-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4OK1cMvEdOlymDEXpUAwAp6XK3N6eoNWPv6sYGiu2G6CS3c2okxywviAqAiqz4o F1H75AOUHTrArasHgal/6A== 0000950123-98-003768.txt : 19980415 0000950123-98-003768.hdr.sgml : 19980415 ACCESSION NUMBER: 0000950123-98-003768 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980514 FILED AS OF DATE: 19980414 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARROW ELECTRONICS INC CENTRAL INDEX KEY: 0000007536 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 111806155 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-04482 FILM NUMBER: 98593196 BUSINESS ADDRESS: STREET 1: 25 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5163911300 DEF 14A 1 ARROW ELECTRONICS 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 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. 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. 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.
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1) - ------------------- ------------------ ---------- 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
- --------------- (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 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.
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 ---- --- ----------------------- -------- -------------- ----------- 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.
3 6
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 ---- --- ----------------------- -------- -------------- ----------- 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.
4 7
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 ---- --- ----------------------- -------- -------------- ----------- 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.
- --------------- (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 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 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").
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) ------------------ ---- --------- ---------- --------------- ----------- ---------- --------------- 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
- --------------- (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 $4,750 to Arrow's Savings Plan for each of Mr. Kaufman, Mr. Klatell, Mrs. Scheihing, and Ms. Salsgiver. (6) Includes stock options awarded in early 1997 in respect of employment during 1996. 7 10 (7) Does not include options to purchase 1,000,000 shares of common stock granted to Mr. Kaufman in February 1995 as part of the entering into of a new employment agreement with Arrow. See "Employment Agreements" on page 13. STOCK OPTION GRANTS IN LAST FISCAL YEAR The following table provides information on option grants during 1997 in respect of employment during 1997 to the named executive officers.
INDIVIDUAL GRANTS -------------------------------------------------- NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE SECURITIES OPTIONS AT ASSUMED RATES OF UNDERLYING GRANTED TO STOCK PRICE APPRECIATION OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(3) GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------------- NAME (#)(1) YEAR ($/SH)(2) DATE 5% 10% ---- ---------- ---------- ----------- ---------- -------------- -------------- 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%
- --------------- (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 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.
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 ---- -------- ----------- --------------- --------------------- 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
- --------------- (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 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 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 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.
Prior Electronics Electronics Measurement Period Distributor S&P 500 Distributor (Fiscal Year Covered) Arrow Index Stock Index Index 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
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 12 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 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 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 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 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. -----END PRIVACY-ENHANCED MESSAGE-----