<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
Arrow Electronics, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
[Arrow Logo]
STEPHEN P. KAUFMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
April 16, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Arrow Electronics, Inc., which will be held on Wednesday, May 12, 1999 at 11:00
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, a proposal to adopt the Arrow Electronics, Inc. Chief Executive
Officer 1999 Performance Bonus Plan, 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,
/s/ Stephen P. Kaufman
Stephen P. Kaufman
Chairman and Chief Executive
Officer
<PAGE> 3
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
------------------------
April 16, 1999
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 12, 1999 at 11:00 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 approve the adoption of the
Arrow Electronics, Inc. Chief Executive Officer 1999 Performance Bonus
Plan.
3. 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, 1999.
4. 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 26, 1999 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> 4
ARROW ELECTRONICS, INC.
25 HUB DRIVE
MELVILLE, NEW YORK 11747
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement, mailed to shareholders on April 16, 1999, 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 12,
1999, 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 26, 1999 are entitled to notice of and to vote at the meeting
or any adjournments thereof. On March 26, 1999, Arrow had outstanding 95,750,948
shares of common stock.
<PAGE> 5
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 26, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------- ------------------ ----------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc. 13,021,564(2) 13.6%
767 Fifth Avenue
New York, New York 10153
Oppenheimer Capital 12,259,828(3) 12.8%
Oppenheimer Tower
World Financial Center
New York, New York 10281
Wellington Management Company, LLP 7,036,500(4) 7.3%
75 State Street
Boston, Massachusetts 02109
Vanguard Windsor Funds -- Vanguard Windsor Fund 6,893,700(5) 7.2%
Post Office Box 2600
Valley Forge, Pennsylvania 19482
Pioneer Investment Management, Inc. 5,330,000(6) 5.6%
60 State Street
Boston, Massachusetts 02109
The Prudential Insurance Company of America 4,872,614(7) 5.1%
751 Broad Street
Newark, New Jersey 07102
</TABLE>
- ---------------
(1) Calculation is based upon shares of common stock outstanding as of March 26,
1999.
(2) Based upon a Schedule 13G dated February 5, 1999 filed with the Securities
and Exchange Commission and reflects sole dispositive power with respect to
13,021,564 shares, sole voting power with respect to 6,927,756 shares, and
shared voting power with respect to 1,419,417 shares beneficially owned by
Sanford C. Bernstein & Co., Inc., a registered investment advisor.
(3) Based upon a Schedule 13G dated February 9, 1999 filed with the Securities
and Exchange Commission and reflects shared voting power and shared
dispositive power with respect to the shares beneficially owned by
Oppenheimer Capital, a registered investment advisor.
(4) Based upon a Schedule 13G dated December 31, 1998 filed with the Securities
and Exchange Commission and reflects shared dispositive power with respect
to 7,036,500 shares and shared voting power with respect to 123,100 shares
beneficially owned by Wellington Management Company, LLP, a registered
investment advisor.
(5) Based upon a Schedule 13G dated February 11, 1999 filed with the Securities
and Exchange Commission and reflects sole voting power and shared
dispositive power with respect to the shares beneficially owned by Vanguard
Windsor Funds -- Vanguard Windsor Fund, a registered investment company.
(6) Based upon a Schedule 13G dated January 8, 1999 filed with the Securities
and Exchange Commission and reflects sole voting power and sole dispositive
power with respect to the shares beneficially owned by Pioneer Investment
Management, Inc., a registered investment advisor.
2
<PAGE> 6
(7) Based upon a Schedule 13G dated February 1, 1999 filed with the Securities
and Exchange Commission and reflects shared voting power and shared
dispositive power with respect to 4,312,964 shares and sole voting power and
sole dispositive power with respect to 559,650 shares beneficially owned by
The Prudential Insurance Company of America, an insurance company and
registered investment advisor.
At March 26, 1999, all executive officers and directors of Arrow as a group
were the beneficial owners of 6,479,314 shares (6.8%), including 1,937,569
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 3,294,280 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 2,621,821 options are
currently exercisable), including options to purchase 1,431,250 shares, 227,000
shares, 198,000 shares, 60,000 shares, and 145,000 shares granted to Mr.
Kaufman, Mr. Francis M. Scricco, Mr. Klatell, Mr. Carlo Giersch, and Mrs. Betty
Jane Scheihing, respectively (of which 1,337,500 options, 51,750 options,
171,750 options, 42,500 options, and 100,625 options, respectively, are
currently exercisable); 769,184 shares awarded under Arrow's Restricted Stock
Plan (of which 407,534 shares have vested and are not forfeitable), including
97,250 shares, 125,000 shares, 87,950 shares, 21,400 shares, and 32,000 shares
awarded to Mr. Kaufman, Mr. Scricco, Mr. Klatell, Mr. Giersch, and Mrs.
Scheihing, respectively (of which 85,250 shares, 26,750 shares, 70,000 shares,
8,450 shares, and 9,375 shares, respectively, have vested and are not
forfeitable); options to purchase 114,000 shares granted under Arrow's
Non-Employee Directors Stock Option Plan (of which 18,750 shares are currently
exercisable and 24,750 shares are exercisable within 60 days from the date of
this Proxy Statement); and 5,470 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 eleven 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 Barry W.
Perry, who was appointed by the Board of Directors on January 25, 1999.
3
<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 26, 1999 STOCK
---- --- ----------------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Daniel W. Duval 62 Vice Chairman of Robbins & Myers, 1987 24,340(1) --%
Inc., a manufacturer of fluids
management systems, since January
1999, and President and Chief Ex-
ecutive Officer for more than five
years prior thereto; director of
Robbins & Myers, Inc. and National
City Bank of Dayton.
Carlo Giersch 61 Chairman of Spoerle Electronic, 1990 276,900(2) .3%
Arrow's wholly-owned German
subsidiary, for more than five
years.
John N. Hanson 57 Vice Chairman of Harnischfeger 1997 20,846(1) --%
Industries, Inc., a manufacturer
of equipment for mining, pulp and
papermaking, and material
handling, since November 1998,
President since June 1996, and
Chief Operating Officer since June
1995; President and Chief
Operating Officer of Joy Mining
Machinery prior thereto; director
of Harnischfeger Industries, Inc.
Stephen P. Kaufman 57 Chairman of the Board of Arrow 1983 3,466,069(3) 3.6%
since May 1994 and President and
Chief Executive Officer for more
than five years; director of
Polaroid Corporation.
</TABLE>
4
<PAGE> 8
<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 26, 1999 STOCK
---- --- ----------------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Roger King 58 Executive Director of Orient 1995 22,140(1) --%
Overseas (International) Limited,
an investment holding company,
with investments principally in
integrated containerized
transportation businesses, for
more than five years; Chairman and
Chief Executive Officer of ODS
System-Pro Holdings Limited, a re-
seller of computers and related
products and services, for more
than five years ending February
1996.
Robert E. Klatell 53 Executive Vice President of Arrow 1989 2,245,049(4) 2.3%
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 45 President of MMP Group Inc., a 1994 23,879(1) --%
consulting firm, since January
1993; director of The Scotts
Company.
Barry W. Perry 52 President and Chief Operating 1999 15,065(5) --%
Officer of Engelhard Cor-
poration, an environmental
technology, specialty chemical,
and engineered materials company,
since January 1997, Group Vice
President and General Manager from
1993 to 1997.
</TABLE>
5
<PAGE> 9
<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 26, 1999 STOCK
---- --- ----------------------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Richard S. Rosenbloom 66 David Sarnoff Professor of 1992 24,300(6) --%
Business Administration at Harvard
Business School for more than five
years prior to July 1998 and
Professor Emeritus subsequent
thereto.
Robert S. Throop 61 Vice President of Arrow since 1994 191,842(7) .2%
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; direc-
tor of The Coast Distribution
System, The Manitowoc Company,
Inc., and Intelic Software
Solutions, Inc.
John C. Waddell 61 Vice Chairman of the Board of 1969 1,943,605(8) 2%
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 3.
(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 3.
(3) 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 3.
(4) 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 3.
(5) 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 3.
(6) Includes shares owned individually and options to purchase shares granted
under Arrow's Non-Employee Directors Stock Option Plan. See page 3.
6
<PAGE> 10
(7) Includes 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 3.
(8) Includes shares owned individually, options to purchase shares granted under
Arrow's Non-Employee Directors Stock Option Plan, and shares held by Arrow's
Stock Ownership Plan. See page 3.
The audit committee of the Board of Directors consists of Mr. King, Mr.
Hanson, and Mr. Rosenbloom. The audit committee evaluates and reviews such
matters as Arrow's accounting policies, reporting 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, Mr. King, 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. Hanson. 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 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 1998, there were seven meetings of the Board of Directors, four
meetings of the audit committee, six meetings of the compensation committee,
five meetings of the nominating committee, and one meeting 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.
7
<PAGE> 11
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, 1998 $825,000 $200,000 $42,581 $ -- 75,000 $9,600
President and Chief 1997 750,000 644,000 58,350 258,000 25,000 9,550
Executive Officer 1996 700,000 689,500 39,625 208,500 80,000(6) 9,250
Francis M. Scricco, 1998 400,000 175,000 72,057 277,875 20,000 4,800
Executive Vice President 1997 133,333 117,000 4,000 64,500 7,000 --
and Chief Operating
Officer(7)
Robert E. Klatell, 1998 425,000 135,000 45,102 154,375 15,000 9,600
Executive Vice President 1997 400,000 168,000 58,868 161,250 15,000 9,550
1996 375,000 137,000 46,100 140,738 30,000 9,250
Carlo Giersch, 1998 568,500 -- -- 77,188 10,000 --
Chairman, Spoerle 1997 577,100 -- -- 161,250 10,000 --
Electronic 1996 664,673 -- -- 140,738 20,000 --
Betty Jane Scheihing, 1998 330,000 145,000 35,312 138,938 12,500 9,600
Senior Vice President 1997 281,667 229,000 31,188 453,563 42,500 9,550
1996 220,000 133,000 23,438 104,250 20,000 9,250
</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) Includes, with respect to compensation in 1998, the fair market value as of
the date of grant of stock awards granted in early 1999 in respect of
employment during 1998. All of such awards vest in four annual installments
of 25%, beginning one year after grant. As of December 31, 1998, the
aggregate number and value of unvested restricted stock awards held by Mr.
Kaufman, Mr. Scricco, Mr. Klatell, Mr. Giersch, and Mrs. Scheihing, were
14,000 ($373,625), 86,500 ($2,308,469), 9,450 ($252,197), 9,450 ($252,197),
and 14,375 ($383,633), respectively.
(4) Includes, with respect to 1998, stock options awarded in early 1999 in
respect of employment during 1998.
(5) For 1998, includes a contribution by Arrow of $4,800 to Arrow's Stock
Ownership Plan for each of Mr. Kaufman, Mr. Klatell, and Mrs. Scheihing and
a matching contribution by Arrow of $4,800 to Arrow's Savings Plan for each
of Mr. Kaufman, Mr. Scricco, Mr. Klatell, and Mrs. Scheihing.
(6) Includes stock options awarded in early 1997 in respect of employment during
1996.
(7) Mr. Scricco's employment with Arrow commenced September 1, 1997.
Compensation for 1997 does not include the value of restricted stock awards
($2,467,500) and the number of stock options (200,000) granted to Mr.
Scricco in consideration of the commencement of his
8
<PAGE> 12
employment with Arrow. Compensation with respect to 1998 does not include
$105,112 paid to Mr. Scricco in connection with his relocation to Arrow's
headquarters, and the value of restricted stock awards ($850,000) and a
bonus ($233,000) granted to Mr. Scricco to compensate him for the loss of
certain compensation from his previous employer as a result of his
employment with Arrow. See also "Certain Transactions" on page 17.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants during 1998 and
in early 1999 in respect of employment during 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME (#)(1) YEAR ($/SH)(2) DATE 5% 10%
---- ---------- ---------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Kaufman 75,000 6.4% $15.4375 3/3/09 $ 2,102,520 $ 4,033,725
Francis M. Scricco 20,000 1.7 15.4375 3/3/09 560,672 1,075,660
Robert E. Klatell 15,000 1.3 15.4375 3/3/09 420,504 806,745
Carlo Giersch 10,000 .9 15.4375 3/3/09 280,336 537,830
Betty Jane Scheihing 12,500 1.1 15.4375 3/3/09 350,420 672,288
All shareholders N/A N/A N/A N/A 1,604,983,779 4,067,349,977
Various in
2008 and
All optionees(4) 1,165,120 100 15.9050 2009 32,117,814 62,118,955
All optionees value as
a percent of all
shareholders value N/A N/A N/A N/A 2% 1.5%
</TABLE>
- ---------------
(1) All of such grants become exercisable in four annual installments,
commencing on the first anniversary of the date of 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 95,628,100 shares outstanding at December 31, 1998 from a base
price of $26.6875 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) Does not include 1,050,760 options granted in October 1997 to all employees
of Arrow's North American operations below the level of vice president,
which were repriced on December 14, 1998 from $27.50 to $22.5625.
9
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information concerning the exercise of stock
options during 1998 by each of the named executive officers and the year-end
value of their unexercised options. None of the named executive officers
exercised any stock options during 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL OPTIONS AT
SHARES YEAR-END(1) FISCAL YEAR-END(1)
ACQUIRED ----------------- ------------------
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ----------------- ------------------
<S> <C> <C> <C> <C>
Stephen P. Kaufman -- -- 1,327,500/103,750 $8,111,925/843,750
Francis M. Scricco -- -- 51,750/175,250 -- /225,000
Robert E. Klatell -- -- 171,750/ 26,250 1,512,000/168,750
Carlo Giersch -- -- 42,500/ 17,500 127,500/112,500
Betty Jane Scheihing -- -- 100,625/ 44,375 644,688/140,625
</TABLE>
- ---------------
(1) Includes stock options awarded in early 1999 in respect of employment during
1998.
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 reviewing 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 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:
prevailing levels of pay among executives of the larger companies in the peer
group reflected in the graph on page 14, internal pay equity considerations,
level of responsibilities, prior experience, breadth of knowledge, and job
10
<PAGE> 14
performance. For specialized functions, the committee also takes into account
compensation levels in other industries from which Arrow recruits executives.
Base salaries for Arrow executives are generally competitive with base salaries
at comparable companies. The base salaries of senior executive officers of Arrow
are slightly above the median of those for the identified peer group, because,
with one exception, Arrow is significantly larger than those companies. 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, again with one exception, 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 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 15.
The committee values highly Mr. Kaufman's breadth of knowledge and
recognizes his significant contribution to the success of Arrow. In 1998, Mr.
Kaufman's base salary was increased to $825,000 in recognition of the quality of
his leadership of the company and its industry.
Annual Incentives
Arrow's Chief Executive Officer Performance Bonus Plan, a five-year plan
which was adopted in 1994 (the "1994 CEO Bonus Plan"), 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 1994 CEO 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 1994 CEO 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
1998, Mr. Kaufman received a bonus payment of $200,000, of which $16,500 was
determined pursuant to the 1994 CEO Bonus Plan formula. The remainder represents
the committee's discretionary award in recognition of Arrow's North American
realignment and its sustained profitability and continued growth in the face of
difficult market conditions.
The company has adopted the Arrow Electronics, Inc. Chief Executive Officer
1999 Performance Bonus Plan (the "1999 CEO Bonus Plan"), subject to shareholder
approval, to replace the 1994 CEO Bonus Plan. The purpose of the 1999 CEO Bonus
Plan is the same as that of the 1994 CEO Bonus Plan, and it provides for a
performance-based bonus for Arrow's chief executive officer based upon target
level net income and the ratio of sales to average net working capital of Arrow.
The 1999 CEO Bonus Plan sets forth a pre-established bonus formula based upon
annual performance goals which establishes the maximum bonus that may be paid in
each year to the chief executive officer. The committee has the discretion to
determine the actual amount of the
11
<PAGE> 15
bonus to be paid, which amount may not exceed the maximum bonus calculated under
the bonus formula. See page 17.
Each year, for other executive officers of Arrow, management -- in
consultation with the committee -- establishes short-term financial goals which
relate to one or more indicators of corporate financial performance. For 1998,
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.
For 1998, the level of achievement by the participating named executive
officers did not exceed 30% of the targets established under the MICP. In light
of Arrow's North American realignment and difficult market conditions, however,
the committee concluded that MICP payments in respect of 1998 should not be less
than 50% of established targets. The MICP awards earned by the participating
named executive officers averaged 39% of their respective salaries.
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. Options granted after 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 respect of 1998 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. In respect of 1998, Mr. Kaufman was granted 75,000 stock options,
comprising a grant of 25,000 options, equivalent to his 1997 award, plus 50,000
additional options in lieu of restricted stock.
12
<PAGE> 16
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
Roger King
Karen Gordon Mills
13
<PAGE> 17
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, 1993 in Arrow, the S&P 500 Stock Index, and the peer
companies group. Total return indices reflect reinvested dividends and are
weighted on a market capitalization basis at the time of each reported data
point.
<TABLE>
<CAPTION>
Measurement Period ELECTRONICS DISTRIBUTOR
(Fiscal Year Covered) ARROW INDEX S&P 500 STOCK INDEX
- --------------------- ----- ----------------------- -------------------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 86.00 104.00 98.00
'1995' 103.00 125.00 132.00
'1996' 128.00 148.00 159.00
'1997' 155.00 162.00 208.00
'1998' 128.00 142.00 264.00
</TABLE>
14
<PAGE> 18
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 1999 and a fee of $1,000 for
each Board of Directors or 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 joining the Board 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. Pursuant to such plan, 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.
Pursuant to the Arrow Non-Employee Directors Stock Option Plan, on January
25, 1999 Mr. Perry received an option to purchase 15,000 shares of Arrow common
stock having an exercise price equal to $17.4375. As of 1998, Mr. Waddell became
a non-employee director and, as such, received an option to purchase 4,000
shares of Arrow common stock having an exercise price equal to $27.50.
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.
15
<PAGE> 19
Mr. Scricco has an employment agreement with Arrow terminating at any time
after September 1, 2000, on not less than 12 months notice. The employment
agreement provides for a minimum base salary of $400,000 per 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.
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 ($398,000, based on
the average exchange rate during 1998), with annual adjustments in the same
proportion in which salaries of the employees of Spoerle have been adjusted in
the preceding year.
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.
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. During 1998, Arrow 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.
16
<PAGE> 20
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, Mr. Scricco, Mr. Klatell, and
Mrs. Scheihing have been designated by Arrow as participants in the SERP with
maximum annual pensions of $300,000, $125,000, $250,000, and $250,000,
respectively. If a designated participant retires between the ages of 55 and 60,
the 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 March 1999, Arrow acquired the remaining 10% interest in Spoerle
Electronic from Mr. Giersch at a cost of 69,650,900 deutsche marks ($38,354,000,
based on the exchange rate on the date of payment). As a result, Spoerle
Electronic is now a wholly-owned subsidiary of Arrow.
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 4,720,000 deutsche marks ($2,683,000,
based on the average exchange rate during 1998) to the partnership during 1998.
The management of Spoerle Electronic believes that such rentals are at fair
market value.
In 1998, Arrow Electronics China Ltd. entered into an agreement with Hao
Mao Engineering Company, Ltd., a Singapore corporation in which Mr. King has a
beneficial interest and of which he is a director, pursuant to which Hao Mao
acts as a broker for the import of certain goods by Arrow Electronics China into
Singapore and receives commissions for its services. Such commissions amounted
to approximately $17,000 in 1998 and $97,000 year to date in 1999.
In connection with Mr. Scricco's relocation to Arrow's headquarters, Mr.
Scricco received from Arrow non-interest bearing loans in the aggregate amount
of $1,069,039 to assist in the purchase of his new residence. The loans are
partially secured by a mortgage on his new residence and are to be repaid from
the proceeds of the sale of his prior residence.
PROPOSED ADOPTION OF THE
CHIEF EXECUTIVE OFFICER
1999 PERFORMANCE BONUS PLAN
In 1998, the compensation committee (the "committee") of the Board of
Directors recommended to the Board of Directors the adoption of the 1999 CEO
Bonus Plan, subject to shareholder approval. The Board of Directors subsequently
ratified the committee's recommendation and determined to submit the 1999 CEO
Bonus Plan to the shareholders. The shareholders are now requested to approve
the adoption of this 1999 CEO Bonus Plan.
The summary of the 1999 CEO Bonus Plan which follows is subject to the
specific provisions contained in the official text.
17
<PAGE> 21
PURPOSE
The purpose of the 1999 CEO Bonus Plan is to motivate the company's Chief
Executive Officer ("CEO"), through awards of annual cash bonuses, to achieve
strategic, financial and operating objectives, reward the CEO's contribution
toward improvement in financial performance as measured by the growth in Arrow's
net income and the ratio of sales to average net working capital of Arrow,
provide the CEO with an additional incentive to contribute to the success of the
company and 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 by the company under the Internal
Revenue Code of 1986, as amended (the "Code").
The 1999 CEO Bonus Plan is intended to provide a special incentive for the
CEO to increase the profits of Arrow and the return to shareholders by rewarding
superior performance by the CEO with an annual cash bonus. Accordingly, the
CEO's maximum potential cash bonus is calculated pursuant to a pre-established
formula which is applied by the committee against specified measures of
corporate performance.
ADMINISTRATION
The 1999 CEO Bonus Plan is administered by the committee, the members of
which are currently "disinterested persons" as such term is defined under Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended. The
members of the committee also qualify as "outside directors" as that term is
defined in treasury regulations (the "Regulations") issued by the Internal
Revenue Service under Section 162(m) of the Code. No committee member is
eligible to receive any bonus award under the 1999 CEO Bonus Plan. Under the
1999 CEO Bonus Plan, the committee calculates the maximum bonus that may be paid
in each year to the CEO in accordance with a pre-established bonus formula based
upon annual performance goals. Based upon certain subjective factors, as
discussed below, the committee has the discretion to determine the actual amount
of the bonus to be paid to the CEO, which amount may not exceed the maximum
bonus calculated under the bonus formula.
DISCONTINUANCE, TERMINATION OR AMENDMENT
Except as permitted by Section 162(m) of the Code, the committee does not
have the authority to modify the material terms of the pre-established
performance goal, which is based upon the company's net income and the ratio of
sales to average net working capital of the company, nor may it modify the bonus
formula or the eligibility requirements of the 1999 CEO Bonus Plan without
majority shareholder approval in accordance with Section 162(m) of the Code. The
committee may discontinue the 1999 CEO Bonus Plan at any time and may determine
to reduce or eliminate a bonus in any year. The 1999 CEO Bonus Plan terminates
on December 31, 2003.
CALCULATION OF MAXIMUM BONUS AWARD
The formula which establishes the maximum bonus that may be payable under
the 1999 CEO Bonus Plan consists of the following calculations. On or before
December 31 of the year preceding a service year or by such later date as is
permitted by Section 162(m) of the Code (the "Determination Date"), the
committee will determine the maximum bonus for that service year which shall
equal 1% times Net Income (as defined below) for the service year in excess of
the Target Level
18
<PAGE> 22
Net Income, plus, so long as Net Income for the service year exceeds the Target
Level Net Income, the product of (i) an amount determined by the committee (the
"Base Factor") for such service year and (ii) a fraction, the numerator being
the Sales (as defined below) for such service year and the denominator being the
Average Net Working Capital (as defined below) for such service year.
The amount calculated pursuant to the bonus formula may be reduced (but not
increased) by the committee based upon any additional corporate performance or
individual performance factors or other factors, circumstances or events which
the committee deems relevant. Such reductions are not mandated by the 1999 CEO
Bonus Plan and are within the committee's sole discretion.
Target Level Net Income and the Base Factor for each service year are
determined by the committee prior to the Determination Date of such service year
based upon information provided to the committee by management. For 1999 the
Target Level Net Income is $50,000,000 and the Base Factor is $100,000. Net
Income is defined as the consolidated net income of the company for a particular
service year computed in accordance with generally accepted accounting
principles, as reported in the company's audited financial statements, and as
adjusted by the committee to omit the effects of nonrecurring items or
extraordinary items. Sales is defined as the gross operating sales revenue
generated by the company, on a consolidated basis, computed in accordance with
generally accepted accounting principles, as reported in the company's audited
financial statements. Average Net Working Capital is defined as the average
Monthly Net Working Capital (as defined below) for the period commencing on and
including the month preceding the service year and ending on the last day of
such service year. Monthly Net Working Capital is defined as (a) the sum of the
company's accounts receivable and inventory amounts as of the last business day
of the relevant month, less (b) the company's accounts payable amounts as of the
last business day of such month, with all such amounts being net of reserves
(where appropriate) and determined in accordance with such generally accepted
accounting principles.
NEW PLAN BENEFITS
The benefits payable in the future under the 1999 CEO Bonus Plan are not
currently determinable. If Net Income, Sales, and Average Net Working Capital
for 1999 equal those achieved in 1998, application of the above-described bonus
formula, the 1999 Target Level Net Income, and the Base Factor would have
produced a maximum 1999 bonus under the 1999 CEO Bonus Plan, before the exercise
of any discretion by the committee, of $1,420,000 for Mr. Kaufman. In no event
shall the CEO be entitled to receive a bonus under the 1999 CEO Bonus Plan for
any fiscal year of the company in excess of $5,000,000.
PAYMENT OF BONUS AWARDS
Payment of the CEO's bonus award for a particular service year shall be
made in cash, less applicable withholding taxes, in the following year as soon
as practicable after the completion of the committee's computation and
certification with respect to the award. No bonus award under the 1999 CEO Bonus
Plan is permitted to be paid unless the committee has certified that based upon
the bonus formula, the Net Income for the service year exceeds the Target Level
Net Income for such service year. Such certification must be made in writing by
the committee or set forth in the approved minutes of the committee.
19
<PAGE> 23
If a CEO is first employed between February 1 and September 30 of a service
year, such CEO will be eligible under the plan to receive a pro rata portion of
the bonus award (less any discretionary reductions) based on the length of time
employed during the year. Except as otherwise provided in the 1999 CEO Bonus
Plan, if the CEO retires, becomes disabled or terminates employment with the
company during a given year, he or she is eligible to be paid after completion
of the year a pro rata portion of the bonus (less any discretionary reductions)
as determined by the committee under the bonus formula.
REASONS FOR SHAREHOLDER APPROVAL
The company desires to deduct from its corporate income, for the purpose of
computing the company's federal corporate income tax liability, certain
compensation received by the CEO from the company, including any bonus award
under the 1999 CEO Bonus Plan. Under Section 162(m) of the Code, the deduction
from corporate income for salaries or other compensation will generally be
disallowed for compensation in excess of $1,000,000 per annum paid to a "covered
employee". A "covered employee" is defined in Section 162(m) of the Code to
include, among others, the CEO of a corporation, the securities of which are
publicly traded. Section 162(m) of the Code applies to taxable years commencing
on or after January 1, 1994.
Performance-based compensation is not subject to the $1,000,000 cap on
deductibility if certain requirements are met. Performance-based compensation
payable to a "covered employee" may be deducted by a publicly-traded corporation
where the payment is made solely upon the attainment by the covered employee of
"pre-established goals", the performance goals are set by a committee of the
board of directors comprised solely of two or more "outside directors" and
disclosure of the performance goals and other material terms of the compensation
arrangement is made to shareholders of the corporation who thereafter approve
the performance goals and the other material terms of the arrangement. In
addition, before any payments of performance-based compensation are made, such
committee must certify that the performance goals and other material terms of
the arrangement have been satisfied.
The company has reviewed Section 162(m) of the Code and the Regulations and
believes that for fiscal year 1999 awards under both the 1999 CEO Bonus Plan
should qualify as performance-based compensation for the CEO.
In the event the shareholders of the company ratify the 1999 CEO Bonus
Plan, including the above-described performance goal and bonus formula, Arrow
intends to deduct any bonus paid to the CEO for the purpose of determining the
company's corporate income tax liability for company tax years ending on or
after December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL.
The affirmative vote of the holders of a majority of the shares of common
stock cast at the Annual Meeting is required for approval of the 1999 CEO Bonus
Plan. Consequently, any shares not voted (whether by abstention or broker
non-votes) have no effect on the adoption of the 1999 CEO Bonus Plan.
20
<PAGE> 24
APPROVAL OF APPOINTMENT OF AUDITORS
The shareholders will be asked to ratify the appointment of Ernst & Young
LLP as Arrow's independent auditors for 1999. 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 17, 2000. 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 3, 1999.
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
21
<PAGE> 25
PROXY
ARROW ELECTRONICS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 1999
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 12, 1999, at
11:00 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> 26
Please mark your votes as indicated in this example [X]
FOR WITHHOLD
1. Authority to vote FOR the election of directors 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 Barry W. Perry 09 Richard S. Rosenbloom
10 Robert S. Throop 11 John C. Waddell
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
________________________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the adoption of the Arrow Electronics,
Inc. Chief Executive Officer 1999 Performance
Bonus Plan. [ ] [ ] [ ]
FOR AGAINST ABSTAIN
3. Ratification of the appointment of Ernst & Young as
independent auditors of the books and accounts of
Arrow for the fiscal year ending December 31, 1999. [ ] [ ] [ ]
4. 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 AND OTHERWISE IN ACCORDANCE
WITH THEIR DISCRETION.
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
DATE_____________________/_________/1999
________________________________________
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.
