) Unfunded Pension Plan for Selected Executives of
Arrow Electronics, Inc., as amended (incorporated by reference to
Exhibit 10(c)(xiii) to the company's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File No. 1-4482).
(xii) English translation of the Service Agreement,
dated January 19, 1993, between Spoerle Electronic and Carlo Giersch
(incorporated by reference to Exhibit 10(f)(v) to the company's Annual Report
on Form 10-K for the year ended December 31, 1992, Commission File No. 1-
4482).
(c)(i) Senior Note Purchase Agreement, dated as of
December 29, 1992, with respect to the company's 8.29 percent Senior Secured
Notes due 2000 (incorporated by reference to Exhibit 10(d) to the company's
Annual Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 1-4482).
(ii) First Amendment, dated as of December 22, 1993,
to the Senior Note Purchase Agreement in 10(c)(i) above (incorporated by
reference to Exhibit 10(d)(ii) in the company's Annual Report on form 10-K for
the year ended December 31, 1993, Commission File No. 1-4482).
(iii) Second Amendment, dated as of April 24, 1995, to
the Senior Note Purchase Agreement in 10(c)(i) above. (incorporated by
reference to Exhibit 10(c)(iii) in the company's Annual Report on form 10-K
for the year ended December 31, 1996, Commission File No. 1-4482).
(iv) Third Amendment, dated as of December 23, 1996,
to the Senior Note Purchase Agreement in 10(c)(i) above. (incorporated by
reference to Exhibit 10(c)(iv) in the company's Annual Report on form 10-K for
the year ended December 31, 1996, Commission File No. 1-4482).
(d)(i) Amended and Restated Credit Agreement, dated as
of August 16, 1995 among Arrow Electronics, Inc., the several Banks from time
to time parties hereto, Bankers Trust Company and Chemical Bank, as agents.
(incorporated by reference to Exhibit 10(d) in the company's Annual Report on
form 10-K for the year ended December 31, 1995, Commission File No. 1-4482).
(ii) First Amendment, dated as of September 30, 1996,
to the Arrow Electronics, Inc. Second Amended and Restated Credit Agreement,
dated August 16, 1995 in (10)(d)(i) above (incorporated by reference to
Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, Commission File No. 1-4482).
(e)(i) Arrow Electronics, Inc. Stock Option Plan, as
amended and restated, effective as of May 15, 1997 (incorporated by reference
to 99(a) to the company's Registration Statement on Form S-8, Registration No.
333-45631).
(ii) Form of Stock Option Agreement under (e)(i)
above.
(iii) Form of Nonqualified Stock Option Agreement
under (e)(i) above (incorporated by reference to Exhibit 10(k)(iv) to the
company's Registration Statement on Form S-4, Registration No. 33-17942).
(f)(i) Restricted Stock Plan of Arrow Electronics,
Inc., as amended and restated effective May 15, 1997 (incorporated by
reference to Exhibit 99(b) to the company's Registration Statement on Form S-
8, Registration No. 333-45631).
(ii) Form of Restricted Stock Award Agreement under
(f)(i) above.
(g)(i) Non-Employee Directors Stock Option Plan as of
May 15, 1997 (incorporated by reference to Exhibit 99(c) to the company's
Registration Statement on Form S-8, Registration No.333-45631).
(ii) Form of Nonqualified Stock Option Agreement
under 10(g)(i) above.
(h) Non-Employee Directors Referral Plan as of May
15, 1997 (in corporated by reference to Exhibit 99(d) to the Company's
Registration Statement on Form S-8, Registration No. 333-45631).
(i) Form of Indemnification Agreement between the
company and each director (incorporated by reference to Exhibit 10(m) to the
company's Annual Report on Form 10-K for the year ended December 31, 1986,
Commission File No. 1-4482).
(11) Statement Re: Computation of Earnings Per Share.
(21) List of Subsidiaries.
(23) Consent of Ernst & Young LLP
(28)(i) Record of Decision, issued by the EPA on
September 28, 1990, with respect to environmental clean-up in Plant City,
Florida (incorporated by reference to Exhibit 28 to the company's Annual
Report on Form 10-K for the year ended December 31, 1990, Commission File No.
1-4482).
(ii) Consent Decree lodged with the U.S. District Court
for the Middle District of Florida, Tampa Division, on December 18, 1991, with
respect to environmental clean-up in Plant City, Florida (incorporated by
reference to Exhibit 28(ii) to the company's Annual Report on Form 10-K for
the year ended December 31, 1991, Commission File No. 1-4482).
(b) Reports on Form 8-K
During the quarter ended December 31, 1997, the following
Current Reports on Form 8-K were filed:
Date of Report
(Date of Earliest Event Reported) Items Reported
------------------------------- --------------
None
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 333-45631, No. 33-55565, No. 33-66594, No. 33-48252, No. 33-
20428 and No. 2-78185) and in the related Prospectuses pertaining to the
employee stock plans of Arrow Electronics, Inc., in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-19431) and in the related Prospectus
pertaining to the registration and issuance of the senior notes and senior
debentures of Arrow Electronics, Inc., in Amendment No. 1 to the Registration
Statement (Form S-3 No. 33-54473) and in the related Prospectus pertaining to
the registration of 1,376,843 shares of Arrow Electronics, Inc. Common Stock,
in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-67890) and
in the related Prospectus pertaining to the registration of 1,009,086 shares
of Arrow Electronics, Inc. Common Stock, and in Amendment No. 1 to the
Registration Statement (Form S-3 No. 33-42176) and in the related Prospectus
pertaining to the registration of up to 944,445 shares of Arrow Electronics,
Inc. Common Stock held by Aquarius Investments Ltd. and Andromeda Investments
Ltd. of our report dated February 16, 1998 with respect to the consolidated
financial statements and schedule of Arrow Electronics, Inc. included in this
Annual Report on Form 10-K for the year ended December 31, 1997.
ERNST & YOUNG LLP
New York, New York
March 30, 1998
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the three years ended December 31, 1997
Additions
------------------------
Balance at Balance
beginning Charged Charged at end
of year to income to other(1) Write-offs of year
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
1997 $39,753,000 $20,360,000 $1,896,000 $15,954,000 $46,055,000
=========== =========== ========== =========== ===========
1996 $38,670,000 $15,495,000 $ - $14,412,000 $39,753,000
=========== =========== ========== =========== ===========
1995 $31,132,000 $21,344,000 $ 67,000 $13,873,000 $38,670,000
=========== =========== ========== =========== ===========
(1) Represents the allowance for doubtful accounts of the businesses acquired by the company
during each year.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
-----------------------
Robert E. Klatell
Executive Vice President
March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By: /s/ Stephen P. Kaufman March 30, 1998
-------------------------------
Stephen P. Kaufman, Chairman, Principal
Executive Officer, and Director
By: /s/ Robert E. Klatell March 30, 1998
-------------------------------
Robert E. Klatell, Executive Vice President,
Secretary, and Director
By: /s/ Gerald Luterman March 30, 1998
-------------------------------
Gerald Luterman, Senior Vice President
and Principal Financial Officer
By: /s/ Paul J. Reilly March 30, 1998
-------------------------------
Paul J. Reilly, Vice President, Controller
and Principal Accounting Officer
By: /s/ Daniel W. Duval March 30, 1998
-------------------------------
Daniel W. Duval, Director
By: /s/ Carlo Giersch March 30, 1998
-------------------------------
Carlo Giersch, Director
By: /s/ John N. Hanson March 30, 1998
-------------------------------
John N. Hanson, Director
By: /s/ Roger King March 30, 1998
-------------------------------
Roger King, Director
By: /s/ Karen Gordon Mills March 30, 1998
-------------------------------
Karen Gordon Mills, Director
By: /s/ Richard S. Rosenbloom March 30, 1998
-------------------------------
Richard S. Rosenbloom, Director
By: /s/ Robert S. Throop March 30, 1998
-------------------------------
Robert S. Throop, Director
By: /s/ John C. Waddell March 30, 1998
-------------------------------
John C. Waddell, Director
EMPLOYMENT AGREEMENT made as of the 1st day of January, 1998
by and between ARROW ELECTRONICS, INC., a New York corporation
with its principal office at 25 Hub Drive, Melville, New York
11747 (the "Company"), and ROBERT E. KLATELL, residing at 1094
Ponus Ridge Road, New Canaan, Connecticut 06840 (the
"Executive").
WHEREAS, the Executive is now and has been employed by the
Company as an Executive Vice President, with the responsibilities
and duties of a principal executive officer of the Company;
WHEREAS, the Company and the Executive wish to provide for
the continued employment of the Executive as an employee of the
Company and for him to continue to render services to the Company
on the terms set forth in, and in accordance with the provisions
of, this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Employment and Duties.
---------------------
a) Employment. The Company hereby employs the
Executive for the Employment Period defined in Paragraph 3, to
perform such duties for the Company, its subsidiaries and
affiliates and to hold such offices as may be specified from time
to time by the Company's Board of Directors, subject to the
following provisions of this Agreement. The Executive hereby
accepts such employment.
b) Duties and Responsibilities. It is contemplated
that the Executive will be an Executive Vice President of the
Company but the Board of Directors shall have the right to adjust
the duties, responsibilities and title of the Executive as the
Board of Directors may from time to time deem to be in the
interests of the Company (provided, however, that they remain
commensurate with his duties and responsibilities as they exist
on the date hereof). If the Board of Directors does not either
continue the Executive in the office of Executive Vice President
or elect him to some other principal executive office
satisfactory to the Executive, the Executive shall have the right
to decline to give further service to the Company and shall have
the rights and obligations which would accrue to him under
Paragraph 8 if he were discharged without cause. If the
Executive decides to exercise such right to decline to give
further service, he shall within thirty days after such action or
omission by the Board of Directors give written notice to the
Company stating his objection and the action he thinks necessary
to correct it, and he shall permit the Company to have a thirty
day period in which to correct its action or omission. If the
Company makes a correction satisfactory to the Executive, the
Executive shall be obligated to continue to serve the Company.
If the Company does not make such a correction, the Executive's
rights and obligations under Paragraph 8 shall accrue at the
expiration of such thirty day period.
c) Time Devoted to Duties. The Executive shall
devote substantially all of his normal business time and efforts to the
business of the Company, its subsidiaries and its affiliates, the
amount of such time to be sufficient, in his discretion, to
permit him diligently and faithfully to serve and endeavor to
further their interests to the best of his ability. Subject to
the foregoing, it is expressly agreed and understood that the
Executive may participate in various civic and philanthropic
activities, may serve on boards of directors and committees of
not-for-profit organizations of the Executive's choice, and,
consistent with the policies of the Company, may serve as a
member of one or more corporate boards of directors (unless the
Company's Board of Directors concludes that such service would be
inappropriate or not in the best interests of the Company).
d) Location of Office. The Company shall not require
the Executive to locate his office more than fifty miles from his
current residence address, without his prior written consent. In
the event that, during the Employment Period, the Executive
elects to relocate his current residence so as to reduce the
burden of commuting, the Company shall provide him with the
maximum amount of relocation assistance and support offered to
senior executives who relocate their residences at the Company's
request.
2. Compensation.
------------
a) Monetary Remuneration and Benefits. During the
Employment Period, the Company shall pay to the Executive for all
services rendered by him in any capacity:
i. a minimum base salary of $425,000 per year
(payable in accordance with the Company's then
prevailing practices, but in no event less
frequently than in equal monthly installments), subject
to increase from time to time in the sole discretion of
the Board of Directors of the Company, except that
such salary shall be increased annually by a
percentage at least equal to the average percentage
increase granted to all salaried employees of the
Company; and provided further that, should the
Company institute a company-wide pay cut/furlough
program, such salary may be decreased by up to 15%,
but only for as long as said company-wide program is
in effect;
ii. such additional compensation by way of
salary or bonus or fringe benefits as the Board of
Directors of the Company in its sole discretion shall
authorize or agree to pay, payable on such terms and
conditions as it shall determine; and
iii. such employee benefits that are made
available by the Company to its other principal
executives.
b) Annual Incentive Payment. The Executive shall
participate in the Company's Management Incentive Plan (or such
successor or replacement plan or program in which the Company's
principal executives, other than the Chief Executive Officer,
generally participate) and shall have a targeted incentive
thereunder of not less than $220,000 per annum; provided,
however, that the Executive's actual incentive payment in any
year shall be measured by the Company's performance against goals
established for that year and that such performance may produce
an incentive payment ranging from one-half to twice the targeted
amount.
c) Supplemental Executive Retirement Plan. The
Executive shall continue to participate in the Company's Unfunded
Pension Plan for Selected Executives; provided, however, that the
Executive's initial date of participation in such plan shall be
deemed to be May 1, 1971 for purposes of calculating his
retirement benefit and all other matters thereunder.
d) Automobile. During the Employment Period, the
Company will pay the Executive a monthly automobile allowance of
$1,200.
e) Vacation. During the Employment Period, the
Executive will be given four weeks vacation with full pay each
year, to be taken at the Executive's discretion; provided,
however, that the Executive will use his best efforts to ensure
that such vacation does not unduly interfere with the operation
and performance of the business of the Company, its subsidiaries
or its affiliates.
f) Expenses. During the Employment Period, the Company
agrees to reimburse the Executive, upon the submission of
appropriate vouchers, for out-of-pocket expenses (including,
without limitation, expenses for travel, lodging and
entertainment) incurred by the Executive in the course of his
duties hereunder.
g) Office and Staff. The Company will provide the
Executive with an office, secretary and such other facilities as
may be reasonably required for the proper discharge of his duties
hereunder.
h) Indemnification. The Company agrees to indemnify
the Executive for any and all liabilities to which he may be
subject as a result of his employment hereunder (and as a result
of his service as an officer or director of the Company, or as an
officer or director of any of its subsidiaries or affiliates), as
well as the costs of any legal action brought or threatened
against him as a result of such employment, to the fullest extent
permitted by law.
i) Participation in Plans. Notwithstanding any other
provision of this Agreement, the Executive shall have the right
to participate in any and all of the plans or programs made
available by the Company (or its subsidiaries, divisions or
affiliates) to, or for the benefit of, executives (including the
annual stock option and restricted stock grant programs) or
employees in general, on a basis consistent with other senior
executives.
3. The Employment Period.
---------------------
The "Employment Period", as used in the Agreement, shall
mean the period beginning as of the date hereof and terminating
on the last day of the calendar month in which the first of the
following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in
accordance with Paragraph 4 hereof and subject to the provisions
thereof;
c) the termination of the Executive's employment by the
Company for cause in accordance with Paragraph 6 hereof; or
d) January 1, 2001; provided, however, that, unless
sooner terminated as otherwise provided herein, the Employment
Period shall automatically be extended for one or more twelve
(12) month periods beyond the then scheduled expiration date
thereof unless between the 18th and 12th month preceding such
scheduled expiration date either the Company or the Executive
gives the other written notice of its or his election not to have
the Employment Period so extended.
The Executive shall have the right to terminate the Employment
Period on six months' written notice to the Company upon the
happening of any of the following events if such event has not
been approved by the Board of Directors of the Company:
1) a merger or consolidation with another corporation;
2) a sale of all or substantially all the assets of the
Company; or
3) acquisition of more than fifty percent of the voting
stock of the Company by another entity, individual or
united group.
If the Executive exercises such right, the Employment
Period shall terminate on the date specified in his notice to the
Company provided the date is six months or more after the date
such notice is given.
4. Disability.
----------
The Company has a disability benefit program now in
effect for certain of its executive employees including the
Executive. During the Employment Period the Company will
continue to maintain in effect for the Executive such benefit
program or one granting benefits to the Executive at least equal
to those provided by the current Disability Income Agreement
dated November 1, 1982 between the Company and the Executive
entered into pursuant to such program. If at any time during the
Employment Period the Executive shall become disabled as defined
under the terms of the disability benefit program applicable to
the Executive, the Employment Period shall terminate on the last
day of the month in which such disability is determined. Until
such termination of the Employment Period, the Company shall
continue to pay to the Executive, until the commencement of the
disability payments, his base salary and any additional
compensation authorized by the Company's Board of Directors, and
shall continue during such interim period to provide the
Executive with the remuneration and benefits provided for in
accordance with Paragraph 2 hereof and the insurance required by
Paragraph 7 hereof, all without delay, diminution or proration of
any kind whatsoever, and his medical benefits and life insurance
shall remain in full force. After termination of the Employment
Period as a result of the disability of the Executive, the
medical benefits covering the Executive and his family shall
remain in place (subject to the eligibility requirements and
other conditions continued in the underlying plan, as described
in the Company's employee benefits manual, and subject to the
requirement that the Executive continue to pay the "employee
portion" of the cost thereof), and the Executive's life insurance
policy under the Management Insurance Program shall be
transferred to him, as provided in the related agreement, subject
to the obligation of the Executive to pay the premiums therefor.
In the event that, notwithstanding such a determination of
disability, the Executive is determined not to be totally and
permanently disabled and such disability payments cease prior to
January 1, 2001, the Executive shall be entitled to resume
employment with the Company under the terms of this agreement for
the then remaining balance of the Employment Period.
5. Parachute Payments.
------------------
There is currently an agreement between the Executive
and the Company dated June 1, 1988 relating to the rights of the
parties in the event of a "change in control" of the Company as
therein defined, which is comparable to similar agreements
between the Company and certain other principal executive
officers. At no time during the Employment Period shall the
terms and conditions applicable to the Executive in the event of
a change of control (including the basis on which the Executive
may become entitled to compensation or benefits in connection
with such a change) be less favorable than the most favorable
terms and conditions applicable to any other principal executive
officer of the Company.
6. Termination for Cause.
---------------------
In the event of any malfeasance, willful misconduct,
active fraud or gross negligence by the Executive in connection
with his employment hereunder, the Company shall have the right
to terminate the Employment Period by giving the Executive notice
in writing of the reason for such proposed termination. If the
Executive shall not have corrected such conduct to the
satisfaction of the Company within thirty days after such notice,
the Employment Period shall terminate and the Company shall have
no further obligation to the Executive hereunder but the
restriction on the Executive's activities contained in Paragraph
9 and the obligations of the Executive contained in Paragraph
10(b) and 10(c) shall continue in effect as provided therein.
7. Death Benefit.
-------------
The Executive is a participant in the Company's
Management Insurance Program. During the Employment Period, the
Company will continue to maintain in effect for the Executive
such Program or some other form of life insurance providing the
Executive's estate or named beneficiary a benefit upon the
Executive's death at least equal to the net after-tax benefit
provided by the Management Insurance Program.
8. Termination Without Cause.
-------------------------
In the event that the Company discharges the Executive
without cause, the Executive shall be entitled to the salary
provided in Paragraph 2, the full vesting of any restricted stock
awards and the immediate exercisability of any stock options, as
well as his rights under Paragraphs 4 and 7, for the full
Employment Period (which, in that event, shall continue until
January 1, 2001 unless sooner terminated by the Executive's
disability or death), and the Company shall have no right to set
off payments due the Executive with any amounts he may earn from
gainful employment elsewhere. It is expressly agreed and
understood that the Executive shall be under no obligation to
seek such employment. The provisions of Paragraph 9 restricting
the Executive's activities and Executive's obligations under
Paragraph 10(b) and 10(c) shall continue in effect. The
provisions of this Paragraph 8 shall not act to limit the
Executive's ability to recover damages from the Company for
breaching this Agreement by terminating the Employment Period
without cause, except as otherwise permitted by Paragraph 3.
9. Non-Competition; Trade Secrets.
------------------------------
During the Employment Period and for a period of two
years after the termination of the Employment Period, the
Executive will not, directly or indirectly:
a) Disclosure of Information. Use, attempt to use,
disclose or otherwise make known to any person or entity (other
than to the Board of Directors of the Company or otherwise in the
course of the business of the Company, its subsidiaries or
affiliates and except as may be required by applicable law):
i. any knowledge or information, including,
without limitation, lists of customers or suppliers,
trade secrets, know-how, inventions, discoveries,
processes and formulae, as well as all data and records
pertaining thereto, which he may acquire in the course of
his employment, in any manner which may be detrimental to
or cause injury or loss to the Company, its subsidiaries or
affiliates; or
ii. any knowledge or information of a confidential
nature (including all unpublished matters) relating to,
without limitation, the business, properties, accounting,
books and records, trade secrets or memoranda of the Company,
its subsidiaries or affiliates, which he now knows or may
come to know in any manner which may be detrimental to or
cause injury or loss to the Company its subsidiaries or affiliates.
b) Non-Competition. Engage or become interested in the
United States, Canada or Mexico (whether as an owner,
shareholder, partner, lender or other investor, director,
officer, employee, consultant or otherwise) in the business of
distributing electronic parts, components, supplies or systems,
or any other business that is competitive with the principal
business or businesses then conducted by the Company, its
subsidiaries or affiliates (provided, however, that nothing
contained herein shall prevent the Executive from acquiring or
owning less than 1% of the issued and outstanding capital stock
or debentures of a corporation whose securities are listed on the
New York Stock Exchange, American Stock Exchange, or the National
Association of Securities Dealers Automated Quotation System, if
such investment is otherwise permitted by the Company's Human
Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the
solicitation of any business of any type conducted by the
Company, its subsidiaries or affiliates, during said term or
thereafter, from any person, firm or other entity which was or at
the time is a supplier or customer, or prospective supplier or
customer, of the Company, its subsidiaries or affiliates; or
d) Employment. Employ or retain, or arrange to have
any other person, firm or other entity employ or retain, or
otherwise participate in the employment or retention of, any
person who was an employee or consultant of the Company, its
subsidiaries or affiliates, at any time during the period of
twelve consecutive months immediately preceding such employment
or retention.
The Executive will promptly furnish in writing to the
Company, its subsidiaries or affiliates, any information
reasonably requested by the Company (including any third party
confirmations) with respect to any activity or interest the
Executive may have in any business.
Except as expressly herein provided, nothing contained
herein is intended to prevent the Executive, at any time after
the termination of the Employment Period, from either (i) being
gainfully employed or (ii) exercising his skills and abilities
outside of such geographic areas, provided in either case the
provisions of this Agreement are complied with.
10. Preservation of Business.
------------------------
a) General. During the Employment Period and subject
to Paragraph 1(c) hereof, the Executive will use his best efforts
to advance the business and organization of the Company, its
subsidiaries and affiliates, to keep available to the Company,
its subsidiaries and affiliates, the services of present and
future employees and to advance the business relations with its
suppliers, distributors, customers and others.
b) Patents and Copyrights, etc. The Executive agrees,
without additional compensation, to make available to the Company
all knowledge possessed by him relating to any methods,
developments, inventions, processes, discoveries and/or
improvements (whether patented, patentable or unpatentable) which
concern in any way the business of the Company, it subsidiaries
or affiliates, whether acquired by the Executive before or during
his employment or retention hereunder.
Any methods, developments, inventions, processes,
discoveries and/or improvements (whether patented, patentable or
unpatentable) which the Executive may conceive of or make,
related directly or indirectly to the business or affairs of the
Company, its subsidiaries or affiliates, or any part thereof,
during the Employment Period, shall be and remain the property of
the Company. The Executive agrees promptly to communicate and
disclose all such methods, developments, inventions, processes,
discoveries and/or improvements to the Company and to execute and
deliver to it any instruments deemed necessary by the Company to
effect the disclosure and assignment thereof to it. The
Executive also agrees, on request and at the expense of the
Company, to execute patent applications and any other instruments
deemed necessary by the Company for the prosecution of such
patent applications or the acquisition of Letters Patent in the
United States or any other country and for the assignment to the
Company of any patents which may be issued. The Company shall
indemnify and hold the Executive harmless from any and all costs,
expenses, liabilities or damages sustained by the Executive by
reason of having made such patent application or being granted
such patents.
Any writings or other materials written or produced by
the Executive or under his supervision (whether alone or with
others and whether or not during regular business hours), during
the Employment Period which are related, directly or indirectly,
to the business or affairs of the Company, its subsidiaries or
affiliates, or are capable of being used therein, and the
copyright thereof, common law or statutory, including all
renewals and extensions, shall be and remain the property of the
Company. The Executive agrees promptly to communicate and
disclose all such writings or materials to the Company and to
execute and deliver to it any instruments deemed necessary by the
Company to effect the disclosure and assignment thereof to it.
The Executive further agrees, on request and at the expense of
the Company, to take any and all action deemed necessary by the
Company to obtain copyrights or other protections for such
writings or other materials or to protect the Company's right,
title and interest therein. The Company shall indemnify and hold
the Executive harmless from any and all costs, expenses,
liabilities or damages sustained by the Executive by reason of
the Executive's compliance with the Company's request.
c) Return of Documents. Upon the termination of
the Employment Period, including any termination of employment
described in Paragraph 8 and any termination of employment
described in Paragraph 1(b), the Executive will promptly return
to the Company all copies of information protected by Paragraph
9(a) hereof or pertaining to matters covered by subparagraph (b)
of this Paragraph 10 which are in his possession, custody or
control, whether prepared by him or others.
11. Separability.
------------
The Executive agrees that the provisions of
Paragraphs 9 and 10 hereof constitute independent and separable
covenants which shall survive the termination of the Employment
Period and which shall be enforceable by the Company notwithstanding
any rights or remedies the Executive may have under any other
provisions hereof. The Company agrees that the provisions of
Paragraphs 4, 7 and 8 hereof constitute independent and separable
covenants which shall survive the termination of the Employment
Period and which shall be enforceable by the Executive
notwithstanding any rights or remedies the Company may have under
any other provisions hereof.
12. Specific Performance.
--------------------
The Executive acknowledges that (i) the services
to be rendered under the provisions of this Agreement and the
obligations of the Executive assumed herein are of a special,
unique and extraordinary character; (ii) it would be difficult or
impossible to replace such services and obligations; (iii) the
Company, it subsidiaries and affiliates will be irreparably
damaged if the provision hereof are not specifically enforced;
and (iv) the award of monetary damages will not adequately
protect the Company, its subsidiaries and affiliates in the event
of a breach hereof by the Executive. The Company acknowledges
that (i) the Executive will be irreparably damaged if the
provisions of Paragraphs 1(b), 4, 7 and 8 hereof are not
specifically enforced; and (ii) the award of monetary damages
will not adequately protect the Executive in the event of a
breach thereof by the Company. By virtue thereof, the Executive
agrees and consents that if he violates any of the provisions of
this Agreement, and the Company agrees and consents that if it
violates any of the provisions of Paragraphs 1(b), 4, 7 and 8
hereof, the other party, in addition to any other rights and
remedies available under this Agreement or otherwise, shall
(without any bond or other security being required and without
the necessity of proving monetary damages) be entitled to a
temporary and/or permanent injunction to be issued by a court of
competent jurisdiction restraining the breaching party from
committing or continuing any violation of this Agreement, or any
other appropriate decree of specific performance. Such remedies
shall not be exclusive and shall be in addition to any other
remedy which any of them may have.
13. Miscellaneous.
-------------
a) Entire Agreement; Amendment. This Agreement
constitutes the whole employment agreement between the parties
and may not be modified, amended or terminated except by a
written instrument executed by the parties hereto. It is
specifically agreed and understood, however, that the provisions
of that certain letter agreement dated as of June 1, 1988
granting to the Executive extended separation benefits in the
event of a change in control of the Company, shall survive and
shall not be affected hereby. All other agreements between the
parties pertaining to the employment or remuneration of the
Executive not specifically contemplated hereby or incorporated or
merged herein are terminated and shall be of no further force or
effect.
b) Assignment. Except as stated below, this Agreement
is not assignable by the Company without the written consent of
the Executive, or by the Executive without the written consent of
the Company, and any purported assignment by either party of such
party's rights and/or obligations under this Agreement shall be
null and void; provided, however, that, notwithstanding the
foregoing, the Company may merge or consolidate with or into
another corporation, or sell all or substantially all of its
assets to another corporation or business entity or otherwise
reorganize itself, provided the surviving corporation or entity,
if not the Company, shall assume this Agreement and become
obligated to perform all of the terms and conditions hereof, in
which event the Executive's obligations shall continue in favor
of such other corporation or entity, subject however to the
provisions of Paragraph 3.
c) Waivers, etc. No waiver of any breach or
default hereunder shall be considered valid unless in writing, and no
such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature. The failure of any party
to insist upon strict adherence to any term of this Agreement on
any occasion shall not operate or be construed as a waiver of the
right to insist upon strict adherence to that term of any other
term of this Agreement on that or any other occasion.
d) Provisions Overly Broad. In the event that any
term or provision of this Agreement shall be deemed by a court of
competent jurisdiction to be overly broad in scope, duration or
area of applicability, the court considering the same shall have
the power and hereby is authorized and directed to modify such
term or provision to limit such scope, duration or area, or all
of them, so that such term or provision is no longer overly broad
and to enforce the same as so limited. Subject to the foregoing
sentence, in the event any provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such
provision and shall not affect or render invalid or unenforceable
any other provision of this Agreement.
e) Notices. Any notice permitted or required hereunder
shall be in writing and shall be deemed to have been given on the
date of delivery or, if mailed by registered or certified mail,
postage prepaid, on the date of mailing:
i. if to the Executive to:
Robert E. Klatell
1094 Ponus Ridge Road
New Canaan, Connecticut 06840
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: President
Either party may, by notice to the other, change his or its
address for notice hereunder.
f) New York Law. This Agreement shall be
construed and governed in all respects by the internal laws of the State of
New York, without giving effect to principles of conflicts of
law.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
/s/ Wayne Brody By: /s/Stephen P. Kaufman
- ----------------------- -------------------------
Assistant Secretary President
THE EXECUTIVE
/s/ Robert E. Klatell
---------------------
EMPLOYMENT AGREEMENT made as of the 1st day of January 1998
by and between ARROW ELECTRONICS, INC., a New York corporation
with its principal office at 25 Hub Drive, Melville, New York
11747 (the "Company"), and Betty Jane Scheihing, residing at 2419
N.E. Lakeview Drive, Sebring, Florida 33870 (the "Executive").
WHEREAS, the Executive is now and has been employed by the
Company as a Senior Vice President, with the responsibilities
and duties of an executive officer of the Company; and
WHEREAS, the Company and the Executive wish to provide for
the continued employment of the Executive as an employee of the
Company and for her to continue to render services to the
Company on the terms set forth in, and in accordance with the
provisions of, this Employment Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants
and agreements herein contained, the parties agree as follows:
1. Employment and Duties.
---------------------
a) Employment. The Company hereby employs the
Executive for the Employment Period defined in Paragraph 3, to
perform such duties for the Company, its subsidiaries and
affiliates and to hold such offices as may be specified from
time to time by the Company's Board of Directors, subject to
the following provisions of this Agreement. The Executive
hereby accepts such employment.
b) Duties and Responsibilities. It is contemplated
that the Executive will be a Senior Vice President of the
Company, but the Board of Directors shall have the right to
adjust the duties, responsibilities, and title of the Executive
as the Board of Directors may from time to time deem to be in
the interests of the Company (provided, however, that during
the Employment Period, without the consent of the Executive,
she shall not be assigned any titles, duties or
responsibilities which, in the aggregate, represent a material
diminution in, or are materially inconsistent with, her prior
title, duties, and responsibilities as a Senior Vice
President).
If the Board of Directors does not either continue
the Executive in the office of Vice President or elect her to
some other executive office satisfactory to the Executive, the
Executive shall have the right to decline to give further
service to the Company and shall have the rights and
obligations which would accrue to her under Paragraph 6 if she
were discharged without cause. If the Executive decides to
exercise such right to decline to give further service, she
shall within forty-five days after such action or omission by
the Board of Directors give written notice to the Company
stating her objection and the action she thinks necessary to
correct it, and she shall permit the Company to have a forty-
five day period in which to correct its action or omission. If
the Company makes a correction satisfactory to the Executive,
the Executive shall be obligated to continue to serve the
Company. If the Company does not make such a correction, the
Executive's rights and obligations under Paragraph 6 shall
accrue at the expiration of such forty-five day period.
c) Time Devoted to Duties. The Executive shall
devote all of her normal business time and efforts to the
business of the Company, its subsidiaries and its affiliates,
the amount of such time to be sufficient, in the reasonable
judgment of the Board of Directors, to permit her diligently
and faithfully to serve and endeavor to further their interests
to the best of her ability.
2. Compensation.
------------
a) Monetary Remuneration and Benefits. During the
Employment Period, the Company shall pay to the Executive for
all services rendered by her in any capacity:
i. a minimum base salary of $315,000 per
year (payable in accordance with the Company's
then prevailing practices, but in no event less
frequently than in equal monthly installments),
subject to increase if the Board of Directors of
the Company in its sole discretion so determines;
provided that, should the company institute a
company-wide pay cut/furlough program, such salary
may be decreased by up to 15%, but only for as
long as said company-wide program is in effect;
ii. such additional compensation by way of
salary or bonus or fringe benefits as the Board of
Directors of the Company in its sole discretion
shall authorize or agree to pay, payable on such
terms and conditions as it shall determine; and
iii. such employee benefits that are made
available by the Company to its other executives.
b) Annual Incentive Payment. The Executive shall
participate in the Company's Management Incentive Plan (or such
alternative, successor, or replacement plan or program in which
the Company's principal executives, other than the Chief
Executive Officer, generally participate) and shall have a
targeted incentive thereunder of not less than $185,000 per
annum; provided, however, that the Executive's actual incentive
payment in any year shall be measured by the Company's
performance against goals established for that year and that
such performance may produce an incentive payment ranging from
none to twice the targeted amount. The Executive's incentive
payment for any year will be appropriately pro-rated to reflect
a partial year of employment.
c) Supplemental Executive Retirement Plan. The
Executive shall continue to participate in the Company's
Unfunded Pension Plan for Selected Executives (the "SERP").
d) Automobile. During the Employment Period, the
Company will pay the Executive a monthly automobile allowance of
$850.
e) Expenses. During the Employment Period, the
Company agrees to reimburse the Executive, upon the submission
of appropriate vouchers, for out-of-pocket expenses (including,
without limitation, expenses for travel, lodging and
entertainment) incurred by the Executive in the course of her
duties hereunder.
f) Office and Staff. The Company will provide the
Executive with an office, secretary and such other facilities as
may be reasonably required for the proper discharge of her
duties hereunder.
g) Indemnification. The Company agrees to indemnify
the Executive for any and all liabilities to which she may be
subject as a result of her employment hereunder (and as a result
of her service as an officer or director of the Company, or as
an officer or director of any of its subsidiaries or
affiliates), as well as the costs of any legal action brought or
threatened against her as a result of such employment, to the
fullest extent permitted by law.
h) Participation in Plans. Notwithstanding any
other provision of this Agreement, the Executive shall have the
right to participate in any and all of the plans or programs
made available by the Company (or it subsidiaries, divisions or
affiliates) to, or for the benefit of, executives (including the
annual stock option and restricted stock grant programs) or
employees in general, on a basis consistent with other senior
executives.
3. The Employment Period.
---------------------
The "Employment Period," as used in the Agreement,
shall mean the period beginning as of the date hereof and
terminating on the last day of the calendar month in which the
first of the following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in
accordance with Paragraph 4 hereof and subject to the provisions
thereof;
c) the termination of the Executive's employment by
the Company for cause in accordance with Paragraph 5 hereof; or
d) December 31, 1999; provided, however, that,
unless sooner terminated as otherwise provided herein, the
Employment Period shall automatically be extended for one or
more twelve (12) month periods beyond the then scheduled
expiration date thereof unless between the 12th and 6th month
preceding such scheduled expiration date either the Company or
the Executive gives the other written notice of its or her
election not to have the Employment Period so extended.
4. Disability.
----------
For purposes of this Agreement, the Executive will be
deemed "disabled" upon the earlier to occur of (i) her becoming
disabled as defined under the terms of the disability benefit
program applicable to the Executive, if any, and (ii) her
absence from her duties hereunder on a full-time basis for one
hundred eighty (180) consecutive days as a result of her
incapacity due to accident or physical or mental illness. If
the Executive becomes disabled (as defined in the preceding
sentence), the Employment Period shall terminate on the last day
of the month in which such disability is determined. Until such
termination of the Employment Period, the Company shall continue
to pay to the Executive her base salary, any additional
compensation authorized by the Company's Board of Directors, and
other remuneration and benefits provided in accordance with
Paragraph 2 hereof, all without delay, diminution or proration
of any kind whatsoever (except that her remuneration hereunder
shall be reduced by the amount of any payments she may otherwise
receive as a result of her disability pursuant to a disability
program provided by or through the Company), and her medical
benefits and life insurance shall remain in full force. After
termination of the Employment Period as a result of the
disability of the Executive, the medical benefits covering the
Executive and her family shall remain in place (subject to the
eligibility requirements and other conditions continued in the
underlying plan, as described in the Company's employee benefits
manual, and subject to the requirement that the Executive
continue to pay the "employee portion" of the cost thereof), and
the Executive's life insurance policy under the Management
Insurance Program shall be transferred to her, as provided in
the related agreement, subject to the obligation of the
Executive to pay the premiums therefor.
In the event that, notwithstanding such a
determination of disability, the Executive is determined not to
be totally and permanently disabled prior to the then scheduled
expiration of the Employment Period, the Executive shall be
entitled to resume employment with the Company under the terms
of this Agreement for the then remaining balance of the
Employment Period.
5. Termination for Cause.
---------------------
In the event of any malfeasance, willful misconduct,
active fraud or gross negligence by the Executive in connection
with her employment hereunder, the Company shall have the right
to terminate the Employment Period by giving the Executive
notice in writing of the reason for such proposed termination.
If the Executive shall not have corrected such conduct to the
satisfaction of the Company within thirty days after such
notice, the Employment Period shall terminate and the Company
shall have no further obligation to the Executive hereunder but
the restriction on the Executive's activities contained in
Paragraph 7 and the obligations of the Executive contained in
Paragraphs 8(b) and 8(c) shall continue in effect as provided
therein.
6. Termination Without Cause.
-------------------------
In the event that the Company discharges the Executive
without cause, the Executive shall be entitled to the salary
provided in Paragraph 2(a), two-thirds of the targeted incentive
provided in Paragraph 2(b), the vesting of any restricted stock
awards and the immediate exercisability of any stock options, as
well as her rights under Paragraph 4, which would have vested or
become exercisable during the full Employment Period (which, in
that event, shall continue until December 31, 1999 unless sooner
terminated by the Executive's disability or death), and the
Company shall have no right to set off payments due the
Executive with any amounts she may earn from gainful employment
elsewhere. It is expressly agreed and understood that the
Executive shall be under no obligation to seek such employment.
The provisions of Paragraph 7 restricting the Executive's
activities and the Executive's obligations under Paragraph 8(b)
and 8(c) shall continue in effect. The provisions of this
Paragraph 6 shall not act to limit the Executive's ability to
recover damages from the Company for breaching this Agreement by
terminating the Employment Period without cause, except as
otherwise permitted by Paragraph 3.
7. Non-Competition; Trade Secrets.
------------------------------
During the Employment Period and for a period of one
year after the termination of the Employment Period, the
Executive will not, directly or indirectly:
a) Disclosure of Information. Use, attempt to use,
disclose or otherwise make known to any person or entity (other
than to the Board of Directors of the Company or otherwise in
the course of the business of the Company, its subsidiaries or
affiliates and except as may be required by applicable law):
i. any knowledge or information,
including, without limitation, lists of customers
or suppliers, trade secrets, know-how, inventions,
discoveries, processes and formulae, as well as
all data and records pertaining thereto, which she
may acquire in the course of her employment, in
any manner which may be detrimental to or cause
injury or loss to the Company, its subsidiaries or
affiliates; or
ii. any knowledge or information of a
confidential nature (including all unpublished
matters) relating to, without limitation, the
business, properties, accounting, books and
records, trade secrets or memoranda of the
Company, its subsidiaries or affiliates, which she
now knows or may come to know in any manner which
may be detrimental to or cause injury or loss to
the Company, its subsidiaries or affiliates;
b) Non-Competition. Engage or become interested in
the United States, Canada or Mexico (whether as an owner,
shareholder, partner, lender or other investor, director,
officer, employee, consultant or otherwise) in the business of
distributing electronic parts, components, supplies or systems,
or any other business that is competitive with the principal
business or businesses then conducted by the Company, its
subsidiaries or affiliates (provided, however, that nothing
contained herein shall prevent the Executive from acquiring or
owning less than 1% of the issued and outstanding capital stock
or debentures of a corporation whose securities are listed on
the New York Stock Exchange, American Stock Exchange, or the
National Association of Securities Dealers Automated Quotation
System, if such investment is otherwise permitted by the
Company's Human Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the
solicitation of any business of any type conducted by the
Company, its subsidiaries or affiliates, during said term or
thereafter, from any person, firm or other entity which was or
at the time is a supplier or customer, or prospective supplier
or customer, of the Company, its subsidiaries or affiliates; or
d) Employment. Employ or retain, or arrange to have
any other person, firm or other entity employ or retain, or
otherwise participate in the employment or retention of, any
person who was an employee or consultant of the Company, its
subsidiaries or affiliates, at any time during the period of
twelve consecutive months immediately preceding such employment
or retention.
The Executive will promptly furnish in writing to
the Company, its subsidiaries or affiliates, any information
reasonably requested by the Company (including any third party
confirmations) with respect to any activity or interest the
Executive may have in any business.
Except as expressly herein provided, nothing
contained herein is intended to prevent the Executive, at any
time after the termination of the Employment Period, from either
(i) being gainfully employed or (ii) exercising her skills and
abilities outside of such geographic areas, provided in either
case the provisions of this Agreement are complied with.
8. Preservation of Business.
------------------------
a) General. During the Employment Period, the
Executive will use her best efforts to advance the business and
organization of the Company, its subsidiaries and affiliates, to
keep available to the Company, its subsidiaries and affiliates,
the services of present and future employees and to advance the
business relations with its suppliers, distributors, customers
and others.
b) Patents and Copyrights, etc. The Executive
agrees, without additional compensation, to make available to
the Company all knowledge possessed by her relating to any
methods, developments, inventions, processes, discoveries and/or
improvements (whether patented, patentable or unpatentable)
which concern in any way the business of the Company, its
subsidiaries or affiliates, whether acquired by the Executive
before or during her employment hereunder.
Any methods, developments, inventions, processes,
discoveries and/or improvements (whether patented, patentable or
unpatentable) which the Executive may conceive of or make,
related directly or indirectly to the business or affairs of the
Company, its subsidiaries or affiliates, or any part thereof,
during the Employment Period, shall be and remain the property
of the Company. The Executive agrees promptly to communicate
and disclose all such methods, developments, inventions,
processes, discoveries and/or improvements to the Company and to
execute and deliver to it any instruments deemed necessary by
the Company to effect the disclosure and assignment thereof to
it. The Executive also agrees, on request and at the expense of
the Company, to execute patent applications and any other
instruments deemed necessary by the Company for the prosecution
of such patent applications or the acquisition of Letters Patent
in the United States or any other country and for the assignment
to the Company of any patents which may be issued. The Company
shall indemnify and hold the Executive harmless from any and all
costs, expenses, liabilities or damages sustained by the
Executive by reason of having made such patent applications or
being granted such patents.
Any writings or other materials written or
produced by the Executive or under her supervision (whether
alone or with others and whether or not during regular business
hours), during the Employment Period which are related, directly
or indirectly, to the business or affairs of the Company, its
subsidiaries or affiliates, or are capable of being used
therein, and the copyright thereof, common law or statutory,
including all renewals and extensions, shall be and remain the
property of the Company. The Executive agrees promptly to
communicate and disclose all such writings or materials to the
Company and to execute and deliver to it any instruments deemed
necessary by the Company to effect the disclosure and assignment
thereof to it. The Executive further agrees, on request and at
the expense of the Company, to take any and all action deemed
necessary by the Company to obtain copyrights or other
protections for such writings or other materials or to protect
the Company's right, title and interest therein. The Company
shall indemnify and hold the Executive harmless from any and all
costs, expenses, liabilities or damages sustained by the
Executive by reason of the Executive's compliance with the
Company's request.
c) Return of Documents. Upon the termination of the
Employment Period, including any termination of employment
described in Paragraph 6, the Executive will promptly return to
the Company all copies of information protected by Paragraph
7(a) hereof or pertaining to matters covered by subparagraph (b)
of this Paragraph 8 which are in her possession, custody or
control, whether prepared by her or others.
9. Separability.
------------
The Executive agrees that the provisions of Paragraphs
7 and 8 hereof constitute independent and separable covenants
which shall survive the termination of the Employment Period and
which shall be enforceable by the Company notwithstanding any
rights or remedies the Executive may have under any other
provisions hereof. The Company agrees that the provisions of
Paragraph 6 hereof constitute independent and separable
covenants which shall survive the termination of the Employment
Period and which shall be enforceable by the Executive
notwithstanding any rights or remedies the Company may have
under any other provisions hereof.
10. Specific Performance.
--------------------
The Executive acknowledges that (i) the services to be
rendered under the provisions of this Agreement and the
obligations of the Executive assumed herein are of a special,
unique and extraordinary character; (ii) it would be difficult
or impossible to replace such services and obligations; (iii)
the Company, its subsidiaries and affiliates will be irreparably
damaged if the provisions hereof are not specifically enforced;
and (iv) the award of monetary damages will not adequately
protect the Company, its subsidiaries and affiliates in the
event of a breach hereof by the Executive. The Company
acknowledges that (i) the Executive will be irreparably damaged
if the provisions of Paragraphs 6 hereof are not specifically
enforced and (ii) the award of monetary damages will not
adequately protect the Executive in the event of a breach
thereof by the Company. By virtue thereof, the Executive agrees
and consents that if she violates any of the provisions of this
Agreement, and the Company agrees and consents that if it
violates any of the provisions of Paragraphs 6 hereof, the other
party, in addition to any other rights and remedies available
under this Agreement or otherwise, shall (without any bond or
other security being required and without the necessity of
proving monetary damages) be entitled to a temporary and/or
permanent injunction to be issued by a court of competent
jurisdiction restraining the breaching party from committing or
continuing any violation of this Agreement, or any other
appropriate decree of specific performance. Such remedies shall
not be exclusive and shall be in addition to any other remedy
which any of them may have.
11. Miscellaneous.
-------------
a) Entire Agreement; Amendment. This Agreement
constitutes the whole employment agreement between the parties
and may not be modified, amended or terminated except by a
written instrument executed by the parties hereto. It is
specifically agreed and understood, however, that the provisions
of that certain letter agreement dated as of October 24, 1989
granting to the Executive extended separation benefits in the
event of a change in control of the Company shall survive and
shall not be affected hereby. All other agreements between the
parties pertaining to the employment or remuneration of the
Executive not specifically contemplated hereby or incorporated
or merged herein are terminated and shall be of no further force
or effect.
b) Assignment. Except as stated below, this
Agreement is not assignable by the Company without the written
consent of the Executive, or by the Executive without the
written consent of the Company, and any purported assignment by
either party of such party's rights and/or obligations under
this Agreement shall be null and void; provided, however, that,
notwithstanding the foregoing, the Company may merge or
consolidate with or into another corporation, or sell all or
substantially all of its assets to another corporation or
business entity or otherwise reorganize itself, provided the
surviving corporation or entity, if not the Company, shall
assume this Agreement and become obligated to perform all of the
terms and conditions hereof, in which event the Executive's
obligations shall continue in favor of such other corporation or
entity.
c) Waivers, etc. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no
such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature. The failure of any party
to insist upon strict adherence to any term of this Agreement on
any occasion shall not operate or be construed as a waiver of
the right to insist upon strict adherence to that term or any
other term of this Agreement on that or any other occasion.
d) Provisions Overly Broad. In the event that any
term or provision of this Agreement shall be deemed by a court
of competent jurisdiction to be overly broad in scope, duration
or area of applicability, the court considering the same shall
have the power and hereby is authorized and directed to modify
such term or provision to limit such scope, duration or area, or
all of them, so that such term or provision is no longer overly
broad and to enforce the same as so limited. Subject to the
foregoing sentence, in the event any provision of this Agreement
shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall attach only to such
provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement.
e) Notices. Any notice permitted or required
hereunder shall be in writing and shall be deemed to have been
given on the date of delivery or, if mailed by registered or
certified mail, postage prepaid, on the date of mailing:
i. if to the Executive to:
Betty Jane Scheihing
2419 N.E. Lakeview Drive
Sebring, Florida 33870
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: Executive Vice President
Either party may, by notice to the other, change her or its
address for notice hereunder.
f) New York Law. This Agreement shall be construed
and governed in all respects by the internal laws of the State
of New York, without giving effect to principles of conflicts of
law.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
/s/Wayne Brody By:/s/Robert E. Klatell
- -------------------- -------------------------
Assistant Secretary Executive Vice President
THE EXECUTIVE
/s/Betty Jane Scheihing
-----------------------
EMPLOYMENT AGREEMENT made as of the 1st day of September
1997 by and between ARROW ELECTRONICS, INC., a New York
corporation with its principal office at 25 Hub Drive, Melville,
New York 11747 (the "Company"), and JAN M. SALSGIVER, residing at
250 East 87th Street, New York, New York 10128 (the "Executive").
WHEREAS, the Executive is now and has been employed by the
Company as a Vice President, with the responsibilities and
duties of an executive officer of the Company; and
WHEREAS, the Company and the Executive wish to provide for
the continued employment of the Executive as an employee of the
Company and for her to continue to render services to the
Company on the terms set forth in, and in accordance with the
provisions of, this Employment Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants
and agreements herein contained, the parties agree as follows:
1. Employment and Duties.
---------------------
a) Employment. The Company hereby employs the
Executive for the Employment Period defined in Paragraph 3, to
perform such duties for the Company, its subsidiaries and
affiliates and to hold such offices as may be specified from
time to time by the Company's Board of Directors, subject to
the following provisions of this Agreement. The Executive
hereby accepts such employment.
b) Duties and Responsibilities. It is contemplated
that the Executive will be a Vice President of the Company, but
the Board of Directors shall have the right to adjust the
duties, responsibilities, and title of the Executive as the
Board of Directors may from time to time deem to be in the
interests of the Company (provided, however, that during the
Employment Period, without the consent of the Executive, she
shall not be assigned any titles, duties or responsibilities
which, in the aggregate, represent a material diminution in, or
are materially inconsistent with, her prior title, duties, and
responsibilities as a Vice President).
If the Board of Directors does not either continue
the Executive in the office of Vice President or elect her to
some other executive office satisfactory to the Executive, the
Executive shall have the right to decline to give further
service to the Company and shall have the rights and
obligations which would accrue to her under Paragraph 6 if she
were discharged without cause. If the Executive decides to
exercise such right to decline to give further service, she
shall within forty-five days after such action or omission by
the Board of Directors give written notice to the Company
stating her objection and the action she thinks necessary to
correct it, and she shall permit the Company to have a forty-
five day period in which to correct its action or omission. If
the Company makes a correction satisfactory to the Executive,
the Executive shall be obligated to continue to serve the
Company. If the Company does not make such a correction, the
Executive's rights and obligations under Paragraph 6 shall
accrue at the expiration of such forty-five day period.
c) Time Devoted to Duties. The Executive shall
devote all of her normal business time and efforts to the
business of the Company, its subsidiaries and its affiliates,
the amount of such time to be sufficient, in the reasonable
judgment of the Board of Directors, to permit her diligently
and faithfully to serve and endeavor to further their interests
to the best of her ability.
2. Compensation.
------------
a) Monetary Remuneration and Benefits. During the
Employment Period, the Company shall pay to the Executive for
all services rendered by her in any capacity:
i. a minimum base salary of $300,000 per
year (payable in accordance with the Company's
then prevailing practices, but in no event less
frequently than in equal monthly installments),
subject to increase if the Board of Directors of
the Company in its sole discretion so determines;
provided that, should the company institute a
company-wide pay cut/furlough program, such salary
may be decreased by up to 15%, but only for as
long as said company-wide program is in effect;
ii. such additional compensation by way of
salary or bonus or fringe benefits as the Board of
Directors of the Company in its sole discretion
shall authorize or agree to pay, payable on such
terms and conditions as it shall determine; and
iii. such employee benefits that are made
available by the Company to its other executives.
b) Annual Incentive Payment. The Executive shall
participate in the Company's Management Incentive Plan (or such
alternative, successor, or replacement plan or program in which
the Company's principal operating executives, other than the
Chief Executive Officer, generally participate) and shall have a
targeted incentive thereunder of not less than $200,000 per
annum; provided, however, that the Executive's actual incentive
payment in any year shall be measured by the Company's
performance against goals established for that year and that
such performance may produce an incentive payment ranging from
none to twice the targeted amount. The Executive's incentive
payment for any year will be appropriately pro-rated to reflect
a partial year of employment.
c) Supplemental Executive Retirement Plan. The
Executive shall continue to participate in the Company's
Unfunded Pension Plan for Selected Executives (the "SERP").
d) Automobile. During the Employment Period, the
Company will pay the Executive a monthly automobile allowance of
$800.
e) Expenses. During the Employment Period, the
Company agrees to reimburse the Executive, upon the submission
of appropriate vouchers, for out-of-pocket expenses (including,
without limitation, expenses for travel, lodging and
entertainment) incurred by the Executive in the course of her
duties hereunder.
f) Office and Staff. The Company will provide the
Executive with an office, secretary and such other facilities as
may be reasonably required for the proper discharge of her
duties hereunder.
g) Indemnification. The Company agrees to indemnify
the Executive for any and all liabilities to which she may be
subject as a result of her employment hereunder (and as a result
of her service as an officer or director of the Company, or as
an officer or director of any of its subsidiaries or
affiliates), as well as the costs of any legal action brought or
threatened against her as a result of such employment, to the
fullest extent permitted by law.
h) Participation in Plans. Notwithstanding any
other provision of this Agreement, the Executive shall have the
right to participate in any and all of the plans or programs
made available by the Company (or it subsidiaries, divisions or
affiliates) to, or for the benefit of, executives (including the
annual stock option and restricted stock grant programs) or
employees in general, on a basis consistent with other senior
executives.
3. The Employment Period.
---------------------
The "Employment Period," as used in the Agreement,
shall mean the period beginning as of the date hereof and
terminating on the last day of the calendar month in which the
first of the following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in
accordance with Paragraph 4 hereof and subject to the provisions
thereof;
c) the termination of the Executive's employment by
the Company for cause in accordance with Paragraph 5 hereof; or
d) December 31, 2000; provided, however, that,
unless sooner terminated as otherwise provided herein, the
Employment Period shall automatically be extended for one or
more twelve (12) month periods beyond the then scheduled
expiration date thereof unless between the 18th and 12th month
preceding such scheduled expiration date either the Company or
the Executive gives the other written notice of its or her
election not to have the Employment Period so extended.
4. Disability.
----------
For purposes of this Agreement, the Executive will be
deemed "disabled" upon the earlier to occur of (i) her becoming
disabled as defined under the terms of the disability benefit
program applicable to the Executive, if any, and (ii) her
absence from her duties hereunder on a full-time basis for one
hundred eighty (180) consecutive days as a result of her
incapacity due to accident or physical or mental illness. If
the Executive becomes disabled (as defined in the preceding
sentence), the Employment Period shall terminate on the last day
of the month in which such disability is determined. Until such
termination of the Employment Period, the Company shall continue
to pay to the Executive her base salary, any additional
compensation authorized by the Company's Board of Directors, and
other remuneration and benefits provided in accordance with
Paragraph 2 hereof, all without delay, diminution or proration
of any kind whatsoever (except that her remuneration hereunder
shall be reduced by the amount of any payments she may otherwise
receive as a result of her disability pursuant to a disability
program provided by or through the Company), and her medical
benefits and life insurance shall remain in full force. After
termination of the Employment Period as a result of the
disability of the Executive, the medical benefits covering the
Executive and her family shall remain in place (subject to the
eligibility requirements and other conditions continued in the
underlying plan, as described in the Company's employee benefits
manual, and subject to the requirement that the Executive
continue to pay the "employee portion" of the cost thereof), and
the Executive's life insurance policy under the Management
Insurance Program shall be transferred to her, as provided in
the related agreement, subject to the obligation of the
Executive to pay the premiums therefor.
In the event that, notwithstanding such a
determination of disability, the Executive is determined not to
be totally and permanently disabled prior to the then scheduled
expiration of the Employment Period, the Executive shall be
entitled to resume employment with the Company under the terms
of this Agreement for the then remaining balance of the
Employment Period.
5. Termination for Cause.
---------------------
In the event of any malfeasance, willful misconduct,
active fraud or gross negligence by the Executive in connection
with her employment hereunder, the Company shall have the right
to terminate the Employment Period by giving the Executive
notice in writing of the reason for such proposed termination.
If the Executive shall not have corrected such conduct to the
satisfaction of the Company within thirty days after such
notice, the Employment Period shall terminate and the Company
shall have no further obligation to the Executive hereunder but
the restriction on the Executive's activities contained in
Paragraph 7 and the obligations of the Executive contained in
Paragraphs 8(b) and 8(c) shall continue in effect as provided
therein.
6. Termination Without Cause.
-------------------------
In the event that the Company discharges the Executive
without cause, the Executive shall be entitled to the salary
provided in Paragraph 2(a), two-thirds of the targeted incentive
provided in Paragraph 2(b), the vesting of any restricted stock
awards and the immediate exercisability of any stock options, as
well as her rights under Paragraph 4, which would have vested or
become exercisable during the full Employment Period (which, in
that event, shall continue until December 31, 2000 unless sooner
terminated by the Executive's disability or death), and the
Company shall have no right to set off payments due the
Executive with any amounts she may earn from gainful employment
elsewhere. It is expressly agreed and understood that the
Executive shall be under no obligation to seek such employment.
The provisions of Paragraph 7 restricting the Executive's
activities and the Executive's obligations under Paragraph 8(b)
and 8(c) shall continue in effect. The provisions of this
Paragraph 6 shall not act to limit the Executive's ability to
recover damages from the Company for breaching this Agreement by
terminating the Employment Period without cause, except as
otherwise permitted by Paragraph 3.
7. Non-Competition; Trade Secrets.
------------------------------
During the Employment Period and for a period of one
year after the termination of the Employment Period, the
Executive will not, directly or indirectly:
a) Disclosure of Information. Use, attempt to use,
disclose or otherwise make known to any person or entity (other
than to the Board of Directors of the Company or otherwise in
the course of the business of the Company, its subsidiaries or
affiliates and except as may be required by applicable law):
i. any knowledge or information,
including, without limitation, lists of customers
or suppliers, trade secrets, know-how, inventions,
discoveries, processes and formulae, as well as
all data and records pertaining thereto, which she
may acquire in the course of her employment, in
any manner which may be detrimental to or cause
injury or loss to the Company, its subsidiaries or
affiliates; or
ii. any knowledge or information of a
confidential nature (including all unpublished
matters) relating to, without limitation, the
business, properties, accounting, books and
records, trade secrets or memoranda of the
Company, its subsidiaries or affiliates, which she
now knows or may come to know in any manner which
may be detrimental to or cause injury or loss to
the Company, its subsidiaries or affiliates;
b) Non-Competition. Engage or become interested in
the United States, Canada or Mexico (whether as an owner,
shareholder, partner, lender or other investor, director,
officer, employee, consultant or otherwise) in the business of
distributing electronic parts, components, supplies or systems,
or any other business that is competitive with the principal
business or businesses then conducted by the Company, its
subsidiaries or affiliates (provided, however, that nothing
contained herein shall prevent the Executive from acquiring or
owning less than 1% of the issued and outstanding capital stock
or debentures of a corporation whose securities are listed on
the New York Stock Exchange, American Stock Exchange, or the
National Association of Securities Dealers Automated Quotation
System, if such investment is otherwise permitted by the
Company's Human Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the
solicitation of any business of any type conducted by the
Company, its subsidiaries or affiliates, during said term or
thereafter, from any person, firm or other entity which was or
at the time is a supplier or customer, or prospective supplier
or customer, of the Company, its subsidiaries or affiliates; or
d) Employment. Employ or retain, or arrange to have
any other person, firm or other entity employ or retain, or
otherwise participate in the employment or retention of, any
person who was an employee or consultant of the Company, its
subsidiaries or affiliates, at any time during the period of
twelve consecutive months immediately preceding such employment
or retention.
The Executive will promptly furnish in writing to
the Company, its subsidiaries or affiliates, any information
reasonably requested by the Company (including any third party
confirmations) with respect to any activity or interest the
Executive may have in any business.
Except as expressly herein provided, nothing
contained herein is intended to prevent the Executive, at any
time after the termination of the Employment Period, from either
(i) being gainfully employed or (ii) exercising her skills and
abilities outside of such geographic areas, provided in either
case the provisions of this Agreement are complied with.
8. Preservation of Business.
------------------------
a) General. During the Employment Period, the
Executive will use her best efforts to advance the business and
organization of the Company, its subsidiaries and affiliates, to
keep available to the Company, its subsidiaries and affiliates,
the services of present and future employees and to advance the
business relations with its suppliers, distributors, customers
and others.
b) Patents and Copyrights, etc. The Executive
agrees, without additional compensation, to make available to
the Company all knowledge possessed by her relating to any
methods, developments, inventions, processes, discoveries and/or
improvements (whether patented, patentable or unpatentable)
which concern in any way the business of the Company, its
subsidiaries or affiliates, whether acquired by the Executive
before or during her employment hereunder.
Any methods, developments, inventions, processes,
discoveries and/or improvements (whether patented, patentable or
unpatentable) which the Executive may conceive of or make,
related directly or indirectly to the business or affairs of the
Company, its subsidiaries or affiliates, or any part thereof,
during the Employment Period, shall be and remain the property
of the Company. The Executive agrees promptly to communicate
and disclose all such methods, developments, inventions,
processes, discoveries and/or improvements to the Company and to
execute and deliver to it any instruments deemed necessary by
the Company to effect the disclosure and assignment thereof to
it. The Executive also agrees, on request and at the expense of
the Company, to execute patent applications and any other
instruments deemed necessary by the Company for the prosecution
of such patent applications or the acquisition of Letters Patent
in the United States or any other country and for the assignment
to the Company of any patents which may be issued. The Company
shall indemnify and hold the Executive harmless from any and all
costs, expenses, liabilities or damages sustained by the
Executive by reason of having made such patent applications or
being granted such patents.
Any writings or other materials written or
produced by the Executive or under her supervision (whether
alone or with others and whether or not during regular business
hours), during the Employment Period which are related, directly
or indirectly, to the business or affairs of the Company, its
subsidiaries or affiliates, or are capable of being used
therein, and the copyright thereof, common law or statutory,
including all renewals and extensions, shall be and remain the
property of the Company. The Executive agrees promptly to
communicate and disclose all such writings or materials to the
Company and to execute and deliver to it any instruments deemed
necessary by the Company to effect the disclosure and assignment
thereof to it. The Executive further agrees, on request and at
the expense of the Company, to take any and all action deemed
necessary by the Company to obtain copyrights or other
protections for such writings or other materials or to protect
the Company's right, title and interest therein. The Company
shall indemnify and hold the Executive harmless from any and all
costs, expenses, liabilities or damages sustained by the
Executive by reason of the Executive's compliance with the
Company's request.
c) Return of Documents. Upon the termination of the
Employment Period, including any termination of employment
described in Paragraph 6, the Executive will promptly return to
the Company all copies of information protected by Paragraph
7(a) hereof or pertaining to matters covered by subparagraph (b)
of this Paragraph 8 which are in her possession, custody or
control, whether prepared by her or others.
9. Separability.
------------
The Executive agrees that the provisions of Paragraphs
7 and 8 hereof constitute independent and separable covenants
which shall survive the termination of the Employment Period and
which shall be enforceable by the Company notwithstanding any
rights or remedies the Executive may have under any other
provisions hereof. The Company agrees that the provisions of
Paragraph 6 hereof constitute independent and separable
covenants which shall survive the termination of the Employment
Period and which shall be enforceable by the Executive
notwithstanding any rights or remedies the Company may have
under any other provisions hereof.
10. Specific Performance.
--------------------
The Executive acknowledges that (i) the services to be
rendered under the provisions of this Agreement and the
obligations of the Executive assumed herein are of a special,
unique and extraordinary character; (ii) it would be difficult
or impossible to replace such services and obligations; (iii)
the Company, its subsidiaries and affiliates will be irreparably
damaged if the provisions hereof are not specifically enforced;
and (iv) the award of monetary damages will not adequately
protect the Company, its subsidiaries and affiliates in the
event of a breach hereof by the Executive. The Company
acknowledges that (i) the Executive will be irreparably damaged
if the provisions of Paragraphs 6 hereof are not specifically
enforced and (ii) the award of monetary damages will not
adequately protect the Executive in the event of a breach
thereof by the Company. By virtue thereof, the Executive agrees
and consents that if she violates any of the provisions of this
Agreement, and the Company agrees and consents that if it
violates any of the provisions of Paragraphs 6 hereof, the other
party, in addition to any other rights and remedies available
under this Agreement or otherwise, shall (without any bond or
other security being required and without the necessity of
proving monetary damages) be entitled to a temporary and/or
permanent injunction to be issued by a court of competent
jurisdiction restraining the breaching party from committing or
continuing any violation of this Agreement, or any other
appropriate decree of specific performance. Such remedies shall
not be exclusive and shall be in addition to any other remedy
which any of them may have.
11. Miscellaneous.
-------------
a) Entire Agreement; Amendment. This Agreement
constitutes the whole employment agreement between the parties
and may not be modified, amended or terminated except by a
written instrument executed by the parties hereto. It is
specifically agreed and understood, however, that the provisions
of that certain letter agreement dated as of October 24, 1989
granting to the Executive extended separation benefits in the
event of a change in control of the Company shall survive and
shall not be affected hereby. All other agreements between the
parties pertaining to the employment or remuneration of the
Executive not specifically contemplated hereby or incorporated
or merged herein are terminated and shall be of no further force
or effect.
b) Assignment. Except as stated below, this
Agreement is not assignable by the Company without the written
consent of the Executive, or by the Executive without the
written consent of the Company, and any purported assignment by
either party of such party's rights and/or obligations under
this Agreement shall be null and void; provided, however, that,
notwithstanding the foregoing, the Company may merge or
consolidate with or into another corporation, or sell all or
substantially all of its assets to another corporation or
business entity or otherwise reorganize itself, provided the
surviving corporation or entity, if not the Company, shall
assume this Agreement and become obligated to perform all of the
terms and conditions hereof, in which event the Executive's
obligations shall continue in favor of such other corporation or
entity.
c) Waivers, etc. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no
such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature. The failure of any party
to insist upon strict adherence to any term of this Agreement on
any occasion shall not operate or be construed as a waiver of
the right to insist upon strict adherence to that term or any
other term of this Agreement on that or any other occasion.
d) Provisions Overly Broad. In the event that any
term or provision of this Agreement shall be deemed by a court
of competent jurisdiction to be overly broad in scope, duration
or area of applicability, the court considering the same shall
have the power and hereby is authorized and directed to modify
such term or provision to limit such scope, duration or area, or
all of them, so that such term or provision is no longer overly
broad and to enforce the same as so limited. Subject to the
foregoing sentence, in the event any provision of this Agreement
shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall attach only to such
provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement.
e) Notices. Any notice permitted or required
hereunder shall be in writing and shall be deemed to have been
given on the date of delivery or, if mailed by registered or
certified mail, postage prepaid, on the date of mailing:
i. if to the Executive to:
Jan M. Salsgiver
250 East 87th Street
Apartment 29D
New York, New York 10128
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: Executive Vice President
Either party may, by notice to the other, change her or its
address for notice hereunder.
f) New York Law. This Agreement shall be construed
and governed in all respects by the internal laws of the State
of New York, without giving effect to principles of conflicts of
law.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
/s/Wayne Brody By:/s/Robert E. Klatell
- ---------------------- ------------------------
Assistant Secretary Executive Vice President
THE EXECUTIVE
/s/Jan M. Salsgiver
-------------------
EMPLOYMENT AGREEMENT made as of the 1st day of September,
1997 by and between ARROW ELECTRONICS, INC., a New York
corporation with its principal office at 25 Hub Drive, Melville,
New York 11747 (the "Company"), and FRANCIS M. SCRICCO, residing
at 136 High Street, Exeter, New Hampshire 03833 (the
"Executive").
WHEREAS, the Company wishes to employ the Executive as
Executive Vice President and Chief Operating Officer, with the
responsibilities and duties of a principal executive officer of
the Company; and
WHEREAS, the Executive wishes to accept such employment and
to render services to the Company on the terms set forth in, and
in accordance with the provisions of, this Employment Agreement
(the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Employment and Duties.
---------------------
a) Employment. The Company hereby employs the
Executive for the Employment Period defined in Paragraph 3, to
perform such duties for the Company, its subsidiaries and
affiliates and to hold such offices as may be specified from time
to time by the Company's Board of Directors, subject to the
following provisions of this Agreement. The Executive hereby
accepts such employment.
b) Duties and Responsibilities. It is contemplated
that the Executive will be Executive Vice President and Chief
Operating Officer of the Company but the Board of Directors shall
have the right to adjust the duties, responsibilities and title
of the Executive as the Board of Directors may from time to time
deem to be in the interests of the Company (provided, however,
that during the employment period, without the consent of the
Executive, he shall not be assigned any titles, duties or
responsibilities which, in the aggregate, represent a material
diminution in, or are materially inconsistent with, his title,
duties, and responsibilities as Executive Vice President and
Chief Operating Officer). If the Board of Directors does not
either continue the Executive in the office of Executive Vice
President and Chief Operating Officer or elect him to some other
principal executive office satisfactory to the Executive, the
Executive shall have the right to decline to give further service
to the Company and shall have the rights and obligations which
would accrue to him under Paragraph 6 if he were discharged
without cause. If the Executive decides to exercise such right
to decline to give further service, he shall within forty-five
days after such action or omission by the Board of Directors give
written notice to the Company stating his objection and the
action he thinks necessary to correct it, and he shall permit the
Company to have a forty-five day period in which to correct its
action or omission. If the Company makes a correction
satisfactory to the Executive, the Executive shall be obligated
to continue to serve the Company. If the Company does not make
such a correction, the Executive's rights and obligations under
Paragraph 6 shall accrue at the expiration of such forty-five day
period.
c) Time Devoted to Duties. The Executive shall devote
substantially all of his normal business time and efforts to the
business of the Company, its subsidiaries and its affiliates, the
amount of such time to be sufficient, in the reasonable judgment
of the Board of Directors, to permit him diligently and
faithfully to serve and endeavor to further their interests to
the best of his ability.
2. Compensation.
------------
a) Monetary Remuneration and Benefits. During the
Employment Period, the Company shall pay to the Executive for all
services rendered by him in any capacity:
i. a minimum base salary at the rate of $400,000
per year (payable in accordance with the Company's
then prevailing practices, but in no event less
frequently than in equal monthly installments),
subject to increase from time to time in the sole
discretion of the Board of Directors of the Company;
provided that, should the Company institute a
company-wide pay cut/furlough program, such salary
may be decreased by up to 15%, but only for as long
as said company-wide program is in effect;
ii. such additional compensation by way of
salary or bonus or fringe benefits as the Board of
Directors of the Company in its sole discretion shall
authorize or agree to pay, payable on such terms and
conditions as it shall determine; and
iii. such employee benefits that are made
available by the Company to its other principal
executives.
b) Annual Incentive Payment. The Executive shall
participate in the Company's Management Incentive Plan (or such
alternative, successor, or replacement plan or program in which
the Company's principal operating executives, other than the
Chief Executive Officer, generally participate) and shall have a
targeted incentive thereunder of not less than $350,000 per
annum; provided, however, that the Executive's actual incentive
payment in any year shall be measured by the Company's
performance against goals established for that year and that such
performance may produce an incentive payment ranging from none to
twice the targeted amount. The Executive's incentive payment for
any year will be appropriately pro-rated to reflect a partial
year of employment.
c) Supplemental Executive Retirement Plan. The
Executive shall participate in the Company's Unfunded Pension
Plan for Selected Executives (the "SERP"), which shall provide
him with an annual minimum benefit of $125,000 per year upon
retirement at age 60.
d) Automobile. During the Employment Period, the
Company will pay the Executive a monthly automobile allowance of
$1,000.
e) Expenses. During the Employment Period, the Company
agrees to reimburse the Executive, upon the submission of
appropriate vouchers, for out-of-pocket expenses (including,
without limitation, expenses for travel, lodging and
entertainment) incurred by the Executive in the course of his
duties hereunder.
f) Office and Staff. The Company will provide the
Executive with an office, secretary and such other facilities as
may be reasonably required for the proper discharge of his duties
hereunder.
g) Indemnification. The Company agrees to indemnify
the Executive for any and all liabilities to which he may be
subject as a result of his employment hereunder (and as a result
of his service as an officer or director of the Company, or as an
officer or director of any of its subsidiaries or affiliates), as
well as the costs of any legal action brought or threatened
against him as a result of such employment, to the fullest extent
permitted by law.
h) Participation in Plans. Notwithstanding any other
provision of this Agreement, the Executive shall have the right
to participate in any and all of the plans or programs made
available by the Company (or its subsidiaries, divisions or
affiliates) to, or for the benefit of, executives (including the
annual stock option and restricted stock grant programs) or
employees in general, on a basis consistent with other senior
executives.
3. The Employment Period.
---------------------
The "Employment Period", as used in the Agreement, shall
mean the period beginning as of the date hereof and terminating
on the last day of the calendar month in which the first of the
following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in
accordance with Paragraph 4 hereof and subject to the provisions
thereof;
c) the termination of the Executive's employment by the
Company for cause in accordance with Paragraph 5 hereof; or
d) September 1, 2000; provided, however, that, if the
Company does not give the Executive at least twelve months notice
of its intention to permit this Agreement to expire on September
1, 2000 (unless sooner terminated as otherwise provided herein),
the Employment Period shall automatically be extended for one or
more months beyond the scheduled expiration date thereof to give
the Executive the benefit of twelve months notice of termination.
4. Disability.
----------
For purposes of this Agreement, the Executive will be
deemed "disabled" upon the earlier to occur of (i) his becoming
disabled as defined under the terms of the disability benefit
program applicable to the Executive, if any, and (ii) his absence
from his duties hereunder on a full-time basis for one hundred
eighty (180) consecutive days as a result of his incapacity due
to accident or physical or mental illness. If the Executive
becomes disabled (as defined in the preceding sentence), the
Employment Period shall terminate on the last day of the month in
which such disability is determined. Until such termination of
the Employment Period, the Company shall continue to pay to the
Executive his base salary, any additional compensation authorized
by the Company's Board of Directors, and any other remuneration
and benefits provided in accordance with Paragraph 2, all without
delay, diminution or proration of any kind whatsoever (except
that his remuneration hereunder shall be reduced by the amount of
any payments he may otherwise receive as a result of his
disability pursuant to a disability program provided by or
through the Company), and his medical benefits and life insurance
shall remain in full force. After termination of the Employment
Period as a result of the disability of the Executive, the
medical benefits covering the Executive and his family shall
remain in place (subject to the eligibility requirements and
other conditions continued in the underlying plan, as described
in the Company's employee benefits manual, and subject to the
requirement that the Executive continue to pay the "employee
portion" of the cost thereof), and the Executive's life insurance
policy under the Management Insurance Program shall be
transferred to him, as provided in the related agreement, subject
to the obligation of the Executive to pay the premiums therefor.
In the event that, notwithstanding such a determination
of disability, the Executive is determined not to be totally and
permanently disabled prior to the then scheduled expiration of
the Employment Period, the Executive shall be entitled to resume
employment with the Company under the terms of this Agreement for
the then remaining balance of the Employment Period.
5. Termination for Cause.
---------------------
In the event of any malfeasance, willful misconduct,
active fraud or gross negligence by the Executive in connection
with his employment hereunder, the Company shall have the right
to terminate the Employment Period by giving the Executive notice
in writing of the reason for such proposed termination. If the
Executive shall not have corrected such conduct to the
satisfaction of the Company within thirty days after such notice,
the Employment Period shall terminate and the Company shall have
no further obligation to the Executive hereunder but the
restriction on the Executive's activities contained in Paragraph
7 and the obligations of the Executive contained in Paragraph
8(b) and 8(c) shall continue in effect as provided therein.
6. Termination Without Cause.
-------------------------
In the event that the Company discharges the Executive
without cause, the Executive shall be entitled to the salary
provided in Paragraph 2(a), two thirds of the targeted incentive
provided in Paragraph 2(b), the vesting of any restricted stock
awards and the immediate exercisability of any stock options, as
well as his rights under Paragraph 4, which would have vested or
become exercisable during the full Employment Period (which, in
that event, shall continue until September 1, 2000 unless sooner
terminated by the Executive's disability or death), and the
Company shall have no right to set off payments due the Executive
with any amounts he may earn from gainful employment elsewhere.
It is expressly agreed and understood that the Executive shall be
under no obligation to seek such employment. The provisions of
Paragraph 7 restricting the Executive's activities and
Executive's obligations under Paragraph 8(b) and 8(c) shall
continue in effect. The provisions of this Paragraph 6 shall not
act to limit the Executive's ability to recover damages from the
Company for breaching this Agreement by terminating the
Employment Period without cause, except as otherwise permitted by
Paragraph 3.
7. Non-Competition; Trade Secrets.
------------------------------
During the Employment Period and for a period of two
years after the termination of the Employment Period, the
Executive will not, directly or indirectly:
a) Disclosure of Information. Use, attempt to use,
disclose or otherwise make known to any person or entity (other
than to the Board of Directors of the Company or otherwise in the
course of the business of the Company, its subsidiaries or
affiliates and except as may be required by applicable law):
i. any knowledge or information, including, without
limitation, lists of customers or suppliers, trade
secrets, know-how, inventions, discoveries, processes
and formulae, as well as all data and records pertaining
thereto, which he may acquire in the course of his
employment, in any manner which may be detrimental to or
cause injury or loss to the Company, its subsidiaries or
affiliates; or
ii. any knowledge or information of a confidential
nature (including all unpublished matters) relating to,
without limitation, the business, properties,
accounting, books and records, trade secrets or
memoranda of the Company, its subsidiaries or
affiliates, which he now knows or may come to know in
any manner which may be detrimental to or cause injury
or loss to the Company its subsidiaries or affiliates.
b) Non-Competition. Engage or become interested in the
United States, Canada or Mexico (whether as an owner,
shareholder, partner, lender or other investor, director,
officer, employee, consultant or otherwise) in the business of
distributing electronic parts, components, supplies or systems,
or any other business that is competitive with the principal
business or businesses then conducted by the Company, its
subsidiaries or affiliates (provided, however, that nothing
contained herein shall prevent the Executive from acquiring or
owning less than 1% of the issued and outstanding capital stock
or debentures of a corporation whose securities are listed on the
New York Stock Exchange, American Stock Exchange, or the National
Association of Securities Dealers Automated Quotation System, if
such investment is otherwise permitted by the Company's Human
Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the
solicitation of any business of any type conducted by the
Company, its subsidiaries or affiliates, during said term or
thereafter, from any person, firm or other entity which was or at
the time is a supplier or customer, or prospective supplier or
customer, of the Company, its subsidiaries or affiliates; or
d) Employment. Employ or retain, or arrange to have
any other person, firm or other entity employ or retain, or
otherwise participate in the employment or retention of, any
person who was an employee or consultant of the Company, its
subsidiaries or affiliates, at any time during the period of
twelve consecutive months immediately preceding such employment
or retention.
The Executive will promptly furnish in writing to the
Company, its subsidiaries or affiliates, any information
reasonably requested by the Company (including any third party
confirmations) with respect to any activity or interest the
Executive may have in any business.
Except as expressly herein provided, nothing contained
herein is intended to prevent the Executive, at any time after
the termination of the Employment Period, from either (i) being
gainfully employed or (ii) exercising his skills and abilities
outside of such geographic areas, provided in either case the
provisions of this Agreement are complied with.
8. Preservation of Business.
------------------------
a) General. During the Employment Period, the
Executive will use his best efforts to advance the business and
organization of the Company, its subsidiaries and affiliates, to
keep available to the Company, its subsidiaries and affiliates,
the services of present and future employees and to advance the
business relations with its suppliers, distributors, customers
and others.
b) Patents and Copyrights, etc. The Executive agrees,
without additional compensation, to make available to the Company
all knowledge possessed by him relating to any methods,
developments, inventions, processes, discoveries and/or
improvements (whether patented, patentable or unpatentable) which
concern in any way the business of the Company, it subsidiaries
or affiliates, whether acquired by the Executive before or during
his employment or retention hereunder.
Any methods, developments, inventions, processes,
discoveries and/or improvements (whether patented, patentable or
unpatentable) which the Executive may conceive of or make,
related directly or indirectly to the business or affairs of the
Company, its subsidiaries or affiliates, or any part thereof,
during the Employment Period, shall be and remain the property of
the Company. The Executive agrees promptly to communicate and
disclose all such methods, developments, inventions, processes,
discoveries and/or improvements to the Company and to execute and
deliver to it any instruments deemed necessary by the Company to
effect the disclosure and assignment thereof to it. The
Executive also agrees, on request and at the expense of the
Company, to execute patent applications and any other instruments
deemed necessary by the Company for the prosecution of such
patent applications or the acquisition of Letters Patent in the
United States or any other country and for the assignment to the
Company of any patents which may be issued. The Company shall
indemnify and hold the Executive harmless from any and all costs,
expenses, liabilities or damages sustained by the Executive by
reason of having made such patent application or being granted
such patents.
Any writings or other materials written or produced by
the Executive or under his supervision (whether alone or with
others and whether or not during regular business hours), during
the Employment Period which are related, directly or indirectly,
to the business or affairs of the Company, its subsidiaries or
affiliates, or are capable of being used therein, and the
copyright thereof, common law or statutory, including all
renewals and extensions, shall be and remain the property of the
Company. The Executive agrees promptly to communicate and
disclose all such writings or materials to the Company and to
execute and deliver to it any instruments deemed necessary by the
Company to effect the disclosure and assignment thereof to it.
The Executive further agrees, on request and at the expense of
the Company, to take any and all action deemed necessary by the
Company to obtain copyrights or other protections for such
writings or other materials or to protect the Company's right,
title and interest therein. The Company shall indemnify and hold
the Executive harmless from any and all costs, expenses,
liabilities or damages sustained by the Executive by reason of
the Executive's compliance with the Company's request.
c) Return of Documents. Upon the termination of the
Employment Period, including any termination of employment
described in Paragraph 6, the Executive will promptly return to
the Company all copies of information protected by Paragraph 7(a)
hereof or pertaining to matters covered by subparagraph (b) of
this Paragraph 8 which are in his possession, custody or control,
whether prepared by him or others.
9. Separability.
------------
The Executive agrees that the provisions of Paragraphs 7
and 8 hereof constitute independent and separable covenants which
shall survive the termination of the Employment Period and which
shall be enforceable by the Company notwithstanding any rights or
remedies the Executive may have under any other provisions
hereof. The Company agrees that the provisions of Paragraph 6
hereof constitute independent and separable covenants which shall
survive the termination of the Employment Period and which shall
be enforceable by the Executive notwithstanding any rights or
remedies the Company may have under any other provisions hereof.
10. Specific Performance.
--------------------
The Executive acknowledges that (i) the services to be
rendered under the provisions of this Agreement and the
obligations of the Executive assumed herein are of a special,
unique and extraordinary character; (ii) it would be difficult or
impossible to replace such services and obligations; (iii) the
Company, it subsidiaries and affiliates will be irreparably
damaged if the provision hereof are not specifically enforced;
and (iv) the award of monetary damages will not adequately
protect the Company, its subsidiaries and affiliates in the event
of a breach hereof by the Executive. The Company acknowledges
that (i) the Executive will be irreparably damaged if the
provisions of Paragraph 6 hereof are not specifically enforced;
and (ii) the award of monetary damages will not adequately
protect the Executive in the event of a breach thereof by the
Company. By virtue thereof, the Executive agrees and consents
that if he violates any of the provisions of this Agreement, and
the Company agrees and consents that if it violates any of the
provisions of Paragraph 6 hereof, the other party, in addition to
any other rights and remedies available under this Agreement or
otherwise, shall (without any bond or other security being
required and without the necessity of proving monetary damages)
be entitled to a temporary and/or permanent injunction to be
issued by a court of competent jurisdiction restraining the
breaching party from committing or continuing any violation of
this Agreement, or any other appropriate decree of specific
performance. Such remedies shall not be exclusive and shall be
in addition to any other remedy which any of them may have.
11. Miscellaneous.
-------------
a) Entire Agreement; Amendment. This Agreement
constitutes the whole employment agreement between the parties
and may not be modified, amended or terminated except by a
written instrument executed by the parties hereto. All other
agreements between the parties pertaining to the employment or
remuneration of the Executive not specifically contemplated
hereby or incorporated or merged herein are terminated and shall
be of no further force or effect.
b) Assignment. Except as stated below, this Agreement
is not assignable by the Company without the written consent of
the Executive, or by the Executive without the written consent of
the Company, and any purported assignment by either party of such
party's rights and/or obligations under this Agreement shall be
null and void; provided, however, that, notwithstanding the
foregoing, the Company may merge or consolidate with or into
another corporation, or sell all or substantially all of its
assets to another corporation or business entity or otherwise
reorganize itself, provided the surviving corporation or entity,
if not the Company, shall assume this Agreement and become
obligated to perform all of the terms and conditions hereof, in
which event the Executive's obligations shall continue in favor
of such other corporation or entity.
c) Waivers, etc. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no
such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature. The failure of any party
to insist upon strict adherence to any term of this Agreement on
any occasion shall not operate or be construed as a waiver of the
right to insist upon strict adherence to that term of any other
term of this Agreement on that or any other occasion.
d) Provisions Overly Broad. In the event that any term
or provision of this Agreement shall be deemed by a court of
competent jurisdiction to be overly broad in scope, duration or
area of applicability, the court considering the same shall have
the power and hereby is authorized and directed to modify such
term or provision to limit such scope, duration or area, or all
of them, so that such term or provision is no longer overly broad
and to enforce the same as so limited. Subject to the foregoing
sentence, in the event any provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such
provision and shall not affect or render invalid or unenforceable
any other provision of this Agreement.
e) Notices. Any notice permitted or required hereunder
shall be in writing and shall be deemed to have been given on the
date of delivery or, if mailed by registered or certified mail,
postage prepaid, on the date of mailing:
i. if to the Executive to:
Francis M. Scricco
136 High Street
Exeter, New Hampshire 03833
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: Robert E. Klatell
Executive Vice President
Either party may, by notice to the other, change his or its
address for notice hereunder.
f) New York Law. This Agreement shall be construed
and governed in all respects by the internal laws of the State of
New York, without giving effect to principles of conflicts of
law.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
/s/Wayne Brody By:/s/Robert E. Klatell
- ------------------- ------------------------
Assistant Secretary Executive Vice President
THE EXECUTIVE
/s/Francis M. Scricco
---------------------
ARROW LOGO INTERNAL CORRESPONDENCE
- --------------------------------------------------------------------------
Arrow Electronics, Inc.
TO: (employee name) FROM: Robert E. Klatell
LOCATION: Melville
DATE: December 18, 1997 PHONE: (516) 391-1830
FAX: (516) 391-1683
- ---------------------------------------------------------------------------
SUBJECT: STOCK OPTION AGREEMENT
- ---------------------------------------------------------------------------
The Board of Directors has authorized the grant to you of a stock
option to purchase xxx shares shares of Arrow common stock at a price of
$27.50 per share under the Arrow Electronics, Inc. Stock Option Plan
(the "Plan"), as evidenced by the accompanying Award Certificate.
Please be aware of the following:
1. Your stock option will become exercisable, or "vest", in installments
and may not be exercised until vested;
2. Your stock option will vest in accordance with the Vesting Schedule
shown on the Award Certificate, so long as you remain a full-time
employee through the vesting dates (except for certain instances
specified in the Plan which will cause immediate vesting);
3. Your stock option will expire in ten years after the grant date
shown on the Award Certificate and any portion not exercised within
ten years will be forfeited;
4. This Stock Option Agreement and the accompanying Award Certificate
summarize your stock option and the Plan (copies of which are
available upon request), but they do not expand your rights or create
new rights under the Plan;
5. By accepting this stock option, you confirm your present intention to
remain in the employ of Arrow or one of its subsidiaries for at least
one year;
6. Neither the authorization by the Board of Directors of your stock
option nor this Stock Option Agreement modifies in any way the terms
of your employment with Arrow.
In order to accept your stock option, you must sign one copy of this
memorandum and return it to me at Arrow's corporate headquarters,
25 Hub Drive, Melville, New York, NY 11747, by December 31, 1997.
By signing this agreement you agree to accept the award, subject to the
terms of this Stock Option Agreement, the Award Certificate, and the Plan
(each of which are incorporated in, and made part of, this agreement). If
the signed memorandum is not returned by the date indicated, your stock
option will be forfeited.
ARROW ELECTRONICS, INC. ACCEPTED BY:
By: /s/Robert E. Klatell /s/Employee
-------------------- -------------------------
Robert E. Klatell (name)
Executive Vice President
<PAGE>
*************************************************************************
* S A M P L E C E R T I F I C A T E *
* *
* ARROW ELECTRONICS, INC. *
* STOCK OPTION PLAN *
* *
* STOCK OPTION AWARD CERTIFICATE *
* *
* The Board of Directors of Arrow Electronics, Inc. has granted *
* a stock option to *
* *
* Employee name *
* *
* Grant Date: October 20, 1997 Exercise Price: $27.50 No. of Shares:xx *
* *
* Vesting Schedule *
* ----------------------------------------------------------- *
* *
* Date Number of Shares *
* *
* October 20, 1998 xxx *
* October 20, 1999 xxx *
* October 20, 2000 xxx *
* October 20, 2001 xxx *
* *
* The stock option is subject to the terms and conditions of the *
* Stock Option Plan and the award agreement thereunder. *
* *
* IN WITNESS WHEREOF, this certificate has been executed by the *
* undersigned on behalf of the Board of Directors of Arrow *
* Electronics, Inc., and the seal of the corporation has been *
* affixed, this this 8th day of December, 1997. *
* *
* *
* SAMPLE *
* ------------------ *
* Signature *
*************************************************************************
ARROW LOGO INTERNAL CORRESPONDENCE
- ----------------------------------------------------------------------------
Arrow Electronics, Inc.
To: Employee name FROM: Robert E. Klatell
LOCATION: Melville
DATE: November 14, 1997 PHONE: (516) 391-1830
FAX: (516) 391-1683
- ----------------------------------------------------------------------------
SUBJECT: RESTRICTED STOCK AWARD AGREEMENT
- ----------------------------------------------------------------------------
The Board of Directors has authorized an award of xxx shares
to you under the Arrow Electronics, Inc. Restricted Stock Plan
(the "Plan"), as evidenced by the accompanying Award Certificate.
Please be aware of the following:
1. Arrow will deliver the shares included in your award to you after
they have "vested" (i.e., become free from the forfeiture provisions
of the Plan);
2. The shares will vest in accordance with the Vesting Schedule
shown on the Award Certificate, so long as you remain an employee
through the vesting dates (except for certain instances specified
in the Plan which will cause immediate vesting);
3. If you wish to sell any of your shares included in the award, the
Plan requires that you first offer to sell them to Arrow;
4. This Restricted Stock Award Agreement and the accompanying Award
Certificate summarize your award and, in certain instances, modify
the Plan (copies of which are available upon request), but they
do not expand your rights or create new rights under the Plan;
5. This award is being made to only a select number of individuals,
and we ask you not to tell anyone outside your family that you
have received the award;
6. Neither the authorization by the Board of Directors of your
award or this Restricted Stock Award Agreement modifies in
any way the terms of your employment with Arrow.
In order to accept your award, you must sign one copy of this
memorandum and each copy of the attached stock power, and return them
to me at Arrow's corporate headquarters, 25 Hub Drive, Melville,
New York 11747, by December 15, 1997. By signing this agreement
you agree to accept the award, subject to the terms of this Restricted
Stock Award Agreement, the Award Certificate, and the Plan (each of
which are incorporated in, and made part of, this agreement).
If the signed letter and stock powers are not returned by the date
indicated, your Restricted Stock Award will be forfeited.
ARROW ELECTRONICS, INC. ACCEPTED BY:
By: /s/Robert E. Klatell /s/Employee
-------------------- -----------------------
Robert E. Klatell Name
Executive Vice President
<PAGE>
*****************************************************************************
* S A M P L E C E R T I F I C A T E *
* ARROW ELECTRONICS, INC. *
* RESTRICTED STOCK PLAN *
* AWARD CERTIFICATE *
* The Board of Directors of Arrow Electronics, Inc. has granted a *
* Restricted Stock Award to *
* *
* Employee Name *
* *
* *
* Award Date: January 13, 1998 Number of Shares: xxx *
* *
* Vesting Schedule *
* *
* ------------------------------------------------------------ *
* Date Number of Shares *
* *
* January 13, 1999 xxx *
* January 13, 2000 xxx *
* January 13, 2001 xxx *
* January 13, 2002 xxx *
* *
* *
* The Award is subject to the terms and conditions of the Restricted *
* Stock Plan and the award agreement thereunder. *
* *
* *
* IN WITNESS WHEREOF, this certificate has been executed by the undersigned*
* on behalf of the Board of Directors of Arrow Electronics, Inc., and the *
* seal of the corporation has been affixed, this 26th day of January, 1998.*
* *
* *
* SAMPLE *
* ------------------------- *
* Signature *
* *
* *
*****************************************************************************
NONQUALIFIED STOCK OPTION AGREEMENT
under the
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
of
ARROW ELECTRONICS, INC.
Date of Grant:
Option for 15,000 Shares
THIS AGREEMENT, dated as of __________________, between
ARROW ELECTRONICS, INC. (the "Company") and ________________ (the
"Optionee") is entered into under the terms of the Arrow
Electronics, Inc. Non-Employee Directors Stock Option Plan (the
"Plan") and shall be construed in accordance with the provisions
of the Plan (which are incorporated herein by reference). The
terms of the Plan shall govern in the event of any inconsistency
with the terms of this Option Agreement. Except as otherwise
expressly set forth herein, the capitalized terms used in this
Option Agreement shall have the meanings set forth in the Plan.
1. Grant of Option. The Company hereby grants to
Optionee the option (the "Option") to purchase from the Company,
all or any part of an aggregate of 15,000 shares of common stock,
par value $1.00 per share, of the Company ("Shares"), at the
purchase price of $32.25 per share (the "Exercise Price").
2. Terms and Conditions of the Option.
(a) Expiration Date. The Option will terminate and
expire, to the extent not previously exercised, on the tenth
(10th) anniversary of the Date of Grant (the "Expiration Date"),
or at such earlier time as may be specified herein.
(b) Exercise of Option. The Option shall become
exercisable with respect to 25% of the Shares subject thereto
effective as of each of the first, second, third, and fourth
anniversaries of the grant date; provided, that the Optionee
continues to serve on the Board as of such dates.
Notwithstanding the foregoing, the Option shall become fully
(100%) exercisable in the event of the Optionee's Retirement,
Disability, Qualifying Termination or death, or upon the earlier
occurrence of a Corporate Event, as provided under the Plan
(c) Manner of Exercise. The Option may be exercised
in whole or in part from time to time during the applicable
exercise period by giving written notice of exercise to the
Secretary of the Company specifying the number of Shares to be
purchased. Notice of exercise must be accompanied by payment in
full of the purchase price either by cash or check or (if
permitted by the Company) in Shares owned by the Optionee having
a Fair Market Value at the date of exercise equal to such
purchase price, or in a combination of the foregoing.
3. Non-Transferability. The Option is not assignable
or transferable otherwise than by will or by the laws of descent
and distribution. During the lifetime of the Optionee, the
Option may be exercised only by the Optionee.
4. Effect of Termination of Board Service. The
exercise periods that apply to the Option upon termination of the
Optionee's service on the Board are set forth below.
(a) If the Optionee's service on the Board terminates
for any reason other than Cause, Retirement, Disability or death,
the Optionee may for a period of ninety (90) days after such
termination exercise the Option to the extent, and only to the
extent, that the Option or portion thereof has become vested and
exercisable, after which time the Option shall automatically
terminate in full.
(b) If the Optionee's service on the Board terminates
for Cause, the Option shall immediately terminate in full and no
rights thereunder may be exercised.
(c) If the Optionee's service on the Board terminates
by reason of the Optionee's Retirement or Disability, the
Optionee may, for a period of one (1) year after such
termination, exercise the Option in part or in full, after which
time the Option shall automatically terminate in full, subject to
paragraph (d) immediately below.
(d) In the event of the death of the Optionee (i)
while serving on the Board, (ii) within the three-month period
following the Optionee's termination of service on the Board for
any reason other than Cause, Retirement, Disability or death or
(iii) within the one-year period following the Optionee's
termination of service on the Board by reason of Retirement or
Disability, the Option shall be exercisable (to the extent, and
only to the extent, provided under the terms of Section 3.3 of
the Plan) by the executors, administrators, legatees or
distributees of the Optionee's estate, as the case may be, for a
period of one (1) year after the Optionee's death.
(e) For purposes of this Section 4, the Optionee shall
not be deemed to have terminated service on the Board during any
period the Optionee continues to serve as an honorary or emeritus
Board member.
5. Certain Adjustments. In the event of a change in
the capital of the Company (as described in Section 3.6 of the
Plan) if the Board shall determine, in its sole discretion, that
such change equitably requires such an adjustment, appropriate
adjustment shall be made with respect to the number or kind of
shares subject to the Option or the Exercise Price or repurchase
price applicable with respect to the Option, all in accordance
with Section 3.6 of the Plan.
6. Corporate Event. Upon a dissolution or liquidation
of the Company, or a sale of substantially all of the assets of
the Company and its Subsidiaries in which the acquiring entity
does not substitute a new and equivalent option for the Option,
or a merger or consolidation in which the Company is not to be
the surviving corporation and the surviving corporation does not
substitute a new and equivalent option for the Option (a
"Corporate Event"), the Optionee shall be given at least ten days
prior written notice of the occurrence of such event, the Option
shall become fully exercisable, and the Optionee may exercise the
Option, in whole or in part, prior to or simultaneously with such
event. To the extent the Option is not exercised prior to the
occurrence of any such event, the Option shall terminate upon
such event.
7. Securities Law Compliance. The Company shall not
be required to issue or deliver any certificate for any Shares
purchased hereunder prior to compliance with applicable federal
and state laws and regulations with respect to the issuance,
registration, listing or sale of such Shares.
8. Amendments or Discontinuance. Subject to the terms
of the Plan, the Plan and the Option may be amended by the Board
from time to time, provided that no amendment of the Plan or the
Option shall adversely affect the Option without the consent of
the Optionee.
9. Miscellaneous; Governing Law.
(a) The Option and this Option Agreement shall be
construed, administered and governed in all respects under and by
the internal laws of the State of New York (and not its choice of
law provisions).
(b) Neither the grant of the Option nor any provision
of this Option Agreement shall confer any right on the Optionee
to remain a director of the Company
IN WITNESS WHEREOF, this Option Agreement is executed
as of the date first written above.
ARROW ELECTRONICS, INC.
By: SAMPLE FORM
--------------------
Name: Robert E. Klatell
Title: Executive Vice President
The undersigned Optionee hereby accepts the foregoing
Option and Option Agreement and undertakings on the part of the
Optionee contained herein and in the Plan, and agrees to all of
the terms and conditions this Option Agreement and the Plan.
DATED: _______________, 19 ___ ______________________________
Optionee
<TABLE>
<CAPTION>
Exhibit 11
ARROW ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $163,656 $202,709 $202,544 $111,889 $106,559
Less: preferred stock
dividends (880)
-------- -------- -------- -------- --------
Net income for basic EPS 163,656 202,709 202,544 111,889 105,679
Add: preferred stock dividends 880
Add: interest on 5 3/4%
convertible subordinated
debentures, net of
income taxes - - 3,471 4,313 4,313
-------- -------- -------- -------- --------
Net income for diluted EPS $163,656 $202,709 $206,015 $116,202 $110,872
======== ======== ======== ======== ========
Weighted average common
shares outstanding
for basic EPS (A) 98,006 100,972 94,174 91,653 88,718
Net effect of dilutive stock
options and restricted
stock awards 1,763 1,408 1,504 1,203 1,255
Assumed conversion of 5 3/4%
convertible subordinated
debentures - - 6,058 7,547 7,547
Assumed conversion of preferred
stock - - - - 1,382
------- ------- ------- ------- -------
Weighted average common
shares outstanding for
diluted EPS (A) 99,769 102,380 101,736 100,404 98,902
======= ======= ======= ======= =======
Basic EPS (A) $1.67 $2.01 $2.15 $1.22 $1.19
======= ======= ======= ======= =======
Diluted EPS (A) $1.64 $1.98 $2.03 $1.16 $1.12
======= ======= ======= ======= =======
(A) All share and per amounts have been restated to reflect the two-for-one stock
split effective October 15, 1997.
</TABLE>
ARROW ELECTRONICS, INC.
SUBSIDIARY LISTING
as of 12/31/97
1. Arrow Electronics, Inc. a New York corporation
2. Arrow Electronics International, Inc., a Virgin Islands corporation
3. Arrow Electronics Canada Ltd., a Canadian corporation
4. Schweber Electronics Corporation, a New York corporation
5. 10556 Newfoundland Limited, a Newfoundland company
6. Schuylkill Metals of Plant City, Inc., a Delaware corporation
7. Arrow Electronics International, Inc., a Delaware corporation
8. Arrow Electronics (UK) Inc., a Delaware corporation and subsidiaries:
A. Arrow Electronics (Sweden) Partnership, a Swedish partnership
B. Arrow Electronics (UK) Limited Partnership, a British limited
partnership and subsidiary:
1. Arrow Electronics Luxembourg S.a.r.l., a Luxembourg
company
9. Arrow Altech Holdings (PTY) Ltd., a South African company and
subsidiary:
A. Arrow Altech Distribution (PTY) Ltd., a South African
company
10. Arrow Electronics South Africa LLP, a South African limited
partnership
11. Hi-Tech Ad, Inc., a New York corporation
12. Gates/Arrow Distributing, Inc., a Delaware corporation
13. Consan Incorporated., a Minnesota corporation (75% owned)
14. SN Holding, Inc. a Delaware corporation and subsidiary:
A. Support Net, Inc., an Indiana corporation (50% owned)
15. Arrow Electronics Distribution Group - Europe B.V., a Dutch company,
and subsidiaries which include:
A. Arrow Electronics (UK) Limited, a British company, and
subsidiaries:
1. RR Electronics Limited, a British company
2. Axiom Electronics Ltd., a British company
3. Jermyn Holdings Limited, a British company &
subsidiaries
4. Techdis Limited, a British company, and subsidiary:
a. Microprocessor & Memory Distribution
Ltd., a British company
B. EDI Electronics Distribution International (France) S.A.,
a French company and subsidiaries:
1. Arrow Electronique S.A., a French company, and
subsidiaries:
a. CCI Electronique S.A., a French company
b. Arrow Computer Products S.N.C. (f/k/a
Megachip S.A., a French company and
subsidiaries which include:
i. Multichip Gmbh, a German company.
ii. Multchip UK, a British company
C. Arrow Electronics GmbH, a German company (which owns 80%
interest of Spoerle Electronic Handelsgesellschaft mbH, a
German company, and subsidiaries:
1. HED Heinrich Electronics Distribution GmbH & Co.
Handelsgesellschaft, a German company
2. Farnell Electronic Services GmbH, a German company
D. ATD Electronica S.A., a Spanish company
E. Amitron-Arrow S.A., a Spanish company
F. Silverstar Ltd. S.p.A. (98% owned) & subsidiaries
G. Arrow Components Sweden AB, a Swedish Company and
subsidiaries which include:
1. Arrow Nordic Components AB, a Swedish company
2. Arrow Norway A/S, a Norwegian company
3. Microtronica A/S, a Norwegian company
4. Microtronica AB, a Swedish company
H. Arrow Denmark A/S, a Danish company
I. Arrow Finland Oy, a Finnish company and subsidiary:
1. Microtronica Oy, a Finnish company
16. Arrow Electronics (UK) Limited Partnership, a British limited
partnership and subsidiary:
A. Electronic Services Distribution Limited, a British company
17. Arrow Electronics Italy S.a.r.l., an Italian company and subsidiary:
A. Intesi S.p.A., an Italian company
18. Arrow Electronics, Australia Pty Ltd., an Australian company and
subsidiaries:
A. Veltek Australia Pty Ltd. (75% owned), an Australian company
B. Zatek Australia Pty Ltd. (75% owned), an Australian company
19. Arrow Electronics Asia Pacific, Inc., a Delaware corporation
20. Components Agent Limited, a British Virgin Islands company
(90% owned) and subsidiaries which include:
A. Components Agent Limited, a Hong Kong company
B. Arrow Electronics China Limited, a Hong Kong company
C. Arrow Korea (HK) Limited, a Hong Kong company
1. Arrow Electronics Korea Limited, a South Korean company
D. Components Assembly & Sales Pte Ltd, a Singaporen company
and subsidiary:
1. Casl. (M) Sdn. Berhad, a Malaysian company
E. Salson Holdings Limited, a British Virgin Islands company,
and subsidiary:
1. Intex-semi Limited, a Hong Kong company
F. Arrow Electronics (Indonesia) Pte Limited, an Indonesian
company
G. Arrow Electronics (India) Limited, a Hong Kong company
H. Microtronica (HK) Limited, a Hong Kong company
I. Microtronica (S) Pte. Limited, a Singaporean company
J. Microtronica (M) Sdn. Bhd., a Malayasian company
K. Arrow Asia Pac Ltd., a Hong Kong company
L. Kingsview Limited, a British Virgin Islands company
M. Hotung Limited, a British Virgin Islands company
21. Texny (Holdings) Limited, a British Virgin Islands company
and subsidiaries:
A. Texny (H.K.) Limited, a Hong Kong company, and subsidiary:
22. Strong Electronics Co., Ltd., a Taiwanese Joint Venture (45% owned)
and subsidiaries
23. Arrow/Ally, Inc. a Taiwanese company (75% owned) and subsidiary:
A. Creative Model Limited, a Hong Kong company
24. Arrow Components (NZ) Limited, a New Zealand company (75% owned)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 1997 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<CASH> 112,665
<SECURITIES> 0
<RECEIVABLES> 1,245,354
<ALLOWANCES> 46,055
<INVENTORY> 1,230,053
<CURRENT-ASSETS> 2,630,340
<PP&E> 228,160
<DEPRECIATION> 113,923
<TOTAL-ASSETS> 3,537,873
<CURRENT-LIABILITIES> 1,196,484
<BONDS> 823,099
0
0
<COMMON> 102,950
<OTHER-SE> 1,257,808
<TOTAL-LIABILITY-AND-EQUITY> 3,537,873
<SALES> 7,763,945
<TOTAL-REVENUES> 7,763,945
<CGS> 6,574,415
<TOTAL-COSTS> 7,389,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,954
<INTEREST-EXPENSE> 67,117
<INCOME-PRETAX> 308,385
<INCOME-TAX> 131,617
<INCOME-CONTINUING> 163,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,656
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.64
</TABLE>
