DEF 14A
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:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-2. |
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):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12. |
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(1) |
Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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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): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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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. |
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Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
ARROW ELECTRONICS,
INC.
50 MARCUS DRIVE
MELVILLE, NEW YORK 11747
ARROW ELECTRONICS LOGO
DANIEL W. DUVAL
CHAIRMAN OF THE BOARD
April 4, 2006
Dear Shareholder:
You are invited to Arrow’s Annual Meeting of Shareholders,
which will be held on Tuesday, May 2, 2006, at the offices
of JPMorgan Chase Bank, N.A., 270 Park Avenue, New York,
New York at 11:00 a.m. The formal notice of the meeting and
the proxy statement soliciting your vote at the meeting appear
on the following pages.
The two matters being put to a vote at the meeting are the
election of directors and a proposal to ratify the appointment
of our independent auditors. Both matters are discussed more
fully in the proxy statement.
The Board recommends the approval of the proposals as being in
the best interests of Arrow, and urges you to read the proxy
statement carefully before you vote. Your vote is important,
regardless of the number of shares you own.
Please make sure you vote whether or not you plan to attend the
meeting. You can cast your vote by signing, dating and promptly
mailing the enclosed proxy card in the postage-paid return
envelope. You can also vote by telephone or through the internet
by following the instructions on the proxy card.
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Sincerely yours, |
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Daniel W. Duval |
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Chairman of the Board |
ARROW ELECTRONICS, INC.
50 Marcus Drive
Melville, New York 11747
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TIME AND DATE
11:00 a.m. on Tuesday, May 2, 2006
PLACE
JPMorgan Chase Bank, N.A.
270 Park Avenue
New York, NY 10017
ITEMS OF BUSINESS
The annual meeting will be held for the following purposes:
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1. |
To elect directors of Arrow for the ensuing year. |
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2. |
To act upon a proposal to ratify the appointment of
Ernst & Young LLP as Arrow’s independent auditors
for the fiscal year ending December 31, 2006. |
RECORD DATE
Only shareholders of record at the close of business on
March 17, 2006 are entitled to notice of and to vote at the
meeting or any adjournments thereof.
ANNUAL REPORT
Our 2005 Annual Report, which is not a part of the proxy
soliciting material, is enclosed.
PROXY VOTING
It is important that your shares be voted at the meeting. You
can vote your shares by completing and returning the proxy card
sent to you. Most shareholders also have the option of voting
their shares through the mail, by telephone or through the
internet. To use any of these options, follow the voting
instructions on your proxy card. You can revoke your proxy
(change or withdraw your vote) at any time prior to its exercise
at the meeting by following the instructions in the proxy
statement.
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By Order of the Board of Directors |
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Peter S. Brown |
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Secretary |
ARROW ELECTRONICS, INC.
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 2, 2006
TABLE OF CONTENTS
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ARROW ELECTRONICS,
INC.
50 Marcus Drive
Melville, New York 11747
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 2, 2006
PROXY STATEMENT
The Purpose of this Statement
The Board of Directors of Arrow Electronics, Inc., a New York
corporation (“Arrow” or “the company”), is
sending this proxy statement to all shareholders of record to
solicit proxies to be voted at the 2006 Annual Meeting of
Shareholders, and any adjournments of the meeting, as described
in the accompanying Notice of Annual Meeting. By returning the
completed proxy card, or voting over the telephone or internet,
you are giving instructions on how your shares are to be voted
at the Annual Meeting.
Invitation to the Annual Meeting
You are invited to attend the 2006 Annual Meeting of
Shareholders on Tuesday, May 2, 2006, beginning at
11:00 a.m. The meeting will be held at JPMorgan Chase Bank,
N.A., 270 Park Avenue, New York, NY 10017.
Voting Instructions
This proxy statement, proxy, and voting instructions are being
mailed starting April 4, 2006. Please complete, sign, and
date the enclosed proxy and return it promptly in the enclosed
postage-paid return envelope, or vote your shares by telephone
or through the internet. Whether or not you plan to attend the
meeting, your prompt response will assure a quorum and reduce
solicitation expense.
Shareholders Entitled to Vote
Only shareholders of Arrow’s common stock at the close of
business on March 17, 2006, (the “record date”)
are entitled to notice of and to vote at the meeting or any
adjournments thereof. As of the record date, there were
121,156,613 shares of Arrow common stock outstanding. Each
share of common stock is entitled to one vote on each matter
properly brought before the meeting.
Revocation of Proxies
The person giving the proxy may revoke it at any time prior to
the time it is voted at the meeting by giving written notice to
Arrow’s Secretary. If the proxy was given by telephone or
through the internet, it may be revoked in the same manner. You
may also revoke your proxy by attending the Annual Meeting and
voting in person, though merely attending the Annual Meeting
will not automatically revoke your proxy.
Cost of Proxy Solicitation
Arrow pays the cost of soliciting proxies. Arrow employees are
conducting this solicitation through the mail, in person, and by
telephone. In addition, Arrow has retained D.F. King &
Co., Inc. to assist in soliciting proxies at an anticipated cost
of $9,500 plus expenses. Arrow also will request brokers and
other nominees holding Arrow stock to forward these soliciting
materials to the beneficial owners of that stock and will
reimburse them for their expenses in so doing.
2
CERTAIN SHAREHOLDERS
Holders of More than 5% of Common Stock
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 17, 2006.
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Name and Address |
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Number of Shares | |
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Percent of | |
of Beneficial Owner |
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Beneficially Owned | |
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Class | |
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FMR Corp.(1)
82 Devonshire Street
Boston, Massachusetts 02109 |
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15,261,778 |
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12.6 |
% |
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Mutuelles AXA(2)
26, rue Drouot
75009 Paris, France |
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16,327,671 |
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13.5 |
% |
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Wellington Management Company, LLP(3)
75 State Street
Boston, Massachusetts 02109 |
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11,894,255 |
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9.8 |
% |
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(1) |
Based upon a Schedule 13G dated February 14, 2006
filed with the Securities and Exchange Commission (the
“SEC”) which reflects sole voting power with respect
to 1,211,230 shares and sole dispositive power with respect
to 15,261,778 shares beneficially owned by FMR Corp., a
parent holding company. |
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(2) |
Based upon a Schedule 13G dated February 14, 2006
filed with the SEC by AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle,
collectively, Mutuelles AXA (insurance companies), AXA and AXA
Financial, Inc. (parent holding companies) which reflects sole
dispositive power with respect to 16,327,671 shares, sole
voting power with respect to 8,866,459 shares, and shared
voting power with respect to 1,700,391 shares beneficially
owned by Mutuelles AXA. Of such shares, 14,093,204 are
beneficially owned by Alliance Capital Management L.P., an
indirect subsidiary of Mutuelles AXA, acquired solely for
investment purposes on behalf of client discretionary investment
advisory accounts. 3,100 shares are held by AXA Equitable
Life Insurance Company, an indirect subsidiary of Mutuelles AXA
and 2,231,367 shares are held by AXA Rosenberg Investment
Management LLC, each an AXA entity, solely for investment
purposes. |
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(3) |
Based upon a Schedule 13G dated February 14, 2006
filed with the SEC which reflects shared voting power with
respect to 2,888,763 shares and shared dispositive power
with respect to 11,894,255 shares beneficially owned by
Wellington Management Company, LLP, a registered investment
adviser. Of these shares, 9,948,200 or 8.2% of the
Company’s outstanding common stock, are beneficially owned
by Vanguard Windsor Funds — Vanguard Windsor Fund, a
registered investment company, which has sole voting power with
respect to all such shares. This information regarding Vanguard
Windsor Funds is based upon a Schedule 13G dated
February 13, 2006 filed with the SEC. |
3
Shareholding of Executive Officers and Directors
At March 17, 2006, all of the executive officers and
directors of Arrow as a group were the beneficial owners of
3,868,206 shares of the company’s common stock, which
is 3.2% of the total shares of common stock outstanding. This
amount includes 2,775,792 shares (2.3% of the
company’s outstanding common stock) held by the Arrow
Electronics Employee Stock Ownership Plan (the “ESOP”)
of which William E. Mitchell, Peter S. Brown and Paul J. Reilly
are the trustees. As trustees, they have shared power to vote
the shares held by the ESOP, and for that reason are deemed to
be beneficial owners of those shares under SEC regulations. The
ESOP total also includes shares allocated to the individual
accounts of each of the trustees.
As of March 17, 2006, the “named executive
officers” (the Chief Executive Officer, the Chief Financial
Officer and each of the other four most highly compensated
executive officers of the company) and directors had beneficial
ownership of the company’s common stock as follows:
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Shares of Common Stock Beneficially Owned | |
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% of | |
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Acquirable | |
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Outstanding | |
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Currently | |
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Common | |
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w/in | |
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Common | |
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Owned(1) | |
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Stock Units(2) | |
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60 Days | |
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Stock | |
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William E. Mitchell
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3,033,992 |
(3) |
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— |
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— |
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2.5 |
% |
Germano Fanelli
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32,500 |
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— |
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— |
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* |
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Michael J. Long
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58,287 |
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— |
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— |
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* |
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Harriet Green(4)
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2,375 |
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— |
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— |
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* |
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Peter S. Brown
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2,802,342 |
(3) |
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— |
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— |
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2.3 |
% |
Paul J. Reilly
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2,867,042 |
(3) |
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— |
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— |
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2.4 |
% |
Daniel W. Duval
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63,200 |
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6,550 |
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— |
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* |
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John N. Hanson
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42,500 |
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9,730 |
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— |
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Richard S. Hill
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— |
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1,150 |
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— |
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* |
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M.F. (Fran) Keeth
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— |
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5,493 |
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— |
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* |
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Roger King
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41,000 |
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10,023 |
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— |
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* |
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Karen Gordon Mills
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41,600 |
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16,894 |
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— |
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* |
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Stephen C. Patrick
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15,000 |
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6,365 |
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— |
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* |
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Barry W. Perry
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35,000 |
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8,949 |
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— |
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* |
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John C. Waddell
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31,576 |
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3,152 |
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— |
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* |
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Total Executive Officers’ and Directors’ Beneficial
Ownership
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3,799,900 |
(3) |
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68,306 |
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— |
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3.2 |
% |
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* |
Represents holdings of less than 1%. |
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(1) |
Includes vested stock options, restricted shares granted, shares
held by the ESOP and shares owned independently. |
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(2) |
Includes common stock units deferred by non-employee directors
and restricted stock units granted to them under the Arrow
Electronics, Inc. 2004 Omnibus Incentive Plan (the “Omnibus
Incentive Plan”). |
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(3) |
Includes 2,775,792 shares held by the ESOP, of which
Messrs. Mitchell, Brown and Reilly are trustees. Each
trustee is deemed a beneficial owner of all of the shares,
however the total number of shares shown as beneficially owned
by all of the directors and executive officers as a group
includes such shares only once. |
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(4) |
Harriet Green was an executive officer of the company throughout
2005. She resigned effective as of March 31, 2006. Her
holdings here and throughout this proxy statement are shown as
of the date indicated in each instance. |
5
PROPOSAL 1: ELECTION OF DIRECTORS
Each member of the Board of Directors of Arrow (the
“Board”) is to be elected at the meeting to hold
office until the next Annual Meeting of Shareholders and until
his or her successor has been duly elected and qualified. By
resolution of all the current directors, the Board will consist
of ten directors unless and until that number is changed by a
resolution of the then current Board. Shareholder proxies
solicited under this proxy statement cannot be voted for more
than ten directors.
The Board of Directors recommends a vote for all of the
nominees.
Nominees receiving a plurality of 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.
Management does not contemplate that any of the nominees will be
unable or unwilling to serve as a director, but should that
happen 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.
All of the nominees are currently directors of Arrow and were
elected at Arrow’s last annual meeting, except for Richard
S. Hill, who was appointed to the Board in February 2006.
Following are the biographies of the ten nominees:
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Daniel W. Duval, 69, director since 1987 |
Mr. Duval has been Chairman of the Board of Arrow since
June 2002. He served as Arrow’s interim Chief Executive
Officer from September 2002 to February 2003. He served as
interim President and Chief Executive Officer of
Robbins & Myers, Inc., a manufacturer of fluids
management systems, from December 2003 through July 2004.
Mr. Duval is also a director of Robbins & Myers,
Inc., The Manitowoc Company, Inc., Miller-Valentine Group, and
Gosiger, Inc.
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John N. Hanson, 64, director since 1997 |
Mr. Hanson has been Chairman of the Board, Chief Executive
Officer and President of Joy Global Inc., a manufacturer of
mining equipment for both underground and surface applications,
for more than five years. He is also a director of the Milwaukee
Symphony Orchestra and the Boys & Girls Clubs of
Milwaukee.
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Richard S. Hill, 54, director since 2006 |
Mr. Hill has been Chief Executive Officer and Chairman of
the Board of Novellus Systems, Inc., a maker of devices used in
the manufacture of advanced integrated circuits, for more than
five years. He is a director of Agere Systems Inc. and the
University of Illinois Foundation.
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M.F. (Fran) Keeth, 59, director since 2004 |
Mrs. Keeth has been Executive Vice President of Shell
Chemicals Limited, a services company responsible for the global
petrochemical businesses of the Royal Dutch/ Shell
6
Group of companies, since January 2005. She held positions as
Executive Vice President of Customer Fulfillment and Product
Business Units for Shell Chemicals Limited from July 2001 to
January 2005 and Chief Financial Officer and Executive Vice
President Finance and Business Systems from September 1997 to
July 2001. Mrs. Keeth remains President and Chief Executive
Officer of Shell Chemical LP, a U.S. petrochemical member
of the Royal Dutch/ Shell Group, a position she has held since
July 2001, prior to which she was Chief Financial Officer,
beginning in September 1997.
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Roger King, 65, director since 1995 |
Mr. King is retired. He was the Chief Executive Officer of
Sa Sa International Holdings Limited, a retailer of cosmetics,
from August 1999 to May 2002. He also served as the Executive
Director of Orient Overseas (International) Limited, an
investment holding company with investments principally in
integrated containerized transportation businesses for more than
five years ending August 1999. Mr. King also serves as a
director of Orient Overseas (International) Limited, China Lot
Synergy Holdings Limited (formerly World Metal Holdings Ltd.),
Sincere Watch (Hong Kong) Limited and TNT N.V.
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Karen Gordon Mills, 52, director since 1994 |
Mrs. Mills has been a Managing Director of Solera Capital
LLC, a venture capital fund, for more than five years. She has
also served as President of MMP Group, Inc., a private equity
advisory firm, for more than five years. Mrs. Mills is a
director of The Scotts Miracle-Gro Company and Latina Media
Ventures, LLC.
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William E. Mitchell, 62, director since 2003 |
Mr. Mitchell has been President and Chief Executive
Officer of Arrow since February 2003. Mr. Mitchell
previously served as Executive Vice President of Solectron
Corporation as well as the President of Solectron Global
Services, Inc., from March 1999 to January 2003.
Mr. Mitchell also serves as a director of Rogers
Corporation.
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Stephen C. Patrick, 56, director since 2003 |
Mr. Patrick has served as the Chief Financial Officer of
the Colgate-Palmolive Company, a global consumer products
company, for more than five years. In his more than
20 years at Colgate-Palmolive he has also held positions as
Vice President, Corporate Controller and Vice President of
Finance for Colgate Latin America.
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Barry W. Perry, 59, director since 1999 |
Mr. Perry has been Chief Executive Officer and Chairman of
the Board of Engelhard Corporation, a surface and materials
science company, for more than five years. Mr. Perry is
also a director of the Cookson Group, PLC, U.K.
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John C. Waddell, 68, director since 1969 |
Mr. Waddell retired as Chairman of the Board of Arrow in
May 1994 and since that time has served as Vice Chairman.
7
THE BOARD AND ITS COMMITTEES
The Board meets in general sessions under Chairman Duval, in
meetings limited to non-management directors, which are also led
by Chairman Duval, and in its various committees. At the Board
meeting following the Annual Meeting of Shareholders, the Board
intends to elect Mr. Mitchell as Chairman and
Mr. Duval as Lead Director. As Lead Director,
Mr. Duval will continue to serve as chairman of all
meetings of non-management directors.
Committees
The audit committee of the Board consists of
Mr. Patrick, as Chairman, Mr. Hill, Mrs. Keeth,
Mrs. Mills, and Mr. Waddell. The audit committee
reviews and evaluates Arrow’s financial reporting process
and other matters including its accounting policies, reporting
practices, internal audit function, and internal accounting
controls. The committee also monitors the scope and reviews the
results of the audit conducted by Arrow’s independent
auditors. The Board has determined that Mr. Patrick is an
“audit committee financial expert” as defined by the
SEC. In light of the possibility that Mr. Patrick might at
some time be unable to attend a meeting of the committee, the
Board has also determined that Mrs. Keeth qualifies as an
“audit committee financial expert.”
The compensation committee of the Board consists of
Mr. Perry, as Chairman, Mr. Duval, Mrs. Keeth,
Mr. King, and Mrs. Mills. The compensation committee
determines the salary of the Chief Executive Officer, reviews
and approves the salaries and the incentive compensation of
senior corporate officers, grants or approves awards under the
Omnibus Incentive Plan, and implements the company’s
short-term incentive plans. The committee also advises the Board
generally with regard to other compensation and employee benefit
matters, and collects information in connection with the
evaluation of the performance of the Chief Executive Officer.
The corporate governance committee of the Board consists
of Mr. Hanson, as Chairman, Mr. Duval, Mr. Hill,
Mr. King, and Mr. Waddell. The corporate governance
committee will consider shareholder recommendations for nominees
for membership on the Board. Such recommendations may be
submitted to Arrow’s Secretary, Peter S. Brown, at Arrow
Electronics, Inc., 50 Marcus Drive, Melville, New York, 11747,
who will forward them to the corporate governance committee. The
committee’s expectations as to the specific qualities and
skills required for directors are set forth in Section 4 of
Arrow’s corporate governance guidelines (available at the
investor relations section of the company’s website,
www.arrow.com). Under those guidelines, the committee considers
potential nominees recommended by current directors, company
officers, employees, shareholders, and others. The committee has
retained the services of a third-party executive recruitment
firm to assist committee members in the identification and
evaluation of potential nominees for the Board. The
committee’s initial review of the potential candidate is
typically based on any written materials provided to the
committee. In connection with the evaluation of potential
nominees, the committee determines whether to interview the
nominee, and if warranted, the committee, the Chairman of the
Board, the Chief Executive Officer, and others as appropriate,
interview the potential nominees. The corporate governance
committee also has primary responsibility for developing the
corporate governance guidelines for Arrow and for making
recommendations with respect to committee assignments and other
governance issues. The committee regularly reviews and makes
recommendations to the Board regarding the compensation of
non-employee directors.
8
Independence
The company’s corporate governance guidelines provide that
the Board should consist primarily of independent,
non-management directors. For a director to be considered
independent under the guidelines, the Board must determine that
the director does not have any direct or indirect material
relationship with the company and that he or she is not involved
in any activity or interest that might appear to conflict with
his or her fiduciary duties to the company.
Each independent non-management director must also satisfy the
Director Qualification Standards adopted by the Board, which
essentially incorporate the independence criteria in the New
York Stock Exchange listing standards. Neither such a director
nor any member of his or her immediate family may: i) be an
employee (or, in the case of a family member, an executive
officer) of the company during the preceding three years; ii)
receive more than $100,000 from the company (except for director
or committee fees) during any twelve-month period within the
preceding three years; iii) be employed by or be a partner of
the company’s outside audit firm (or, if a former employee
or partner, have worked on the audit of the company within the
past three years); iv) be an executive officer of another
company where any of Arrow’s executive officers serves as a
member of that other company’s compensation committee; or
v) be an employee (or, in the case of a family member, an
executive officer) of a company which received payment from
Arrow in excess of the larger of $1 million or 2% of such
other company’s gross revenues in any of the preceding
three years.
In addition to applying the Director Qualification Standards,
the Board will consider all relevant facts and circumstances in
making an independence determination. In making this
determination regarding Mr. Hill, the Board considered that
Mr. Hill is an independent director of Agere Systems, Inc.,
a semiconductor manufacturer for which the company is an
authorized distributor. In 2005, the company sold approximately
$22,600,000 of Agere products worldwide, approximately 1% of
Agere’s total sales and .2% of the company’s sales. In
addition to the immateriality of the amount of sales involved,
the Board determined that this relationship did not impair
Mr. Hill’s independence because he is an independent
director of Agere, and receives compensation from Agere only in
connection with his services as such. In addition, Novellus
Systems, Inc., of which Mr. Hill is Chairman and CEO,
purchased less than $10,000 of product from Arrow in 2005. The
Board has determined that all of its directors and nominees,
other than Mr. Mitchell, satisfy both the New York Stock
Exchange’s independence requirements and the company’s
guidelines.
As required by the guidelines and the New York Stock
Exchange’s listing rules, all members of the audit,
compensation and corporate governance committees are
independent, non-management directors.
No member of the compensation committee is a present or former
employee of the company, except for Mr. Duval, who served
as interim Chief Executive Officer from September 2002 to
February 2003. Under the rules of the New York Stock Exchange,
such interim service does not alter Mr. Duval’s status
as an independent, non-management director. No member of the
compensation committee is an employee or director of any company
where any employee or director of Arrow serves on the
compensation committee.
All members of the audit committee also satisfy an additional
SEC independence requirement, which provides that they may not
accept directly or indirectly any consulting, advisory or other
compensatory fee from Arrow or any of its subsidiaries other
than their directors’ compensation.
9
Meetings and Attendance
In general, it is the practice of the Board for all of its
non-management directors to meet in “executive
session” at each Board meeting, with the Chairman of the
Board presiding. Consistent with Arrow’s corporate
governance guidelines, in 2005 these non-management director
meetings included one under the guidance of the chairman of the
compensation committee to evaluate the performance of the Chief
Executive Officer and one under the guidance of the chairman of
the corporate governance committee to discuss senior management
development and succession.
During 2005 there were 12 meetings of the Board, 11 meetings of
the audit committee, 6 meetings of the compensation committee,
and 5 meetings of the corporate governance committee. All
directors attended 75% or more of all of the meetings of the
Board and the committees on which they served.
It is the policy of the Board that all of its members attend the
Annual Meeting of Shareholders absent exceptional cause, and all
then incumbent members of the Board did so in 2005.
Directors Compensation
The independent non-management members of the Board (that is,
all members except Mr. Mitchell) receive the following:
|
|
|
|
|
Annual fee
|
|
$ |
40,000 |
|
Fee for each Board or committee meeting attended
|
|
$ |
2,000 |
|
Annual fee for service as committee chair
|
|
$ |
10,000 |
|
For the directors’ terms beginning with the May 2006 Annual
Meeting, the annual fee for non-employee directors will be
increased to $50,000. As Chairman of the Board, Mr. Duval
has received an additional fee of $200,000 per year.
Assuming that Mr. Mitchell becomes Chairman and
Mr. Duval becomes Lead Director at the Board meeting to be
held immediately following the Annual Meeting of Shareholders,
Mr. Duval would no longer receive the annual $200,000
Chairman’s fee, but would instead receive an additional
annual fee as Lead Director of restricted stock units valued at
$30,000. All of such stock units would be converted to shares of
common stock one year after Mr. Duval retires from the
Board. Mr. Mitchell would not receive any fee for his
services as Chairman, but would receive a one-time grant of
20,000 restricted shares of Arrow common stock in recognition of
his appointment, which would vest upon his retirement, death,
disability or a change in control of Arrow. The entire grant
would be forfeited if Mr. Mitchell resigned or was
terminated prior to his retirement.
Each non-employee director receives an annual grant of
restricted stock units valued at $40,000 based on the fair
market value of Arrow’s common stock at the date of grant.
The units vest one year after the grant, but are subject to a
number of restrictions until one year after the recipient leaves
the Board, at which point the units will be settled with the
issuance of shares of Arrow stock. Beginning with the May 2006
Annual Meeting, the value of the restricted stock unit grants
will be increased to $60,000 based on the fair market value of
Arrow’s common stock at the date of grant.
Non-employee directors may, in their discretion, defer a
percentage of their annual retainers and meeting fees to be paid
upon termination from the Board. Unless a non-employee director
elects to defer a different percentage, 50 percent of the
non-employee director’s annual retainer fee is deferred and
converted to phantom stock units of Arrow common stock. Upon
termination of the
10
non-employee director’s service on the Board, each whole
phantom stock unit, if any, credited to his or her account will
be converted into one share of common stock. Other amounts that
are deferred may be invested for the benefit of the director
under the terms of the Non-Employee Director Deferral Plan, or
should a director so choose, be converted into the phantom stock
units.
In 2005, Messrs. Duval, Hanson and Patrick made personal
use of an aircraft in which the company owns fractional
interests, with an incremental cost to the company of
$1,244 per person. The calculation of this incremental cost
includes only those variable costs incurred as a result of the
personal flight activity and is net of reimbursements received
from Messrs. Duval, Hanson and Patrick.
Mr. Mitchell receives no fees, equity or other compensation
in connection with his board or committee service.
Availability of More Information
Arrow’s corporate governance guidelines, the charter of the
corporate governance committee, the audit committee charter, the
compensation committee charter, the company’s Worldwide
Code of Business Conduct and Ethics and the Finance Code of
Ethics can be found at the investor relations section of the
company’s website, www.arrow.com.
Shareholders and others who wish to communicate with the
Chairman of the Board or any of the other independent,
non-management members of the Board may do so by submitting such
communication to Arrow’s Secretary, Peter S. Brown, at
Arrow Electronics, Inc., 50 Marcus Drive, Melville, NY 11747,
who will present any such communication to the independent
directors in accordance with their instructions.
REPORT OF THE AUDIT COMMITTEE
The audit committee represents and assists the Board by
overseeing the company’s financial statements and internal
controls, the independent auditor’s qualifications and
independence, and the performance of the company’s internal
audit function and of its independent auditor. The committee
operates under the Audit Committee Charter, a copy of which is
available at the investor relations section of the
company’s website, www.arrow.com.
The audit committee currently consists of five directors, all of
whom are independent in accordance with New York Stock Exchange
listing standards and other applicable regulations. The Board
has determined that Mr. Patrick is an “audit committee
financial expert” as defined by the SEC. In light of the
possibility that Mr. Patrick might at some time be unable
to attend a meeting of the committee, the Board has also
determined that Mrs. Keeth qualifies as an “audit
committee financial expert.”
Company management has the primary responsibility for financial
statements and for the reporting process, including the
establishment and maintenance of Arrow’s systems of
internal controls over financial reporting. The company’s
independent auditors are responsible for auditing the financial
statements prepared by management, expressing an opinion on the
conformity of those audited financial statements with generally
accepted accounting principles, and auditing the company’s
internal controls over financial reporting and management’s
assessment of those controls.
11
In fulfilling its oversight responsibilities, the audit
committee reviewed and discussed with both management and the
independent auditors the company’s quarterly earnings
releases, quarterly reports on
Form 10-Q and the
2005 Annual Report on Form 10-K. Such reviews included a
discussion of critical or significant accounting policies, the
reasonableness of significant judgments, the quality (not just
the acceptability) of the accounting principles, the
reasonableness and clarity of the financial statement
disclosures, and such other matters as are required to be
reviewed with them under the standards promulgated by the Public
Company Accounting Oversight Board. Also discussed with both
management and the independent auditors were the design and
efficacy of the company’s internal controls over financial
reporting.
In addition, the audit committee received from and discussed
with the independent auditors the written disclosure required by
Independence Standards Board Standard No. 1
(“Independence Discussions with Audit Committees”) and
considered the compatibility of non-audit services rendered to
Arrow with the auditors’ independence. The committee also
discussed with the independent auditors those matters required
to be considered by Statement on Auditing Standards No. 61
(“Communication with Audit Committees”), as amended.
The audit committee also discussed with the independent auditors
and Arrow’s internal audit group the overall scope and
plans for their respective audits. The committee periodically
met with the independent auditors and the internal audit group,
with and without management present, to discuss the results of
their examinations, their evaluations of Arrow’s internal
controls, and the overall quality of Arrow’s financial
reporting.
In reliance on these reviews and discussions, the audit
committee recommended to the Board that the audited financial
statements be included in the Annual Report on Form 10-K
for the fiscal year ended December 31, 2005 for filing with
the SEC.
Stephen C. Patrick, Chairman
M.F. (Fran) Keeth
Karen Gordon Mills
John C. Waddell
12
PRINCIPAL ACCOUNTING FIRM FEES
The aggregate fees billed by Arrow’s principal accounting
firm, Ernst & Young LLP, for auditing the annual financial
statements and the company’s internal controls over
financial reporting under Section 404 of the Sarbanes-Oxley
Act and related regulations included in the Form 10-K, the
reviews of the quarterly financial statements included in the
Forms 10-Q,
statutory audits, issuance of comfort letters, assistance with
and review of documents filed with the SEC, and consultations on
various accounting and reporting matters for each of the last
two fiscal years are set forth as “Audit Fees” in the
table below.
Also set forth for each year are audit-related fees. Such fees
are for services rendered in connection with business
acquisitions, employee benefit plan audits, and other accounting
consultations. Tax fees relate to assistance in tax return
preparation and tax audits, tax interpretation and compliance,
and tax planning in various tax jurisdictions around the world.
Ernst & Young did not provide any services related to
financial information systems design or implementation or
personal tax work for any of the company’s officers.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Audit Fees
|
|
$ |
6,167,050 |
|
|
$ |
6,476,686 |
|
Audit-Related Fees
|
|
|
272,500 |
|
|
|
282,246 |
|
Tax Fees
|
|
|
1,070,200 |
|
|
|
1,490,838 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,509,750 |
|
|
$ |
8,249,770 |
|
|
|
|
|
|
|
|
The amounts in the table above do not include fees charged by
Ernst & Young to Marubun/ Arrow, a joint venture between the
company and the Marubun Corporation, which totaled $145,300
(audit-related fees) and $20,100 (tax fees) in 2005 and $117,000
(audit-related fees) and $10,600 (tax fees) in 2004.
Consistent with the audit committee charter, all audit,
audit-related and tax services were pre-approved by the audit
committee, or by a designated member thereof. The committee has
determined that the provision of the non-audit services
described above is compatible with maintaining Ernst &
Young’s independence.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
Shareholders will be asked to ratify the appointment of Ernst
& Young as Arrow’s independent auditors for 2006. Arrow
expects that representatives of Ernst & Young will be
present at the meeting with the opportunity to make a statement
if they desire to do so and that they will be available to
answer appropriate inquiries raised at the meeting.
The Board recommends that the shareholders vote for the
ratification of the appointment of Ernst & Young LLP.
13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The primary role of the compensation 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 executives and making recommendations to the
full Board with respect to these matters. All members of the
committee are independent, non-employee directors.
Compensation Philosophy
The committee and the company’s senior management review
the company’s executive compensation and benefit programs
to ensure that they are consistent with the company’s
compensation philosophy. In keeping with the overarching
principles of that philosophy, the company’s compensation
and benefit programs must achieve the following objectives:
|
|
|
|
— |
support the achievement of Arrow’s vision, business
strategy, and operating imperatives; |
|
|
— |
reinforce a high-performance culture with clear emphasis on
accountability and variable pay; |
|
|
— |
align the interests of senior management with those of
shareholders; |
|
|
— |
ensure plan designs and actions reflect good corporate
governance practices; |
|
|
— |
provide fully competitive total compensation opportunities; and |
|
|
— |
ensure a reasonable return on our total compensation
expenditures. |
In furtherance of these objectives, the committee approved a set
of programs which work together to reward the company’s
senior managers for sustained superior performance. These
programs are designed to:
|
|
|
|
— |
generate levels of total compensation that will attract and
retain superior executives; |
|
|
— |
offer a competitive base salary while being mindful of our
desire to leverage pay from fixed to variable; |
|
|
— |
link annual incentives, which vary directly with company and
individual performance, to the company’s annual operating
goals; |
|
|
— |
utilize performance share awards to reward executives for
consistent performance over a three-year period by linking
rewards to three-year financial goals designed to increase
shareholder value; and |
|
|
— |
encourage long-term decision-making, and thereby enhance
shareholder value through the use of stock options. |
Senior Executive Officer Compensation for 2005
In setting compensation for the Chief Executive Officer, and
reviewing and approving the compensation of the members of the
remainder of the senior executive team, the committee reviews
the competitiveness of the total compensation package relative
to those companies and industries identified as peers or
competitors for talent. Such companies include Arrow’s
competitors, customers and suppliers, and a group of companies
of similar size and scope drawn from other industries.
Because Arrow manages to a total compensation philosophy,
decisions regarding each element of
14
compensation are made in consideration to the individual’s
contributions, current pay mix, and market conditions.
In order to maximize the effectiveness of the compensation
plans, the committee works to ensure that all of the individual
components of the compensation program work together to achieve
desired behaviors, business results, and shareholder value
creation. The objectives of each element of Arrow’s total
executive compensation system are set forth below.
Base Salary
Base salary represents an integral component of the overall
total compensation opportunity. The primary purpose of base
salary is to recognize an employee’s level of
responsibility, immediate contributions, knowledge, skills,
experience, and abilities.
The committee reviews each executive officer’s base salary
annually. The factors which influence committee determinations
regarding base salary include prevailing levels of pay among
executives of similar companies in industries with which Arrow
competes for executive talent, internal pay equity
considerations, level of responsibility, prior experience,
breadth of knowledge, and job performance.
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.
In order to continue to reinforce Arrow’s
pay-for-performance philosophy, base salary adjustments for
executives in 2005 averaged 3.7%.
Variable Pay
Variable pay, utilizing both cash bonuses and equity awards,
plays a significant role in executives’ overall
compensation and Arrow’s pay-for-performance philosophy.
Arrow’s plans are designed to deliver to the Chief
Executive Officer and the senior executive team a significant
portion of each executive’s compensation through variable
pay. It is intended to reinforce Arrow’s focus on both
short-term and long-term performance and to recognize and reward
individuals for the achievement of results.
Arrow’s variable pay programs have the following
overarching objectives:
|
|
|
|
— |
focus on organizational priorities and performance; |
|
|
— |
align compensation with the achievement of organizational
strategies and financial goals; |
|
|
— |
reward exceptional individual and organizational performance; and |
|
|
— |
link capital accumulation to organizational performance. |
Arrow’s variable pay is delivered in three plans, each
representing a different performance horizon. Participation in
these plans varies based on individual performance, an
individual’s role in
15
the organization and prevalent market practice. As discussed
below, the three plans are designed to drive and reward
short-term, mid-term and long-term performance.
Short-Term Incentive — Management Incentive
Compensation Plan
Short-term incentives are used to reward employees for
individual and company performance on an annual basis while
ensuring that Arrow’s compensation remains competitive in
the marketplace. Arrow’s short-term incentive compensation
plans serve to reinforce pay for performance and individual
accountability for optimizing operating results throughout the
year and driving profitability, efficiency and shareholder value.
Management, in consultation with the committee, establishes
short-term financial goals that relate to one or more key
indicators of corporate financial performance. For 2005, the
short-term incentive award opportunity for each participant was
based on a mix of the company’s achievement of specified
levels of operating income, average net working capital as a
percentage of sales and individual strategic objectives. For the
Chief Executive Officer, his direct reports and other corporate
executives, the operating income and working capital targets are
based on the results obtained by Arrow as a whole. For operating
group and division executives, the results obtained by those
groups and divisions are also factored in.
Incentive targets for each participating executive under the
Management Incentive Compensation Plan vary depending on the
participants’ level and breadth of responsibility,
potential contribution to the success of the company and
competitive considerations.
The participants’ awards were determined at year-end based
on both the company’s performance against the predetermined
targets as well as the attainment of the specific individual
goals and each individual’s contribution to Arrow’s
success. For 2005, the level of achievement by the participating
named executive officers, other than Mr. Mitchell, whose
award is discussed below, ranged between 47% and 127% of the
targets established under the plan. The awards for participating
named executive officers averaged 92% of their respective
targets.
Mid-Term Incentive Program
Arrow provides mid-term incentives to its executives through
awards under the Omnibus Incentive Plan. These mid-term vehicles
may include performance shares, performance units, and
restricted stock. The Mid-Term Incentive Program provides a
mid-term focus that links executive compensation to improvements
in the company’s financial results and the performance of
its stock.
For 2005, the committee has utilized performance share awards as
its mid-term compensation tool. Under such awards, each year
begins a new three-year performance period for which the
committee establishes financial targets and performance share
targets for participating executives based on each
participants’ level and breadth of responsibility, his or
her potential contribution to the success of the company, and
competitive considerations.
Each participant’s actual award is determined at the end of
each three-year period based on Arrow’s actual performance
against the goals established by the committee at the beginning
of that period and may range from 0% to 200% of the target
number of shares. For the 2005 – 2007 period, the committee
established a target based on the average EBIT percentage
(earnings before interest
16
and taxes divided by sales) over the three years and the return
on invested capital at the end of 2007. Awards earned at the end
of the three-year period are paid in shares of Arrow common
stock.
Long-Term Incentive Program
The grant of stock options under the Omnibus Incentive Plan
reinforces the importance of producing satisfactory returns to
shareholders over the long-term. Stock option awards provide
executives with the opportunity to acquire an equity interest in
Arrow and align their interests with those of shareholders.
Option exercise prices are 100% of the fair market value of
Arrow shares on the date of grant and vest in four annual
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 ten
years.
Each year, the committee reviews the history of the stock option
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 in those industries with which
Arrow competes for executive talent.
Chief Executive Officer Compensation for 2005
The Chief Executive Officer’s base salary was evaluated
based on Mr. Mitchell’s level and span of
responsibility and his contributions during the past year to the
company’s success, as well as on his knowledge, skills,
experience, and abilities. These were reviewed against
prevailing levels of pay among chief executives of those
companies identified as peers or competitors for executive
talent and internal pay equity considerations. Based upon these
criteria, the committee increased Mr. Mitchell’s base
salary to $850,000 for 2005.
Mr. Mitchell’s 2005 annual cash bonus was covered
under the Omnibus Incentive Plan. The plan provides for a
performance-based bonus to Mr. Mitchell, as defined by
Section 162(m) of the Internal Revenue Code. The maximum
bonus to be awarded each year is determined by a formula, which
is based on performance goals determined by the committee. The
purpose of the plan is to enable Arrow to motivate the Chief
Executive Officer to achieve strategic, financial and operating
objectives, and to reward contributions towards improvement in
financial performance as measured by the formula. For 2005, the
performance goals were based on the company’s net income
and utilization of net working capital. The committee has the
discretion to determine the actual amount of the bonus to be
paid, which may not exceed the maximum bonus calculated under
the bonus formula. The committee considered the level of
achievement by the company of financial and other goals and
awarded Mr. Mitchell a bonus of $900,000 for 2005 which was
within the amount generated by the bonus formula.
In addition to the annual bonus, Mr. Mitchell was awarded
65,000 performance shares under the Mid-Term Incentive Program,
the goals of which are the same as those discussed above for
other executives. Mr. Mitchell was also awarded 100,000
stock options under the Long-Term Incentive Program for his
performance in 2005. Including the estimated value of equity
awards, approximately
17
80% of Mr. Mitchell’s total compensation with respect
to 2005 was delivered to him in the form of variable pay.
Summary
Each year, the Board and the committee review all elements of
cash and non-cash compensation paid to 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 philosophy. In addition, the Board 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.
Barry W. Perry, Chairman
Daniel W. Duval
M.F. (Fran) Keeth
Roger King
Karen Gordon Mills
18
EXECUTIVE COMPENSATION AND OTHER MATTERS
Summary Compensation Table
The following table provides certain summary information
concerning the compensation of the named executive officers for
the past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term | |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation | |
|
|
|
|
|
|
|
|
Awards(1) | |
|
|
|
|
|
|
Annual Compensation(1) | |
|
| |
|
|
|
|
|
|
| |
|
Restricted | |
|
Securities | |
|
|
Name and |
|
|
|
|
|
Other Annual | |
|
Stock | |
|
Underlying | |
|
All Other | |
Principal Position |
|
Year | |
|
Salary | |
|
Bonus | |
|
Compensation(2) | |
|
Awards(3) | |
|
Options | |
|
Compensation(4) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
William E. Mitchell,
|
|
|
2005 |
|
|
$ |
950,000 |
|
|
$ |
900,000 |
|
|
$ |
71,948 |
|
|
$ |
— |
|
|
|
100,000 |
|
|
$ |
12,600 |
|
Chief Executive Officer(5)
|
|
|
2004 |
|
|
|
800,000 |
|
|
|
1,105,000 |
|
|
|
90,789 |
|
|
|
— |
|
|
|
100,000 |
|
|
|
12,300 |
|
|
|
|
2003 |
|
|
|
687,500 |
|
|
|
805,000 |
|
|
|
135,261 |
|
|
|
609,000 |
|
|
|
275,000 |
|
|
|
3,754 |
|
|
Germano Fanelli,
|
|
|
2005 |
|
|
|
444,251 |
|
|
|
857,541 |
|
|
|
23,838 |
|
|
|
— |
|
|
|
5,000 |
|
|
|
100,898 |
|
President,
|
|
|
2004 |
|
|
|
392,971 |
|
|
|
248,660 |
|
|
|
25,090 |
|
|
|
— |
|
|
|
12,000 |
|
|
|
725,420 |
|
Arrow EMEASA(6)
|
|
|
2003 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Michael J. Long,
|
|
|
2005 |
|
|
|
419,998 |
|
|
|
380,000 |
|
|
|
76,219 |
|
|
|
— |
|
|
|
20,000 |
|
|
|
12,600 |
|
President, North America
|
|
|
2004 |
|
|
|
370,000 |
|
|
|
500,000 |
|
|
|
38,225 |
|
|
|
— |
|
|
|
18,000 |
|
|
|
12,300 |
|
and Asia/ Pacific
|
|
|
2003 |
|
|
|
355,000 |
|
|
|
551,000 |
|
|
|
30,206 |
|
|
|
— |
|
|
|
11,000 |
|
|
|
12,000 |
|
Components(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harriet Green,
|
|
|
2005 |
|
|
|
427,606 |
|
|
|
258,383 |
|
|
|
384,455 |
|
|
|
— |
|
|
|
— |
|
|
|
9,613 |
|
President, Arrow
|
|
|
2004 |
|
|
|
413,764 |
|
|
|
439,560 |
|
|
|
292,659 |
|
|
|
— |
|
|
|
15,000 |
|
|
|
36,212 |
|
Asia/ Pacific(8)
|
|
|
2003 |
|
|
|
355,000 |
|
|
|
220,000 |
|
|
|
121,344 |
|
|
|
— |
|
|
|
12,000 |
|
|
|
18,684 |
|
|
Peter S. Brown,
|
|
|
2005 |
|
|
|
450,000 |
|
|
|
200,000 |
|
|
|
70,133 |
|
|
|
— |
|
|
|
12,000 |
|
|
|
12,600 |
|
Senior Vice President and
|
|
|
2004 |
|
|
|
450,000 |
|
|
|
250,000 |
|
|
|
195,560 |
|
|
|
— |
|
|
|
12,000 |
|
|
|
12,300 |
|
General Counsel
|
|
|
2003 |
|
|
|
450,000 |
|
|
|
185,000 |
|
|
|
227,500 |
|
|
|
— |
|
|
|
11,000 |
|
|
|
12,000 |
|
|
Paul J. Reilly,
|
|
|
2005 |
|
|
|
414,997 |
|
|
|
210,000 |
|
|
|
44,443 |
|
|
|
— |
|
|
|
15,000 |
|
|
|
12,600 |
|
Senior Vice President and
|
|
|
2004 |
|
|
|
400,000 |
|
|
|
325,000 |
|
|
|
40,058 |
|
|
|
— |
|
|
|
15,000 |
|
|
|
12,300 |
|
Chief Financial Officer
|
|
|
2003 |
|
|
|
400,000 |
|
|
|
185,000 |
|
|
|
27,910 |
|
|
|
— |
|
|
|
10,000 |
|
|
|
12,000 |
|
|
|
(1) |
For both compensation and stock awards, all amounts are shown
for the period with respect to which they were earned, and
without regard to the period in which they were actually paid or
awarded. |
|
(2) |
For Mr. Mitchell: |
|
|
|
|
— |
In 2005, includes a $53,438 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards and $18,510 for the incremental cost for personal
use of an aircraft in which the company owns fractional
interests, principally ($15,001 of the total) for travel related
to Mr. Mitchell’s service on the board of the Rogers
Corporation. The calculation of incremental cost includes only
those variable costs incurred as a result of the personal flight
activity and is net of reimbursements received from
Mr. Mitchell and the Rogers Corporation. |
19
|
|
|
|
— |
In 2004, includes a $58,815 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, an automobile allowance of $15,000, relocation
costs of $7,453, and financial planning and tax preparation fees
of $9,521. |
|
|
— |
In 2003, includes a $12,180 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, an automobile allowance of $13,750, relocation
costs of $61,547, tax preparation fees of $6,700 and a partial
reimbursement of tax liability in connection with his relocation
of $41,084. |
For Mr. Fanelli:
|
|
|
|
— |
In 2005, includes automobile expenses of $12,444 and accident
insurance of $11,394. |
|
|
— |
In 2004, includes automobile expenses of $22,099 and accident
insurance of $2,991. |
For Mr. Long:
|
|
|
|
— |
In 2005, includes a $27,284 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, an automobile allowance of $10,200, housing
expenses of $20,984, a reimbursement of tax liability of $13,461
and other expenses of $4,290. |
|
|
— |
In 2004, includes a $24,915 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, an automobile allowance of $10,200 and other
expenses of $3,110. |
|
|
— |
In 2003, includes a $20,006 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards and an automobile allowance of $10,200. |
For Ms. Green:
|
|
|
|
— |
In 2005, includes a $30,875 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, automobile expenses of $82,596, a cost of living
allowance of $21,617, a housing allowance of $103,109, a home
leave benefit of $17,684, tax equalization of $126,537, and
other expenses of $2,037. |
|
|
— |
In 2004, includes a $28,072 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, automobile expenses of $47,626, a cost of living
allowance of $14,414, a housing allowance of $103,160,
relocation costs of $7,000, a home leave benefit of $19,505, tax
equalization of $71,023, and other expenses of $1,859. |
|
|
— |
In 2003, includes a $21,881 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, automobile expenses of $17,657, and a housing
allowance of $116,843, offset by tax equalization of $35,037. |
20
For Mr. Brown:
|
|
|
|
— |
In 2005, includes a $59,933 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards and an automobile allowance of $10,200. |
|
|
— |
In 2004, includes a $46,218 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, an automobile allowance of $10,200, a housing
allowance of $80,000 and a reimbursement of tax liability of
$59,142. |
|
|
— |
In 2003, includes a $30,710 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards, an automobile allowance of $10,200, a housing
allowance of $71,040, relocation costs of $63,034 and a
reimbursement of tax liability of $52,516. |
For Mr. Reilly:
|
|
|
|
— |
In 2005, includes a $34,243 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards and an automobile allowance of $10,200. |
|
|
— |
In 2004, includes a $29,858 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards and an automobile allowance of $10,200. |
|
|
— |
In 2003, includes a $17,710 reimbursement of a portion of the
tax liability incurred as a result of the vesting of restricted
stock awards and an automobile allowance of $10,200. |
|
|
(3) |
For 2003, includes the fair market value as of the date of grant
of the restricted stock awarded in respect of employment during
that year. Such awards vest in four annual installments of 25%
beginning one year after the date of award or fully upon
retirement. Mr. Mitchell received an award of 50,000 shares
upon his appointment as Chief Executive Officer of which 5,000
shares vested immediately and the remaining 45,000 shares vest
in four equal installments. Except for Mr. Mitchell’s
2003 award, none of the named executive officers received
restricted stock awards in respect of employment in 2005, 2004,
and 2003. |
|
|
|
As of December 31, 2005, the aggregate number and value of
unvested restricted stock awards held by the named executive
officers were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Mitchell | |
|
Mr. Fanelli | |
|
Mr. Long | |
|
Ms. Green | |
|
Mr. Brown | |
|
Mr. Reilly | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Number of Shares
|
|
|
22,500 |
|
|
|
3,125 |
|
|
|
6,125 |
|
|
|
7,125 |
|
|
|
4,800 |
|
|
|
6,125 |
|
Value
|
|
$ |
720,675 |
|
|
$ |
100,094 |
|
|
$ |
196,184 |
|
|
$ |
228,214 |
|
|
$ |
153,744 |
|
|
$ |
196,184 |
|
|
|
(4) |
For each of the named executive offices, includes a contribution
by Arrow of $6,300 in 2005, $6,150 in 2004, and $6,000 in 2003
to the Arrow Electronics Employee Stock Ownership Plan, except
for Mr. Mitchell who was not eligible in 2003 and for
Mr. Fanelli and Ms. Green who do not participate in
the plan. Also includes a matching contribution by Arrow of
$6,300 in 2005, $6,150 in 2004, and $6,000 in 2003 to the Arrow
Electronics Savings Plan, except for |
21
|
|
|
Mr. Mitchell who received a contribution of $3,754 in 2003
and for Mr. Fanelli and Ms. Green who do not
participate in the plan. Amounts shown for Mr. Fanelli are
contributions by Arrow to his T.F.R. account (a mandatory,
Italian state-held retirement fund for all employees) of
$100,898 in 2005 and $50,495 in 2004. For 2004, the amount also
includes a payment of $674,925 on account of the severance of
Mr. Fanelli’s agreements with the company’s
southern European subsidiaries prior to his appointment as
President of Arrow EMEASA. Amounts shown for Ms. Green are
contributions by Arrow to her account in Arrow Electronics
(UK) Ltd. Occupational Pension Scheme. |
|
(5) |
In 2005, salary includes an annual payment of $100,000 to cover
expenses for, among other things, club dues, automobile and
local transportation, tax preparation and financial planning.
Bonus includes amounts deferred under retirement plans. |
|
(6) |
Mr. Fanelli became an executive officer of the company in
2004. Amounts shown for 2005 and 2004 were paid in Euros and for
reporting purposes have been converted to U.S. dollars based on
the average exchange rate for each year. |
|
(7) |
Mr. Long was appointed President of North America and Asia/
Pacific Components in January 2006. Prior thereto he served as
President of Arrow Enterprise Computing Solutions (formerly
North American Computer Products) and most recently, President
of North America from May 2005 to December 2005. |
|
(8) |
Some amounts shown for 2005 and 2004 were paid either in British
pounds or Hong Kong dollars and for reporting purposes have been
converted to U.S. dollars based on the average applicable
exchange rate for each year. |
Stock Option Grants In Last Fiscal Year
The following table provides information on option grants made
in early 2006 to each of the named executive officers in respect
of employment during 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants | |
|
|
|
|
| |
|
Potential Realizable | |
|
|
Number of | |
|
% of Total | |
|
|
|
Value at Assumed Rates | |
|
|
Securities | |
|
Options | |
|
|
|
of Stock Appreciation for | |
|
|
Underlying | |
|
Granted to | |
|
Exercise or | |
|
|
|
Option Term(3) | |
|
|
Options | |
|
Employees in | |
|
Base Price | |
|
Expiration | |
|
| |
Name |
|
Granted(1) | |
|
Fiscal Year | |
|
($/Sh)(2) | |
|
Date | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
William E. Mitchell
|
|
|
100,000 |
|
|
|
7.5 |
% |
|
$ |
35.59 |
|
|
|
2/27/16 |
|
|
$ |
2,238,236 |
|
|
$ |
5,672,129 |
|
Germano Fanelli
|
|
|
5,000 |
|
|
|
.4 |
|
|
|
35.59 |
|
|
|
2/27/16 |
|
|
|
111,912 |
|
|
|
283,606 |
|
Michael J. Long
|
|
|
20,000 |
|
|
|
1.5 |
|
|
|
35.59 |
|
|
|
2/27/16 |
|
|
|
447,647 |
|
|
|
1,134,426 |
|
Harriet Green
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Peter S. Brown
|
|
|
12,000 |
|
|
|
.9 |
|
|
|
35.59 |
|
|
|
2/27/16 |
|
|
|
268,588 |
|
|
|
680,656 |
|
Paul J. Reilly
|
|
|
15,000 |
|
|
|
1.1 |
|
|
|
35.59 |
|
|
|
2/27/16 |
|
|
|
335,735 |
|
|
|
850,819 |
|
|
|
(1) |
All grants become exercisable in four equal annual installments,
beginning with the first anniversary of the date of grant, and
expire ten years after the date of grant. |
|
(2) |
All at fair market value at date of grant. |
22
|
|
(3) |
Represents gain that would be realized assuming the options were
held for the entire option period and the stock price increased
at annual compound rates of 5% and 10%. 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. |
Aggregated Option Exercises in Last Fiscal Year and Year-End
Option Values
The following table provides information concerning the exercise
of stock options during 2005 by the named executive officers and
the number and year-end value of the unexercised stock options
of each of the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Unexercised | |
|
|
|
|
|
|
Number of Unexercised | |
|
In-the-Money | |
|
|
Shares | |
|
|
|
Options at Fiscal | |
|
Options at | |
|
|
Acquired | |
|
|
|
Year-End | |
|
Fiscal Year-End(2) | |
|
|
on | |
|
Value | |
|
| |
|
| |
Name |
|
Exercise | |
|
Realized(1) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
William E. Mitchell
|
|
|
— |
|
|
$ |
— |
|
|
|
118,750 |
|
|
|
256,250 |
|
|
$ |
2,124,313 |
|
|
$ |
2,915,938 |
|
Germano Fanelli
|
|
|
47,500 |
|
|
|
475,444 |
|
|
|
28,000 |
|
|
|
28,500 |
|
|
|
124,878 |
|
|
|
233,280 |
|
Michael J. Long
|
|
|
97,500 |
|
|
|
520,374 |
|
|
|
12,750 |
|
|
|
38,250 |
|
|
|
20,433 |
|
|
|
283,598 |
|
Harriet Green
|
|
|
34,250 |
|
|
|
237,223 |
|
|
|
10,000 |
|
|
|
32,750 |
|
|
|
— |
|
|
|
255,645 |
|
Peter S. Brown
|
|
|
20,000 |
|
|
|
193,250 |
|
|
|
51,500 |
|
|
|
26,500 |
|
|
|
470,208 |
|
|
|
220,733 |
|
Paul J. Reilly
|
|
|
12,000 |
|
|
|
129,000 |
|
|
|
45,000 |
|
|
|
30,000 |
|
|
|
422,933 |
|
|
|
237,525 |
|
|
|
(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. |
|
(2) |
Value of unexercised options is based on the difference between
the exercise price and $32.03, the closing market price at
December 31, 2005. |
Long-Term Incentive Plan – Awards In Last Fiscal Year
The following table provides information concerning performance
share awards granted to the named executive officers during 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts | |
|
|
|
|
|
|
Under Non-Stock Price-Based | |
|
|
Number of | |
|
Performance or Other | |
|
Plans (# of Shares) | |
|
|
Shares, Units or | |
|
Period Until | |
|
| |
Name |
|
Other Rights | |
|
Maturation or Payout | |
|
Threshold | |
|
Target | |
|
Maximum | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
William E. Mitchell
|
|
|
65,000 |
|
|
|
3 years |
|
|
|
— |
|
|
|
65,000 |
|
|
|
130,000 |
|
Germano Fanelli
|
|
|
8,000 |
|
|
|
3 years |
|
|
|
— |
|
|
|
8,000 |
|
|
|
16,000 |
|
Michael J. Long
|
|
|
10,000 |
|
|
|
3 years |
|
|
|
— |
|
|
|
10,000 |
|
|
|
20,000 |
|
Harriet Green
|
|
|
10,000 |
|
|
|
3 years |
|
|
|
— |
|
|
|
10,000 |
|
|
|
20,000 |
|
Peter S. Brown
|
|
|
8,000 |
|
|
|
3 years |
|
|
|
— |
|
|
|
8,000 |
|
|
|
16,000 |
|
Paul J. Reilly
|
|
|
8,000 |
|
|
|
3 years |
|
|
|
— |
|
|
|
8,000 |
|
|
|
16,000 |
|
The performance share awards cover a performance period of
January 1, 2005 to December 31, 2007. The performance
shares will be delivered in common stock at the end of the
three-year
23
period based on the company’s actual performance compared
to the target metric and may be from 0% to 200% of the initial
award.
Equity Compensation Plan Information
The following table summarizes information, as of
December 31, 2005, relating to the Omnibus Incentive Plan,
which was approved by the company’s shareholders and under
which cash-based awards, non-qualified stock options, incentive
stock options, stock appreciation rights, restricted stock and
restricted stock units, performance shares or units, covered
employee annual incentive awards and other stock-based awards
may be granted from time to time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
|
|
Number of Securities to be | |
|
Exercise Price of | |
|
|
|
|
Issued Upon Exercise | |
|
Outstanding | |
|
Number of Securities | |
|
|
of Outstanding Options, | |
|
Options, Warrants | |
|
Remaining Available for | |
Plan Category |
|
Warrants and Rights | |
|
and Rights | |
|
Future Issuance | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
8,027,281 |
|
|
$ |
25.76 |
|
|
|
5,592,657 |
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,027,281 |
|
|
$ |
25.76 |
|
|
|
5,592,657 |
|
|
|
|
|
|
|
|
|
|
|
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
In February 2003, Mr. Mitchell entered into an employment
agreement with Arrow that was amended in March 2005. The
amendment extended the period of Mr. Mitchell’s
employment from January 2006 to March 2009, and replaced the
prior undertaking to pay certain of his expenses (including, but
not limited to, expenses related to club dues, automobile and
local transportation, tax preparation, and financial planning)
with a single annual payment of $100,000. The amendment also
provides for liquidated damages in the event of
Mr. Mitchell’s termination without cause during the
term of the agreement. The agreement provides for a minimum base
salary of $750,000 a year, and, for 2003, provided for a
guaranteed minimum bonus of $375,000. The agreement also
established the terms of Mr. Mitchell’s participation
in the Supplemental Executive Retirement Plan (the
“SERP”), discussed below.
Mr. Fanelli has an employment agreement with Arrow which
continues from year to year unless terminated by either party on
not less than twelve months’ notice. The agreement provides
for a minimum base salary and target bonuses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Minimum Base Salary
|
|
€ |
325,000 |
|
|
€ |
357,000 |
|
|
€ |
393,250 |
|
|
|
$ |
(404,073 |
) |
|
$ |
(444,251 |
) |
|
$ |
(475,439 |
) |
|
Target Bonus
|
|
€ |
175,000 |
|
|
€ |
192,000 |
|
|
€ |
211,750 |
|
|
|
$ |
(217,578 |
) |
|
$ |
(238,925 |
) |
|
$ |
(256,006 |
) |
24
In addition to legally mandated severance due Mr. Fanelli
in connection with the termination of his prior contract with a
company subsidiary, the agreement provides for additional
payments to Mr. Fanelli of
€295,000
($366,744) in 2004 and
€351,000
($424,359) in 2007. The agreement also provides for a spot bonus
of €
643,500 ($800,771) in 2005 and for a profit sharing bonus
plan for Mr. Fanelli based on growth in operating income,
earnings before interest and taxes, and return on working
capital in Europe, the Middle East, Africa and South America for
the four years beginning in 2004 and ending in 2007. The
agreement calls for an initial payment under the profit sharing
bonus plan in 2007 and a final payment in 2008. Depending on the
results achieved, the total profit sharing payments under the
plan will range from a minimum of $600,000 to a maximum of
$6,000,000. U.S. dollar amounts shown are based on the average
exchange rate in the applicable year, except for amounts as yet
unpaid, which are based on the exchange rate at March 17,
2006.
Mr. Long has an employment agreement with Arrow which
continues from year to year unless terminated by either party on
not less than twelve months’ notice. The employment
agreement provides for a minimum base salary of $330,000 per
year and a minimum target incentive amount of $270,000 per year.
Prior to her resignation, Ms. Green had an employment
agreement with Arrow Electronics (UK) Ltd., a subsidiary of
the company, which provided for a minimum base salary throughout
its term of $427,606 and provided for a targeted incentive
payment in 2005 of $256,564. (All amounts under the contract are
stated and paid in British pounds, and are converted here for
reporting purposes only, using the average exchange rate for
2005). The agreement also provides for the use of a company
vehicle (leased by the company at an annual cost of $41,135) and
beginning in March 2004, while on expatriate assignment in Hong
Kong, the use of a car and driver. Pursuant to a separate
agreement concerning Ms. Green’s assignment to Hong
Kong, she was also entitled to receive for the duration of that
assignment monthly round-trip airfare, a cost of living
allowance at an annual rate of $21,617, furnished
accommodations, tax equalization, and an annual family home
leave benefit determined in March 2005 of $17,684, and a
one-time relocation allowance of $7,000 in 2004 (converted using
the average exchange rate for 2004).
In connection with her departure from the company, in January
2006 Ms. Green entered into a separation agreement which
provided for the termination of her employment in March of 2006,
the payment of a pro rata share of her base salary until such
termination, the payment of her 2005 incentive bonus in the
ordinary course, and a final bonus payment of £50,000
($87,470 at the exchange rate at March 17, 2006).
Mr. Brown has an employment agreement with Arrow which
continues from year to year unless terminated by either party on
not less than twelve months’ notice. The agreement provides
for a minimum base salary of $450,000 per year and a minimum
target incentive amount of $175,000 per year. In connection with
Mr. Brown’s relocation to corporate headquarters, the
agreement provided for his use of a company-provided apartment
through August 2003, and a $10,000 (after tax) monthly housing
subsidy thereafter through August 2004. The agreement also
established the terms of Mr. Brown’s participation in
the SERP.
Mr. Reilly has an employment agreement with Arrow which
continues from year to year unless terminated by either party on
not less than twelve months’ notice. The agreement provides
for a minimum base salary of $400,000 per year and a minimum
target incentive of $150,000 per year.
25
Arrow has entered into agreements with each of the named
executive officers which provide for payments of three times
their annualized includible compensation and continuation of
their benefits for up to three years 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 of control of Arrow. The amounts payable
pursuant to such agreements to the named executive officers will
be reduced, if necessary, to avoid excise tax under
Section 4999 of the Internal Revenue Code.
UNFUNDED PENSION PLANS
Arrow maintains an unfunded Supplemental Executive Retirement
Plan under which the company will pay supplemental pension
benefits to certain employees upon retirement. There are 24
current and former corporate officers participating in this
plan. The Board determines who is eligible to participate in the
SERP.
The following table sets forth the aggregate annual benefit
payable upon retirement for each level of compensation specified
at the listed years of service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Participation at Retirement Date | |
|
|
Range of | |
|
| |
|
|
Compensation(1) | |
|
4 | |
|
6 | |
|
8 | |
|
10 | |
|
12 | |
|
14 | |
|
16 | |
|
18 | |
|
More Than 18 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
$ |
400,000 |
|
|
$ |
40,000 |
|
|
$ |
60,000 |
|
|
$ |
80,000 |
|
|
$ |
100,000 |
|
|
$ |
120,000 |
|
|
$ |
140,000 |
|
|
$ |
160,000 |
|
|
$ |
180,000 |
|
|
$ |
180,000 |
|
|
|
|
500,000 |
|
|
|
50,000 |
|
|
|
75,000 |
|
|
|
100,000 |
|
|
|
125,000 |
|
|
|
150,000 |
|
|
|
175,000 |
|
|
|
200,000 |
|
|
|
225,000 |
|
|
|
225,000 |
|
|
|
|
600,000 |
|
|
|
60,000 |
|
|
|
90,000 |
|
|
|
120,000 |
|
|
|
150,000 |
|
|
|
180,000 |
|
|
|
210,000 |
|
|
|
240,000 |
|
|
|
270,000 |
|
|
|
270,000 |
|
|
|
|
700,000 |
|
|
|
70,000 |
|
|
|
105,000 |
|
|
|
140,000 |
|
|
|
175,000 |
|
|
|
210,000 |
|
|
|
245,000 |
|
|
|
280,000 |
|
|
|
315,000 |
|
|
|
315,000 |
|
|
|
|
800,000 |
|
|
|
80,000 |
|
|
|
120,000 |
|
|
|
160,000 |
|
|
|
200,000 |
|
|
|
240,000 |
|
|
|
280,000 |
|
|
|
320,000 |
|
|
|
360,000 |
|
|
|
360,000 |
|
|
|
|
900,000 |
|
|
|
90,000 |
|
|
|
135,000 |
|
|
|
180,000 |
|
|
|
225,000 |
|
|
|
270,000 |
|
|
|
315,000 |
|
|
|
360,000 |
|
|
|
405,000 |
|
|
|
405,000 |
|
|
|
|
1,000,000 |
|
|
|
100,000 |
|
|
|
150,000 |
|
|
|
200,000 |
|
|
|
250,000 |
|
|
|
300,000 |
|
|
|
350,000 |
|
|
|
400,000 |
|
|
|
450,000 |
|
|
|
450,000 |
|
|
|
|
1,100,000 |
|
|
|
110,000 |
|
|
|
165,000 |
|
|
|
220,000 |
|
|
|
275,000 |
|
|
|
330,000 |
|
|
|
385,000 |
|
|
|
440,000 |
|
|
|
495,000 |
|
|
|
495,000 |
|
|
|
|
1,200,000 |
|
|
|
120,000 |
|
|
|
180,000 |
|
|
|
240,000 |
|
|
|
300,000 |
|
|
|
360,000 |
|
|
|
420,000 |
|
|
|
480,000 |
|
|
|
540,000 |
|
|
|
540,000 |
|
|
|
|
1,300,000 |
|
|
|
130,000 |
|
|
|
195,000 |
|
|
|
260,000 |
|
|
|
325,000 |
|
|
|
390,000 |
|
|
|
455,000 |
|
|
|
520,000 |
|
|
|
585,000 |
|
|
|
585,000 |
|
|
|
|
1,400,000 |
|
|
|
140,000 |
|
|
|
210,000 |
|
|
|
280,000 |
|
|
|
350,000 |
|
|
|
420,000 |
|
|
|
490,000 |
|
|
|
560,000 |
|
|
|
630,000 |
|
|
|
630,000 |
|
|
|
|
1,500,000 |
|
|
|
150,000 |
|
|
|
225,000 |
|
|
|
300,000 |
|
|
|
375,000 |
|
|
|
450,000 |
|
|
|
525,000 |
|
|
|
600,000 |
|
|
|
675,000 |
|
|
|
675,000 |
|
|
|
|
1,600,000 |
|
|
|
160,000 |
|
|
|
240,000 |
|
|
|
320,000 |
|
|
|
400,000 |
|
|
|
480,000 |
|
|
|
560,000 |
|
|
|
640,000 |
|
|
|
720,000 |
|
|
|
720,000 |
|
|
|
|
1,700,000 |
|
|
|
170,000 |
|
|
|
255,000 |
|
|
|
340,000 |
|
|
|
425,000 |
|
|
|
510,000 |
|
|
|
595,000 |
|
|
|
680,000 |
|
|
|
765,000 |
|
|
|
765,000 |
|
|
|
|
1,800,000 |
|
|
|
180,000 |
|
|
|
270,000 |
|
|
|
360,000 |
|
|
|
450,000 |
|
|
|
540,000 |
|
|
|
630,000 |
|
|
|
720,000 |
|
|
|
810,000 |
|
|
|
810,000 |
|
|
|
|
1,900,000 |
|
|
|
190,000 |
|
|
|
285,000 |
|
|
|
380,000 |
|
|
|
475,000 |
|
|
|
570,000 |
|
|
|
665,000 |
|
|
|
760,000 |
|
|
|
855,000 |
|
|
|
855,000 |
|
|
|
|
2,000,000 |
|
|
|
200,000 |
|
|
|
300,000 |
|
|
|
400,000 |
|
|
|
500,000 |
|
|
|
600,000 |
|
|
|
700,000 |
|
|
|
800,000 |
|
|
|
900,000 |
|
|
|
900,000 |
|
|
|
(1) |
Covered compensation includes the participant’s base salary
consistent with the amounts presented in the Summary
Compensation Table, with the exception of the annual payment of
$100,000 included in Mr. Mitchell’s salary in the
Summary Compensation Table. Covered compensation also includes
the participant’s target bonus for the year rather than the
participant’s actual bonus as presented in the Summary
Compensation Table. |
26
The years of credited service for the named executive officers
participating in the SERP are 6 years for
Mr. Mitchell, 23 years for Mr. Long, 9 years
for Mr. Brown, and 21 years for Mr. Reilly. The
gross SERP benefit is 2.5% of final average compensation times
the years of credited service up to a maximum of 18 years.
The benefit is payable as a life annuity with 120 payments
guaranteed commencing at age 60, with the exception of
Mr. Mitchell, who will be eligible for payments under the
plan at 65. The net benefit is reduced by 50% of the Social
Security benefit and by the sum of the benefits provided by the
ESOP and the 401(k) matching contributions.
In 2002, Arrow amended the SERP to provide for benefits to be
determined based on the amount needed to bring a
participant’s total retirement income (consisting of the
SERP payment, social security income, and any other benefit
provided by the company during retirement) equal to a specified
percentage of that participant’s average final compensation
at the time of retirement. Under the amended SERP, the specified
percentage is based on the number of years of participation in
the SERP, rather than the prior practice of a fixed dollar
amount per year of service or, in certain instances, the Board
determining the annual benefit. The amendment also raised the
minimum early retirement age from 50 to 55 (with an additional
requirement of number of years of service.)
The original plan also provided for the immediate payment of the
full benefit amount upon a participant’s involuntary
termination of employment for other than cause or disability if
it followed a change of control of Arrow by less than two years.
Under the amended SERP, however, a participant in such
circumstances would receive his or her annual benefit only upon
reaching age 60, and then only in the amount accrued up until
the time of termination.
Participants whose accrued rights and benefits under the SERP
prior to the 2002 amendments would have been adversely affected
by the amendment will continue to be entitled to such accrued
rights and benefits.
Under the amended SERP, at normal retirement (generally, age 60)
Mr. Long would receive estimated annual SERP payments of
$545,234, Mr. Brown, $166,855 and Mr. Reilly,
$392,170. Under the terms of his employment agreement,
Mr. Mitchell will be eligible for payments under the plan
at age 65, in an estimated annual amount of $476,254. Neither
Ms. Green nor Mr. Fanelli participate in the SERP.
Under an agreement made in July 2004, Ms. Green was a
participant in an Executive Pension Arrangement with Arrow
Electronics (UK) Ltd which comprised both her continued
participation in that company’s approved pension scheme and
participation in an unfunded, unapproved retirement benefits
scheme. The company made contributions to both plans through the
end of Ms. Green’s employment. Pursuant to applicable
law and the separation agreement into which the parties entered
in January 2006, Ms. Green will receive statutory benefits
under the approved scheme and no benefit under the unfunded,
unapproved scheme.
27
CERTAIN TRANSACTIONS
Mr. Fanelli and his family beneficially own a majority
equity interest in manufacturing companies that in the ordinary
course of business purchase a part of their electronic
components requirements from Arrow, and during 2005 purchased
€
5,198,231 ($6,468,679 based on the average exchange rate
during 2005) of components from Arrow. Arrow has reviewed the
transactions, and confirmed that the purchases are on terms and
conditions not less favorable to the company than it generally
obtains from unrelated, comparable customers.
Pursuant to an agreement entered into in 1980 and subsequently
modified, the company was obligated to pay
Mr. Waddell’s designated beneficiary, a member of his
immediate family, a benefit of $1,000,000 upon
Mr. Waddell’s death. In December 2003, the company and
Mr. Waddell’s beneficiary entered into an agreement
pursuant to which the beneficiary will receive the
present-value, annuitized equivalent of the death benefit, in
the form of annual payments of $45,000 for the remainder of the
beneficiary’s life up to a maximum of 12 years.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires Arrow’s officers and directors and persons who own
more than ten percent of a registered class of Arrow’s
equity securities to file reports of ownership and changes in
ownership with the SEC. Arrow believes that during fiscal year
2005 its officers and directors complied with all applicable
Section 16(a) filing requirements.
28
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG ARROW ELECTRONICS, INC., S&P 500 STOCK INDEX AND
PEER COMPANIES GROUP
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 companies on a
line-of-business basis. The peers included in the Electronics
Distributor Index are Avnet, Inc., Agilysys, Inc., All American
Semiconductor, Inc., Bell Microproducts, Inc., Jaco Electronics,
Inc., and Nu Horizons Electronics Corp. The graph assumes $100
invested on December 31, 2000 in Arrow, the S&P 500
Stock Index, and the peer companies group. Total return indices
reflect reinvested dividends and are weighted on the basis of
market capitalization at the time of each reported data point.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
| |
Arrow Electronics
|
|
|
100 |
|
|
|
104 |
|
|
|
45 |
|
|
|
81 |
|
|
|
85 |
|
|
|
112 |
|
Electronics Distributor Index
|
|
|
100 |
|
|
|
112 |
|
|
|
51 |
|
|
|
96 |
|
|
|
87 |
|
|
|
107 |
|
S&P 500 Stock Index
|
|
|
100 |
|
|
|
87 |
|
|
|
67 |
|
|
|
84 |
|
|
|
92 |
|
|
|
95 |
|
SUBMISSION OF SHAREHOLDER PROPOSALS
Arrow anticipates that the next Annual Meeting of Shareholders
will be held on or about May 3, 2007. If a shareholder
intends to present a proposal at Arrow’s Annual Meeting of
Shareholders to be held in 2007 and seeks to have the proposal
included in Arrow’s Proxy Statement relating to that
meeting, pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934, as amended, the proposal must be received by Arrow
no later than the close of business on December 5, 2006.
Arrow’s by-laws govern the submission of nominations for
director and other business proposals that a shareholder wishes
to have considered at Arrow’s Annual Meeting of
Shareholders to be held in 2007 which are not included in our
proxy statement for that meeting. Under the by-laws,
29
subject to certain exceptions, nominations for director or other
business proposals to be addressed at our next annual meeting
may be made by a shareholder entitled to vote who has delivered
a notice to the Secretary of Arrow no later than the close of
business on March 3, 2007 and not earlier than
February 1, 2007. The notice must contain the information
required by the by-laws. These advance notice provisions are in
addition to, and separate from, the requirements that a
shareholder must meet in order to have a proposal included in
the proxy statement under the rules of the SEC. A proxy granted
by a shareholder will give discretionary authority to the
proxies to vote on any matters introduced pursuant to the above
advance notice by-law provisions, subject to applicable rules of
the SEC.
|
|
|
By Order of the Board of Directors, |
|
|
Peter S.
Brown, |
|
Secretary |
30
PROXY
ARROW ELECTRONICS, INC.
This Proxy is Solicited by the Board of Directors.
PROXY for Annual Meeting of Shareholders, May 2, 2006
The undersigned hereby appoints William E. Mitchell, Peter S. Brown and Paul J. Reilly, 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 2, 2006, at 11:00 a.m., at the
offices of JPMorgan Chase Bank, N.A., 270 Park Avenue, New York, New York, or any adjournments thereof, as set
forth on the reverse hereof.
Please Return This Proxy Promptly in the Enclosed Envelope
Address Change/Comments (Mark the corresponding box on the reverse side)
5 Detach here from proxy voting card. 5
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways:
|
|
|
1.
|
|
Vote via the internet by accessing www.proxyvoting.com/arw |
or
|
|
|
2.
|
|
Call toll free 1-866-540-5760 on a touch-tone telephone and then follow
the instructions given. There is NO CHARGE to you for this call. |
or
|
|
|
3.
|
|
Mark, sign and date your proxy card and return it promptly in the enclosed
postage-paid envelope. |
PLEASE VOTE
|
|
|
Mark Here
for Address
Change or
Comments
|
|
o |
SEE REVERSE SIDE |
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WITHHELD |
|
|
|
|
FOR
|
|
FOR ALL |
1.
|
|
Authority to vote FOR the election of directors in
accordance with the accompanying Proxy Statement.
|
|
o
|
|
o |
|
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|
|
NOMINEES: |
|
|
|
|
01 Daniel W. Duval
|
|
02 John N. Hanson
|
|
03 Richard S. Hill |
04 M.F. (Fran) Keeth
|
|
05 Roger King
|
|
06 Karen Gordon Mills |
07 William E. Mitchell
|
|
08 Stephen C. Patrick
|
|
09 Barry W. Perry |
10 John C. Waddell |
|
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|
(INSTRUCTION:
To withhold authority to vote for any individual nominee, write that nominee’s name in the space provided below.)
|
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FOR
|
|
AGAINST
|
|
ABSTAIN |
2.
|
|
Ratification of the appointment of Ernst & Young LLP as Arrow’s
independent auditors for the fiscal year ending December 31, 2006.
|
|
o
|
|
o
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|
o |
|
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|
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|
|
This proxy is being solicited by the management and will be voted as
specified. If not otherwise specified, it will be voted for the proposals
and otherwise in accordance with management’s
discretion. |
|
|
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|
Dated:
|
|
|
|
, 2006 |
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Signature |
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|
Signature if held jointly
|
If
acting as attorney, executor, trustee or in other representative capacity, please sign name and title.
5 Detach here from proxy voting card 5
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Daylight Time
on Monday, May 1, 2006.
Your telephone or internet vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
Internet
www.proxyvoting.com/arw
Use the internet to vote your proxy.
Have your proxy card in hand when
you access the website.
Telephone
1-866-540-5760
Use any touch-tone telephone to vote
your proxy. Have your proxy card in
hand when you call.
Mail
Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid
envelope.
If you vote your proxy by internet or by telephone,
you do NOT need to mail your proxy card.
You can view the Arrow Annual Report and Proxy Statement
on the internet at: www.arrow.com/annualreport2005