<PAGE> 1
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
[Logo to Come]
STEPHEN P. KAUFMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
April 14, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Arrow Electronics, Inc., which will be held on Thursday, May 14, 1998 at 9:00
A.M., at the offices of the corporation, 25 Hub Drive, Melville, New York. The
formal Notice of Annual Meeting and Proxy Statement, fully describing the
matters to be acted upon at the meeting, appear on the following pages.
The matters scheduled to be considered at the meeting are the election of
directors and the ratification of the appointment of Arrow's auditors.
The Board of Directors recommends the approval of the proposals being
presented at the Annual Meeting of Shareholders as being in the best interest of
Arrow. We urge you to read the Proxy Statement and give these proposals your
careful attention before completing the enclosed proxy card.
Your vote is important regardless of the number of shares you own. Please
be sure you are represented at the meeting, whether or not you plan to attend,
by signing, dating and mailing the proxy card promptly. A postage-paid return
envelope is enclosed for your convenience. You may also vote your shares by
touchtone telephone from the U.S. and Canada by using the toll-free telephone
number on your proxy card.
Sincerely yours,
[SIG]
Stephen P. Kaufman
Chairman and Chief Executive Officer
<PAGE> 2
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1998
------------------------
April 14, 1998
To the Shareholders of
Arrow Electronics, Inc.:
The Annual Meeting of Shareholders of Arrow Electronics, Inc., a New York
corporation ("Arrow"), will be held at the offices of the corporation, 25 Hub
Drive, Melville, New York, on May 14, 1998 at 9:00 A.M., prevailing local time,
for the following purposes:
1. To elect directors of Arrow for the ensuing year.
2. To consider and act upon a proposal to ratify the appointment of Ernst &
Young LLP as Arrow's independent auditors for the fiscal year ending
December 31, 1998.
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on March 25, 1998 are
entitled to notice of and to vote at the meeting or any adjournments thereof.
By Order of the Board of Directors,
Robert E. Klatell
Secretary
IMPORTANT
Please complete, sign, and date the enclosed proxy and return it promptly
in the enclosed return envelope which has been provided for your convenience or
vote your shares by touchtone telephone, whether or not you plan to attend the
meeting. Your prompt response will assure a quorum and reduce solicitation
expense.
<PAGE> 3
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1998
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement, mailed to shareholders on April 14, 1998, is
furnished in connection with the solicitation by the Board of Directors of Arrow
Electronics, Inc., a New York corporation ("Arrow"), of proxies to be voted at
the Annual Meeting of Shareholders to be held in Melville, New York on May 14,
1998, and any adjournments thereof, for the purposes set forth in the
accompanying notice. Each proxy will be voted with respect to all shares
represented by it in accordance with the directions specified thereon and
otherwise in accordance with the judgment of the persons designated as proxies.
Any proxy on which no directions are specified will be voted for the election of
directors and in favor of the actions described by the proxy. Any proxy may be
revoked at any time prior to exercise by written notice to the Secretary of
Arrow by the person giving the proxy.
The cost of soliciting proxies will be borne by Arrow. Solicitation of
proxies is being made by Arrow through the mail, in person, and by telephone. In
addition to regular employees of Arrow who may engage in such solicitation,
Arrow has retained D.F. King & Co., Inc. to assist in soliciting proxies at an
anticipated cost of $7,500 plus expenses. Arrow will also request brokers and
other nominees to forward soliciting materials to the beneficial owners of the
stock held of record by such persons and will reimburse such persons for their
expenses in forwarding such materials.
Only shareholders of record of Arrow's common stock at the close of
business on March 25, 1998 are entitled to notice of and to vote at the meeting
or any adjournments thereof. On March 25, 1998, Arrow had outstanding 97,293,124
shares of common stock. All references in this Proxy Statement to the number of
shares and per share amounts have been restated to reflect a two-for-one stock
split effective October 15, 1997.
<PAGE> 4
The following table sets forth certain information with respect to the only
shareholders known to management to own beneficially more than 5% of the
outstanding common stock of Arrow as of March 25, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------- ------------------ ----------
<S> <C> <C>
Oppenheimer Group, Inc. 17,493,251(2) 18.0%
Oppenheimer Tower
World Financial Center
New York, New York 10281
Pioneering Management Corporation 9,805,300(3) 10.1%
60 State Street
Boston, Massachusetts 02109
Sanford C. Bernstein & Co., Inc. 9,494,975(4) 9.8%
767 Fifth Avenue
New York, New York 10153
</TABLE>
- ---------------
(1) Percentage of beneficial ownership is calculated upon shares of common stock
outstanding as of March 25, 1998.
(2) Based upon a Schedule 13G dated February 27, 1998 filed with the Securities
and Exchange Commission and includes 17,493,251 shares beneficially owned by
Oppenheimer Capital, a registered investment advisor.
(3) Based upon a Schedule 13G dated January 5, 1998 filed with the Securities
and Exchange Commission and reflects sole voting power and sole dispositive
power with respect to the shares beneficially owned by Pioneering Management
Corporation, a registered investment advisor.
(4) Based upon a Schedule 13G dated February 4, 1998 filed with the Securities
and Exchange Commission and reflects sole dispositive power with respect to
9,494,975 shares, sole voting power with respect to 5,195,374 shares, and
shared voting power with respect to 1,066,532 shares beneficially owned by
Sanford C. Bernstein & Co., Inc., a registered investment advisor.
At March 25, 1998, all executive officers and directors of Arrow as a group
were the beneficial owners of 5,722,092 shares (5.9%), including 1,697,979
shares held by the Arrow Electronics Stock Ownership Plan, of which Mr. Stephen
P. Kaufman, Mr. Robert E. Klatell, and Mr. John C. Waddell are the trustees,
including shares allocated to the accounts of Messrs. Kaufman, Klatell, and
Waddell (pursuant to certain regulations promulgated by the Securities and
Exchange Commission, Messrs. Kaufman, Klatell, and Waddell may be deemed to have
beneficial ownership of these shares by virtue of their shared power as trustees
to vote such shares); options to purchase 3,018,780 shares granted under Arrow's
Stock Option Plan or under stock option plans of companies acquired by Arrow and
assumed by Arrow as part of the acquisition (of which 2,269,587 options are
currently exercisable), including options to purchase 1,356,250 shares, 50,000
shares, 183,000 shares, 132,500 shares, and 85,000 shares granted to Mr.
Kaufman, Mr. Carlo Giersch, Mr. Klatell, Mrs. Betty Jane Scheihing, and Ms. Jan
Salsgiver, respectively (of which 1,304,584 options, 33,334 options, 158,000
options, 83,334 options, and 68,334 options, respectively, are currently
exercisable); 645,320 shares awarded under Arrow's Restricted Stock Plan (of
which 306,095 shares have vested and are not forfeitable), including 97,250
shares, 16,400 shares, 77,950 shares, 23,000 shares, and 25,500 shares awarded
to Mr. Kaufman, Mr. Giersch, Mr. Klatell,
2
<PAGE> 5
Mrs. Scheihing, and Ms. Salsgiver, respectively (of which 76,750 shares, 4,350
shares, 63,900 shares, 3,250 shares, and 12,750 shares, respectively, have
vested and are not forfeitable); options to purchase 75,000 shares granted under
Arrow's Non-Employee Directors Stock Option Plan (15,000 of which are
exercisable within 60 days from the date of this Proxy Statement); and 1,535
common stock units deferred under Arrow's Non-Employee Directors Deferral Plan.
ELECTION OF DIRECTORS
The entire Board of Directors of Arrow is to be elected, and those persons
elected will hold office until the next Annual Meeting of Shareholders and until
their respective successors shall have been duly elected and qualified. Persons
receiving a plurality of the votes cast at the meeting will be elected
directors. Consequently, any shares not voted (whether by abstention or broker
non-votes) have no effect on the election of directors. Proxies in the enclosed
form will be voted for the election as directors of the ten nominees named
below. Management does not contemplate that any of the nominees will be unable
to serve as a director, but if that contingency should occur prior to the voting
of the proxies, the persons named in the accompanying proxy reserve the right to
substitute another person of their choice when voting at the meeting or any
adjournment thereof. All of the nominees are currently directors of Arrow and
were elected at Arrow's last annual meeting, with the exception of John N.
Hanson, who was appointed by the Board of Directors on December 18, 1997.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE
OWNED OF
BENEFICIALLY OUTSTANDING
POSITION WITH ARROW AND DIRECTOR AS OF COMMON
NAME AGE BUSINESS EXPERIENCE SINCE MARCH 25, 1998 STOCK
---- --- ----------------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Daniel W. Duval 61 President and Chief 1987 19,566(1) --%
Executive Officer of Robbins
& Myers, Inc., a
manufacturer of fluids
management systems, for more
than five years; director of
Robbins & Myers, Inc. and
National City Bank of
Dayton.
Carlo Giersch 60 Chief Executive Officer of 1990 186,400(2) .2%
Spoerle Electronic, Arrow's
90% owned German affiliate,
for more than five years.
John N. Hanson 56 President and Chief 1997 15,072(3) --%
Operating Officer of
Harnischfeger Industries,
Inc., a manufacturer of
equipment for mining, pulp
and papermaking, and
material handling since
1994; President and Chief
Operating Officer of Joy
Mining Machinery prior
thereto; director of
Harnischfeger Industries,
Inc.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE
OWNED OF
BENEFICIALLY OUTSTANDING
POSITION WITH ARROW AND DIRECTOR AS OF COMMON
NAME AGE BUSINESS EXPERIENCE SINCE MARCH 25, 1998 STOCK
---- --- ----------------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Stephen P. Kaufman 56 Chairman of the Board of Ar- 1983 3,151,479(4) 3.2%
row since May 1994 and
President and Chief
Executive Officer for more
than five years; director of
Polaroid Corporation.
Roger King 57 Executive Director of Orient 1995 17,366(1) --%
Overseas (International)
Limited, an investment
holding company, with
investments principally in
integrated containerized
transportation businesses,
for more than five years;
Chairman and Chief Ex-
ecutive Officer of ODS
System-Pro Holdings Limited,
a reseller of computers and
related products and
services, for more than five
years ending February 1996.
Robert E. Klatell 52 Executive Vice President of 1989 1,980,459(5) 2%
Arrow since November 1995,
Senior Vice President for
more than five years prior
thereto, General Counsel and
Secretary for more than five
years, Chief Financial
Officer from January 1992
until April 1996, and
Treasurer for more than five
years prior to April 1996.
Karen Gordon Mills 44 President of MMP Group Inc., 1994 18,331(1) --%
a consulting firm, since
January 1993; director of
The Scotts Company and
Triangle Pacific Co.
Richard S. Rosenbloom 65 David Sarnoff Professor of 1992 20,000(6) --%
Business Administration at
Harvard Business School for
more than five years;
director of Executone
Information Systems, Inc.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE
OWNED OF
BENEFICIALLY OUTSTANDING
POSITION WITH ARROW AND DIRECTOR AS OF COMMON
NAME AGE BUSINESS EXPERIENCE SINCE MARCH 25, 1998 STOCK
---- --- ----------------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Robert S. Throop 60 Vice President of Arrow 1994 191,350(7) .2%
since March 1995; Chairman
and Chief Executive Officer
of Anthem Electronics, Inc.,
an electronics distributor
acquired by Arrow in
November 1994, for more than
five years ending December
1996; director of The Coast
Distribution System and The
Manitowoc Company, Inc.
John C. Waddell 60 Vice Chairman of the Board 1969 1,700,015(8) 1.7%
of Arrow since May 1994 and
Chairman of the Board for
more than five years prior
thereto.
</TABLE>
- ---------------
(1) Includes shares owned individually, options to purchase shares granted under
Arrow's Non-Employee Directors Stock Option Plan, and common stock units
deferred under Arrow's Non-Employee Directors Deferral Plan. See page 2.
(2) Includes shares owned individually, options to purchase shares granted under
Arrow's Stock Option Plan, and shares awarded under Arrow's Restricted Stock
Plan. See page 2.
(3) Includes options to purchase shares granted under Arrow's Non-Employee
Directors Stock Option Plan and common stock units deferred under Arrow's
Non-Employee Directors Deferral Plan. See page 2.
(4) Includes options to purchase shares granted under Arrow's Stock Option Plan,
shares awarded under Arrow's Restricted Stock Plan, and shares held by
Arrow's Stock Ownership Plan. See page 2.
(5) Includes shares owned individually, options to purchase shares granted under
Arrow's Stock Option Plan, shares awarded under Arrow's Restricted Stock
Plan, and shares held by Arrow's Stock Ownership Plan. See page 2.
(6) Includes shares owned individually and options to purchase shares granted
under Arrow's Non-Employee Directors Stock Option Plan. See page 2.
(7) Includes shares owned individually, options to purchase shares granted under
Arrow's Stock Option Plan, options to purchase shares granted under Anthem's
stock option plans prior to the acquisition, shares awarded under Arrow's
Restricted Stock Plan, and shares allocated under Arrow's Stock Ownership
Plan. See page 2.
(8) Includes shares awarded under Arrow's Restricted Stock Plan and shares held
by Arrow's Stock Ownership Plan. See page 2.
The audit committee of the Board of Directors consists of Mr. Duval, Mr.
Hanson, and Mr. King. The audit committee evaluates and reviews such matters as
Arrow's accounting policies, reporting
5
<PAGE> 8
practices, internal audit function, and internal accounting controls. The
committee also reviews the scope and results of the audit conducted by Arrow's
independent auditors.
The compensation committee of the Board of Directors consists of Mr.
Rosenbloom, Mr. Duval, and Mrs. Mills. The compensation committee approves the
salaries and incentive compensation of senior managers, advises the Board
generally with regard to other compensation and employee benefit matters,
collects information in connection with the evaluation of the performance of the
Chief Executive Officer, and approves stock option and restricted stock awards.
The nominating committee of the Board of Directors consists of Mrs. Mills,
Mr. Duval, and Mr. Rosenbloom. Shareholder recommendations for nominees for
membership on the Board of Directors will be considered by the nominating
committee. Such recommendations may be submitted to the Secretary of Arrow, who
will forward them to the chairman of the nominating committee. The nominating
committee is primarily responsible for making recommendations with respect to
committee assignments and is also responsible for developing the corporate
governance guidelines for Arrow.
The charitable contributions committee of the Board of Directors consists
of Mr. Waddell, Mr. Klatell, and Mr. Throop. The charitable contributions
committee reviews community and civic programs and services of educational,
environmental, health care, cultural, and other social organizations and
approves the charitable contributions to be made by the company.
Under Arrow's corporate governance guidelines, the independent directors
meet at least twice a year in executive session; once under the guidance of the
chairman of the compensation committee to evaluate the performance of the Chief
Executive Officer and once under the guidance of the chairman of the nominating
committee to discuss senior management development and succession.
During 1997 there were six meetings of the Board of Directors, four
meetings of the audit committee, eight meetings of the compensation committee,
eight meetings of the nominating committee, and two meetings of the charitable
contributions committee. All directors attended 75% or more of the meetings of
the Board of Directors and the committees on which they served, except for Mr.
King, who attended 70% of the combined total of the Board of Directors and audit
committee meetings during the last fiscal year.
6
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning the
compensation for the past three years of the Chief Executive Officer and each of
the other four most highly compensated executive officers of the company (the
"named executive officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------
----------------------------------------------- RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARDS(3) OPTIONS(4) COMPENSATION(5)
------------------ ---- --------- ---------- --------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen P. Kaufman, 1997 $750,000 $ 644,000 $58,350 $258,000 25,000 $9,550
President and Chief 1996 700,000 689,500 39,625 208,500 80,000(6) 9,250
Executive Officer 1995 649,045 1,039,250 50,375 167,500 50,000(7) 9,120
Carlo Giersch, 1997 577,100 -- -- 161,250 10,000 --
Chief Executive Officer, 1996 664,673 -- -- 140,738 20,000 --
Spoerle Electronic 1995 698,178 -- -- 125,625 20,000 --
Robert E. Klatell, 1997 400,000 168,000 58,868 161,250 15,000 9,550
Executive Vice President 1996 375,000 137,000 46,100 140,738 30,000 9,250
1995 355,000 192,200 58,113 125,625 30,000 9,120
Betty Jane Scheihing, 1997 281,667 229,000 31,188 453,563 42,500 9,550
Senior Vice President 1996 220,000 133,000 23,438 104,250 20,000 9,250
1995 205,000 87,000 25,891 62,813 15,000 9,120
Jan M. Salsgiver, 1997 300,000 205,000 44,731 129,000 10,000 9,550
President, Arrow/Schweber 1996 261,665 156,000 35,244 104,250 20,000 9,250
Electronics Group 1995 216,667 176,000 23,606 230,000 30,000 9,120
</TABLE>
- ---------------
(1) Includes amounts deferred under retirement plans.
(2) Includes reimbursement of a portion of the tax liability incurred as a
result of the vesting of restricted stock awards and auto allowance.
(3) Reflects, with respect to compensation in 1995, the fair market value as of
the date of grant of stock awards granted in early 1996 in respect of
employment during 1995. All of such awards vest in four annual installments
of 25%, beginning one year after grant. As of December 31, 1997, the
aggregate number and value of unvested restricted stock awards held by Mr.
Kaufman, Mr. Giersch, Mr. Klatell, Mrs. Scheihing, and Ms. Salsgiver were
22,500, ($729,844), 13,550 ($439,528), 15,550 ($504,403), 20,500 ($664,969),
and 12,750 ($413,578), respectively.
(4) Includes, with respect to 1995, stock options awarded in early 1996 in
respect of employment during 1995.
(5) For 1997, includes a contribution by Arrow of $4,800 to Arrow's Stock
Ownership Plan and a matching contribution by Arrow of $4,750 to Arrow's
Savings Plan for each of Mr. Kaufman, Mr. Klatell, Mrs. Scheihing, and Ms.
Salsgiver.
(6) Includes stock options awarded in early 1997 in respect of employment during
1996.
7
<PAGE> 10
(7) Does not include options to purchase 1,000,000 shares of common stock
granted to Mr. Kaufman in February 1995 as part of the entering into of a
new employment agreement with Arrow. See "Employment Agreements" on page 13.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants during 1997 in
respect of employment during 1997 to the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME (#)(1) YEAR ($/SH)(2) DATE 5% 10%
---- ---------- ---------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Kaufman 25,000 .9% $32.250 12/18/07 $ 514,750 $ 1,297,000
Carlo Giersch 10,000 .4 32.250 12/18/07 205,900 518,800
Robert E. Klatell 15,000 .5 32.250 12/18/07 308,850 778,200
Betty Jane Scheihing 12,500 .4 32.250 12/18/07 257,375 648,500
30,000(4) 1.1 30.844 9/4/07 659,886 1,598,586
Jan M. Salsgiver 10,000 .4 32.250 12/18/07 205,900 518,800
All shareholders N/A N/A N/A N/A 1,977,772,179 5,010,953,970
Various
All optionees 2,808,340 100 29.361 in 2007 65,937,015 153,809,973
All optionees value as a
percent of all
shareholders value N/A N/A N/A N/A 3.3% 3.1%
</TABLE>
- ---------------
(1) All of such grants become exercisable in four annual installments,
commencing on the first anniversary of the date of grant (except for certain
grants included in "All optionees," issued prior to May 1, 1997, which
become exercisable in three annual installments, commencing on the date of
the grant) and expire 10 years after the date of the grant.
(2) All at fair market value at date of grant.
(3) Represents gain that would be realized assuming the options were held for
the entire 10 year option period and the stock price increased at annual
compounded rates of 5% and 10%. Potential realizable values for shareholders
are based on 96,937,737 shares outstanding at December 31, 1997 from a base
price of $32.4375 per share. These amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock option exercises and
common stock holdings will be dependent on overall market conditions and on
the future performance of the company and its common stock. There can be no
assurance that the amounts reflected in this table will be achieved.
(4) Represents stock options awarded in connection with increased duties of
employment.
8
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information concerning the exercise of stock
options during 1997 by each of the named executive officers and the year-end
value of their unexercised options.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL OPTIONS AT
SHARES YEAR-END FISCAL YEAR-END
ACQUIRED --------------- ---------------------
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
---- -------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C>
Stephen P. Kaufman 220,000 $5,013,664 944,584/411,666 $11,944,118/3,755,932
Carlo Giersch -- -- 26,668/ 23,332 238,345/ 121,030
Robert E. Klatell 100,000 2,060,864 148,000/ 35,000 2,299,250/ 181,563
Betty Jane Scheihing -- -- 78,334/ 54,166 1,062,192/ 150,151
Jan M. Salsgiver 21,666 304,296 68,334/ 16,666 782,817/ 44,371
</TABLE>
- ---------------
(1) Represents the difference between the fair market value of the shares at
date of exercise and the exercise price multiplied by the number of options
exercised.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
A primary role of the compensation committee (the "committee") is to
oversee compensation practices for Arrow's senior executive officers. The
committee's responsibilities include the review of salaries, benefits, and other
compensation of Arrow's senior managers and making recommendations to the full
Board of Directors with respect to these matters. The committee is comprised
entirely of Board members who are independent, non-employee directors of the
company.
The committee's primary objective in establishing compensation programs and
levels for Arrow's key executive officers is to support Arrow's goal of
maximizing the value of shareholders' interests in Arrow. To achieve this
objective, the committee believes it is necessary to:
-- Set levels of base compensation that will attract and retain superior
executives in a highly competitive environment.
-- Encourage long-term decision making that enhances shareholder value. The
committee believes that this objective is promoted by emphasizing grants
of stock options and restricted stock, thereby creating a direct link
between shareholder value creation and executive compensation.
-- Provide incentive compensation that varies directly with both company
performance and individual contribution to that performance.
COMPONENTS OF COMPENSATION
Base Salary
The committee annually reviews each executive officer's base salary. The
factors which influence committee determinations regarding base salary include:
levels of pay among executives of the larger companies in the peer group
reflected in the graph on page 12, internal pay equity
9
<PAGE> 12
considerations, level of responsibilities, prior experience, breadth of
knowledge, and job performance. Such compensation is generally competitive with
comparable jobs at comparable companies. For comparative purposes, the committee
selects the larger companies in its peer group because Arrow is the largest
company in the group. Levels of compensation for base salary of senior executive
officers of Arrow are slightly above the median of the peer group. Arrow is
significantly larger than all of the other companies, except one, that are
included within the peer group. Arrow also has substantial sales outside North
America, and only one other company included within the peer group has
significant operations outside North America. Therefore, the committee believes
that Arrow requires greater breadth of management skills and experience to
manage successfully its larger and more complex business.
In conducting its salary deliberations, the committee does not strictly tie
senior executive base pay to a defined competitive standard. Rather, the
committee elects to maintain flexibility in its decision making capacity so as
to permit salary recommendations that best reflect the individual contributions
made by the company's top executives. Each of the named executive officers has
an employment agreement which provides for a minimum base salary. See page 13.
The committee values highly Mr. Kaufman's breadth of knowledge and
recognizes his significant contribution to the success of Arrow. In 1997, Mr.
Kaufman's base salary was increased to $750,000 in recognition of the continued
growth in Arrow's sales and earnings and the further expansion of Arrow into
strategic markets.
Annual Incentives
Arrow's Chief Executive Officer Performance Bonus Plan ("Chief Executive
Bonus Plan"), which was adopted in 1994, provides for a performance-based bonus
for Arrow's chief executive officer based upon target level earnings per share
and target level return on shareholders' equity. The purpose of the Chief
Executive Bonus Plan is to enable Arrow to motivate the chief executive officer
to achieve strategic financial and operating objectives, reward his contribution
toward improvement in financial performance as measured by the earnings per
share and return on equity of Arrow, provide the chief executive officer with an
additional incentive to contribute to the success of Arrow and to offer a total
compensation package that is competitive in the industry and includes a bonus
component which is intended to qualify as performance-based compensation
deductible to Arrow under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Chief Executive Bonus Plan sets forth a
pre-established bonus formula and sets an annual performance goal pursuant to
which the committee can objectively calculate the chief executive officer's
potential annual cash bonus for each service year with Arrow. For 1997, Mr.
Kaufman received a bonus payment of $644,000 under the Chief Executive Bonus
Plan.
Each year, for other executive officers of Arrow, the committee -- in
consultation with management -- establishes short-term financial goals which
relate to one or more indicators of corporate financial performance. For 1997,
the short-term incentive award opportunity was contingent upon Arrow attaining
specified levels of sales, profitability, and asset utilization.
Incentive targets are established for participating executives under the
Management Incentive Compensation Plan ("MICP") based on the participant's level
and breadth of responsibility, potential contribution to the success of the
company, and competitive considerations. The participant's actual award is
determined at the end of the year based on Arrow's actual performance against
the predetermined financial goals, as well as the attainment of specific
individual goals or contributions to Arrow's success.
10
<PAGE> 13
Annual incentives of Mr. Klatell, Mrs. Scheihing, and Ms. Salsgiver reflect
Arrow's attainment of predetermined financial goals and the level of achievement
by Mr. Klatell, Mrs. Scheihing, and Ms. Salsgiver of the targets established
under the MICP. The MICP awards earned by the named participating executive
officers averaged 61% of their respective salaries, representing a range of 86%
to 93% level of achievement of the goals.
Long-Term Incentives
Arrow reinforces the importance of producing satisfactory returns to
shareholders over the long-term through the operation of its Stock Option Plan
and its Restricted Stock Plan. Stock option and restricted stock awards provide
executives with the opportunity to acquire an equity interest in Arrow and align
the executive's interest with that of the shareholders to create shareholder
value as reflected in growth in the price of Arrow's shares.
Option exercise prices are equal to 100% of the fair market value of
Arrow's shares on the date of option grant and effective May 1, 1997, are
exercisable in four annual installments. Prior thereto, options were exercisable
in three installments. This ensures that participants will derive benefits only
as shareholders realize corresponding gains over an extended time period.
Options have a maximum term of 10 years.
Restricted stock is granted to participants in order to help foster a
shareholder perspective among the participants. A long-term focus is encouraged
and executive retention is reinforced through the four-year vesting schedule to
which shares of restricted stock are subject.
Each year, the committee reviews the history of stock option and restricted
stock awards and makes grant decisions based on the committee's assessment of
each individual executive's contribution and performance during the year and on
competitive compensation practices in comparable companies. The grants to Mr.
Kaufman and each of the other named executive officers in 1997 are consistent
with grants in prior years relative to Arrow's performance and the individual's
contributions, and represent Arrow's continued emphasis on executive
compensation which is linked to increases in the value of Arrow's stock.
Generally, the size of the grants of such long-term incentives reflects the
committee's assessment of each individual's contributions and performance during
the year. Mr. Kaufman was granted 25,000 stock options and 8,000 shares of
restricted stock in respect of 1997.
SUMMARY
Each year, the Board of Directors and the committee review all elements of
cash and noncash compensation paid to the executive officers of Arrow. The
committee manages all elements of executive pay in order to ensure that pay
levels are consistent with Arrow's compensation philosophies. In addition, the
Board of Directors and the committee administer Arrow's long-term executive
compensation programs to ensure that Arrow's objectives of linking executive pay
to improved financial performance and increased shareholder value continue to be
fostered.
Richard S. Rosenbloom, Chairman
Daniel W. Duval
Karen Gordon Mills
11
<PAGE> 14
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ARROW ELECTRONICS, INC., S&P 500 STOCK INDEX &
ELECTRONICS DISTRIBUTOR INDEX
The following graph compares the performance of Arrow for the periods
indicated with the performance of the Standard & Poor's 500 Stock Index and the
average performance of a group consisting of Arrow's peer corporations on a
line-of-business basis. The corporations making up the peer companies group are
Avnet, Inc., Bell Industries, Inc., Bell Microproducts, Inc., Marshall
Industries, and Pioneer-Standard Electronics, Inc. The graph assumes $100
invested on December 31, 1992 in Arrow, the S&P Stock 500 Index, and the peer
companies group. The peer companies group reflects the deletion of six companies
included in the peer companies group in the Proxy Statement of last year, three
of which were acquired and are no longer public companies (Milgray Electronics,
Inc., Sterling Electronics Corporation, and Wyle Electronics), and three of
which, either by the nature of their business or level of revenues and financial
condition, are no longer comparable with Arrow (Jaco Electronics, Inc., Kent
Electronics, Inc., and Western Micro Technology, Inc.). In addition, two
competing companies have been included in the peer companies group (Bell
Industries, Inc. and Bell Microproducts, Inc.). Therefore, the graph also
includes a description of the performance of the peer companies group used in
the Proxy Statement for last year's annual meeting. Total return indices reflect
reinvested dividends and are weighted on a market capitalization basis at the
time of each reported data point.
<TABLE>
<CAPTION>
Prior
Electronics Electronics
Measurement Period Distributor S&P 500 Distributor
(Fiscal Year Covered) Arrow Index Stock Index Index
<S> <C> <C> <C> <C>
1992 100.00 100.00 100.00 100.00
1993 145.85 118.14 107.06 117.00
1994 125.33 121.09 105.41 121.00
1995 150.22 144.16 141.36 169.00
1996 186.90 170.26 170.01 190.00
1997 226.64 185.61 222.72 182.00
</TABLE>
DIRECTORS' COMPENSATION
The members of the Board of Directors who are not employees receive an
annual fee of $30,000 for the term expiring in May 1998 and a fee of $1,000 for
each Board of Directors or
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<PAGE> 15
committee meeting attended. Each non-employee director serving as chairman of
any committee receives an additional annual fee of $3,000.
Under the Arrow Non-Employee Directors Stock Option Plan, each non-employee
director who was serving on the Board of Directors on May 15, 1997 received an
option to purchase 15,000 shares of Arrow common stock having an exercise price
equal to $27.8125. In addition, under that plan each non-employee director
joining the Board thereafter receives an option to purchase 15,000 shares of
Arrow common stock having an exercise price equal to the fair market value of
the underlying common stock on the date of grant. Finally, on the date following
each annual meeting of shareholders, each non-employee director then serving on
the Board will receive, under the plan, an option to purchase 4,000 shares of
Arrow common stock having an exercise price equal to the fair market value of
the underlying common stock on the date of grant.
Under the Arrow Non-Employee Directors Deferral Plan, a percentage of the
annual retainer payable to each non-employee director may be withheld by Arrow
and paid upon the non-employee director's termination from the Board of
Directors. Unless a non-employee director makes a contrary election, 50 percent
of the non-employee director's annual retainer fee will be deferred under the
plan. Each non-employee director may elect a different percentage or elect not
to defer any portion of his or her annual retainer fee. Amounts that are
deferred under the plan will be converted into phantom share units of Arrow
common stock and the phantom share units will be credited to a recordkeeping
account in the name of the non-employee director. Until the time that the
phantom share units are paid out, the non-employee director's account will be
adjusted to reflect any dividends paid on Arrow common stock. Upon the
termination of service on the Board, each whole phantom share unit credited to
the non-employee director's account will be converted into one share of common
stock and each fractional phantom share unit will be converted into cash.
EMPLOYMENT AGREEMENTS
In February 1995, Mr. Kaufman entered into a new employment agreement with
Arrow terminating December 31, 2001, which provides for an annual base salary of
not less than $650,000 through June 30, 1998, during which period Mr. Kaufman
will serve as Chairman of the Board and Chief Executive Officer of Arrow, and
not less than $400,000 thereafter. As part of entering into the new agreement,
Mr. Kaufman received options to purchase 1,000,000 shares of Arrow common stock
which became exercisable in three equal annual installments commencing on the
first anniversary of the date of grant, at an exercise price of $20.575 for
those options exercisable on the first anniversary of the grant, $21.41 for
those exercisable on the second anniversary, and $22.28 for those exercisable on
the third anniversary. All such options expire 10 years after the date of grant.
Mr. Giersch has an employment agreement with Spoerle Electronic terminating
on his 65th birthday (subject to earlier termination by either Spoerle
Electronic or Mr. Giersch upon six months written notice), which provides for an
annual base salary of not less than 700,000 deutsche marks ($404,000 based on
the average exchange rate during 1997), with annual adjustments in the same
proportion in which salaries of the employees of Spoerle have been adjusted in
the preceding year.
Mr. Klatell has an employment agreement with Arrow terminating on January
1, 2001, which is subject to renewal from year to year unless either Arrow or
Mr. Klatell elects not to renew. The employment agreement provides for a minimum
base salary of $425,000 per year.
13
<PAGE> 16
Mrs. Scheihing has an employment agreement with Arrow terminating on
December 31, 1999, which is subject to renewal from year to year unless either
Arrow or Mrs. Scheihing elects not to renew. The employment agreement provides
for a minimum base salary of $315,000 per year.
Ms. Salsgiver has an employment agreement with Arrow terminating on
December 31, 2000, which is subject to renewal from year to year unless either
Arrow or Ms. Salsgiver elects not to renew. The employment agreement provides
for a minimum base salary of $300,000 per year.
EXTENDED SEPARATION BENEFITS
Arrow maintains a broad-based program to shelter employees at all levels
from any adverse consequences which might result from a change in control of the
company. A change in control is defined in the program to include any person
becoming the beneficial owner, directly or indirectly, of 30% or more of the
combined voting power of Arrow's voting securities or the occurrence of certain
changes in the constitution of the Board of Directors. Pursuant to a policy
adopted by the Board of Directors in 1988 and reaffirmed in 1998, the period of
salary continuation normally extended to employees whose employment is
terminated as a result of a workforce reduction or reorganization (which period
ranges from two to 12 weeks depending upon length of service with Arrow) is
tripled if employment is terminated by the company (other than for cause) as a
result of a change in control. In addition to this policy, Arrow has entered
into one-year employment agreements with approximately 325 management-level
employees, pursuant to which among other matters, such employees will receive
one year's compensation and continuation for up to one year of medical and life
insurance benefits if their employment is terminated by the company (other than
for cause) within 12 months following a change in control. Arrow also has
agreements with approximately 20 divisional and group vice presidents who are
not executive officers, which provide such vice presidents with two times their
annualized includible compensation (as defined in the Code) and continuation for
up to three years of medical, life, and other welfare benefits if their
employment is terminated by the company (other than for cause), if their
responsibilities or base salaries are materially diminished, or if certain other
adverse changes occur within 24 months following a change in control. Similar
agreements provide the executive officers with three times their annualized
includible compensation and continuation for up to three years of their benefits
if their employment is terminated by the company (other than for cause approved
by three-fourths of the directors then serving), if their responsibilities or
base salaries are materially diminished, or if certain other adverse changes
occur within 24 months following a change in control. The amounts payable
pursuant to such agreements to the executive officers (other than Messrs.
Kaufman and Klatell) and to the other vice presidents will be reduced, if
necessary, to avoid excise tax under Section 4999 of the Code.
UNFUNDED PENSION PLAN
Arrow maintains the Unfunded Pension Plan for Selected Executives of Arrow
Electronics, Inc. (the "SERP"). Under the SERP, the Board of Directors
determines those employees who are eligible to participate in the SERP and the
amount of their maximum annual pension upon retirement on or after attaining age
60. Of the named executive officers, Mr. Kaufman has been designated by Arrow as
a participant in the SERP, with a maximum annual pension of $300,000 and Mr.
Klatell, Mrs. Scheihing, and Ms. Salsgiver have been designated by Arrow as
participants in the SERP, with maximum annual pensions of $250,000 each. If a
designated participant retires between the ages of 55 and 60, the
14
<PAGE> 17
amount of the annual pension is reduced as provided in the SERP. In addition, if
there is a change of control of Arrow and the employment of a designated
participant who is at least age 50 with 15 years of service is involuntarily
terminated other than for cause or disability, or such participant terminates
employment for good reason, the participant will receive the maximum annual
pension.
CERTAIN TRANSACTIONS
In January 1998, Arrow acquired an additional ten percent interest in
Spoerle Electronic from Mr. Giersch at a cost of 54,400,000 deutsche marks
($29,900,000 based on the exchange rate on the date of payment). As a result,
Arrow's holding in Spoerle Electronic increased to a 90% share.
Spoerle Electronic leases certain of its premises from a partnership in
which Mr. Giersch's wife, directly or indirectly, has the entire beneficial
interest, and paid aggregate rentals of 4,457,000 deutsche marks ($2,572,000
based on the average exchange rate during 1997) to the partnership during 1997.
The management of Spoerle Electronic believes that such rentals are at fair
market rates.
APPROVAL OF APPOINTMENT OF AUDITORS
The shareholders will be asked to ratify the appointment of Ernst & Young
LLP as Arrow's independent auditors for 1998. Arrow expects that representatives
of Ernst & Young LLP will be present at the meeting with the opportunity to make
a statement if they desire to do so and that such representatives will be
available to answer appropriate inquiries raised at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF SUCH APPOINTMENT.
SUBMISSION OF SHAREHOLDER PROPOSALS
Arrow anticipates that the next Annual Meeting of Shareholders will be held
on or about May 12, 1999. In order to be eligible for inclusion in Arrow's proxy
statement and proxy for such meeting, proposals of shareholders must be received
by Arrow on or before December 5, 1998.
OTHER MATTERS
Management does not expect any matters to come before the meeting other
than those to which reference is made in this Proxy Statement. However, if any
other matters should properly come before the meeting, it is intended that
proxies in the accompanying form will be voted thereon in accordance with the
judgment of the person or persons voting such proxies.
By Order of the Board of Directors,
Robert E. Klatell
Secretary
15
<PAGE> 18
PROXY
ARROW ELECTRONICS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 14, 1998
The undersigned hereby appoints Stephen P. Kaufman, Robert E. Klatell, and
John C. Waddell, and any one or more of them, with full power of substitution,
as proxy or proxies of the undersigned to vote all shares of stock of ARROW
ELECTRONICS, INC. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders to be held on May 14, 1998, at
9:00 a.m., prevailing local time, at the offices of the corporation, 25 Hub
Drive, Melville, New York, or any adjournments thereof, as set forth on the
reverse hereof:
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call TOLL FREE 1-800-840-1208 on a touchtone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
2. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE VOTE
<PAGE> 19
Please mark
your votes as / X /
indicated in
this example.
1. Authority to vote FOR the election of directors FOR WITHHOLD
in accordance with the accompanying Proxy Statement. / / / /
NOMINEES:
01 Daniel W. Duval 02 Carlo Giersch 03 John N. Hanson
04 Stephen P. Kaufman 05 Roger King 06 Robert E. Klatell
07 Karen Gordon Mills 08 Richard S. Rosenbloom 09 Robert S. Throop
10 John C. Waddell
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
2. Ratification of the appointment of Ernst & Young as FOR AGAINST
independent auditors of the books and accounts of / / / /
Arrow for the fiscal year ending December 31, 1998.
3. In accordance with their discretion upon such other matters as may properly
come before the meeting or any adjournments thereof.
This proxy is being solicited by the management and will be voted as specified.
If not otherwise specified, it will be voted for the election of directors and
for the proposals described in Items 2 and 3 above.
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
DATE / /1998
------------------- ----------
----------------------------------------
Signature
----------------------------------------
Signature, if Jointly Held
IF ACTING AS ATTORNEY, EXECUTOR, TRUSTEE
OR IN OTHER REPRESENTATIVE CAPACITY,
PLEASE SIGN NAME AND TITLE.
FOLD AND DETACH HERE
[TELEPHONE GRAPHIC] VOTE BY TELEPHONE [TELEPHONE GRAPHIC]
QUICK *** EASY *** IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
- - You will be asked to enter a Control Number which is located in the box in
the lower right hand corner of this form.
OPTION #1: To vote as the Board of Directors recommends on ALL proposals: Press
1.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
OPTION #2: If you choose to vote on each proposal separately, press 0. You will
hear these instructions:
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to the
instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The Instructions are the same for all remaining proposals.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
CALL ** TOLL FREE ** ON A TOUCHTONE TELEPHONE
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
