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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000007536-02-000005.txt : 20020415
<SEC-HEADER>0000007536-02-000005.hdr.sgml : 20020415
ACCESSION NUMBER: 0000007536-02-000005
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 18
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ARROW ELECTRONICS INC
CENTRAL INDEX KEY: 0000007536
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065]
IRS NUMBER: 111806155
STATE OF INCORPORATION: NY
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04482
FILM NUMBER: 02594149
BUSINESS ADDRESS:
STREET 1: 25 HUB DR
CITY: MELVILLE
STATE: NY
ZIP: 11747
BUSINESS PHONE: 5163911300
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>q40110k.txt
<DESCRIPTION>FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001
<TEXT>
Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934
For the transition period from............to.................
Commission file number 1-4482
ARROW ELECTRONICS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 11-1806155
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
25 Hub Drive, Melville, New York 11747
- -------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-1300
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ----------------
Common Stock, $1 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 1, 2002 was $2,658,065,103.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value: 100,117,047 shares outstanding at March 1,
2002.
The following documents are incorporated herein by reference:
1. Proxy Statement to be filed in connection with Annual Meeting of
Shareholders to be held May 23, 2002 (incorporated in Part III).
PART I
Item 1. Business.
--------
Arrow Electronics, Inc. (the "company"), incorporated in New York in 1946, is
one of the world's largest providers of electronic components and computer
products to industrial and commercial customers and a leading provider of
services, including materials planning, programming and assembly services,
inventory management, a comprehensive suite of online supply chain tools, and
design services, to the electronics industry. As one of the electronics
distribution industry's leaders in operating systems, employee productivity,
value-added programs, and total quality assurance, the company is the
distributor of choice for over 600 suppliers.
The company's global distribution network spans the world's three largest
electronics markets - the Americas, Europe, and the Asia/Pacific region. The
company serves a diversified base of original equipment manufacturers (OEMs),
contract manufacturers (CMs), and commercial customers worldwide. OEMs
include manufacturers of computer and office products, industrial equipment
(including machine tools, factory automation, and robotic equipment),
telecommunications products, aircraft and aerospace equipment, and scientific
and medical devices. Commercial customers are mainly value-added resellers
(VARs) of computer systems. The company maintains over 200 sales facilities
and 23 distribution centers in 40 countries and territories. Through this
network, the company can offer one of the broadest line cards in the industry
and a wide range of value-added services to help customers reduce their time
to market, lower their total cost of ownership, and enhance their overall
competitiveness.
In 2001, Arrow launched a suite of Internet design and supply chain services,
including Arrow Risk Manager, Arrow Alert, and Arrow Collaborator. These
interactive and real-time resources prevent costly design delays, provide
immediate notification of changes to components, pipeline product for
manufacturing, and measure and evaluate the accuracy of customer forecasting
to improve materials planning.
The Americas Components group is comprised of targeted sales and marketing
groups providing tailored solutions to nine distinct customer segments. The
Americas Components also offers one of the broadest line cards in the
industry.
North American Computer Products ("NACP") is a full-line technical
distributor of computer systems, communications and storage equipment,
peripherals, components, software, and value-added services to solution
providers in North America.
The company is one of the largest Pan-European electronic components
distributors. In the Northern European region, the company serves Denmark,
Estonia, Finland, Ireland, Norway, Sweden, and the United Kingdom. In the
Central European region, the company serves Austria, Belgium, the Czech
Republic, Germany, Hungary, the Netherlands, Poland, Slovenia, and
Switzerland, and in the Southern European region the company serves France,
Greece, Israel, Italy, Portugal, Spain, and Turkey.
The company is a leading electronics distributor in the Asia/Pacific region.
It has facilities in Australia, Hong Kong, India, Malaysia, New Zealand, the
People's Republic of China, the Philippines, Singapore, South Korea, Taiwan,
and Thailand.
The company distributes a broad range of electronic components, computer
products, and related equipment. About 61 percent of the company's
consolidated sales are comprised of semiconductor products; industrial and
commercial computer products, including servers, workstations, storage
products, microcomputer boards and systems, design systems, desktop computer
systems, terminals, printers, controllers, and communication control
equipment, account for about 25 percent; and the remaining sales are comprised
of passive, electromechanical, and interconnect products, principally
capacitors, resistors, potentiometers, power supplies, relays, switches, and
connectors.
The financial information about the company's reportable segments and foreign
and domestic operations can be found in Note 13 of the Notes to Consolidated
Financial Statements.
Most manufacturers of electronic components and computer products rely on
authorized distributors, such as the company, to augment their sales and
marketing operations. As a stocking, marketing, and financial intermediary,
the distributor relieves manufacturers of a portion of the costs and
personnel associated with stocking and selling their products (including
otherwise sizable investments in finished goods inventories, accounts
receivable systems, and distribution networks), while providing geographically
dispersed selling, order processing, and delivery capabilities. At the same
time, the distributor offers a broad range of customers the convenience of
accessing from a single source multiple products from multiple suppliers and
rapid or scheduled deliveries, as well as other value-added services such as
kitting and memory programming capabilities. The growth of the electronics
distribution industry has been fostered by the many manufacturers who
recognize their authorized distributors as essential extensions of their
marketing organizations.
The company and its affiliates serve over 175,000 industrial and commercial
customers. Industrial customers range from major OEMs and CMs to small
engineering firms, while commercial customers include principally VARs and
OEMs. No single customer accounted for more than 3 percent of the company's
2001 sales.
Most of the company's customers require delivery of the products they have
ordered on schedules that are generally not available on direct purchases
from manufacturers, and frequently their orders are of insufficient size to
be placed directly with manufacturers.
The electronic components and other products offered by the company are sold
by field sales representatives, who regularly call on customers in assigned
market areas, and by telephone from the company's selling locations, from
which inside sales personnel with access to pricing and stocking data
provided by computer display terminals accept and process orders. Each of
the company's North American selling locations, warehouses, and primary
distribution centers is electronically linked to the company's central
computer, which provides fully integrated, online, real-time data with
respect to nationwide inventory levels and facilitates control of purchasing,
shipping, and billing. The company's international operations have similar
online, real-time computer systems and they can access Arrow's Worldwide
Stock Check System, which provides access to the company's online, real-time
inventory system.
There are over 600 manufacturers whose products are sold by the company. The
company does not regard any one supplier of products to be essential to its
operations and believes that many of the products presently sold by the
company are available from other sources at competitive prices. Most of the
company's purchases are pursuant to authorized distributor agreements which
are typically cancelable by either party at any time or on short notice.
Approximately 65 percent of the company's inventory consists of semiconductors.
It is the policy of most manufacturers to protect authorized distributors, such
as the company, against the potential write-down of such inventories due to
technological change or manufacturers' price reductions. Under the terms of
the related distributor agreements, and assuming the distributor complies with
certain conditions, such suppliers are required to credit the distributor for
inventory losses incurred through reductions in manufacturers' list prices of
the items. In addition, under the terms of many such agreements, the
distributor has the right to return to the manufacturer for credit a defined
portion of those inventory items purchased within a designated period of time.
A manufacturer who elects to terminate a distributor agreement is generally
required to purchase, from the distributor, the total amount of its products
carried in inventory. While these industry practices do not wholly protect
the company from inventory losses, management believes that they currently
provide substantial protection from such losses.
The company's business is extremely competitive, particularly with respect to
prices, franchises, and, in certain instances, product availability. The
company competes with several other large multi-national, national, and
numerous regional and local distributors. As one of the world's largest
electronics distributors, the company's financial resources and sales are
greater than most of its competitors.
The company and its affiliates employ over 12,400 people worldwide.
Executive Officers
The following table sets forth the names and ages of, and the positions and
offices with the company held by, each of the executive officers of the
company.
Name Age Position or Office Held
- ---- --- -----------------------
Stephen P. Kaufman 60 Chairman
Francis M. Scricco 52 President and Chief Executive Officer
Robert E. Klatell 56 Executive Vice President
Betty Jane Scheihing 53 Senior Vice President
Steven W. Menefee 56 Senior Vice President and President of Arrow
Asia
Peter S. Brown 51 Senior Vice President and General Counsel
Michael J. Long 43 Vice President and President of North
American Computer Products
Jan M. Salsgiver 45 Vice President and President of the Americas
Components
Paul J. Reilly 45 Vice President and Chief Financial Officer
Mark F. Settle 51 Vice President and Chief Information Officer
Set forth below is a brief account of the business experience during the past
five years of each executive officer of the company.
Stephen P. Kaufman has been Chairman of the company since May 1994. In
addition, he served as Chief Executive Officer from September 1986 to July
2000.
Francis M. Scricco has been Chief Executive Officer since July 2000 and
President since June 1999. From September 1997 through July 2000 he served
as Chief Operating Officer. Prior thereto, he was Executive Vice President
since August 1997. From March 1994 through August 1997 he was a Group
President at Fischer Scientific International, Inc.
Robert E. Klatell has been Executive Vice President of the company since July
1995.
Betty Jane Scheihing has been a Senior Vice President of the company since
May 1996.
Steven W. Menefee has been a Senior Vice President of the company since July
1995.
Peter S. Brown has been a Senior Vice President of the company and General
Counsel since September 2001. Prior to joining the company, he served as the
managing partner of the London office at the law firm of Pillsbury Winthrop
LLP (formerly, Winthrop, Stimson, Putnam, & Roberts) for more than five
years.
Michael J. Long has been President and Chief Operating Officer of NACP since
July 1999. In addition, he has been a Vice President of the company for more
than five years and President of Gates/Arrow Distributing since November
1995.
Jan M. Salsgiver has been President of the Americas Components since July
1999. Prior thereto, she served as President of the Arrow Supplier Services
Group since its inception in January 1998. Prior thereto, she was President
of the Arrow/Schweber Electronics Group since November 1995. In addition,
she has been a Vice President of the company for more than five years.
Paul J. Reilly has been Chief Financial Officer since October 2001 and has
served as a Vice President of the company since May 1996.
Mark F. Settle has been a Vice President of the company and Chief Information
Officer since November 2001. Prior to joining the company, he served as
Executive Vice President, Systems and Processing at Visa International since
April 1999 and previously served as Chief Information Officer at Occidental
Petroleum Corporation since February 1997. Prior thereto, he was Director of
Civil Systems Business Unit at Hughes Information Systems since August 1994.
Item 2. Properties.
----------
The company owns and leases sales offices, distribution centers, and
administrative facilities worldwide. The company's executive office, a
132,000 square foot facility in Melville, New York, is owned by the company.
Including the executive office, 18 locations are owned throughout the
Americas, Europe, and the Asia/Pacific region, and another facility has been
sold and leased back in connection with the financing thereof. The company
occupies over 290 additional locations under leases due to expire on various
dates through 2053. The company believes its facilities are well maintained
and suitable for company operations.
Item 3. Legal Proceedings.
-----------------
The environmental remediation of a former "superfund site" the company owns
(as the result of the discontinued lead-refining operations of a subsidiary
formerly owned by the company) has been completed pursuant to the terms of a
consent decree with the U.S. EPA and the State of Florida, and the site has
been delisted from the National Priorities List. Long-term monitoring
activities at the site for which the company remains responsible are not
expected to have a material adverse impact on the company's liquidity,
resources, or results.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
PART II
Item 5. Market Price of the Registrant's Common Equity and Related
----------------------------------------------------------
Stockholder Matters.
-------------------
Market Information
The company's common stock is listed on the New York Stock Exchange (trading
symbol: "ARW"). The high and low sales prices during each quarter of 2001
and 2000 were as follows:
Year High Low
- ---- ---- ---
2001:
Fourth Quarter $30.71 $19.84
Third Quarter 29.50 18.00
Second Quarter 29.07 20.65
First Quarter 33.44 21.85
2000:
Fourth Quarter $37.19 $22.06
Third Quarter 39.88 30.38
Second Quarter 46.00 28.25
First Quarter 37.50 20.50
Holders
On March 1, 2002, there were approximately 3,000 shareholders of record of
the company's common stock.
Dividend History
The company did not pay cash dividends on its common stock during 2001 or
2000. While the board of directors considers the payment of dividends on the
common stock from time to time, the declaration of future dividends will be
dependent upon the company's earnings, financial condition, and other
relevant factors, including debt covenants.
Item 6. Selected Financial Data.
-----------------------
The following table sets forth certain selected consolidated financial data
and should be read in conjunction with the company's consolidated financial
statements and related notes appearing elsewhere in this annual report.
SELECTED FINANCIAL DATA
(In thousands except per share data)
For the year ended: 2001(a) 2000 1999(b) 1998 1997(c)
----------- ----------- ---------- ---------- ----------
Sales $10,127,604 $12,959,250 $9,312,625 $8,344,659 $7,763,945
=========== =========== ========== ========== ==========
Operating income $156,603 $784,107 $338,661 $352,504 $374,721
======== ======== ======== ======== ========
Net income (loss) $(73,826) $357,931 $124,153 $145,828 $163,656
======== ======== ======== ======== ========
Earnings (loss)
per share:
Basic $(.75) $3.70 $1.31 $1.53 $1.67
===== ===== ===== ===== =====
Diluted (.75) 3.62 1.29 1.50 1.64
===== ===== ===== ===== =====
At year-end:
Accounts receivable
and inventories $2,861,628 $5,608,256 $3,083,583 $2,675,612 $2,475,407
Total assets 5,358,984 7,604,541 4,483,255 3,839,871 3,537,873
Long-term debt 2,441,983 3,027,671 1,533,421 1,047,041 829,827
Shareholders'equity 1,766,461 1,913,748 1,550,529 1,487,319 1,360,758
(a) Operating income and net loss include restructuring costs and other
special charges of $227.6 million (of which $174.6 million is in
operating income) and $145.1 million after taxes, respectively, and an
integration charge associated with the acquisition of Wyle Electronics
and Wyle Systems of $9.4 million and $5.7 million after taxes, respectively.
Excluding these charges, operating income, net income, and earnings per
share on a basic and diluted basis would have been $340.6 million, $77
million, $.78, and $.77, respectively.
(b) Operating and net income include a special charge of $24.6 million and
$16.5 million after taxes, respectively, associated with the
acquisition and integration of Richey Electronics, Inc. and the
electronics distribution group of Bell Industries, Inc. Excluding this
charge, operating income, net income, and earnings per share on a basic
and diluted basis would have been $363.2 million, $140.6 million,
$1.48, and $1.46, respectively.
(c) Operating and net income include special charges totaling $59.5 million
and $40.4 million after taxes, respectively, associated with the
realignment of the North American Components Operations and the
acquisition and integration of the volume electronic component
distribution businesses of Premier Farnell plc. Excluding these charges,
operating income, net income, and earnings per share on a basic and
diluted basis would have been $434.2 million, $204.1 million, $2.08, and
$2.05, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
For an understanding of the significant factors that influenced the company's
performance during the past three years, the following discussion should be
read in conjunction with the consolidated financial statements and other
information appearing elsewhere in this annual report.
Sales
In 2001, consolidated sales decreased by 22 percent from $13 billion in 2000
to $10.1 billion. This decline was principally due to a 28 percent decrease
in sales of electronic components as a result of severely depressed demand at
telecommunications and networking customers and the contract manufacturers
that serve them, and lower demand in the company's core OEM business due to
weakened general economic conditions. In addition, the company terminated a
single customer engagement in the Asia/Pacific region during 2001 which
resulted in a sales decline of approximately $193 million versus 2000. Sales
of computer products decreased by 2 percent in 2001 when compared to 2000.
In the fourth quarter of 2000, the business model for handling certain
mid-range computer products was modified from a traditional distribution
model to an agency model. The modification resulted in a reduction of more
than $300 million in revenue in 2001 compared to 2000. In 2001, sales of low
margin microprocessors (a product segment not considered a part of the
company's core business) decreased by nearly $207 million. Lastly, the
translation of the financial statements of the company's international
operations into U.S. dollars resulted in reduced revenues of $118 million
because of a strengthened U.S. dollar in 2001 when compared to 2000. Each of
these factors was offset, in part, by the acquisitions that occurred in 2000.
Consolidated sales of $13 billion in 2000 were 39 percent higher than 1999
sales of $9.3 billion. This sales increase was driven by a 59 percent growth
in the sales of electronic components and more than $850 million of sales
from acquired companies offset, in part, by foreign exchange rate differences,
fewer sales of low margin microprocessors, and market conditions for computer
products. The translation of the financial statements of the company's
international operations into U.S. dollars resulted in reduced revenues of
$466 million when compared to 1999. Sales of computer products decreased by
2 percent in 2000 when compared to 1999. Excluding the impact of acquisitions
and foreign exchange rate differences, sales increased by 34 percent over the
prior year.
In 1999, consolidated sales increased to $9.3 billion from $8.3 billion in
1998. This 12 percent sales growth over 1998 was principally due to a 23
percent growth in the sales of electronic components and more than $885
million of sales from acquired companies offset, in part, by fewer sales of
low margin microprocessors and foreign exchange rate differences. In 1999,
sales of low margin microprocessors decreased by $257 million when compared
to 1998. Excluding the impact of acquisitions, foreign exchange rate
differences, and lower microprocessor sales, consolidated sales increased by
8 percent over the prior year and sales of electronic components increased by
10 percent. Sales of commercial computer products increased marginally over
the 1998 level due principally to softening demand and lower average selling
prices, offset by increasing unit shipments as a result of market conditions.
Operating Income
The company's consolidated operating income decreased to $156.6 million in
2001 compared with $784.1 million in 2000. Included in operating income for
2001 are $174.6 million of pre-tax restructuring costs and other special
charges described below and an integration charge of $9.4 million associated
with the acquisition of Wyle Electronics and Wyle Systems (collectively,
"Wyle"). Excluding these special charges, operating income for 2001 would
have been $340.6 million. The decrease in operating income was due to the
sudden and dramatic reduction in sales that began in the latter part of the
first quarter, and accelerated thereafter, outpacing the speed at which the
company was able to reduce expenses. Gross profit margins increased
marginally as a result of a change in the mix of the business.
In mid-2001, the company took a number of significant steps, including a
reduction in its worldwide workforce, salary freezes and furloughs, cutbacks
in discretionary spending, deferral of non-strategic projects, consolidation
of facilities, and other major cost containment and cost reduction actions,
to mitigate, in part, the impact of significantly reduced revenues. As a
result of these actions, the company recorded restructuring costs and other
special charges totaling $227.6 million pre-tax (of which $97.5 million is
included in cost of products sold, $77.1 million in operating expenses, and
$53 million in loss on investments) and $145.1 million after taxes. In
addition to costs associated with headcount reductions and the consolidation
of various facilities, the special charges included provisions related to
inventory valuation adjustments, adjustments to the book value of Internet
investments, and the termination of certain customer engagements.
Approximately $30 million of the charge is expected to be spent in cash.
Of this amount, approximately $12.6 million was spent in 2001.
Operating income increased to $784.1 million in 2000 compared to $363.2
million in 1999, excluding the integration charge of $24.6 million associated
with the acquisition and integration of Richey Electronics, Inc. ("Richey")
and the electronics distribution group of Bell Industries, Inc. ("EDG").
This increase in operating income was a result of increased sales in the
electronic components businesses around the world and increased gross profit
margins, as well as the full year impact of cost savings resulting from the
integration of Richey and EDG offset, in part, by lower sales of computer
products and increased spending in the company's Internet business. Operating
expenses as a percentage of sales were 9.6 percent, the lowest in the
company's history.
In 1999, the company's consolidated operating income decreased to $338.7
million from $352.5 million in 1998, principally as a result of the
integration charge of $24.6 million. Excluding this integration charge,
operating income would have been $363.2 million. Operating income, excluding
the integration charge, increased as a result of higher sales, improved gross
profit margins in the electronic components operations in the latter part of
1999, and improved operating efficiencies resulting from the integration of
Richey and EDG into the company offset, in part, by lower gross profit
margins in the computer products operations, increased non-cash amortization
expense associated with goodwill, investments made in systems and personnel
to support anticipated increases in business activities.
Interest Expense
In 2001, interest expense increased to $211.7 million compared to $171.3
million in 2000. The increase in interest expense was the result of the full
year impact of interest on $1.2 billion of additional borrowings incurred in
2000 to fund acquisitions offset, in part, by the generation of $1.7 billion
in cash flow from operations in 2001. The cash generated from operations in
2001 was utilized to reduce debt by $1.1 billion and to increase cash on hand
by $501 million.
Interest expense of $171.3 million in 2000 increased by $65 million from 1999
as a result of increases in borrowings to fund the company's acquisitions,
working capital requirements, capital expenditures, and investments in
Internet joint ventures.
In 1999, interest expense increased to $106.3 million from $81.1 million in
1998, reflecting both increases in borrowings to fund acquisitions and
investments in working capital.
Income Taxes
In 2001, the company recorded an income tax benefit at an effective tsx rate
of 31.3 percent, compared with a provision for taxes at an effective tax rate
of 40.7 percent in 2000. Excluding the impact of the aforementioned special
charges, the effective tax rate would have been 40.7 percent for 2001.
The company recorded a provision for taxes at an effective tax rate of 40.7
percent in 2000 compared with 43 percent, excluding the integration charge,
in 1999. The lower rate for 2000 was due to the company's significantly
increased operating income, which lowered the negative effect of non-
deductible goodwill amortization on the company's effective tax rate.
In 1999, the company recorded a provision for taxes at an effective tax rate
of 43 percent, excluding the integration charge, compared with 42.2 percent
in 1998. The increased rate for 1999 was due to the non-deductibility of
goodwill amortization.
Net Income (Loss)
The company recorded a net loss of $73.8 million in 2001 compared with net
income of $357.9 million in 2000. Excluding the aforementioned special
charges, net income for 2001 would have been $77 million. The decrease in
net income, excluding special charges, was due to lower gross profit, as a
result of lower sales, and higher levels of interest expense.
Net income in 2000 was $357.9 million, an increase from $124.2 million in
1999 ($140.6 million excluding the integration charge). The increase in net
income was a result of increased sales, improved gross profit margins, and
continued expense control offset, in part, by higher levels of interest
expense.
In 1999, the company's net income decreased to $124.2 million from $145.8
million in 1998. Excluding the integration charge, net income would have
been $140.6 million. The decrease in net income, excluding the integration
charge, was primarily attributable to an increase in interest expense offset,
in part, by an increase in operating income and a decrease in minority
interest.
Liquidity and Capital Resources
The company maintains a significant investment in accounts receivable and
inventories. As a percentage of total assets, accounts receivable and
inventories were approximately 53 percent and 74 percent in 2001 and 2000,
respectively. At December 31, 2001, cash and short-term investments
increased to $556.9 million from $55.5 million at December 31, 2000.
One of the characteristics of the company's business is that in periods of
revenue growth, investments in accounts receivable and inventories grow, and
the company's need for financing increases. In the periods in which revenue
declines, investments in accounts receivable and inventories may also
decrease, and cash is generated. During 2001, the company generated $1.7
billion in cash flow from operations resulting in a reduction in net debt
from $3.5 billion to $1.9 billion.
At December 31, 2001, working capital, defined as accounts receivable and
inventories net of payables, decreased by $1.8 billion, or 46 percent,
compared with December 31, 2000, due to decreased sales and improved asset
utilization.
The net amount of cash provided by operating activities in 2001 was $1.7
billion, principally reflecting lower working capital requirements. The net
amount of cash used for investing activities was $107.1 million, including
$64.3 million for various capital expenditures, $27.3 million for the
acquisition of the remaining 10 percent interest in Scientific and Business
Minicomputers, Inc. ("SBM") and $15.5 million for various investments. The
net amount of cash used for financing activities was $1.1 billion, primarily
reflecting the repayment of short-term and long-term debt.
In February 2001, the company entered into a three-year revolving credit
facility providing up to $625 million of available credit. This facility
replaced the previously existing global multi-currency credit facility.
During the first quarter of 2001, the company completed the sale of $1.5
billion principal amount at maturity of zero coupon convertible senior
debentures (the "convertible debentures") due February 21, 2021. The
convertible debentures were priced with a yield to maturity of 4% per annum
and may be converted into the company's common stock at a conversion price of
$37.83 per share. The company, at its option, may redeem all or part of the
convertible debentures (at the issue price plus accrued original issue
discount through the date of redemption) any time on or after February 21,
2006. Holders of the convertible debentures may require the company to
repurchase the convertible debentures (at the issue price plus accrued
original issue discount through the date of repurchase) on February 21, 2006,
2011, or 2016. The net proceeds resulting from this transaction of $671.8
million were used to repay short-term debt.
In February 2001, the company entered into a 364-day $625 million credit
facility. The company chose not to renew this facility in February 2002
because of its large cash balance and reduced need to finance investments in
working capital.
In March 2001, the company entered into a one-year, renewable $750 million
asset securitization program (the "program") whereby it sells, on a revolving
basis, an individual interest in a pool of its trade accounts receivable.
Under the program, the company sells receivables in securitization
transactions and retains a subordinated interest and servicing rights to
those receivables. At December 31, 2001, the company had no outstanding
balances from the sale of these receivables. In March 2002, the company
renewed the program for an additional year.
The three-year revolving credit facility, the asset securitization program,
and the 6.45% senior notes (the "notes"), as amended, limit the incurrence of
additional borrowings and require that working capital, net worth, and
certain other financial ratios be maintained at designated levels. In
addition, in the event that the company's credit rating is reduced to
non-investment grade by either Standard & Poor's or Moody's Investors Service,
Inc., the company would no longer be able to utilize its asset securitization
program in its present form, and the company would be required to make an
offer to the holders of the notes, allowing each such holder to put all or a
part of the notes held by it to the company for payment within 60 days of
such offer. The triggering of the right to put the notes would constitute an
event of default under the company's three-year revolving credit facility,
and it may result in the termination of the agreement and declaration of any
outstanding amounts to be due and payable. At December 31, 2001, there were
no amounts outstanding under the asset securitization program or the
three-year revolving credit facility. The company has sufficient cash
balances to meet the requirements to pay, in part or in whole, the $250
million of the notes that may come due in the event of such a downgrade,
as well as sufficient cash balances to finance its operations, based upon
current business conditions, for more than 12 months.
A summary of contractual obligations is as follows (in thousands):
Within After
1 Year 1-3 Years 4-5 Years 5 Years Total
------ --------- --------- ------- -----
Long-term debt $37,289 $667,266 $250,893 $1,523,824 $2,479,272
Operating leases 55,503 80,499 40,858 78,464 255,324
Surplus properties 6,819 10,393 4,473 2,094 23,779
------- -------- -------- ---------- ----------
$99,611 $758,158 $296,224 $1,604,382 $2,758,375
======= ======== ======== ========== ==========
Under the terms of various joint venture agreements, the company would be
required to pay its pro-rata share, based upon its ownership interests, of
the debt of the joint ventures in the event that the joint ventures were
unable to meet their obligations. At December 31, 2001, the company's
pro-rata share of this debt was $7.1 million.
In 2000, working capital increased by 77 percent, or $1.8 billion, compared
with 1999. Excluding the impact of acquisitions, working capital increased
by 34 percent, or $776 million, due to increased sales and higher working
capital requirements.
The net amount of cash used for operating activities in 2000 was $336.4
million, principally resulting from increased accounts receivable and
inventories offset, in part, by increased payables and earnings for the year.
The net amount of cash used for investing activities was $1.4 billion,
including $1.2 billion primarily for the acquisitions of Wyle, the open
computing alliance subsidiary of Merisel, Inc., Jakob Hatteland Electronic
AS, and Tekelec Europe, and $80.2 million for various capital expenditures.
The net amount of cash provided by financing activities was $1.7 billion,
primarily reflecting the issuance of senior debentures, borrowings under the
company's commercial paper program, and various short-term borrowings.
Working capital increased by $388 million, or 21 percent, in 1999 compared
with 1998. Excluding the impact of acquisitions, working capital increased
by $216 million, or 11 percent, due to increased sales and higher working
capital requirements.
The net amount of cash used for the company's operating activities in 1999
was $33.5 million, principally reflecting increased accounts receivable due
to accelerated sales growth in the fourth quarter offset, in part, by
earnings for the year. The net amount of cash used for investing activities
was $543.3 million, including $459.1 million for the acquisitions of Richey,
EDG, Industrade AG, interests in the Elko Group and Panamericana Comercial
Importadora, S.A., the remaining interests in Spoerle Electronic and Support
Net, Inc., and an additional interest in SBM, as well as certain
Internet-related investments, and $84.2 million for various capital
expenditures. The net amount of cash provided by financing activities was
$479.1 million, reflecting borrowings under the company's commercial paper
program, the issuance of the company's floating rate notes, and credit
facilities offset, in part, by the repayment of Richey's 7% convertible
subordinated notes and debentures, 8.29% senior debentures, and
distributions to partners.
Critical Accounting Policies and Estimates
The company's financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The
preparation of these financial statements requires the company to make
significant estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses and related disclosure of
contingent assets and liabilities. The company evaluates its estimates,
including those related to bad debts, inventories, intangible assets, income
taxes, restructuring and integration costs, and contingencies and litigation,
on an ongoing basis. The company bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The company believes the following critical accounting policies, among
others, involve the more significant judgments and estimates used in the
preparation of its consolidated financial statements:
- The company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). Under SAB 101 revenue is recognized when the title and risk of
loss have passed to the customer, there is persuasive evidence of an
arrangement, delivery has occurred or services have been rendered, the
sales price is determinable, and collectibility is reasonably assured.
Revenue typically is recognized at time of shipment. Sales are recorded
net of discounts, rebates, and returns.
- The company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments. If the financial condition of the company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
- Inventories are recorded at the lower of cost or market. Write-downs of
inventories to market value are based upon contractual provisions
governing price protection, stock rotation, and obsolescence, as well as
assumptions about future demand and market conditions. If assumptions
about future demand change and/or actual market conditions are less
favorable than those projected by management, additional write-downs of
inventories may be required. Because of the large number of transactions
and the complexity of managing the process around price protections and
stock rotations, estimates are made regarding adjustments to the cost of
inventories. Actual amounts could be different from those estimated.
- The carrying value of the company's deferred tax assets is dependent upon
the company's ability to generate sufficient future taxable income in
certain tax jurisdictions. Should the company determine that it would not
be able to realize all or part of its deferred tax assets in the future,
an adjustment to the deferred tax assets would be charged to income in the
period such determination was made.
- The company is subject to proceedings, lawsuits, and other claims related
to environmental, labor, product and other matters. The company assesses
the likelihood of an adverse judgment or outcomes to these matters, as
well as the range of potential losses. A determination of the reserves
required, if any, is made after careful analysis. The required reserves
may change in the future due to new developments.
- The company has recorded reserves in connection with restructuring its
businesses, as well as the integration of acquired businesses. These
reserves principally include estimates related to employee separation
costs, the consolidation of facilities, contractual obligations, and the
valuation of certain assets including accounts receivable, inventories,
and investments. Actual amounts could be different from those
estimated.
- In assessing the recoverability of the company's goodwill and other
long-lived assets, significant assumptions regarding the estimated future
cash flows and other factors to determine the fair value of the respective
assets must be made, as well as the related estimated useful lives. If
these estimates or their related assumptions change in the future as a
result of changes in strategy and/or market conditions, the company may be
required to record impairment charges for these assets. On January 1,
2002, the company adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets," and will be required to
analyze its goodwill for impairment issues using a new method during the
first six months of 2002 and then on a periodic basis thereafter. In
addition, this Statement eliminates the amortization of goodwill. The
elimination of goodwill amortization will increase net income by
approximately $42 million annually. The company has not yet completed its
analysis of the goodwill impairment and the impact, if any, on the
reported amount of goodwill. In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement No. 143, "Accounting for Asset
Retirement Obligations," which addresses the financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the related asset retirement costs. Statement
No. 143 requires that the fair value of a liability for an asset retirement
obligation be recorded in the period incurred and the related asset
retirement costs be capitalized. The company is required to adopt this
Statement in the first quarter of 2003 and has not yet completed its
evaluation of the effect, if any, on its consolidated financial position
and results of operations. In August 2001, the FASB issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." Statement No. 144 addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets, including
business segments accounted for as discontinued operations. The company
is required to adopt this Statement in the first quarter of 2002 and has
not yet completed its analysis to determine the effect, if any, on its
consolidated financial position and results of operations.
Information Relating to Forward-Looking Statements
This report includes forward-looking statements that are subject to certain
risks and uncertainties which could cause actual results or facts to differ
materially from such statements for a variety of reasons, including, but not
limited to: industry conditions, changes in product supply, pricing and
customer demand, competition, other vagaries in the electronic components and
computer products markets, and changes in relationships with key suppliers.
Shareholders and other readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which
they are made. The company undertakes no obligation to update publicly or
revise any forward-looking statements.
Item 7A. Market and Other Risks.
----------------------
The company is exposed to market risk from changes in foreign currency
exchange rates and interest rates.
The company, as a large international organization, faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change
over time as business practices evolve and could have a material impact on
the company's financial results in the future. The company's primary
exposure relates to transactions in which the currency collected from
customers is different from the currency utilized to purchase the product
sold in Europe, the Asia/Pacific region, and Latin and South America. At the
present time, the company hedges only those currency exposures for which
natural hedges do not exist. Anticipated foreign currency cash flows and
earnings and investments in businesses in Europe, the Asia/Pacific region,
and Latin and South America are not hedged as in many instances there are
natural offsetting positions. The translation of the financial statements of
the non-North American operations is impacted by fluctuations in foreign
currency exchange rates. Had the various average foreign currency exchange
rates remained the same during 2001 as compared with 2000, 2001 sales and
operating income would have been $118 million and $6 million higher,
respectively, than the reported results for 2001.
The company's interest expense, in part, is sensitive to the general level of
interest rates in the Americas, Europe, and the Asia/Pacific region. The
company historically has managed its exposure to interest rate risk through
the proportion of fixed rate and variable rate debt in its total debt
portfolio. At December 31, 2001, as a result of significant generation of
operating cash flow, the company had paid down nearly all of its variable
rate debt with the net result being that approximately 98 percent of the
company's debt was subject to fixed rates, and 2 percent of its debt was
subject to variable rates. Interest expense, net of interest income, would
have fluctuated by approximately $5 million if average interest rates had
changed by one percentage point in 2001. This amount was determined by
considering the impact of a hypothetical interest rate on the company's
average variable rate outstanding borrowings. This analysis does not
consider the effect of the level of overall economic activity that could
exist in such an environment. Further, in the event of a change of such
magnitude, management could likely take actions to further mitigate any
potential negative exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the company's financial structure.
Item 8. Financial Statements.
--------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Arrow Electronics, Inc.
We have audited the accompanying consolidated balance sheet of Arrow
Electronics, Inc. as of December 31, 2001 and 2000, and the related
consolidated statements of operations, cash flows, and shareholders' equity
for each of the three years in the period ended December 31, 2001. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and the schedule are the responsibility of
the company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Arrow Electronics, Inc. at December 31, 2001 and 2000, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
February 19, 2002
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Arrow Electronics, Inc. have been
prepared by management, which is responsible for their integrity and
objectivity. These statements, prepared in accordance with generally accepted
accounting principles, reflect our best use of judgment and estimates where
appropriate. Management also prepared the other information in the annual
report and is responsible for its accuracy and consistency with the
consolidated financial statements.
The company's system of internal controls is designed to provide reasonable
assurance that company assets are safeguarded from loss or unauthorized use
or disposition and that transactions are executed in accordance with
management's authorization and are properly recorded. In establishing the
basis for reasonable assurance, management balances the costs of the internal
controls with the benefits they provide. The system contains self-monitoring
mechanisms, and compliance is tested through an extensive program of site
visits and audits by the company's operating controls staff.
The audit committee of the board of directors, consisting entirely of
independent directors, meets regularly with the company's management,
operating controls staff, and independent auditors and reviews audit plans
and results, as well as management's actions taken in discharging its
responsibilities for accounting, financial reporting, and internal controls.
Members of management, the operating controls staff, and the independent
auditors have direct and confidential access to the audit committee at all
times.
The company's independent auditors, Ernst & Young LLP, were engaged to audit
the consolidated financial statements in accordance with auditing standards
generally accepted in the United States. These standards include a study and
evaluation of internal controls for the purpose of establishing a basis for
reliance thereon relative to the scope of their audit of the consolidated
financial statements.
/s/ Francis M. Scricco
- ----------------------
Francis M. Scricco
President and Chief Executive Officer
/s/ Paul J. Reilly
- ------------------
Paul J. Reilly
Vice President and
Chief Financial Officer
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
Years Ended December 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
Sales $10,127,604 $12,959,250 $9,312,625
----------- ----------- ----------
Costs and expenses:
Cost of products sold 8,609,448 10,925,309 8,011,419
Selling, general, and
administrative expenses 1,156,687 1,159,583 866,861
Depreciation and amortization 118,344 90,251 71,124
Restructuring costs and other
special charges 77,147 - -
Integration charge 9,375 - 24,560
----------- ----------- ----------
9,971,001 12,175,143 8,973,964
----------- ----------- ----------
Operating income 156,603 784,107 338,661
Equity in losses of
affiliated companies 1,203 2,640 1,107
Loss on investments 53,000 - -
Interest expense, net 211,694 171,336 106,349
----------- ----------- ----------
Earnings (loss) before income taxes
and minority interest (109,294) 610,131 231,205
Provision for (benefit from)
income taxes (34,189) 248,195 101,788
---------- ----------- ----------
Earnings (loss) before minority
interest (75,105) 361,936 129,417
Minority interest (1,279) 4,005 5,264
----------- ----------- ----------
Net income (loss) $ (73,826) $ 357,931 $ 124,153
=========== =========== ==========
Net income (loss) per share:
Basic $(.75) $3.70 $1.31
===== ===== =====
Diluted (.75) 3.62 1.29
===== ===== =====
Average number of shares
outstanding:
Basic 98,384 96,707 95,123
====== ====== ======
Diluted 98,384 98,833 96,045
====== ====== ======
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
-----------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and short-term investments $ 556,861 $ 55,546
Accounts receivable, net 1,458,553 2,635,595
Inventories 1,403,075 2,972,661
Prepaid expenses and other assets 52,897 100,408
---------- ----------
Total current assets 3,471,386 5,764,210
---------- ----------
Property, plant and equipment at cost
Land 42,971 40,892
Buildings and improvements 167,675 167,194
Machinery and equipment 352,862 319,305
---------- ----------
563,508 527,391
Less accumulated depreciation and amortization (259,134) (210,932)
---------- ----------
304,374 316,459
---------- ----------
Investments in affiliated companies 32,917 35,885
Cost in excess of net assets of companies acquired,
less accumulated amortization ($190,940 in 2001
and $145,014 in 2000) 1,224,283 1,237,099
Other assets 326,024 250,888
---------- ----------
$5,358,984 $7,604,541
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 665,363 $1,567,631
Accrued expenses 344,333 473,984
Short-term borrowings 37,289 529,261
---------- ----------
Total current liabilities 1,046,985 2,570,876
---------- ----------
Long-term debt 2,441,983 3,027,671
Other liabilities 103,555 92,246
Shareholders' equity:
Common stock, par value $1:
Authorized-160,000,000 shares
in 2001 and 2000
Issued-103,856,024 and 103,816,792 shares
in 2001 and 2000, respectively 103,856 103,817
Capital in excess of par value 524,299 529,376
Retained earnings 1,523,084 1,596,910
Foreign currency translation adjustment (259,694) (160,914)
---------- ----------
1,891,545 2,069,189
Less: Treasury stock (3,998,063 and 5,405,918 shares
in 2001 and 2000, respectively), at cost (106,921) (144,569)
Unamortized employee stock awards (12,363) (10,872)
Other (5,800) -
---------- ----------
Total shareholders' equity 1,766,461 1,913,748
---------- ----------
$5,358,984 $7,604,541
========== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
-----------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (73,826) $ 357,931 $ 124,153
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operations:
Minority interest (1,279) 4,005 5,264
Depreciation and amortization 132,157 99,478 78,635
Accretion of discount on convertible
debentures 23,781 - -
Equity in losses of affiliated
companies 1,203 2,640 1,107
Restructuring costs and other special
charges, net of taxes 145,079 - -
Integration charge, net of taxes 5,719 - 16,480
Deferred income taxes (21,619) (30,348) (11,318)
Change in assets and liabilities, net
of effects of acquired businesses:
Accounts receivable 1,116,898 (326,371) (242,370)
Inventories 1,435,804 (958,622) (15,568)
Prepaid expenses and other assets 26,334 (43,168) (236)
Accounts payable (890,161) 490,009 (8,735)
Accrued expenses (197,160) 107,064 28,492
Other (25,178) (39,065) (9,395)
---------- ---------- ---------
Net cash provided by (used for)
operating activities 1,677,752 (336,447) (33,491)
---------- ---------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (64,355) (80,164) (84,249)
Cash consideration paid for acquired
businesses (27,268) (1,221,261) (428,969)
Investments in affiliates (15,509) (36,182) (30,127)
Issuance of note receivable - (50,000) -
---------- ---------- ---------
Net cash used for investing activities (107,132) (1,387,607) (543,345)
---------- ---------- ---------
Cash flows from financing activities:
Sale of accounts receivable under
securitization program 251,737 - -
Repayments under securitization program (252,865) - -
Change in short-term borrowings (423,185) 1,263,561 90,804
Change in credit facilities (392,396) (421,081) 224,683
Proceeds from long-term debt - 868,923 298,103
Repayments of long-term debt (945,310) - (97,833)
Proceeds from convertible debentures, net 668,457 - -
Proceeds from exercise of stock options 21,972 27,989 1,282
Distributions to minority partners - - (37,852)
Purchases of common stock - (321) (100)
---------- ---------- ---------
Net cash provided by (used for)
financing activities (1,071,590) 1,739,071 479,087
---------- ---------- ---------
Effect of exchange rate changes on cash 2,285 (4,356) (16,290)
Net increase (decrease) in cash and
short-term investments 501,315 10,661 (114,039)
Cash and short-term investments at
beginning of year 55,546 44,885 158,924
---------- ---------- ---------
Cash and short-term investments at end
of year $ 556,861 $ 55,546 $ 44,885
========== ========== =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 116,153 $ 138,686 $ 47,145
Interest 195,778 148,076 105,239
See accompanying notes.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Common Foreign Unamortized
Stock Capital in Currency Employee
at Par Excess of Retained Translation Treasury Stock Awards
Value Par Value Earnings Adjustment Stock and Other Total
------ ---------- -------- ----------- -------- ------------ -----
Balance at
December
31, 1998 $102,950 $506,002$1,114,826 $(23,648) $(198,281) $(14,530)$1,487,319
Net income - - 124,153 - - - 124,153
Translation
adjustments - - - (71,647) - - (71,647)
---------
Comprehensive
income 52,506
---------
Exercise of
stock options - (1,259) - - 2,541 - 1,282
Tax benefits
related to
exercise of
stock options - 189 - - - - 189
Restricted stock
awards, net - (3,921) - - 8,571 (4,650) -
Amortization
of employee
stock awards - - - - - 8,965 8,965
Other - 368 - - (100) - 268
-------- -------- --------- ------- ---------- -------- ----------
Balance at
December
31, 1999 102,950 501,379 1,238,979 (95,295) (187,269) (10,215) 1,550,529
Net income - - 357,931 - - - 357,931
Translation
adjustments - - - (65,619) - - (65,619)
----------
Comprehensive
income 292,312
----------
Exercise of
stock options - (7,387) - - 35,376 - 27,989
Tax benefits
related to
exercise of
stock options - 7,212 - - - - 7,212
Restricted stock
awards, net 17 (743) - - 7,645 (6,919)
Amortization
of employee
stock awards - - - - - 6,262 6,262
Issuance of
common
stock 850 28,836 - - - - 29,686
Other - 79 - - (321) - (242)
-------- -------- --------- -------- ---------- -------- ---------
Balance at
December
31, 2000 103,817 529,376 1,596,910 (160,914) (144,569) (10,872) 1,913,748
Net loss - - (73,826) - - - (73,826)
Translation
adjustments - - - (98,780) - - (98,780)
Unrealized
loss on
securities - - - - - (5,800) (5,800)
----------
Comprehensive
loss (178,406)
----------
Exercise of
stock options - (9,420) - - 31,392 - 21,972
Tax benefits
related to
exercise of
stock options - 3,456 - - - - 3,456
Restricted stock
awards, net 39 802 - - 6,256 (7,097) -
Amortization
of employee
stock awards - - - - - 5,606 5,606
Other - 85 - - - - 85
-------- -------- --------- --------- --------- -------- ----------
Balance at
December
31, 2001 $103,856 $524,299$1,523,084 $(259,694)$(106,921) $(18,163)$1,766,461
======== ======== ========= ========= ========= ======== ==========
See accompanying notes.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiaries. All significant intercompany transactions
are eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Short-term Investments
- -------------------------------
Short-term investments which have a maturity of ninety days or less at time
of purchase are considered cash equivalents in the consolidated statement of
cash flows. The carrying amount reported in the consolidated balance sheet
for short-term investments approximates fair value.
Financial Instruments
- ---------------------
The company uses various financial instruments, including derivative
financial instruments, for purposes other than trading. The company does not
use derivative financial instruments for speculative purposes. Derivatives
used as part of the company's risk management strategy are designated at
inception as hedges and measured for effectiveness both at inception and on
an ongoing basis.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method for financial reporting purposes and on
accelerated methods for tax reporting purposes. Leasehold improvements are
amortized over the shorter of the term of the related lease or the life of
the improvement. Long-lived assets are reviewed for impairment whenever
changes in circumstances or events may indicate that the carrying amounts may
not be recoverable. If the fair value is less than the carrying amount of
the asset, a loss is recognized for the difference.
Cost in Excess of Net Assets of Companies Acquired
- --------------------------------------------------
The cost in excess of net assets of companies acquired is being amortized on
a straight-line basis over periods of 20 to 40 years. Management reassesses
the carrying value and remaining life of the excess cost over fair value of
net assets of companies acquired on an ongoing basis. Whenever events
indicate that the carrying values are impaired, the excess cost over fair
value of those assets is adjusted appropriately.
Foreign Currency Translation
- ----------------------------
The assets and liabilities of foreign operations are translated at the
exchange rates in effect at the balance sheet date, with the related
translation gains or losses reported as a separate component of shareholders'
equity. The results of foreign operations are translated at the monthly
average exchange rates.
Income Taxes
- ------------
Income taxes are accounted for under the liability method. Deferred taxes
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Earnings (Loss) Per Share
- -------------------------
Basic earnings (loss) per share is computed by dividing income (loss)
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive Income (Loss)
- --------------------------
Comprehensive income (loss) is defined as the aggregate change in
shareholders' equity excluding changes in ownership interests. The foreign
currency translation adjustments included in comprehensive income (loss) have
not been tax effected as investments in foreign affiliates are deemed to be
permanent.
Segment Reporting
- -----------------
Operating segments are defined as components of an enterprise for which
separate financial information is available that is evaluated regularly by
the chief operating decision makers in deciding how to allocate resources and
in assessing performance. The company's operations are classified into two
reportable business segments, the distribution of electronic components and
the distribution of computer products.
Revenue Recognition
- -------------------
The company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101").
Under SAB 101 revenue is recognized when the title and risk of loss have
passed to the customer, there is persuasive evidence of an arrangement,
delivery has occurred or services have been rendered, the sales price is
determinable, and collectibility is reasonably assured. Revenue typically is
recognized at time of shipment. Sales are recorded net of discounts,
rebates, and returns.
Software Development Costs
- --------------------------
The company capitalizes certain costs incurred in connection with developing
or obtaining software for internal use. Capitalized software costs are
amortized on a straight-line basis over the estimated useful life of the
software, which is generally three years.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, "Goodwill and Other Intangible Assets." On January 1,
2002, the company adopted Statement No. 142. This Statement, among other
things, eliminates the amortization of goodwill and requires annual tests for
determining impairment of goodwill. If the company had adopted the
provisions of Statement No. 142 relating to the elimination of goodwill
amortization during the current year, the net loss would have been reduced by
approximately $42,000,000. The company has not yet completed its analysis of
the goodwill impairment and the impact, if any, on the reported amount of
goodwill.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations," which addresses the financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the related asset retirement costs. Statement
No. 143 requires that the fair value of a liability for an asset
retirement obligation be recorded in the period incurred and the related
asset retirement costs be capitalized. The company is required to adopt
this Statement in the first quarter of 2003 and has not yet completed its
evaluation of the effect, if any, on its consolidated financial position
and results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Statement No. 144 addresses
the financial accounting and reporting for the impairment or disposal of
long-lived assets, including business segments accounted for as discontinued
operations. The company is required to adopt this Statement in the first
quarter of 2002 and has not yet completed its analysis to determine the
effect, if any, on its consolidated financial position and results of
operations.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform with current
year presentation.
2. Acquisitions
During 2001, the company acquired the remaining 10 percent interest in
Scientific and Business Minicomputers, Inc. ("SBM"). The cost of this
acquisition was $27,268,000.
During 2000, the company acquired California-based Wyle Electronics and Wyle
Systems (collectively, "Wyle"), part of the electronics distribution
businesses of Germany-based E.ON AG (formerly VEBA AG), and the open
computing alliance subsidiary of Merisel, Inc., one of the leading
distributors of Sun Microsystems products in North America. In addition, the
company acquired Tekelec Europe, one of Europe's leading distributors of
high-tech components and systems, and Jakob Hatteland Electronic AS, one of
the Nordic region's leading distributors of electronic components. The
company also acquired a majority interest in the electronics distribution
business of Rapac Electronics Ltd., one of the leading electronics
distribution groups in Israel, and Dicopel S.A. de C.V., one of the largest
electronics distributors in Mexico. The company increased its holdings in
both Silverstar Ltd. S.p.A. and Consan Incorporated to 100 percent and
acquired an additional 6 percent interest in SBM. The aggregate cost of
these acquisitions was $1,249,015,000, which includes 775,000 shares of the
company's common stock valued at $27,754,000.
Set forth below is the unaudited pro forma combined summary of operations for
the year ended December 31, 2000 as though the acquisitions made during 2000
occurred on January 1, 2000 (in thousands except per share data):
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000
----
Sales $15,943,194
Operating income 907,923
Earnings before income taxes
and minority interest 655,392
Net income 385,418
Earnings per share:
Basic 3.97
Diluted 3.89
Average number of shares
outstanding:
Basic 97,058
Diluted 99,184
The unaudited pro forma combined summary of operations does not purport to be
indicative of the results which actually would have been obtained if the
acquisitions had been made at the beginning of 2000 or of those results which
may be obtained in the future. The company has achieved cost savings from
the acquisitions made in 2000. The cost savings have not been reflected in
the unaudited pro forma combined summary of operations. In addition, the
unaudited pro forma combined summary does not reflect any sales attrition
which may result from the combinations. The unaudited pro forma combined
summary of operations includes the effects of the additional interest expense
on debt incurred in connection with the acquisitions as if the debt had been
outstanding from the beginning of the period presented. In addition, the
summary of operations includes amortization of the cost in excess of net
assets of companies acquired in connection with the acquisitions as if they
had been acquired from the beginning of the period presented.
The company recorded $33,151,000 as cost in excess of net assets of companies
acquired to integrate Wyle into the company. Of the total amount recorded,
$6,365,000 represented costs associated with the closing of various office
facilities and distribution and value-added centers, $8,576,000 represented
costs associated with severance and other personnel costs, $10,601,000
represented professional fees principally related to investment banking and
legal and accounting services, and $7,609,000 represented costs associated
with outside services related to the conversion of systems and certain other
costs of the integration of Wyle into the company. Of the total amount
recorded, $23,441,000 was spent as of December 31, 2001. Approximately
$2,205,000 of the remaining amount relates to severance and other personnel
costs to be paid in 2002, $4,105,000 relates to vacated facilities leased
with expiration dates through 2005, and the balance relates to various
license and maintenance agreement obligations, with various expiration dates
through 2003.
In connection with certain acquisitions, the company may be required to make
additional payments that are contingent upon the acquired businesses
achieving certain operating goals. During 2000, the company made additional
payments of $2,365,000, which have been capitalized as cost in excess of net
assets of companies acquired.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of each acquisition has been allocated among the net assets acquired
on the basis of the respective fair values of the assets acquired and
liabilities assumed. For financial reporting purposes, the acquisitions are
accounted for as purchase transactions in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations." Accordingly, the
consolidated results of the company in 2000 include these companies from
their respective dates of acquisition. The aggregate consideration paid for
all acquisitions in 2000 exceeded the net assets acquired by $356,488,000.
3. Investments
During 2001, the company acquired an additional interest in Marubun
Corporation, the largest non-affiliated franchised distributor of electronic
components and supply chain services in Japan. This investment is accounted
for using fair value.
The company holds an interest in eConnections, which serves suppliers,
distributors, original equipment manufacturers, and other members of the
electronics supply chain continuum by providing them with integrated,
independent, and custom-tailored solutions, improving communications, cutting
costs, and enhancing margins; an interest in Viacore, Inc., an eBusiness
service provider of a reliable and transparent eBusiness hub for business
processes between trading partners in the information technology supply
chain; and an interest in Buckaroo.com, an Internet marketplace for the DRAM
industry. These investments are accounted for using fair value.
In October 2000, QuestLink Technology, Inc. and ChipCenter LLC, two e-
commerce companies the company had previously invested in, agreed to be
merged to form eChips, a sales and marketing channel that serves the global
electronics engineering and purchasing communities. This investment was
accounted for using the equity method. During 2001, the merged businesses
went into liquidation.
In addition, the company has a 50 percent interest in Marubun/Arrow, a joint
venture with Marubun Corporation, and a 50 percent interest in Altech
Industries (Pty.) Ltd., a joint venture with Allied Technologies Limited, a
South African electronics distributor. These investments are accounted for
using the equity method.
4. Debt
In February 2001, the company entered into a three-year revolving credit
facility providing up to $625,000,000 of available credit. This facility
replaced the previously existing global multi-currency credit facility. The
three-year revolving credit facility, as amended, bears interest at the
applicable eurocurrency rate plus a margin of .725%. The company pays the
banks a facility fee of .175% per annum. At December 31, 2001, the company
had no outstanding borrowings under this facility.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the first quarter of 2001, the company completed the sale of
$1,523,750,000 principal amount at maturity of zero coupon convertible senior
debentures (the "convertible debentures") due February 21, 2021. The
convertible debentures were priced with a yield to maturity of 4% per annum
and may be converted into the company's common stock at a conversion price of
$37.83 per share. The company, at its option, may redeem all or part of the
convertible debentures (at the issue price plus accrued original issue
discount through the date of redemption) any time on or after February 21,
2006. Holders of the convertible debentures may require the company to
repurchase the convertible debentures (at the issue price plus accrued
original issue discount through the date of repurchase) on February 21, 2006,
2011, or 2016. The net proceeds resulting from this transaction of
$671,839,000 were used to repay short-term debt.
In February 2001, the company entered into a 364-day $625,000,000 credit
facility. The company chose not to renew this facility in February 2002
because of its large cash balance and reduced need to finance investments in
working capital.
In March 2001, the company entered into a one-year, renewable $750,000,000
asset securitization program (the "program") whereby it sells, on a revolving
basis, an individual interest in a pool of its trade accounts receivable.
Under the program, the company sells receivables in securitization
transactions and retains a subordinated interest and servicing rights to
those receivables. At December 31, 2001, the company had no outstanding
balances from the sale of these receivables, and had a subordinated interest
in the remaining outstanding receivables of $788,519,000. In the event that
the company had amounts outstanding under the program, the indebtedness and
related accounts receivable would not be recorded on the company's balance
sheet. In March 2002, the company renewed the program for an additional year.
Accounts receivable consists of the following at December 31 (in thousands):
2001 2000
---- ----
Accounts receivable $ 754,126 $2,743,737
Retained interest in securitized
accounts receivable 788,519 -
Allowance for doubtful accounts (84,092) (108,142)
---------- ----------
$1,458,553 $2,635,595
========== ==========
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, short-term debt consists of the following (in thousands):
2001 2000
---- ----
Floating rate notes $ - $ 200,000
Global multi-currency facility - 388,069
Short-term credit facility - 400,000
Commercial paper - 541,366
Money market loan - 41,000
Other short-term borrowings 37,289 255,665
------- -----------
37,289 1,826,100
Less debt refinanced - (1,296,839)
------- -----------
$37,289 $ 529,261
======= ===========
The floating rate notes bore interest at LIBOR plus 1%, with interest payable
on a quarterly basis. In October 2001, the company paid off the $200,000,000
floating rate notes.
In December 2000, the company entered into a $400,000,000 short-term credit
facility which was repaid in February 2001.
In November 1999, the company established a commercial paper program,
providing for the issuance of up to $1,000,000,000 in aggregate maturity
value of commercial paper. At December 31, 2001, the company had no
outstanding commercial paper. Interest rates on outstanding commercial paper
borrowings as of December 31, 2000 had an effective average rate of 7.35%.
Other short-term borrowings are principally utilized to support the working
capital requirements of certain foreign operations. The weighted average
interest rates on these borrowings at December 31, 2001 and 2000 were 4.8%
and 5.5%, respectively.
Long-term debt consists of the following at December 31 (in thousands):
2001 2000
---- ----
6.45% senior notes, due 2003 $ 249,945 $ 249,915
8.2% senior debentures, due 2003 424,870 424,796
8.7% senior debentures, due 2005 249,996 249,995
7% senior notes, due 2007 198,728 198,477
9.15% senior debentures, due 2010 199,970 199,967
6 7/8% senior debentures, due 2018 196,567 196,357
7 1/2% senior debentures, due 2027 196,491 196,351
Zero coupon convertible debentures, due 2021 713,871 -
Other obligations with various
interest rates and due dates 11,545 14,974
Short-term debt refinanced - 1,296,839
---------- ----------
$2,441,983 $3,027,671
========== ==========
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 7% senior notes and the 7 1/2% senior debentures are not redeemable prior
to their maturity. The 6.45% senior notes, 8.2% senior debentures, 8.7%
senior debentures, 9.15% senior debentures, and 6 7/8% senior debentures may
be prepaid at the option of the company subject to a "make whole" clause.
At December 31, 2001, the estimated fair market value of the 6.45% senior
notes was 99 percent of par, the 8.2% senior debentures was 102 percent of
par, the 8.7% senior debentures was 102 percent of par, the 7% senior notes
was 94 percent of par, the 9.15% senior debentures was 101 percent of par,
the 6 7/8% senior debentures was 78 percent of par, the 7 1/2% senior
debentures was 79 percent of par, and the convertible debentures was 48
percent of par. The balance of the company's borrowings approximates their
fair value.
Annual payments of borrowings during each of the years 2002 through 2006 are
$37,289,000, $666,585,000, $681,000, $250,421,000, and $472,000,
respectively, and $1,523,824,000 for all years thereafter.
The three-year revolving credit facility, the asset securitization program,
and the 6.45% senior notes (the "notes"), as amended, limit the incurrence of
additional borrowings and require that working capital, net worth, and
certain other financial ratios be maintained at designated levels. In
addition, in the event that the company's credit rating is reduced to non-
investment grade by either Standard & Poor's or Moody's Investors Service,
Inc., the company would no longer be able to utilize its asset securitization
program in its present form, and the company would be required to make an
offer to the holders of the notes, allowing each such holder to put all or a
part of the notes held by it to the company for payment within 60 days of
such offer. The triggering of the right to put the notes would constitute an
event of default under the company's three-year revolving credit facility and
it may result in the termination of the agreement and declaration of any
outstanding amounts to be due and payable. At December 31, 2001, there were
no amounts outstanding under the asset securitization program or the three-year
revolving credit facility. The company has sufficient cash balances to meet
the requirements to pay, in part or in whole, the $250,000,000 of the notes
that may come due in the event of such a downgrade, as well as sufficient
cash balances to finance its operations, based upon current business
conditions, for more than 12 months.
5. Income Taxes
The provision for (benefit from) income taxes for the years ended December 31
consists of the following (in thousands):
2001 2000 1999
---- ---- ----
Current
- -------
Federal $(60,260) $105,007 $ 42,189
State (13,220) 25,350 9,968
Foreign 44,840 144,892 40,014
-------- -------- -------
(28,640) 275,249 92,171
-------- -------- -------
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred
- --------
Federal (10,215) (5,044) 8,922
State (2,538) (1,253) 2,144
Foreign 7,204 (20,757) (1,449)
-------- -------- --------
(5,549) (27,054) 9,617
-------- -------- --------
$(34,189) $248,195 $101,788
======== ======== ========
The principal causes of the difference between the U.S. statutory and
effective income tax rates for the years ended December 31 are as follows (in
thousands):
2001 2000 1999
---- ---- ----
Provision (benefit) at statutory
rate $(38,253) $213,546 $ 80,921
State taxes, net of federal
benefit (10,243) 15,663 7,873
Foreign tax rate differential 1,812 4,953 2,860
Non-deductible goodwill 11,741 8,537 6,904
Other 754 5,496 3,230
-------- -------- --------
$(34,189) $248,195 $101,788
======== ======== ========
For financial reporting purposes, earnings (loss) before income taxes
attributable to the United States was $(227,036,000) in 2001, $277,188,000 in
2000, and $131,007,000 in 1999, and earnings before income taxes attributable
to foreign operations was $117,742,000 in 2001, $332,943,000 in 2000, and
$100,198,000 in 1999.
The significant components of the company's deferred tax assets at December
31, which are included in prepaid expenses and other assets, are as follows
(in thousands):
2001 2000
---- ----
Inventory adjustments $ 41,461 $ 36,625
Allowance for doubtful accounts 26,287 26,171
Accrued expenses 10,214 6,092
Integration reserves 62,724 57,361
Restructuring reserves 27,711 -
Other 7,415 2,824
-------- --------
$175,812 $129,073
======== ========
Deferred tax liabilities, which are included in other liabilities, were
$39,956,000 and $20,995,000 at December 31, 2001 and 2000, respectively. The
deferred tax liabilities are principally the result of the differences in the
bases of the company's German assets and liabilities for tax and financial
reporting purposes.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Shareholders' Equity
The company has 2,000,000 authorized shares of serial preferred stock with a
par value of $1.
In 1988, the company paid a dividend of one preferred share purchase right on
each outstanding share of common stock. Each right, as amended, entitles a
shareholder to purchase one one-hundredth of a share of a new series of
preferred stock at an exercise price of $50 (the "exercise price"). The
rights are exercisable only if a person or group acquires 20 percent or more
of the company's common stock or announces a tender or exchange offer that
will result in such person or group acquiring 30 percent or more of the
company's common stock. Rights owned by the person acquiring such stock or
transferees thereof will automatically be void. Each other right will become
a right to buy, at the exercise price, that number of shares of common stock
having a market value of twice the exercise price. The rights, which do not
have voting rights, may be redeemed by the company at a price of $.01 per
right at any time until ten days after a 20 percent ownership position has
been acquired. In the event that the company merges with, or transfers 50
percent or more of its consolidated assets or earning power to, any person or
group after the rights become exercisable, holders of the rights may
purchase, at the exercise price, a number of shares of common stock of the
acquiring entity having a market value equal to twice the exercise price.
The rights, as amended, expire on March 1, 2008.
7. Special Charges
During the third quarter of 2001, the company recorded restructuring costs
and other special charges totaling $227,622,000 ($145,079,000 after taxes).
The special charges include $77,147,000 primarily for costs associated with
headcount reductions, the consolidation of fifteen facilities, and the
termination of certain customer engagements. An additional $97,475,000 and
$53,000,000, respectively, relate to valuation adjustments to inventories and
Internet investments. Of the total charges recorded, approximately
$30,000,000 is expected to be spent in cash, of which $12,594,000 was spent
in 2001. Of the remaining amount, $10,969,000 is expected to be spent in
2002.
During the first quarter of 2001, the company recorded an integration charge
of $9,375,000 ($5,719,000 after taxes) related to the acquisition of Wyle.
Of the total amount recorded, $1,433,000 represented costs associated with
the closing of various office facilities and distribution and value-added
centers, $4,052,000 represented costs associated with personnel, $2,703,000
represented costs associated with outside services related to the conversion
of systems and certain other costs of the integration of Wyle into the
company, and $1,187,000 represented the write-down of property, plant and
equipment to estimated fair value. Of the expected $8,188,000 to be spent in
cash in connection with the acquisition and integration of Wyle, $7,094,000
was spent as of December 31, 2001. The remaining amount primarily relates to
vacated facilities leased with various expiration dates through 2003.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings (Loss) Per Share
The following table sets forth the calculation of basic and diluted earnings
(loss) per share ("EPS") for the years ended December 31 (in thousands except
per share data):
2001 2000 1999
---- ---- ----
Net income (loss) $(73,826)(a) $357,931 $124,153(b)
======== ======== ========
Weighted average shares
outstanding for basic EPS 98,384 96,707 95,123
Net effect of dilutive stock
options and restricted stock awards - 2,126 922
-------- -------- --------
Weighted average shares
outstanding for diluted EPS 98,384 98,833 96,045
======== ======== ========
Basic EPS $(.75)(a) $3.70 $1.31(b)
===== ===== =====
Diluted EPS (c) $(.75)(a) $3.62 $1.29(b)
===== ===== =====
(a) Net loss includes restructuring costs and other special charges of
$227,622,000 ($145,079,000 after taxes) and an integration charge of
$9,375,000 ($5,719,000 after taxes) related to the acquisition of Wyle.
Excluding these charges, net income and net income per share on a basic
and diluted basis would have been $76,972,000, $.78, and $.77, respectively.
(b) Net income includes a special charge totaling $24,560,000 ($16,480,000
after taxes) related to the company's acquisition and integration of Richey
Electronics, Inc. ("Richey") and the electronics distribution group of
Bell Industries, Inc. ("EDG"). Excluding the integration charge, net income
and net income per share on a basic and diluted basis would have been
$140,633,000, $1.48, and $1.46, respectively.
(c) Diluted EPS for the year ended December 31, 2001 excludes the effect of
1,136,000 shares related to stock options and 15,587,000 shares related
to convertible debentures as the impact of such common stock equivalents is
anti-dilutive.
9. Employee Stock Plans
Restricted Stock Plan
- ---------------------
Under the terms of the Arrow Electronics, Inc. Restricted Stock Plan (the
"Plan"), a maximum of 3,960,000 shares of common stock may be awarded at the
discretion of the board of directors to key employees of the company.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares awarded under the Plan may not be sold, assigned, transferred,
pledged, hypothecated, or otherwise disposed of, except as provided in the
Plan. Shares awarded become free of forfeiture restrictions (i.e., vest)
generally over a four-year period. The company awarded 175,165 shares of
common stock to 129 key employees in early 2002 in respect of 2001, 68,450
shares of common stock to 16 key employees during 2001, 211,200 shares of
common stock to 115 key employees in early 2001 in respect of 2000, 134,784
shares of common stock to 43 key employees during 2000, 182,525 shares of
common stock to 106 key employees in early 2000 in respect of 1999, and
325,750 shares of common stock to 114 key employees during 1999.
Forfeitures of shares awarded under the Plan were 45,679 during 2001, 31,624
during 2000, and 10,335 during 1999, respectively. The aggregate market
value of outstanding awards under the Plan at the respective dates of award
is being amortized over the vesting period, and the unamortized balance is
included in shareholders' equity as unamortized employee stock awards.
Stock Option Plans
- ------------------
Under the terms of various Arrow Electronics, Inc. Stock Option Plans (the
"Option Plans"), both nonqualified and incentive stock options for an
aggregate of 21,500,000 shares of common stock were authorized for grant to
directors and key employees at prices determined by the board of directors at
its discretion or, in the case of incentive stock options, prices equal to
the fair market value of the shares at the dates of grant. Options granted
under the Option Plans after May 1997 become exercisable in equal installments
over a four-year period. Previously, options became exercisable over a two- or
three-year period. Options currently outstanding have terms of ten years.
Included in the 1999 options granted are the options converted on January 7,
1999, relating to the acquisition of Richey. Such options totaled 233,381,
with a weighted average exercise price of $21.17 per share.
The following information relates to the Option Plans for the years ended
December 31:
Average Average Average
Exercise Exercise Exercise
2001 Price 2000 Price 1999 Price
---------- -------- --------- -------- --------- --------
Options outstanding
at beginning of
year 10,405,615 $23.22 9,846,680 $21.90 7,562,149 $23.41
Granted 1,149,250 25.00 2,327,764 27.55 2,914,601 18.20
Exercised (1,173,868) 18.72 (1,324,321) 21.09 (93,956) 13.60
Forfeited (455,375) 23.72 (444,508) 22.96 (536,114) 24.51
---------- ---------- ---------
Options outstanding
at end of year 9,925,622 $23.94 10,405,615 $23.22 9,846,680 $21.90
========== ========== =========
Prices per share of
options outstanding $11.94-41.25 $5.94-41.25 $1.81-34.00
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options available for future grant:
Beginning of year 3,622,944 5,533,128 7,255,214
End of year 2,929,069 3,622,944 5,533,128
The following table summarizes information about stock options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
----------------------------------------- ---------------------
Weighted Weighted Weighted
Maximum Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
- -------- ----------- ---------------- -------- ----------- --------
$20 1,483,947 66 months $16.21 928,959 $16.56
25 2,996,787 72 months 21.25 2,245,706 21.39
30 4,232,921 96 months 26.15 1,330,976 26.20
35+ 1,211,967 78 months 32.33 995,618 32.03
--------- ---------
All 9,925,622 82 months $23.94 5,501,259 $23.66
========= =========
As of March 1, 2002, 9,656,449 options were outstanding with a weighted
average exercise price of $24.04 and a weighted average remaining contractual
life of 80 months.
The company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
the Option Plans.
Had stock-based compensation costs been determined as prescribed by FASB
Statement No. 123, "Accounting for Stock-Based Compensation," net loss would
have increased by $9,139,000 ($.09 per share on a diluted basis) in 2001 and
net income would have been reduced by $6,144,000 ($.08 per share on a diluted
basis) in 2000 and $4,143,000 ($.03 per share on a diluted basis) in 1999.
The estimated weighted average fair value, utilizing the Black-Scholes
option-pricing model, at the date of option grant, during 2001, 2000, and
1999 was $12.30, $12.25, and $7.07, per share, respectively. The weighted
average fair value was estimated using the following assumptions:
2001 2000 1999
---- ---- ----
Expected life (months) 48 48 48
Risk-free interest rate (percent) 3.6 5.5 5.8
Expected volatility (percent) 55 50 40
There is no expected dividend yield.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Ownership Plan
- --------------------
The company maintains a noncontributory employee stock ownership plan which
enables most North American employees to acquire shares of the company's
common stock. Contributions, which are determined by the board of directors,
are in the form of common stock or cash which is used to purchase the
company's common stock for the benefit of participating employees.
Contributions to the plan for 2001, 2000, and 1999 amounted to $10,040,000,
$8,128,000, and $6,810,000, respectively.
10. Employee Benefit Plans
The company has a defined contribution plan for eligible employees which
qualifies under Section 401(k) of the Internal Revenue Code. The company's
contribution to the plan, which is based on a specified percentage of
employee contributions, amounted to $9,026,000, $7,279,000, and $5,801,000 in
2001, 2000, and 1999, respectively. Certain domestic and foreign
subsidiaries maintain separate defined contribution plans for their employees
and made contributions thereunder which amounted to $1,863,000, $2,510,000,
and $2,056,000 in 2001, 2000, and 1999, respectively. As a result of the
Wyle acquisition, the 401(k) plan for Wyle employees was merged with the
company's 401(k) plan on April 2, 2001.
The company maintains an unfunded supplemental retirement plan for certain
executives. The board of directors determines those employees eligible to
participate in the plan and their maximum annual benefit upon retirement.
The benefit obligation at December 31, 2001 and 2000 was $22,313,000 and
$20,325,000, respectively. The assumptions utilized in determining this
amount include a discount rate of 5.5%. Wyle also sponsored a supplemental
executive retirement plan for certain of its executives. Benefit accruals
for the Wyle plan were frozen as of December 31, 2000. The benefit
obligation at December 31, 2001 and 2000 was $6,738,000 and $6,120,000,
respectively. The assumptions utilized in determining this amount include a
discount rate of 7.25% and 7.5%, respectively. Expenses relating to the plans
were $3,548,000, $4,597,000, and $2,150,000 for the years ended December 31,
2001, 2000, and 1999, respectively.
Wyle provided retirement benefits for certain employees under a defined
benefit plan. Benefits under this plan were frozen as of December 31, 2000
and former participants may now participate in the company's employee
stock ownership plan. Pension information for the years ended December 31 is
as follows (dollars in thousands):
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001 2000
---- ----
Benefit obligation at end of year $75,866 $75,321
Fair value of plan assets at end of year 76,564 80,219
Funded status of the plan:
Funded status $ 698 $ 4,899
Unamortized net loss 7,446 1,636
------- -------
Net amount recognized $ 8,144 $ 6,535
======= =======
Weighted average assumptions:
Discount rate 7.25% 7.50%
Expected return on assets 8.50% 8.50%
11. Lease Commitments
The company leases certain office, distribution, and other property under
noncancelable operating leases expiring at various dates through 2053.
Rental expense under noncancelable operating leases, net of sublease income
of $3,212,000, $3,151,000, and $3,362,000 in 2001, 2000, and 1999,
respectively, amounted to $59,753,000 in 2001, $47,863,000 in 2000, and
$40,382,000 in 1999. Aggregate minimum rental commitments under all
noncancelable operating leases, exclusive of real estate taxes, insurance,
and leases related to facilities closed as a result of the integration of
acquired businesses and the restructuring of the company, are $55,503,000 in
2002, $43,931,000 in 2003, $36,568,000 in 2004, $22,649,000 in 2005,
$18,209,000 in 2006, and $78,464,000 thereafter. Minimum rental commitments
for leases related to facilities closed as a result of the integration of
acquired businesses and the restructuring of the company are $6,819,000 in
2002, $5,842,000 in 2003, $4,551,000 in 2004, $2,326,000 in 2005, $2,147,000
in 2006, and $2,094,000 thereafter.
12. Financial Instruments
The company enters into foreign exchange forward contracts (the "contracts")
to mitigate the impact of changes in foreign currency exchange rates,
principally the Euro, Swedish krona, Italian lira, and British pound
sterling. These contracts are executed to facilitate the netting of
offsetting foreign currency exposures resulting from inventory purchases and
sales and generally have terms of no more than three months. Gains or losses
on these contracts are deferred and recognized when the underlying future
purchase or sale is recognized. The company does not enter into forward
contracts for trading purposes. The risk of loss on a contract is the risk
of nonperformance by the counterparties which the company minimizes by
limiting its counterparties to major financial institutions. The fair value
of the contracts is estimated using market quotes. The notional amount of the
contracts at December 31, 2001 and 2000, was $151,507,000 and $81,736,000,
respectively. The carrying amounts, which are nominal, approximated fair
value at December 31, 2001 and 2000.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Segment and Geographic Information
The company is engaged in the distribution of electronic components to
original equipment and contract manufacturers and computer products to
value-added resellers and original equipment manufacturers. Operating income
for the electronic components and computer products segments excludes the
effect of special charges relating to the integration of acquired businesses
and restructuring costs. Computer products includes North American Computer
Products together with UK Microtronica, ATD (in Iberia), and Arrow Computer
Products (in France). The prior years have been restated for comparative
purposes.
Revenue, operating income (loss), and total assets by segment are as follows
(in thousands):
Electronic Computer
Components Products Corporate Total
---------- -------- --------- -----
2001
- ----
Revenue from external
customers $7,286,806 $2,840,798 $ - $10,127,604
Operating income (loss) 412,961 51,144 (307,502)(a) 156,603(a)
Total assets 3,799,743 968,362 590,879 5,358,984
2000
- ----
Revenue from external
customers $10,056,564 $2,902,686 $ - $12,959,250
Operating income (loss) 887,688 38,698 (142,279) 784,107
Total assets 6,005,100 1,343,584 255,857 7,604,541
1999
- ----
Revenue from external
customers $6,338,754 $2,973,871 $ - $9,312,625
Operating income (loss) 368,586 56,119 (86,044)(b) 338,661(b)
Total assets 3,377,660 931,378 174,217 4,483,255
(a) Includes restructuring costs and other special charges of $174,622,000
and an integration charge of $9,375,000 related to the acquisition of Wyle.
(b) Includes a special charge totaling $24,560,000 associated with the
acquisition and integration of Richey and EDG.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the company's philosophy of maximizing operating efficiencies
through the centralization of certain functions, selected fixed assets and
related depreciation, borrowings, and goodwill amortization are not directly
attributable to the individual operating segments.
Revenues, by geographic area, for the years ended December 31 are as follows
(in thousands):
2001 2000 1999
---- ---- ----
Americas $ 6,282,725 $ 8,089,687 $6,160,726
Europe 2,974,837 3,474,990 2,393,705
Asia/Pacific 870,042 1,394,573 758,194
----------- ----------- ----------
$10,127,604 $12,959,250 $9,312,625
=========== =========== ==========
Total assets, by geographic area, at December 31 are as follows (in
thousands):
2001 2000 1999
---- ---- ----
Americas $3,253,575 $4,840,169 $2,642,601
Europe 1,771,137 2,104,837 1,460,439
Asia/Pacific 334,272 659,535 380,215
---------- ---------- ----------
$5,358,984 $7,604,541 $4,483,255
========== ========== ==========
14. Quarterly Financial Data (Unaudited)
A summary of the company's quarterly results of operations follows (in
thousands except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2001
- ----
Sales $3,275,747 $2,510,041 $2,182,561 $2,159,255
Gross profit 548,282 397,946 231,403 (b) 340,525
Net income (loss) 71,679(a) 6,954 (159,088)(b) 6,629
Earnings (loss)
per share:
Basic .73(a) .07 (1.61)(b) .07
Diluted .68(a) .07 (1.61)(b) .07
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000
- ----
Sales $2,769,424 $3,161,670 $3,337,068 $3,691,088
Gross profit 422,999 490,300 531,706 588,936
Net income 63,059 83,970 101,943 108,959
Earnings per share:
Basic .66 .87 1.05 1.12
Diluted .65 .84 1.02 1.09
(a) Net income includes an integration charge totaling $9,375,000 ($5,719,000
after taxes) associated with the acquisition of Wyle. Excluding this
charge, net income would have been $77,398,000 or $.79 and $.74 per share
on a basic and diluted basis, respectively.
(b) Gross profit and net loss include restructuring costs and other special
charges totaling $97,475,000 and $227,622,000 ($145,079,000 after taxes),
respectively. Excluding these charges, gross profit and net loss would
have been $328,878,000 and $14,009,000, respectively, or $.14 per share
on a basic and diluted basis.
Item 9. Changes in and disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
See "Executive Officers" in Item 1 above. In addition, the information set
forth under the heading "Election of Directors" in the company's Proxy
Statement filed in connection with the Annual Meeting of Shareholders
scheduled to be held May 23, 2002 is hereby incorporated herein by reference.
Item 11. Executive Compensation.
----------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 23, 2002 is hereby
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information is included in the company's Proxy Statement filed in
connection with the Annual Meeting of Shareholders scheduled to be held May
23, 2002 is hereby incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information is included in the company's Proxy Statement filed in
connection with the Annual Meeting of Shareholders scheduled to be held
May 23, 2002 is hereby incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
Page
----
1. Financial Statements.
Report of Ernst & Young LLP, Independent Auditors 16
Consolidated Statement of Operations for the years
ended December 31, 2001, 2000, and 1999 18
Consolidated Balance Sheet at December 31, 2001
and 2000 19
Consolidated Statement of Cash Flows for the
years ended December 31, 2001, 2000, and 1999 20
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 2001, 2000,
and 1999 21
Notes to Consolidated Financial Statements for
the years ended December 31, 2001, 2000, and 1999 23
2. Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts 49
All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements, including the notes
thereto.
3. Exhibits.
See index of Exhibits included on pages 39 - 47.
(b) Reports on Form 8-K.
None.
(a)3. Exhibits.
(2)(a)(i) Share Purchase Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Aquarius
Investments Ltd., Andromeda Investments Ltd., and the other persons named
therein (incorporated by reference to Exhibit 2.2 to the company's
Registration Statement on Form S-3, Registration No. 33-42176).
(ii) Standstill Agreement, dated as of October 10,
1991, among Arrow Electronics, Inc., Aquarius Investments Ltd., Andromeda
Investments Ltd., and the other persons named therein (incorporated by
reference to Exhibit 4.1 to the company's Registration Statement on Form S-3,
Registration No. 33-42176).
(iii) Shareholder's Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Giorgio Ghezzi,
Germano Fanelli, and Renzo Ghezzi (incorporated by reference to Exhibit
2(f)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-4482).
(b) Agreement and Plan of Merger, dated as of June
24, 1994, by and among Arrow Electronics, Inc., AFG Acquisition Company and
Gates/FA Distributing, Inc. (incorporated by reference to Exhibit 2 to the
company's Registration Statement on Form S-4, Commission File No. 35-54413).
(c) Agreement and Plan of Merger, dated as of
September 21, 1994, by and among Arrow Electronics, Inc., MTA Acquisition
Company and Anthem Electronics, Inc. (incorporated by reference to Exhibit 2
to the company's Registration Statement on Form S-4, Commission File No. 33-
55645).
(d) Master Agreement, dated as of December 20, 1996,
among Premier Farnell plc and Arrow Electronics, Inc. relating to the sale
and purchase of the Farnell Volume Business (incorporated by reference to
Exhibit 2(d) to the company's Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 1-4482).
(e)(i) Agreement and Plan of Merger, dated as of
September 30, 1998, by and among Arrow Electronics, Inc., Lear Acquisition
Corp. and Richey Electronics, Inc. (incorporated by reference to Exhibit 2(e)
to the company's Annual Report on Form 10-K for the year ended December 31,
1998, Commission File No. 1-4482).
(ii) Amendment to Agreement and Plan of Merger, dated
as of October 21, 1998 by and among Arrow Electronics, Inc., Lear Acquisition
Corp. and Richey Electronics, Inc. in 2(e)(i) above (incorporated by
reference to Exhibit 2(e)(i) to the company's Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 1-4482).
(f) Agreement of Purchase and Sale, dated as of
October 1, 1998, by and between Bell Industries, Inc. and Arrow Electronics,
Inc. (incorporated by reference to Exhibit 2(f) to the company's Annual
Report on Form 10-K for the year ended December 31, 1998, Commission File No.
1-4482).
(g) Share Purchase Agreement, dated as of February 7,
2000, by and between Arrow Electronics, Inc., Tekelec Airtronic, Zedtek,
Investitech, and Natec (incorporated by reference to Exhibit 2(g) to the
company's Annual Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 1-4482).
(h) Agreement for Sale and Purchase of Shares of
Jakob Hatteland Electronic AS, dated as of April 20, 2000, between Jakob
Hatteland Holding AS, Jakob Hatteland, and Arrow Electronics, Inc.
(incorporated by reference to Exhibit 2(h) to the company's Annual Report on
Form 10-K for the year ended December 31, 2000, Commission File No. 1-4482).
(i) Share Purchase Agreement, dated as of August 7,
2000, among VEBA Electronics GmbH, EBV Verwaltungs GmbH i.L., Viterra
Grundstucke Verwaltungs GmbH, VEBA Electronics LLC, VEBA Electronics
Beteiligungs GmbH, VEBA Electronics (UK) Plc, Raab Karcher Electronics
Systems Plc and E.ON AG and Arrow Electronics, Inc., Avnet, Inc., and
Cherrybright Limited regarding the sale and purchase of the VEBA electronics
distribution group (incorporated by reference to Exhibit 2(i) to the
company's Annual Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 1-4482).
(j) Stock Sale Agreement, dated as of September 15,
2000, by and among Merisel, Inc., Merisel Americas, Inc., and Arrow
Electronics, Inc. (incorporated by reference to Exhibit 2(j) to the company's
Annual Report on Form 10-K for the year ended December 31, 2000, Commission
File No. 1-4482).
(3)(a)(i) Restated Certificate of Incorporation of the
company, as amended (incorporated by reference to Exhibit 3(a) to the
company's Annual Report on Form 10-K for the year ended December 31, 1994
Commission File No. 1-4482).
(ii) Certificate of Amendment of the Certificate of
Incorporation of Arrow Electronics, Inc., dated as of August 30, 1996
(incorporated by reference to Exhibit 3 to the company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, Commission File No. 1-
4482).
(iii) Certificate of Amendment of the Restated
Certificate of Incorporation of the company, dated as of October 12, 2000
(incorporated by reference to Exhibit 3(a)(iii) to the company's Annual
Report on Form 10-K for the year ended December 31, 2000, Commission File No.
1-4482).
(b) By-Laws of the company, as amended (incorporated
by reference to Exhibit 3(b) to the company's Annual Report on Form 10-K for
the year ended December 31, 1986, Commission File No. 1-4482).
(4)(a)(i) Rights Agreement dated as of March 2, 1988
between Arrow Electronics, Inc. and Manufacturers Hanover Trust Company, as
Rights Agent, which includes as Exhibit A a Certificate of Amendment of the
Restated Certificate of Incorporation for Arrow Electronics, Inc. for the
Participating Preferred Stock, as Exhibit B a letter to shareholders
describing the Rights and a summary of the provisions of the Rights Agreement
and as Exhibit C the forms of Rights Certificate and Election to Exercise
(incorporated by reference to Exhibit 1 to the company's Current Report on
Form 8-K dated March 3, 1988, Commission File No. 1-4482).
(ii) First Amendment, dated June 30, 1989, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(b) to the Company's Current Report on Form 8-K dated June 30, 1989,
Commission File No. 1-4482).
(iii) Second Amendment, dated June 8, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(i)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
(iv) Third Amendment, dated July 19, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(i)(iv) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
(v) Fourth Amendment, dated August 26, 1991, to the
Rights Agreement in (4)(a)(i) above (incorporated by reference to Exhibit
4(i)(v) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
(vi) Fifth Amendment, dated February 25, 1998, to the
Rights Agreement in (4)(a)(i)above (incorporated by reference to Exhibit 7 to
the company's current report on Form 8 A/A dated March 2, 1998, Commission
File No. 1-4482).
(b)(i) Indenture, dated as of January 15, 1997, between
the company and the Bank of Montreal Trust Company, as Trustee (incorporated
by reference to Exhibit 4(b)(i) to the company's Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 1-4482).
(ii) Officers' Certificate, as defined by the
Indenture in 4(b)(i) above, dated as of January 22, 1997, with respect to the
company's $200,000,000 7% Senior Notes due 2007 and $200,000,000 7 1/2%
Senior Debentures due 2027 (incorporated by reference to Exhibit 4 (b)(ii) to
the company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 1-4482).
(iii) Officers' Certificate, as defined by the
indenture in 4(b)(i) above, dated as of January 15, 1997, with respect to the
$200,000,000 6 7/8% Senior Debentures due 2018, dated as of May 29, 1998
(incoporated by reference to Exhibit 4(b)(iii) to the company's Annual Report
on Form 10-K for the year ended December 31, 1998, Commission File No. 1-
4482).
(iv) Officers' Certificate, as defined by the
indenture in 4(b)(i) above, dated as of January 15, 1997, with respect to the
$250,000,000 6.45% Senior Notes due 2003, dated October 21, 1998
(incorporated by reference to Exhibit 4(b)(iv) to the company's Annual Report
on Form 10-K for the year ended December 31, 1998, Commission No. 1-4482).
(v) Supplemental Indenture, dated as of February 21,
2001, between the company and The Bank of New York (as successor to the Bank
of Montreal Trust Company), as trustee (incorporated by reference to Exhibit
4.2 to the company's current report on Form 8-K dated February 15, 2001,
Commission File No. 1-4482).
(vi) Supplemental Indenture, dated as of December 31,
2001, between the company and The Bank of New York (as successor to the Bank
of Montreal Trust Company), as trustee.
(10)(a)(i) Arrow Electronics Savings Plan, as amended and
restated through December 28, 1994 (incorporated by reference to Exhibit
10(a)(iii) to the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, Commission File No. 1-4482).
(ii) Amendment No. 1, dated March 29, 1996, to the
Arrow Electronics Savings Plan in (10)(a)(i) above (incorporated by reference
to Exhibit 10(a)(iv) to the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 1-4482).
(iii) Second Amendment No. 1 to the Arrow Electronics
Savings Plan in (10)(a)(i) above (incorporated by reference to Exhibit
10(a)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission File No. 1-4482).
(iv) Amendment No. 3 to the Arrow Electronics Savings
Plan in (10)(a)(i) above (incorporated by reference to Exhibit 10(a)(iv) to
the company's Annual Report on Form 10-K for the year ended December 31,
1998, Commission File No. 1-4482).
(v) Amendment No. 4 dated May 26, 1998 to the Arrow
Electronics Savings Plan in (10)(a)(i) above (incorporated by reference to
Exhibit 10(a)(v) to the company's Annual Report on Form 10-K for the year
ended December 31, 1998, Commission File No. 1-4482).
(vi) Amendment, dated February 15, 2002, to the Arrow
Electronics Savings Plan in (10)(a)(i) above.
(vii) Amendment to the Arrow Electronics Savings Plan
in (10)(a)(i) above and the Veba Electronics, Inc. 401(k) Plan dated as of
April 2, 2001.
(viii) Amendment, dated February 15, 2002, to the
Farnell Electronic Services 401(k) Savings Plan.
(b)(i) Arrow Electronics Stock Ownership Plan, as
amended and restated through December 28, 1994 (incorporated by reference to
Exhibit 10(a)(i) to the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 1-4482).
(ii) Amendment No. 1, dated March 29, 1996, to the
Arrow Electronics Stock Ownership Plan in (10)(b)(i) above (incorporated by
reference to Exhibit 10(a)(ii) to the company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, Commission File No. 1-4482).
(iii) Second Amendment No. 1 to the Arrow Electronics
Stock Ownership Plan in 10(b)(i) above (incorporated by reference to Exhibit
10(a)(viii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission File No. 1-4482).
(iv) Amendment No. 3 to the Arrow Electronics Stock
Ownership Plan in 10(b)(i) above (incorporated by reference to Exhibit
10(a)(ix) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission File No. 1-4482).
(v) Amendment No. 4 dated May 26, 1998, to the Arrow
Electronics Stock Ownership Plan in 10(b)(i) above (incorporated by reference
to Exhibit 10(a)(x) to the company's Annual Report on Form 10-K for the year
ended December 31, 1998, Commission File No. 1-4482).
(c)(i) Employment Agreement, dated as of February 22,
1995, between the company and Stephen P. Kaufman (incorporated by reference
to Exhibit 10(c)(ii) to the company's Annual Report on Form 10-K for the year
ended December 31, 1995, Commission File No. 1-4482).
(ii) Amendment No. 1, dated as of December 31, 2001,
to Employment Agreement in (10)(c)(i) above by and between the company and
Stephen P. Kaufman.
(iii) Employment Agreement, dated as of January 1, 1998
between the company and Robert E. Klatell (incorporated by reference to
Exhibit 10(c)(iii) to the company's Annual Report on Form 10-K for the year
ended December 31, 1997, Commission File No. 1-4482).
(iv) Employment Agreement, dated as of July 1, 2000,
by and between the company and Francis M. Scricco (incorporated by reference
to Exhibit 10(c)(iii) to the company's Annual Report on Form 10-K for the
year ended December 31, 2000, Commission File No. 1-4482).
(v) Form of agreement between the company and the
employees parties to the Employment Agreements listed in 10(c)(i)-(iv) above
providing extended separation benefits under certain circumstances
(incorporated by reference to Exhibit 10(c)(iv) to the company's Annual
Report on Form 10-K for the year ended December 31, 1988, Commission File No.
1-4482).
(vi) Employment Agreement, dated as of September 21,
1994, between the company and Robert S. Throop (incorporated by reference to
Exhibit 10(c)(x) to the company's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File No. 1-4482).
(vii) Employment Agreement, dated as of September 1,
1997, between the company and Jan M. Salsgiver (incorporated by reference to
Exhibit 10(c)(vi) to the company's Annual Report on Form 10-K for the year
ended December 31, 1997, Commission File No. 1-4482).
(viii) Employment Agreement, dated as of January 1,
1998, between the company and Betty Jane Scheihing (incorporated by reference
to Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for the year
ended December 31, 1997, Commission File No. 1-4482).
(ix) Employment Agreement, dated as of March 1, 1999,
between the company and Sam R. Leno (incorporated by reference to Exhibit
10(b)(iv) to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, Commission No. 1-4482).
(x) Amended and Restated Employment Agreement, dated
as of December 22, 1999, by and between the company and Steven W. Menefee
(incorporated by reference to Exhibit 10(c)(vii) to the company's Annual
Report on Form 10-K for the year ended December 31, 2000, Commission File No.
1-4482).
(xi) Amendment made as of October 23, 2001 to the
Amended and Restated Employment Agreement in (10)(c)(x) above by and between
the company and Steven W. Menefee.
(xii) Employment Agreement, dated as of January 1,
2000, between the company and Arthur H. Baer (incorporated by reference to
Exhibit 10(c)(iv) to the company's Annual Report on Form 10-K for the year
ended December 31, 1999, Commission File No. 1-4482).
(xiii) Employment Agreement, dated as of January 1,
2001, by and between the company and Michael J. Long (incorporated by
reference to Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for
the year ended December 31, 2000, Commission File No. 1-4482).
(xiv) Employment Agreement, dated as of September 1,
2001, by and between the company and Peter S. Brown.
(xv) Employment Agreement, dated as of November 5,
2001, by and between the company and Mark F. Settle.
(xvi) Form of agreement between the company and all
corporate Vice Presidents, including the employees parties to the Employment
Agreements listed in 10(c)(vi)-(xv) above, providing extended separation
benefits under certain circumstances (incorporated by reference to Exhibit
10(c)(ix) to the company's Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 1-4482).
(xvii) Form of agreement between the company and non-
corporate officers providing extended separation benefits under certain
circumstances (incorporated by reference to Exhibit 10(c)(x) to the company's
Annual Report on Form 10-K for the year ended December 31, 1988, Commission
File No. 1-4482).
(xviii) Unfunded Pension Plan for Selected Executives of
Arrow Electronics, Inc., as amended (incorporated by reference to Exhibit
10(c)(xiii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 1-4482).
(xix) Amendment, dated May 1998, to the Unfunded
Pension Plan for Selected Executives of Arrow Electronics, Inc. (incorporated
by reference to Exhibit 10(b)(xiv) to the company's Annual Report on Form 10-
K for the year ended December 31, 1998, Commission File No. 1-4482).
(xx) Grantor Trust Agreement, dated June 25, 1998, by
and between Arrow Electronics, Inc. and Wachovia Bank, N.A. (incorporated by
reference to Exhibit 10(b)(xv) to the company's Annual Report on Form 10-K
for the year ended December 31, 1998, Commission File No. 1-4482).
(xxi) English translation of the Service Agreement,
dated January 19, 1993, between Spoerle Electronic and Carlo Giersch
(incorporated by reference to Exhibit 10(f)(v) to the company's Annual Report
on Form 10-K for the year ended December 31, 1992, Commission File No. 1-
4482).
(d)(i) Senior Note Purchase Agreement, dated as of
December 29, 1992, with respect to the company's 8.29 percent Senior Secured
Notes due 2000 (incorporated by reference to Exhibit 10(d) to the company's
Annual Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 1-4482).
(ii) First Amendment, dated as of December 22, 1993,
to the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by
reference to Exhibit 10(e)(ii) to the company's Annual Report on form 10-K
for the year ended December 31, 1993, Commission File No. 1-4482).
(iii) Second Amendment, dated as of April 24, 1995, to
the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by
reference to Exhibit 10(c)(iii) to the company's Annual Report on form 10-K
for the year ended December 31, 1996, Commission File No. 1-4482).
(iv) Third Amendment, dated as of December 23, 1996,
to the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by
reference to Exhibit 10(c)(iv) to the company's Annual Report on form 10-K
for the year ended December 31, 1996, Commission File No. 1-4482).
(v) Fourth Amendment, dated as of October 28, 1998,
to the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by
reference to Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 1-4482).
(vi) Fifth Amendment, dated as of March 25, 1999, to
the Senior Note Purchase Agreement in 10(d)(i) above (incorporated by
reference to Exhibit 10(d)(vi) to the company's Annual Report on Form 10-K
for the year ended December 31, 1999, Commission File No. 1-4482).
(e)(i) Amended and Restated Credit Agreement, dated as
of August 16, 1995 among Arrow Electronics, Inc., the several Banks from time
to time parties hereto, Bankers Trust Company and Chemical Bank, as agents
(incorporated by reference to Exhibit 10(d) to the company's Annual Report on
form 10-K for the year ended December 31, 1995, Commission File No. 1-4482).
(ii) First Amendment, dated as of September 30, 1996,
to the Arrow Electronics, Inc. Second Amended and Restated Credit Agreement,
dated August 16, 1995 in (10)(e)(i) above (incorporated by reference to
Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, Commission File No. 1-4482).
(f)(i) 364-Day Credit Agreement, dated as of March 30,
1999, among Arrow Electronics, Inc., the Subsidiary Borrowers, the several
banks and other financial institutions from time to time parties hereto,
Chase Securities Inc., as arranger, and The Chase Manhattan Bank, as
administrative agent (incorporated by reference to Exhibit 10(f) to the
company's Annual Report on Form 10-K for the year ended December 31, 1999,
Commission File No. 1-4482).
(ii) Amended and Restated 364-Day Credit Agreement,
dated as of March 24, 2000, among Arrow Electronics, Inc., the Subsidiary
Borrowers, the several banks from time to time parties hereto, The Bank of
Nova Scotia, Bank One, NA, Banque Nationale de Paris, New York Branch, Den
Danske Bank Aktieselskab, HSBC Bank USA, and Mellon Bank, N.A., as co-agents,
Bank of America, N.A., as syndication agent, Fleet Bank, N.A., as
documentation agent, and The Chase Manhattan Bank, as administrative agent
(incorporated by reference to Exhibit 10(g)(ii) to the company's Annual
Report on Form 10-K for the year ended December 31, 2000, Commission File No.
1-4482).
(iii) Amended and Restated 364-Day Credit Agreement,
dated as of February 22, 2001, among Arrow Electronics, Inc., the Subsidiary
Borrowers, the several banks from time to time parties hereto, Bank of
America, N.A., as syndication agent, Fleet National Bank, as documentation
agent, and The Chase Manhattan Bank, as administrative agent (incorporated by
reference to Exhibit 10(g)(i) to the company's Annual Report on Form 10-K for
the year ended December 31, 2000, Commission File No. 1-4482).
(iv) First Amendment, dated as of November 29, 2001,
to the Amended and Restated 364-Day Credit Agreement in (10)(f)(iii) above
among Arrow Electronics, Inc., the Subsidiary Borrowers, the several banks
and other financial institutions from time to time parties thereto, Bank of
America, N.A., as syndication agent, Fleet National Bank, as documentation
agent and JPMorgan Chase Bank, as administrative agent.
(g) Commercial Paper Private Placement Agreement, dated
as of November 9, 1999, among Arrow Electronics, Inc., as issuer, and Chase
Securities Inc., Bank of America Securities LLC, Goldman, Sachs & Co., and
Morgan Stanley & Co. Incorporated as placement agents (incorporated by
reference to Exhibit 10(g) to the company's Annual Report on Form 10-K for
the year ended December 31, 1999, Commission File No. 1-4482).
(h) $120,000,000 Arrow Electronics, Inc. Floating Rate
Notes due November 24, 2000, dated as of November 19, 1999, among Arrow
Electronics, Inc. and Chase Securities Inc. and Bank of America Securities
LLC as underwriters (incorporated by reference to Exhibit 4.1 to the
company's Registration Statement on Form S-3, Registration No. 333-91387).
(i)(i) 8.20% Senior Exchange Notes due October 1, 2003,
dated as of October 6, 2000, among Arrow Electronics, Inc. and Goldman, Sachs
& Co., Chase Securities Inc., Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche
Bank Securities Inc., Fleet Securities, Inc., and HSBC Securities (USA) Inc.,
as underwriters (incorporated by reference to Exhibit 4.2 to the company's
Registration Statement on Form S-4, Registration No. 333-51100).
(ii) 8.70% Senior Exchange Notes due October 1, 2005,
dated as of October 6, 2000, among Arrow Electronics, Inc. and Goldman, Sachs
& Co., Chase Securities Inc., Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche
Bank Securities Inc., Fleet Securities, Inc., and HSBC Securities (USA) Inc.,
as underwriters (incorporated by reference to Exhibit 4.3 to the company's
Registration Statement on Form S-4, Registration No. 333-51100).
(iii) 9.15% Senior Exchange Notes due October 1, 2010,
dated as of October 6, 2000, among Arrow Electronics, Inc. and Goldman, Sachs
& Co., Chase Securities Inc., Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche
Bank Securities Inc., Fleet Securities, Inc., and HSBC Securities (USA) Inc.,
as underwriters (incorporated by reference to Exhibit 4.4 to the company's
Registration Statement on Form S-4, Registration No. 333-51100).
(j) Floating Rate Exchange Notes due October 5, 2001,
dated as of October 6, 2000, among Arrow Electronics, Inc. and Goldman, Sachs
& Co., Chase Securities Inc., Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
BNY Capital Markets, Inc., Credit Suisse First Boston Corporation, Deutsche
Bank Securities Inc., Fleet Securities, Inc., and HSBC Securities (USA) Inc.,
as underwriters (incorporated by reference to Exhibit 4.5 to the company's
Registration Statement on Form S-4, Registration No. 333-51100).
(k) $400,000,000 Credit Agreement, dated as of
December 18, 2000, among Arrow Electronics, Inc., the several banks from time
to time parties hereto, and Morgan Stanley Senior Funding Inc., as
syndication agent, documentation agent, and administrative agent
(incorporated by reference to Exhibit 10(i) to the company's Annual Report on
Form 10-K for the year ended December 31, 2000, Commission File No. 1-4482).
(l)(i) Amended and Restated Three Year Credit Agreement,
dated as of February 22, 2001, among Arrow Electronics, Inc., the Subsidiary
Borrowers, the several banks from time to time parties hereto, Bank of
America, N.A., as syndication agent, Fleet National Bank, as documentation
agent, and The Chase Manhattan Bank, as administrative agent (incorporated by
reference to Exhibit 10(h) to the company's Annual Report on Form 10-K for
the year ended December 31, 2000, Commission File No. 1-4482).
(ii) First Amendment, dated as of November 29, 2001, to
the Amended and Restated Three Year Credit Agreement in (10)(l)(i) above
among Arrow Electronics, Inc., the Subsidiary Borrowers, the several banks
and other financial institutions from time to time parties thereto, Bank of
America, N.A. as syndication agent, Fleet National Bank, as documentation
Agent, and JPMorgan Chase Bank, as administrative agent.
(iii) Second Amendment, dated as of February 19, 2002,
to the Amended and Restated Three Year Credit Agreement in (10)(l)(i) above
among Arrow Electronics, Inc., the Subsidiary Borrowers, the several banks
and other financial institutions from time to time parties thereto, Bank of
America, N.A., as Syndication Agent, Fleet National Bank, as documentation
Agent, and JPMorgan Chase Bank, as Administrative Agent.
(m)(i) Transfer and Administration Agreement, dated as of
March 21, 2001, by and among Arrow Electronics Funding Corporation, Arrow
Electronics, Inc., individually and as Master Servicer, the several Conduit
Investors, Alternate Investors and Funding Agents and Bank of America,
National Association, as administrative agent.
(ii) Amendment No. 1 to the Transfer and
Administration Agreement, dated as of November 30, 2001, to the Transfer and
Administration Agreement in (10)(m)(i) above.
(iii) Amendment No. 2 to the Transfer and
Administration Agreement, dated as of December 14, 2001, to the Transfer and
Administration Agreement in (10)(m)(i) above.
(iv) Amendment No. 3 to the Transfer and
Administration Agreement, dated as of March 20, 2002, to the Transfer and
Administration Agreement in (10)(m)(i) above.
(n)(i) Arrow Electronics, Inc. Stock Option Plan, as
amended and restated, effective as of May 15, 1997 (incorporated by reference
to Exhibit 99(a) to the company's Registration Statement on Form S-8,
Registration No. 333-45631).
(ii) Form of Stock Option Agreement under 10(m)(i)
above (incorporated by reference to Exhibit 10(e)(ii) to the company's Annual
Report on form 10-K for the year ended December 31, 1997, Commission File No.
1-4482).
(iii) Form of Nonqualified Stock Option Agreement under
10(m)(i) above (incorporated by reference to Exhibit 10(k)(iv) to the
company's Registration Statement on Form S-4, Registration No. 33-17942).
(o)(i) Restricted Stock Plan of Arrow Electronics, Inc.,
as amended and restated effective May 15, 1997 (incorporated by reference to
Exhibit 99(b) to the company's Registration Statement on Form S-8,
Registration No. 333-45631).
(ii) Form of Restricted Stock Award Agreement under
10(n)(i) above (incorporated by reference to Exhibit 10(f)(ii) to the
company's Annual Report on Form 10-K for the year ended December 31, 1997,
Commission File No. 1-4482).
(p)(i) Non-Employee Directors Stock Option Plan as of
May 15, 1997 (incorporated by reference to Exhibit 99(c) to the company's
Registration Statement on Form S-8, Registration No.333-45631).
(ii) Form of Nonqualified Stock Option Agreement under
10(o)(i) above (incorporated by reference to Exhibit 10(g)(ii) to the
company's Annual Report on Form 10-K for the year ended December 31, 1997,
Commission File No. 1-4482).
(q) Non-Employee Directors Deferral Plan as of May
15, 1997 (incorporated by reference to Exhibit 99(d) to the Company's
Registration Statement on Form S-8, Registration No. 333-45631).
(r) Form of Indemnification Agreement between the
company and each director (incorporated by reference to Exhibit 10(m) to the
company's Annual Report on Form 10-K for the year ended December 31, 1986,
Commission File No. 1-4482).
(21) Subsidiary Listing.
(23) Consent of Ernst & Young LLP.
(28)(i) Record of Decision, issued by the EPA on September
28, 1990, with respect to environmental clean-up in Plant City, Florida
(incorporated by reference to Exhibit 28 to the company's Annual Report on
Form 10-K for the year ended December 31, 1990, Commission File No. 1-4482).
(ii) Consent Decree lodged with the U.S. District Court
for the Middle District of Florida, Tampa Division, on December 18, 1991,
with respect to environmental clean-up in Plant City, Florida (incorporated
by reference to Exhibit 28(ii) to the company's Annual Report on Form 10-K
for the year ended December 31, 1991, Commission File No. 1-4482).
ARROW ELECTRONICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the three years ended December 31, 2001
Additions
---------
Balance at Balance
beginning Charged Charged to at end
of year to income other (1) Write-offs of year
------------ ----------- ----------- ----------- ------------
Allowance for
doubtful
accounts
2001 $108,142,000 $62,736,000 $ - $86,786,000 $ 84,092,000
============ =========== =========== =========== ============
2000 $ 32,338,000 $59,321,000 $55,192,000 $38,709,000 $108,142,000
============ =========== =========== =========== ============
1999 $ 48,423,000 $26,151,000 $ 1,567,000 $43,803,000 $ 32,338,000
============ =========== =========== =========== ============
(1) Represents the allowance for doubtful accounts of the businesses acquired
by the company during each year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
---------------------
Robert E. Klatell.
Executive Vice President
March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By: /s/ Stephen P. Kaufman March 29, 2002
----------------------
Stephen P. Kaufman, Chairman
By: /s/ Francis M. Scricco March 29, 2002
----------------------
Francis M. Scricco, President and Chief
Executive Officer
By: /s/ Paul J. Reilly March 29, 2002
------------------
Paul J. Reilly, Vice President and
Chief Financial Officer
By: /s/ Robert E. Klatell March 29, 2002
---------------------
Robert E. Klatell, Executive Vice President
and Director
By: /s/ Daniel W. Duval March 29, 2002
-------------------
Daniel W. Duval, Director
By: /s/ Carlo Giersch March 29, 2002
-----------------
Carlo Giersch, Director
By: /s/ John N. Hanson March 29, 2002
-------------------
John N. Hanson, Director
By: /s/ Roger King March 29, 2002
--------------
Roger King, Director
By: /s/ Karen Gordon Mills March 29, 2002
----------------------
Karen Gordon Mills, Director
By: /s/ Barry W. Perry March 29, 2002
------------------
Barry W. Perry, Director
By: /s/ Richard S. Rosenbloom March 29, 2002
-------------------------
Richard S. Rosenbloom, Director
By: /s/ John C. Waddell March 29, 2002
-------------------
John C. Waddell, Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>3
<FILENAME>ex1-4bvi.txt
<DESCRIPTION>SUPPLEMENTAL INDENTURE
<TEXT>
SUPPLEMENTAL INDENTURE
Dated as of December 31, 2001
-----------------------------
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of
----------------------
December 31, 2001, between Arrow Electronics, Inc., a New York corporation
(the "Company"), and THE BANK OF NEW YORK (as successor to Bank of Montreal
-------
Trust Company), as trustee (the "Trustee").
-------
WHEREAS, the Company and the Trustee are parties to an Indenture
dated as of January 15, 1997 (as amended and supplemented as of the date
hereof, the "Existing Indenture") pursuant to which the Company issued
------------------
securities of various series, including its 6.45% Senior Notes due 2003
(the "6.45% Notes").
-----------
Capitalized terms used in this Supplemental Indenture and not otherwise
defined are used herein as defined in the Existing Indenture.
WHEREAS, Section 9.2 of the Existing Indenture provides that
the Company and the Trustee, with the written consent of the Holders
of a majority in aggregate principal amount of the outstanding Securities
of all series affected thereby, may enter into a supplemental indenture
for purposes of amending the Existing Indenture or such Securities.
WHEREAS, the Trustee has received the written consent of
the Holders of a majority in aggregate principal amount of the
outstanding 6.45% Notes to the execution and delivery of this
Supplemental Indenture.
WHEREAS, all things necessary have been done to make
this Supplemental Indenture, when executed and delivered by the
Company, the legal, valid and binding agreement of the Company.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
The parties hereto mutually covenant and agree as follows:
PART ONE
Section 1.1. The special covenant specified in the eleventh
paragraph of the reverse side of each 6.45% Note is hereby amended and
restated to read in its entirety as follows:
"As a special covenant for the benefit of the holders of
the Notes only, the Company may not permit Consolidated Total Debt
to exceed an amount equal to:
(i) on any date on or prior to March 31, 2001, 70%
of Consolidated Total Capitalization; and
(ii) on any date after March 31, 2001, 65% of
Consolidated Total Capitalization.".
Section 1.2. The following new paragraphs are added
between the eleventh and the twelfth paragraphs of the reverse
side of each 6.45% Note:
"Within five (5) Business Days following the date of any Rating
Downgrade, the Company shall give a Rating Downgrade Notice to the Trustee
(and the Trustee shall promptly (and, in any event, within five (5)
Business Days after receipt thereof) provide a copy thereof to each Holder
of Notes). Concurrently with the furnishing of such Rating Downgrade
Notice to the Trustee, the Company shall transmit a copy thereof (via
facsimile) to each Person specified on Schedule I to this Supplemental
Indenture, so long as the Company reasonably believes that such Person owns
a beneficial interest in a Note at the time of such Rating Downgrade (it
being understood that the Company shall have no obligation to verify the
accuracy or completeness of any such information on Schedule I). Each
Holder of Notes may notify the Trustee in writing of such Holder's
acceptance or rejection of the related Rating Downgrade Put Offer (with
respect to all or any portion of the outstanding principal amount of Notes
held by such Holder) on or prior to the Rating Downgrade Response Date
specified in such Rating Downgrade Notice, and the Trustee shall promptly
provide a copy of each such acceptance or rejection to the Company (the
failure of any Holder of Notes to respond in writing to the Trustee on or
prior to the Rating Downgrade Response Date (with respect to all or any
portion of the outstanding principal amount of Notes held by such Holder)
shall be deemed to constitute a rejection of all or such portion by such
Holder of such Rating Downgrade Offer. The applicable unpaid amount of the
Notes held by each Holder of Notes who has accepted the Rating Downgrade
Put Offer, together with any accrued and unpaid interest thereon to the
Rating Downgrade Prepayment Date (but without any premium thereon), shall
become due and payable on the Rating Downgrade Prepayment Date. The Company
will promptly provide the Trustee with all information that any Holder of
Notes may reasonably request in order to enable such Holder to evaluate the
effect of a Rating Downgrade on such Holder's investment in the Notes (and
the Trustee shall promptly upon receipt thereof provide such information to
such Holder of Notes).
For purposes of the foregoing paragraph:
"Rating Downgrade" means that the Company's senior unsecured long-term
indebtedness rating most recently assigned (i) by Standard & Poor's Rating
Services, a division of the McGraw-Hill Companies, Inc. (or any successor
thereof) is less than "BBB-" or (ii) by Moody's Investors Service, Inc. (or
any successor thereof) is less than "Baa3".
"Rating Downgrade Notice" means a written notice of a Rating Downgrade
given by the Company to the Trustee, which shall (i) describe the facts and
circumstances of such Rating Downgrade in reasonable detail, (ii) refer to
the twelfth paragraph of the reverse side of each 6.45% Note and the rights
of the Holders thereunder, (iii) inform each Holder of Notes that such
Holder may accept the Rating Downgrade Put Offer on or prior to the Rating
Downgrade Response Date specified therein and may accept such Rating
Downgrade Put Offer with respect to all or any portion of the outstanding
principal amount of Notes held by such Holder, (iv) specify the Rating
Downgrade Prepayment Date and indicate the amount of interest that would be
paid to such Holder on the Rating Downgrade Prepayment Date if such Holder
accepted the Rating Downgrade Put Offer with respect to the entire
outstanding principal amount of Notes held by such Holder, (v) inform each
such Holder that such Holder may accept the Rating Downgrade Put Offer
(with respect to all or any portion of the outstanding principal amount of
Notes held by such Holder) by causing a notice of such acceptance to be
delivered to the Trustee on or prior to the Rating Downgrade Response Date,
and (vi) inform each such Holder that failure by such Holder to respond to
the Rating Downgrade Notice (with respect to all or any portion of the
outstanding principal amount of Notes held by such Holder) shall be deemed
to constitute a rejection of the Rating Downgrade Put Offer by such Holder
(if applicable, with respect to such portion).
"Rating Downgrade Prepayment Date" means a date specified in a Rating
Downgrade Notice on which the applicable aggregate outstanding principal
amount of the Notes plus accrued interest thereon shall be paid to Holders
of Notes who accept the Rating Downgrade Put Offer, which date shall be a
Business Day not less than 30 days nor more than 60 days after the date of
such Rating Downgrade Notice.
"Rating Downgrade Put Offer" means an offer contained in the Rating
Downgrade Notice made by the Company to each Holder of Notes to put such
Holder's Notes in whole or in part to the Company.
"Rating Downgrade Response Date" means the date that is 30 days after
the date of a Rating Downgrade Notice.
PART TWO
Section 2.1. Within two Business Days of the date on which this
Supplemental Indenture shall be executed and delivered by the Company and
the Trustee, the Company shall pay a non-refundable fee (a "Consent Fee")
-----------
for the account of each Consenting Beneficial Owner (as defined below),
in an amount for each such Consenting Beneficial Owner equal to 1.75%
of the principal amount of 6.45% Notes beneficially owned by such
Consenting Beneficial Owner as of the effective date of this Supplemental
Indenture (the "Record Date"). For purposes hereof, "Consenting
----------- ----------
Beneficial Owner" means each Person owning an interest in a
- ----------------
6.45% Note as reflected on the books of the Depositary Trust
Company ("DTC"), as the sole Holder of the 6.45% Notes as of the
---
Record Date, so long as such Person duly consents to the execution
and delivery of this Supplemental Indenture. The Consent Fee shall
be paid as aforesaid by the Company to the Trustee and (promptly
after receipt thereof) by the Trustee to DTC (as sole Holder of the
6.45% Notes) (for the account of each Consenting Beneficial Owner).
PART THREE
Section 3.1. This Supplemental Indenture shall be construed
as supplemental to the Existing Indenture and shall form a part thereof,
and, as supplemented and modified hereby, is hereby ratified, approved
and confirmed.
Section 3.2. This Supplemental Indenture shall be governed
by, and construed in accordance with, laws of the State of New York.
Section 3.3. This Supplemental Indenture may be executed in
any number of counterparts with the same effect as if the signatures
to each counterpart were upon a single instrument, and all such
counterparts together shall be deemed an original of this Supplemental
Indenture.
Section 3.4. The Trustee makes no undertaking or representations
in respect of, and shall not be responsible in any manner whatsoever
for and in respect of, the validity or sufficiency of this Supplemental
Indenture or the proper authorizations or the due execution hereof
by the Company or for and in respect of the recitals and statements
contained herein, all of which recitals and statements are made solely
by the Company.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the day and year
first above written.
ARROW ELECTRONICS, INC.,
as the Company
By
------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By
------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex2-10avi.txt
<DESCRIPTION>AMENDMENT TO ARROW ELECTRONICS SAVINGS PLAN
<TEXT>
AMENDMENT
TO THE
ARROW ELECTRONICS SAVINGS PLAN
(as restated December 28, 1994)
The Arrow Electronics Savings Plan as restated December 28, 1994 and as
subsequently amended, is hereby further amended by revising Section 8.13
to read as follows:
8.13 Prior Plan Distribution Forms. The portions of the Accounts of
-----------------------------
Members attributable to balances transferred from prior plans will be
eligible for installment or annuity forms of distributions that were
available under such plans if distribution in respect thereof is to
commence as of a date on or before February 1, 2002, and the Member's
vested Accounts at termination of employment exceed $5,000. All amounts
distributable to a Member whose employment terminates for any reason shall
be paid in cash in a single sum, unless the Member (a) had such a right to
an alternative distribution form and (b) elected prior to February 2, 2002
to receive payment in such form starting as of or prior to February 1,
2002.
The date applicable under Section 8.13 as so revised assumes that each
Member will be furnished with a summary of this amendment that satisfies
the requirements of regulations relating to summaries of material
modifications at least 90 days before such date. In the event that any
Member does not receive such a summary within that time period, the
amendment shall be effective with respect to that Member on the earlier
of the 90th day after the Member has been furnished such a summary,
or January 1, 2003.
ARROW ELECTRONICS, INC.
By:
-------------------------
Date:
-----------------------
ATTEST:
By:
--------------------
Date:
------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>ex3-10avii.txt
<DESCRIPTION>AMENDMENT TO ARROW ELECTRONICS SAVINGS PLAN AND VEBA ELECTRONICS INC. 401(K)
<TEXT>
AMENDMENT
TO THE
ARROW ELECTRONIC SAVINGS PLAN
AND
VEBA ELECTRONICS INC. 401(k) PLAN
1. Effective as of April 2, 2001, the VEBA Electronics Inc.
401(k) Plan (the "VEBA Plan") is merged into the Arrow Electronics Savings
Plan (the "Arrow Plan"), and the terms of the Arrow Plan supersede the
terms of the VEBA Plan.
2. The following fund mapping shall become effective upon such
merger:
From the Following VEBA Plan Funds Into Plan Investment Funds
---------------------------------- --------------------------
BT Investment Equity 500 Index Spartan U.S. Equity Index
Dreyfus Premier Tech. Growth Fund OTC Portfolio
GIC Account 1 - VEBA Retirement Gov't M.M.
Mass Investors Growth Stock Fund Magellan
Massachusetts Investors Trust Magellan
MFS Bond Fund Inter. Bond
MFS Capital Opportunities Fund Magellan
MFS Emerging Growth Fund OTC Portfolio
MFS Equity Income Fund Equity Income
MFS Global Governments Fund Retirement Gov't M.M.
MFS Global Growth Fund Retirement Gov't M.M.
MFS Government Securities Fund Inter. Bond
MFS High Income Fund Retirement Gov't M.M.
MFS Institutional Fixed Fund Retirement Gov't M.M.
MFS Midcap Growth Fund OTC Portfolio
MFS Money Market Fund Retirement Gov't M.M.
MFS New Discovery Fund OTC Portfolio
MFS Research Fund Magellan
MFS Total Return Fund Asset Manager
3. The provisions of this Amendment shall be treated as an
amendment to and a part of the VEBA Plan to the extent necessary
to give full effect to this Amendment. All interests and rights of
individuals under the VEBA Plan that are required by law to be preserved
under the Arrow Plan shall be preserved, as shall be more fully set forth
in a supplement to the Arrow Plan which shall be made a part of the Arrow
Plan as soon as practicable.
IN WITNESS WHEREOF, each of Arrow and Atlas, by its duly
authorized officer, has executed this instrument of amendment this __ day
of April, 2001.
FOR: ARROW ELECTRONICS, INC.
ATLAS BUSINESS SERVICES
By:
---------------------------
Robert E. Klatell
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>ex4-10aviii.txt
<DESCRIPTION>AMENDMENT TO FARNELL ELECTRONICS SERVICES 401(K)
<TEXT>
AMENDMENT
TO
FARNELL ELECTRONIC SERVICES 401(k) SAVINGS PLAN
WHEREAS, following the acquisition by the Arrow Electronics, Inc.
(the "Company") of all the issued and outstanding shares of common stock of
Farnell Holding, Inc. ("Farnell"), the Company succeeded Farnell as the
plan sponsor of the Farnell Electronic Services 401(K) Savings Plan
(the "Plan"); and
WHEREAS, the Company deems advisable to adopt a formal amendment
to the Plan document that sets forth actions previously taken with respect
to the Plan in connection with such acquisition, and bring the Plan into
compliance with subsequent changes in law;
NOW, THEREFORE, the Plan is amended in the following respects:
1. The Plan is hereby amended to conform to the manner in
which it has operated so as to comply with the Uniformed Services
Employment and Reemployment Act of 1994, the Uruguay Round Agreements
Act (also referred to as GATT), the Small Business Job Protection Act
of 1996, the Taxpayer Relief Act of 1997 and the IRS Restructuring and
Reform Act of 1998 since the respective dates on which these laws
became effective. Without limiting the generality of the foregoing:
(a) Effective as of February 1, 1997, any references
to the family aggregation rules are deleted from the Plan.
(b) Effective February 1, 1999, the term "eligible
rollover distribution" does not include hardship distributions
(described in Section 14.11).
(c) Effective February 1, 1997, the term "Highly
Compensated Employee" means an employee who is a 5% owner (as defined
in section 416(i) of the Code) in the current or the prior Plan Year,
and any employee whose Compensation for the prior Plan Year exceeded
$80,000 (as adjusted pursuant to section 414(q) of the Code).
(d) Effective February 1, 1997, Section 1.31
(defining "leased employee") is amended by substituting "performed
under primary direction or control by the Employer" for "historically
performed by employees in the Employer's business field."
(e) Effective as of December 12, 1994, notwithstanding
any provision of this Plan to the contrary, contributions, benefits and
service credit with respect to qualified military service will be provided
in accordance with Section 414(u) of the Code.
(f) Effective February 1, 1995, Section 3.19(g) (defining
"Maximum Permissible Amount") is amended by substituting "(i) $30,000 (as
adjusted under Code Section 415(d)" for "(i) $30,000 (or, if greater,
one-fourth of the defined benefit dollar limitation under Code
Section 415(b)(1)(A))".
(g) Effective February 1, 1997, the amount of
contributions that may be made by or for Highly Compensated Employees
shall be limited by reference to the amount of such contributions by
non-Highly Compensated Employees for the current Plan Year. Any
corrective distribution of excess contributions required by these
limitations shall, after the total amount of required distributions
is determined, be made on the basis of the amount of excess contributions
made by or on behalf of each Highly Compensated Employee, starting with
the Highly Compensated Employees with the greatest dollar amount of
excess contributions.
(h) Effective February 1, 1998, the Compensation taken
into account in applying the limitations of section 415 of the Code shall
no longer be reduced by contributions or other reductions described in
section 401(k), 132(f)(4) or 125 of the Code.
(i) Effective February 1, 2000, Section 3.18 (relating to
Participants who at any time were covered by a defined benefit maintained by
an Employer) shall no longer limit the benefits of any Participant.
(j) Effective February 1, 1997, the definition of
"Key Employee" in Section 1.33 (dealing with "determinations of top-heavy
status") is amended to replace reference to "Code Section 414(q)(8)" with
"Code Section 414(q)(5)".
Any model amendment adopted by the plan sponsor for the purpose of
complying with recent changes in law pursuant to its authority to adopt
amendments to this Plan shall be treated as adopted hereby as part of
the amendments made by this paragraph 2.
2. All Plan accounts are fully vested effective January 31, 1997.
3. There are no contributions for any payroll period after
the period ending May 23, 1997.
4. The Plan is terminated effective March 24, 2000.
5. The account of each Participant who has an undistributed
balance in his or her account as of March 24, 2000 (consisting of 401(k)
accounts that were not currently distributable under section 401(k)(2)(B)
and all other accounts with respect to which Participants were entitled
but failed to elect distribution at the time of the Plan's termination),
shall be transferred to the Arrow Electronics Savings Plan in accordance
with the terms thereof.
5. The provisions of this Amendment shall apply notwithstanding
any provision of this Plan to the contrary.
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
has executed this instrument of amendment.
FOR: ARROW ELECTRONICS, INC.
By:
-----------------------------
Robert E. Klatell
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>ex5-10cii.txt
<DESCRIPTION>AMENDMENT TO STEPHEN P. KAUFMAN EMPLOYMENT AGREEMENT
<TEXT>
AMENDMENT NO. 1 made as of December 31, 2001 to EMPLOYMENT
AGREEMENT made as of the 22nd day of February, 1995 (the "Employment
Agreement") by and between ARROW ELECTRONICS, INC., a New York
corporation with its principal office at 25 Hub Drive, Melville,
New York 11747 (the "Company"), and STEPHEN P. KAUFMAN, residing
at 306 Beacon Street, Unit 3, Boston, Massachusetts 02116
(the "Executive").
WHEREAS, the Employment Period (as defined in the Employment
Agreement) is scheduled to terminate on December 31, 2001, but the
Company and the Executive wish to amend the Employment Agreement
and extend the term of the Employment Agreement for a further period;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Employment Period.
-----------------
Section 3 of the Employment Agreement is hereby amended by
deleting existing clause d) and substituting the following in its
place:
"d) July 31, 2002."
2. Additional Consideration.
a) Section 2 of the Employment Agreement is hereby amended
by inserting a new clause c) as follows and renumbering existing
clauses c) through i) accordingly:
"c) Monetary Remuneration and Benefits from January 1,
--------------------------------------------------
2002 to July 31, 2002. During the Transition Period, the Company
--------------------- shall pay to the Executive for all services
rendered by him in any capacity:
i. a base salary of not less than $500,000 per year,
adjusted for the temporary salary reduction program
implemented in 2001 (payable in accordance with the
Company's then-prevailing practices, but in no event
less frequently than in equal monthly installments);
and
ii. Such employee benefits that are made available
by the Company to its other principal executives."
b) Section 2 is further amended by deleting existing clause
d) (now renumbered e)) and substituting the following:
"e) Supplemental Executive Retirement Plan. The
--------------------------------------
Executive shall continue to participate in the Company's
Unfunded Pension Plan for Selected Executives, which shall provide
him with a minimum benefit of $474,000 per year beginning
August 1, 2002.
3. Date Changes.
------------
The Employment Agreement is hereby amended to substitute
"July 31, 2002" for "December 31, 2001" in the following Sections
of the Employment Agreement: 1c), 2g), 4 and 8.
4. No Other Amendment.
------------------
As amended hereby, the Employment Agreement shall continue
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
- --------------------- By:
Assistant Secretary ---------------------
Executive Vice President
THE EXECUTIVE
-----------------------
Stephen P. Kaufman
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>ex6-10cxi.txt
<DESCRIPTION>AMENDMENT TO STEVEN W. MENEFEE EMPLOYMENT AGREEMENT
<TEXT>
AMENDMENT made as of the 23rd day of October 2001 to that certain
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
made as of the 22nd day of December 1999 by and between ARROW
ELECTRONICS, INC., a New York corporation with its principal
office at 25 Hub Drive, Melville, New York 11747 (the "Company"),
and STEVEN W. MENEFEE, residing at 173 LuRay, Los Gatos,
California 95032 (the "Executive").
WHEREAS, the Executive is now and has been employed by the Company
as a Senior Vice President; and
WHEREAS, the Executive and the Company are parties to that certain
Amended and Restated Employment Agreement made as of the 22nd day
of December 1999 (the "Agreement"); and
WHEREAS, the Company and the Executive wish to amend the Agreement
and provide for the continued employment of the Executive as an
employee of the Company and for him to continue to render services
to the Company on the terms set forth in, and in accordance with
the provisions of, this Amendment to the Agreement (the "Amendment");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Paragraph 2(g) of the Agreement is amended to read as follows:
"g) Supplemental Executive Retirement Plan. The Executive is currently
--------------------------------------
a participant in the Company's Unfunded Pension Plan for Selected Executives
(the "SERP"). Effective as of October 23, 2001, the Executive's participation
in the SERP will be modified so as to provide him with an annual retirement
benefit of $80,000 per year if he retires after December 31, 2001
and an annual retirement benefit of $155,000 if he retires on or after
December 31, 2002. Except for the foregoing, the rights, terms, privileges,
and conditions of the Executive's participation in the SERP remain unchanged."
2. Paragraph 3(d) of the Agreement is amended to read as follows:
d) December 31, 2002.
3. Except as specifically modified in this Amendment, the provisions
of the Agreement shall remain in full force and effect.
4. The residence address of the Executive, and the address to which
notices to him pursuant to paragraph 11(e) of the Agreement
shall be sent, is as follows:
Steven W. Menefee
60 Pleasant Street
Wolfeboro, New Hampshire 03894
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
By:
- ----------------------- -----------------------
Secretary
THE EXECUTIVE
-------------------------
Steven W. Menefee
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>9
<FILENAME>ex7-10cxiv.txt
<DESCRIPTION>PETER S. BROWN EMPLOYMENT AGREEMENT
<TEXT>
EMPLOYMENT AGREEMENT made as of the 1st day of September, 2001 by
and between ARROW ELECTRONICS, INC., a New York corporation with its
principal office at 25 Hub Drive, Melville, New York 11747 (the "Company"),
and PETER S. BROWN, residing at 12 Paultons Square, London SW3 5AP England
(the "Executive").
WHEREAS, the Company wishes to employ the Executive as Senior Vice
President and General Counsel, with the responsibilities and duties of
a principal executive officer of the Company; and
WHEREAS, the Executive wishes to accept such employment and to render
services to the Company on the terms set forth in, and in accordance with
the provisions of, this Employment Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Employment and Duties.
---------------------
a) Employment. The Company hereby employs the Executive for the
----------
Employment Period defined in Paragraph 3, to perform such duties for the
Company, its subsidiaries and affiliates and to hold such offices as may be
specified from time to time by the Company's Board of Directors, subject
to the following provisions of this Agreement. The Executive hereby
accepts such employment.
b) Duties and Responsibilities. It is contemplated that the
---------------------------
Executive will be Senior Vice President and General Counsel of the
Company, but the Board of Directors shall have the right to adjust
the duties, responsibilities, and title of the Executive as the Board
of Directors may from time to time deem to be in the interests of the
Company (provided, however, that during the Employment Period, without
the consent of the Executive, he shall not be assigned any titles,
duties or responsibilities which, in the aggregate, represent a material
diminution in, or are materially inconsistent with, his title, duties,
and responsibilities as Senior Vice President and General Counsel).
If the Board of Directors does not either continue the Executive
in the office of Senior Vice President and General Counsel or elect
him to some other principal executive office satisfactory to the
Executive, the Executive shall have the right to decline to give
further service to the Company and shall have the rights and
obligations which would accrue to him under Paragraph 6 if he were
discharged without cause. If the Executive decides to exercise
such right to decline to give further service, he shall within
forty-five days after such action or omission by the Board of
Directors give written notice to the Company stating his objection
and the action he thinks necessary to correct it, and he shall permit
the Company to have a forty-five day period in which to correct its
action or omission. If the Company makes a correction satisfactory
to the Executive, the Executive shall be obligated to continue to
serve the Company. If the Company does not make such a correction,
the Executive's rights and obligations under Paragraph 6 shall accrue
at the expiration of such forty-five day period.
c) Time Devoted to Duties. The Executive shall devote all
----------------------
of his normal business time and efforts to the business of the Company,
its subsidiaries and its affiliates, the amount of such time to be
sufficient, in the reasonable judgment of the Board of Directors, to
permit him diligently and faithfully to serve and endeavor to further
their interests to the best of his ability.
d) Location of Office. The Company shall not require the Executive
------------------
to locate his office outside the New York metropolitan area without his consent.
e) Vacation. During the Employment Period, the Executive will be
--------
given four weeks vacation with full pay each year, to be taken at the
Executive's discretion; provided however, that the Executive will use his
best efforts to ensure that such vacation does not unduly interfere with the
operation and performance of the business of the Company, its subsidiaries
or its affiliates. The Executive's vacation time for any year will be
appropriately pro-rated to reflect a partial year of employment.
2. Compensation.
------------
a) Monetary Remuneration and Benefits. During the Employment
----------------------------------
Period, the Company shall pay to the Executive for all services
rendered by him in any capacity:
i. a minimum base salary at the rate of $350,000 per year
(payable in accordance with the Company's then prevailing practices,
but in no event less frequently than in equal monthly installments),
subject to increase from time to time in the sole discretion of the
Board of Directors of the Company; provided that, should the Company
institute a company-wide pay cut/furlough program, such salary may
be decreased by up to 15%, but only for as long as said company-wide
program is in effect;
ii. such additional compensation by way of salary or bonus or
fringe benefits as the Board of Directors of the Company in its sole
discretion shall authorize or agree to pay, payable on such terms
and conditions as it shall determine; and
iii. such employee benefits that are made available by the
Company to its other principal executives.
b) Annual Incentive Payment. The Executive shall participate
------------------------
in the Company's Management Incentive Plan (or such alternative, successor,
or replacement plan or program in which the Company's executives, other
than the Chief Executive Officer, generally participate) and shall have
a targeted incentive thereunder of not less than $175,000 per annum;
provided, however, that the Executive's actual incentive payment in any
year shall be measured by the Company's performance against goals
established for that year and that such performance may produce an
incentive payment ranging from none to twice the targeted amount.
The Executive's incentive payment for any year will be appropriately
pro-rated to reflect a partial year of employment.
c) Supplemental Executive Retirement Plan. The Executive
--------------------------------------
shall participate in the Company's Unfunded Pension Plan for
Selected Executives (the "SERP"), which shall provide him with an
annual minimum benefit of $75,000 per year upon retirement at age 60.
d) Automobile. During the Employment Period, the Company
----------
will pay the Executive a monthly automobile allowance of $850.
e) Expenses. During the Employment Period, the Company
--------
agrees to reimburse the Executive, upon the submission of appropriate
vouchers, for out-of-pocket expenses (including, without limitation,
expenses for travel, lodging and entertainment) incurred by the
Executive in the course of his duties hereunder.
f) Office and Staff. The Company will provide the
----------------
Executive with an office, secretary and such other facilities as may
be reasonably required for the proper discharge of his duties hereunder.
g) Indemnification. The Company agrees to indemnify the Executive
---------------
for any and all liabilities to which he may be subject as a result of
his employment hereunder (and as a result of his service as an officer
or director of the Company, or as an officer or director of any of its
subsidiaries or affiliates), as well as the costs of any legal action
brought or threatened against him as a result of such employment, to the
fullest extent permitted by law.
h) Participation in Plans. Notwithstanding any other provision
----------------------
of this Agreement, the Executive shall have the right to participate in any
and all of the plans or programs made available by the Company (or its
subsidiaries, divisions or affiliates) to, or for the benefit of,
executives (including the annual stock option and restricted stock grant
programs) or employees in general, on a basis consistent with other
senior executives.
3. The Employment Period.
---------------------
The "Employment Period", as used in the Agreement, shall mean
the period beginning as of the date hereof and terminating on the last
day of the calendar month in which the first of the following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in accordance
with Paragraph 4 hereof and subject to the provisions thereof;
c) the termination of the Executive's employment by the Company
for cause in accordance with Paragraph 5 hereof; or
d) December 31, 2004; provided, however, that, unless sooner
terminated as otherwise provided herein, the Employment Period shall
automatically be extended for one or more twelve (12) month periods
beyond the then scheduled expiration date thereof unless between the
18th and 12th month preceding such scheduled expiration date either
the Company or the Executive gives the other written notice of its or
his election not to have the Employment Period so extended.
4. Disability.
----------
For purposes of this Agreement, the Executive will be deemed
"disabled" upon the earlier to occur of (i) his becoming disabled as
defined under the terms of the disability benefit program applicable
to the Executive, if any, and (ii) his absence from his duties hereunder
on a full-time basis for one hundred eighty (180) consecutive days as a
result of his incapacity due to accident or physical or mental illness.
If the Executive becomes disabled (as defined in the preceding sentence),
the Employment Period shall terminate on the last day of the month in
which such disability is determined. Until such termination of the
Employment Period, the Company shall continue to pay to the Executive
his base salary, any additional compensation authorized by the Company's
Board of Directors, and any other remuneration and benefits provided in
accordance with Paragraph 2, all without delay, diminution or proration
of any kind whatsoever (except that his remuneration hereunder shall
be reduced by the amount of any payments he may otherwise receive as
a result of his disability pursuant to a disability program provided
by or through the Company), and his medical benefits and life insurance
shall remain in full force. After termination of the Employment Period
as a result of the disability of the Executive, the medical benefits
covering the Executive and his family shall remain in place (subject
to the eligibility requirements and other conditions contained in the
underlying plan, as described in the Company's employee benefits
manual, and subject to the requirement that the Executive continue
to pay the "employee portion" of the cost thereof), and the Executive's
life insurance policy under the Management Insurance Program shall
be transferred to him, as provided in the related agreement, subject
to the obligation of the Executive to pay the premiums therefor.
In the event that, notwithstanding such a determination of
disability, the Executive is determined not to be totally and
permanently disabled prior to the then scheduled expiration of the
Employment Period, the Executive shall be entitled to resume employment
with the Company under the terms of this Agreement for the then remaining
balance of the Employment Period.
5. Termination for Cause.
---------------------
In the event of any malfeasance, willful misconduct, active
fraud or gross negligence by the Executive in connection with his
employment hereunder, the Company shall have the right to terminate
the Employment Period by giving the Executive notice in writing of
the reason for such proposed termination. If the Executive shall not
have corrected such conduct to the satisfaction of the Company within
thirty days after such notice, the Employment Period shall terminate
and the Company shall have no further obligation to the Executive
hereunder but the restriction on the Executive's activities contained
in Paragraph 7 and the obligations of the Executive contained in
Paragraphs 8(b) and 8(c) shall continue in effect as provided therein.
6. Termination Without Cause.
-------------------------
In the event that the Company discharges the Executive
without cause, the Executive shall be entitled to the salary provided
in Paragraph 2(a), two thirds of the targeted incentive provided in
Paragraph 2(b), the vesting of any restricted stock awards and the
immediate exercisability of any stock options, as well as his rights
under Paragraph 4, which would have vested or become exercisable
during the full Employment Period (which, in that event, shall
continue until the then scheduled expiration of the Employment
Period unless sooner terminated by the Executive's disability
or death). Any amounts payable to the Executive under this
Paragraph 6 shall be reduced by the amount of the Executive's
earnings from other employment (which the Executive shall have
an affirmative duty to seek; provided, however, that the
Executive shall not be obligated to accept a new position
which is not reasonably comparable to his employment with the
Company).
7. Non-Competition; Trade Secrets.
------------------------------
During the Employment Period and for a period of two
years after the termination of the Employment Period, the
Executive will not, directly or indirectly:
a) Disclosure of Information. Use, attempt to use,
-------------------------
disclose or otherwise make known to any person or entity
(other than to the Board of Directors of the Company or otherwise
in the course of the business of the Company, its subsidiaries or
affiliates and except as may be required by applicable law):
i. any knowledge or information, including, without limitation,
lists of customers or suppliers, trade secrets, know-how, inventions,
discoveries, processes and formulae, as well as all data and records
pertaining thereto, which he may acquire in the course of his
employment, in any manner which may be detrimental to or cause injury
or loss to the Company, its subsidiaries or affiliates; or
ii. any knowledge or information of a confidential nature
(including all unpublished matters) relating to, without limitation,
the business, properties, accounting, books and records, trade secrets
or memoranda of the Company, its subsidiaries or affiliates, which he
now knows or may come to know in any manner which may be detrimental
to or cause injury or loss to the Company its subsidiaries or
affiliates.
b) Non-Competition. Engage or become interested in the United
---------------
States, Canada or Mexico (whether as an owner, shareholder, partner, lender
or other investor, director, officer, employee, consultant or otherwise)
in the business of distributing electronic parts, components, supplies or
systems, or any other business that is competitive with the principal
business or businesses then conducted by the Company, its subsidiaries
or affiliates (provided, however, that nothing contained herein shall
prevent the Executive from acquiring or owning less than 1% of the issued
and outstanding capital stock or debentures of a corporation whose
securities are listed on the New York Stock Exchange, American Stock
Exchange, or the National Association of Securities Dealers Automated
Quotation System, if such investment is otherwise permitted by the
Company's Human Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the solicitation
------------
of any business of any type conducted by the Company, its subsidiaries
or affiliates, during said term or thereafter, from any person, firm or
other entity which was or at the time is a supplier or customer, or
prospective supplier or customer, of the Company, its subsidiaries
or affiliates; or
d) Employment. Employ or retain, or arrange to have any other
----------
person, firm or other entity employ or retain, or otherwise participate
in the employment or retention of, any person who was an employee or
consultant of the Company, its subsidiaries or affiliates, at any time
during the period of twelve consecutive months immediately preceding
such employment or retention.
The Executive will promptly furnish in writing to the Company,
its subsidiaries or affiliates, any information reasonably requested by
the Company (including any third party confirmations) with respect to
any activity or interest the Executive may have in any business.
Except as expressly herein provided, nothing contained herein
is intended to prevent the Executive, at any time after the termination
of the Employment Period, from either (i) being gainfully employed or
(ii) exercising his skills and abilities outside of such geographic
areas, provided in either case the provisions of this Agreement are
complied with.
8. Preservation of Business.
------------------------
a) General. During the Employment Period, the Executive
-------
will use his best efforts to advance the business and organization
of the Company, its subsidiaries and affiliates, to keep available to
the Company, its subsidiaries and affiliates, the services of present
and future employees and to advance the business relations with its
suppliers, distributors, customers and others.
b) Patents and Copyrights, etc. The Executive agrees,
---------------------------
without additional compensation, to make available to the Company
all knowledge possessed by him relating to any methods, developments,
inventions, processes, discoveries and/or improvements (whether
patented, patentable or unpatentable) which concern in any way
the business of the Company, it subsidiaries or affiliates, whether
acquired by the Executive before or during his employment or
retention hereunder.
Any methods, developments, inventions, processes, discoveries
and/or improvements (whether patented, patentable or unpatentable)
which the Executive may conceive of or make, related directly or
indirectly to the business or affairs of the Company, its subsidiaries
or affiliates, or any part thereof, during the Employment Period,
shall be and remain the property of the Company. The Executive
agrees promptly to communicate and disclose all such methods,
developments, inventions, processes, discoveries and/or improvements
to the Company and to execute and deliver to it any instruments
deemed necessary by the Company to effect the disclosure and assignment
thereof to it. The Executive also agrees, on request and at the expense
of the Company, to execute patent applications and any other instruments
deemed necessary by the Company for the prosecution of such patent
applications or the acquisition of Letters Patent in the United States
or any other country and for the assignment to the Company of any
patents which may be issued. The Company shall indemnify and hold the
Executive harmless from any and all costs, expenses, liabilities or
damages sustained by the Executive by reason of having made such patent
application or being granted such patents.
Any writings or other materials written or produced by the
Executive or under his supervision (whether alone or with others and
whether or not during regular business hours), during the Employment
Period which are related, directly or indirectly, to the business or
affairs of the Company, its subsidiaries or affiliates, or are capable
of being used therein, and the copyright thereof, common law or
statutory, including all renewals and extensions, shall be and remain
the property of the Company. The Executive agrees promptly to
communicate and disclose all such writings or materials to the Company
and to execute and deliver to it any instruments deemed necessary by
the Company to effect the disclosure and assignment thereof to it.
The Executive further agrees, on request and at the expense of the
Company, to take any and all action deemed necessary by the Company
to obtain copyrights or other protections for such writings or
other materials or to protect the Company's right, title and interest
therein. The Company shall indemnify and hold the Executive harmless
from any and all costs, expenses, liabilities or damages sustained by
the Executive by reason of the Executive's compliance with the Company's
request.
c) Return of Documents. Upon the termination of the Employment
-------------------
Period, including any termination of employment described in Paragraph 6,
the Executive will promptly return to the Company all copies of information
protected by Paragraph 7(a) hereof or pertaining to matters covered by
subparagraph (b) of this Paragraph 8 which are in his possession, custody
or control, whether prepared by him or others.
9. Separability.
------------
The Executive agrees that the provisions of Paragraphs 7 and 8
hereof constitute independent and separable covenants which shall survive
the termination of the Employment Period and which shall be enforceable by
the Company notwithstanding any rights or remedies the Executive may have
under any other provisions hereof. The Company agrees that the provisions
of Paragraph 6 hereof constitute independent and separable covenants which
shall survive the termination of the Employment Period and which shall be
enforceable by the Executive notwithstanding any rights or remedies the
Company may have under any other provisions hereof.
10. Specific Performance.
--------------------
The Executive acknowledges that (i) the services to be rendered
under the provisions of this Agreement and the obligations of the
Executive assumed herein are of a special, unique and extraordinary
character; (ii) it would be difficult or impossible to replace such
services and obligations; (iii) the Company, it subsidiaries and
affiliates will be irreparably damaged if the provision hereof are not
specifically enforced; and (iv) the award of monetary damages will not
adequately protect the Company, its subsidiaries and affiliates in the
event of a breach hereof by the Executive. The Company acknowledges
that (i) the Executive will be irreparably damaged if the provisions
of Paragraphs 1(b) and 6 hereof are not specifically enforced; and
(ii) the award of monetary damages will not adequately protect the
Executive in the event of a breach thereof by the Company. By virtue
thereof, the Executive agrees and consents that if he violates any of
the provisions of this Agreement, and the Company agrees and consents
that if it violates any of the provisions of Paragraphs 1(b) and 6
hereof, the other party, in addition to any other rights and remedies
available under this Agreement or otherwise, shall (without any bond or
other security being required and without the necessity of proving
monetary damages) be entitled to a temporary and/or permanent injunction
to be issued by a court of competent jurisdiction restraining the
breaching party from committing or continuing any violation of this
Agreement, or any other appropriate decree of specific performance.
Such remedies shall not be exclusive and shall be in addition to any
other remedy which any of them may have.
11. Miscellaneous.
-------------
a) Entire Agreement; Amendment. This Agreement constitutes
---------------------------
the whole employment agreement between the parties and may not be
modified, amended or terminated except by a written instrument executed
by the parties hereto. All other agreements between the parties
pertaining to the employment or remuneration of the Executive not
specifically contemplated hereby or incorporated or merged herein
are terminated and shall be of no further force or effect.
b) Assignment. Except as stated below, this Agreement is not
----------
assignable by the Company without the written consent of the Executive,
or by the Executive without the written consent of the Company, and any
purported assignment by either party of such party's rights and/or
obligations under this Agreement shall be null and void; provided,
however, that, notwithstanding the foregoing, the Company may merge
or consolidate with or into another corporation, or sell all or
substantially all of its assets to another corporation or business
entity or otherwise reorganize itself, provided the surviving
corporation or entity, if not the Company, shall assume this Agreement
and become obligated to perform all of the terms and conditions hereof,
in which event the Executive's obligations shall continue in favor of
such other corporation or entity.
c) Waivers, etc. No waiver of any breach or default hereunder
------------
shall be considered valid unless in writing, and no such waiver shall be
deemed a waiver of any subsequent breach or default of the same or
similar nature. The failure of any party to insist upon strict
adherence to any term of this Agreement on any occasion shall not
operate or be construed as a waiver of the right to insist upon strict
adherence to that term of any other term of this Agreement on that or
any other occasion.
d) Provisions Overly Broad. In the event that any term
-----------------------
or provision of this Agreement shall be deemed by a court of competent
jurisdiction to be overly broad in scope, duration or area of
applicability, the court considering the same shall have the power
and hereby is authorized and directed to modify such term or provision
to limit such scope, duration or area, or all of them, so that such
term or provision is no longer overly broad and to enforce the
same as so limited. Subject to the foregoing sentence, in the event
any provision of this Agreement shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability
shall attach only to such provision and shall not affect or render
invalid or unenforceable any other provision of this Agreement.
e) Notices. Any notice permitted or required hereunder
-------
shall be in writing and shall be deemed to have been given on the
date of delivery or, if mailed by registered or certified mail,
postage prepaid, on the date of mailing:
i. if to the Executive to:
Peter S. Brown
12 Paultons Square
London SW3 5AP England
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: Robert E. Klatell
Executive Vice President
Either party may, by notice to the other, change his or its
address for notice hereunder.
f) New York Law. This Agreement shall be construed
------------
and governed in all respects by the internal laws of the State of
New York, without giving effect to principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
By:
- --------------------- -------------------------
President Executive Vice President
THE EXECUTIVE
------------------------
Peter S. Brown
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>10
<FILENAME>ex8-10cxv.txt
<DESCRIPTION>MARK F. SETTLE EMPLOYMENT AGREEMENT
<TEXT>
EMPLOYMENT AGREEMENT made as of the 5th day of November 2001 by and
between ARROW ELECTRONICS, INC., a New York corporation with its principal
office at 25 Hub Drive, Melville, New York 11747 (the "Company"), and
MARK F. SETTLE, residing at 1674 Alexander Way, Los Altos, California
94024 (the "Executive").
WHEREAS, the Company wishes to employ the Executive as Vice President
and Chief Information Officer, with the responsibilities and duties of an
officer of the Company; and
WHEREAS, the Executive wishes to accept such employment and to render
services to the Company on the terms set forth in, and in accordance with
the provisions of, this Employment Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Employment and Duties.
---------------------
a) Employment. The Company hereby employs the Executive for the
----------
Employment Period defined in Paragraph 3, to perform such duties for the
Company, its subsidiaries and affiliates and to hold such offices as may
be specified from time to time by the Company's Board of Directors, subject
to the following provisions of this Agreement. The Executive hereby accepts
such employment.
b) Duties and Responsibilities. It is contemplated that the
---------------------------
Executive will be Vice President and Chief Information Officer of the
Company, but the Board of Directors shall have the right to adjust the
duties, responsibilities, and title of the Executive as the Board of
Directors may from time to time deem to be in the interests of the
Company (provided, however, that during the Employment Period, without
the consent of the Executive, he shall not be assigned any titles, duties
or responsibilities which, in the aggregate, represent a material diminution
in, or are materially inconsistent with, his title, duties, and
responsibilities as Vice President and Chief Information Officer).
If the Board of Directors does not either continue the Executive in the
office of Vice President and Chief Information Officer or elect him to some
other office satisfactory to the Executive, the Executive shall have the right
to decline to give further service to the Company and shall have the rights
and obligations which would accrue to him under Paragraph 6 if he were
discharged without cause. If the Executive decides to exercise such right
to decline to give further service, he shall within forty-five days after
such action or omission by the Board of Directors give written notice to
the Company stating his objection and the action he thinks necessary to
correct it, and he shall permit the Company to have a forty-five day
period in which to correct its action or omission. If the Company
makes a correction satisfactory to the Executive, the Executive shall
be obligated to continue to serve the Company. If the Company does not
make such a correction, the Executive's rights and obligations under
Paragraph 6 shall accrue at the expiration of such forty-five day period.
c) Time Devoted to Duties. The Executive shall devote all of his normal
----------------------
business time and efforts to the business of the Company, its subsidiaries and
its affiliates, the amount of such time to be sufficient, in the reasonable
judgment of the Board of Directors, to permit him diligently and faithfully
to serve and endeavor to further their interests to the best of his
ability.
d) Vacation. During the Employment Period, the Executive will be given
--------
four weeks vacation with full pay each year, to be taken at the Executive's
discretion; provided however, that the Executive will use his best efforts to
ensure that such vacation does not unduly interfere with the operation and
performance of the business of the Company, its subsidiaries or its affiliates.
The Executive's vacation time for any year will be appropriately pro-rated to
reflect a partial year of employment.
2. Compensation.
------------
a) Monetary Remuneration and Benefits. During the Employment Period,
----------------------------------
the Company shall pay to the Executive for all services rendered by him in
any capacity:
i. a minimum base salary at the rate of $360,000 per year
(payable in accordance with the Company's then prevailing
practices, but in no event less frequently than in equal
monthly installments), subject to increase from time to time
in the sole discretion of the Board of Directors of the Company;
provided that, should the Company institute a company-wide pay
cut/furlough program, such salary may be decreased by
up to 15%, but only for as long as said company-wide program
is in effect;
ii. such additional compensation by way of salary or bonus or
fringe benefits as the Board of Directors of the Company in its sole
discretion shall authorize or agree to pay, payable on such terms and
conditions as it shall determine; and
iii. such employee benefits that are made available by the Company
to its other compensation executives generally.
b) Annual Incentive Payment. The Executive shall participate in the
------------------------
Company's Management Incentive Compensation Plan (or such alternative,
successor, or replacement plan or program in which the Company's executives,
other than the Chief Executive Officer, generally participate) and shall have
a targeted incentive thereunder of not less than $180,000 per annum; provided,
however, that the Executive's actual incentive payment in any year shall be
measured by the Company's performance against goals established for that year
and that such performance may produce an incentive payment ranging from none
to twice the targeted amount. The Executive's incentive payment for any year
will be appropriately pro-rated to reflect a partial year of employment.
It is expressly agreed and understood that the Executive's incentive hereunder
shall not be less than the targeted incentive set forth above for the years
2001 and 2002 (subject to proration for a partial year of service as provided
herein).
c) Supplemental Executive Retirement Plan. The Executive shall
--------------------------------------
participate in the Company's Unfunded Pension Plan for Selected Executives
(the "SERP"), which shall provide him with an aggregate annual minimum
retirement benefit from all relevant sources (including, without limitation,
social security, the SERP, the Arrow Electronics Savings Plan, and the
Arrow Employee Stock Ownership Plan) in an amount equal to twenty-five
percent (25%) of the Executive's final average compensation (as defined
in the SERP) upon retirement at age 60.
d) Automobile. During the Employment Period, the Company will
----------
pay the Executive a monthly automobile allowance of $850.
e) Expenses. During the Employment Period, the Company agrees to
--------
reimburse the Executive, upon the submission of appropriate vouchers, for
out-of-pocket expenses (including, without limitation, expenses for travel,
lodging and entertainment) incurred by the Executive in the course of his
duties hereunder.
f) Office and Staff. The Company will provide the Executive with an
----------------
office, secretary and such other facilities as may be reasonably required for
the proper discharge of his duties hereunder.
g) Indemnification. The Company agrees to indemnify the
---------------
Executive for any and all liabilities to which he may be subject as
a result of his employment hereunder (and as a result of his service
as an officer or director of the Company, or as an officer or
director of any of its subsidiaries or affiliates), as well as the
costs of any legal action brought or threatened against him as a
result of such employment, to the fullest extent permitted by law.
h) Participation in Plans. Notwithstanding any other provision of
----------------------
this Agreement, the Executive shall have the right to participate in any
and all of the plans or programs made available by the Company (or its
subsidiaries, divisions or affiliates) to, or for the benefit of,
executives (including the annual stock option and restricted stock grant
programs) or employees in general, on a basis consistent with other senior
officers.
3. The Employment Period.
---------------------
The "Employment Period", as used in the Agreement, shall mean the
period beginning as of the date hereof and terminating on the last day of
the calendar month in which the first of the following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in accordance
with Paragraph 4 hereof and subject to the provisions thereof;
c) the termination of the Executive's employment by the Company
for cause in accordance with Paragraph 5 hereof; or
d) December 31, 2003; provided, however, that, unless sooner
terminated as otherwise provided herein, the Employment Period shall
automatically be extended for one or more twelve (12) month periods
beyond the then scheduled expiration date thereof unless between the
18th and 12th month preceding such scheduled expiration date either
the Company or the Executive gives the other written notice of its
or his election not to have the Employment Period so extended.
4. Disability.
----------
For purposes of this Agreement, the Executive will be deemed
"disabled" upon the earlier to occur of (i) his becoming disabled as
defined under the terms of the disability benefit program applicable
to the Executive, if any, and (ii) his absence from his duties hereunder
on a full-time basis for one hundred eighty (180) consecutive days as a
result of his incapacity due to accident or physical or mental illness.
If the Executive becomes disabled (as defined in the preceding sentence),
the Employment Period shall terminate on the last day of the month in
which such disability is determined. Until such termination of the
Employment Period, the Company shall continue to pay to the Executive
his base salary, any additional compensation authorized by the Company's
Board of Directors, and any other remuneration and benefits provided in
accordance with Paragraph 2, all without delay, diminution or proration
of any kind whatsoever (except that his remuneration hereunder shall be
reduced by the amount of any payments he may otherwise receive as a result
of his disability pursuant to a disability program provided by or through
the Company), and his medical benefits and life insurance shall remain in
full force. After termination of the Employment Period as a result of the
disability of the Executive, the medical benefits covering the Executive
and his family shall remain in place (subject to the eligibility requirements
and other conditions contained in the underlying plan, as described in the
Company's employee benefits manual, and subject to the requirement that the
Executive continue to pay the "employee portion" of the cost thereof), and
the Executive's life insurance policy under the Management Insurance Program
shall be transferred to him, as provided in the related agreement, subject to
the obligation of the Executive to pay the premiums therefor.
In the event that, notwithstanding such a determination of disability,
the Executive is determined not to be totally and permanently disabled prior to
the then scheduled expiration of the Employment Period, the Executive shall be
entitled to resume employment with the Company under the terms of this
Agreement for the then remaining balance of the Employment Period.
5. Termination for Cause.
---------------------
In the event of any malfeasance, willful misconduct, active fraud or
gross negligence by the Executive in connection with his employment hereunder,
or a breach by the Executive of any of the Company's policies, the Company
shall have the right to terminate the Employment Period by giving the
Executive notice in writing of the reason for such proposed termination.
If the Executive shall not have corrected such conduct to the satisfaction
of the Company within thirty days after such notice, the Employment Period
shall terminate and the Company shall have no further obligation to the
Executive hereunder but the restriction on the Executive's activities
contained in Paragraph 7 and the obligations of the Executive contained in
Paragraphs 8(b) and 8(c) shall continue in effect as provided therein.
6. Termination Without Cause.
-------------------------
In the event that the Company discharges the Executive without
cause, the Executive shall be entitled to the salary provided in Paragraph
2(a), two thirds of the targeted incentive provided in Paragraph 2(b),
the vesting of any restricted stock awards and the immediate exercisability
of any stock options, as well as his rights under Paragraph 4, which would
have vested or become exercisable during the full Employment Period (which,
in that event, shall continue until the then scheduled expiration of the
Employment Period unless sooner terminated by the Executive's disability
or death). Any amounts payable to the Executive under this Paragraph 6
shall be reduced by the amount of the Executive's earnings from other
employment (which the Executive shall have an affirmative duty to seek;
provided, however, that the Executive shall not be obligated to accept
a new position which is not reasonably comparable to his employment
with the Company).
7. Non-Competition; Trade Secrets.
------------------------------
During the Employment Period and for a period of two years
after the termination of the Employment Period, the Executive will not,
directly or indirectly:
a) Disclosure of Information. Use, attempt to use, disclose or
-------------------------
otherwise make known to any person or entity (other than to the Board of
Directors of the Company or otherwise in the course of the business of the
Company, its subsidiaries or affiliates and except as may be required by
applicable law):
i. any knowledge or information, including, without
limitation, lists of customers or suppliers, trade secrets, know-how,
inventions, discoveries, processes and formulae, as well as all data
and records pertaining thereto, which he may acquire in the course of his
employment, in any manner which may be detrimental to or cause injury or
loss to the Company, its subsidiaries or affiliates; or
ii. any knowledge or information of a confidential nature
(including all unpublished matters) relating to, without limitation, the
business, properties, accounting, books and records, trade secrets or
memoranda of the Company, its subsidiaries or affiliates, which he now
knows or may come to know in any manner which may be detrimental to or
cause injury or loss to the Company its subsidiaries or affiliates.
b) Non-Competition. Engage or become interested in the
---------------
United States, Canada or Mexico (whether as an owner, shareholder,
partner, lender or other investor, director, officer, employee,
consultant or otherwise) in the business of distributing electronic
parts, components, supplies or systems, or any other business that
is competitive with the principal business or businesses then
conducted by the Company, its subsidiaries or affiliates
(provided, however, that nothing contained herein shall prevent the
Executive from acquiring or owning less than 1% of the issued and
outstanding capital stock or debentures of a corporation whose
securities are listed on the New York Stock Exchange, American
Stock Exchange, or the National Association of Securities Dealers
Automated Quotation System, if such investment is otherwise permitted
by the Company's Human Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the solicitation of any
------------
business of any type conducted by the Company, its subsidiaries or affiliates,
during said term or thereafter, from any person, firm or other entity which was
or at the time is a supplier or customer, or prospective supplier or customer,
of the Company, its subsidiaries or affiliates; or
d) Employment. Employ or retain, or arrange to have any other
----------
person, firm or other entity employ or retain, or otherwise participate
in the employment or retention of, any person who was an employee or
consultant of the Company, its subsidiaries or affiliates, at any time
during the period of twelve consecutive months immediately preceding such
employment or retention.
The Executive will promptly furnish in writing to the Company,
its subsidiaries or affiliates, any information reasonably requested by the
Company (including any third party confirmations) with respect to any
activity or interest the Executive may have in any business.
Except as expressly herein provided, nothing contained herein
is intended to prevent the Executive, at any time after the termination
of the Employment Period, from either (i) being gainfully employed or
(ii) exercising his skills and abilities outside of such geographic areas,
provided in either case the provisions of this Agreement are complied with.
8. Preservation of Business.
------------------------
a) General. During the Employment Period, the Executive will
-------
use his best efforts to advance the business and organization of the Company,
its subsidiaries and affiliates, to keep available to the Company, its
subsidiaries and affiliates, the services of present and future employees
and to advance the business relations with its suppliers, distributors,
customers and others.
b) Patents and Copyrights, etc. The Executive agrees, without
---------------------------
additional compensation, to make available to the Company all knowledge
possessed by him relating to any methods, developments, inventions, processes,
discoveries and/or improvements (whether patented, patentable or
unpatentable) which concern in any way the business of the Company,
it subsidiaries or affiliates, whether acquired by the Executive before
or during his employment or retention hereunder.
Any methods, developments, inventions, processes, discoveries
and/or improvements (whether patented, patentable or unpatentable) which
the Executive may conceive of or make, related directly or indirectly to
the business or affairs of the Company, its subsidiaries or affiliates,
or any part thereof, during the Employment Period, shall be and remain
the property of the Company. The Executive agrees promptly to communicate
and disclose all such methods, developments, inventions, processes,
discoveries and/or improvements to the Company and to execute and
deliver to it any instruments deemed necessary by the Company to
effect the disclosure and assignment thereof to it. The Executive
also agrees, on request and at the expense of the Company, to execute
patent applications and any other instruments deemed necessary
by the Company for the prosecution of such patent applications or the
acquisition of Letters Patent in the United States or any other
country and for the assignment to the Company of any patents which
may be issued. The Company shall indemnify and hold the Executive
harmless from any and all costs, expenses, liabilities or damages
sustained by the Executive by reason of having made such patent
application or being granted such patents.
Any writings or other materials written or produced by
the Executive or under his supervision (whether alone or with others
and whether or not during regular business hours), during the Employment
Period which are related, directly or indirectly, to the business or
affairs of the Company, its subsidiaries or affiliates, or are
capable of being used therein, and the copyright thereof, common law
or statutory, including all renewals and extensions, shall be and
remain the property of the Company. The Executive agrees promptly
to communicate and disclose all such writings or materials to the
Company and to execute and deliver to it any instruments deemed
necessary by the Company to effect the disclosure and assignment
thereof to it. The Executive further agrees, on request and at
the expense of the Company, to take any and all action deemed
necessary by the Company to obtain copyrights or other protections
for such writings or other materials or to protect the Company's
right, title and interest therein. The Company shall indemnify and
hold the Executive harmless from any and all costs, expenses,
liabilities or damages sustained by the Executive by reason of the
Executive's compliance with the Company's request.
c) Return of Documents. Upon the termination of the Employment
-------------------
Period, including any termination of employment described in Paragraph 6,
the Executive will promptly return to the Company all copies of information
protected by Paragraph 7(a) hereof or pertaining to matters covered by
subparagraph (b) of this Paragraph 8 which are in his possession, custody
or control, whether prepared by him or others.
9. Separability.
------------
The Executive agrees that the provisions of Paragraphs 7 and 8
hereof constitute independent and separable covenants which shall survive
the termination of the Employment Period and which shall be enforceable
by the Company notwithstanding any rights or remedies the Executive may
have under any other provisions hereof. The Company agrees that the
provisions of Paragraph 6 hereof constitute independent and separable
covenants which shall survive the termination of the Employment Period
and which shall be enforceable by the Executive notwithstanding any rights
or remedies the Company may have under any other provisions hereof.
10. Specific Performance.
--------------------
The Executive acknowledges that (i) the services to be rendered
under the provisions of this Agreement and the obligations of the Executive
assumed herein are of a special, unique and extraordinary character; (ii)
it would be difficult or impossible to replace such services and
obligations; (iii) the Company, it subsidiaries and affiliates will be
irreparably damaged if the provision hereof are not specifically enforced;
and (iv) the award of monetary damages will not adequately protect the
Company, its subsidiaries and affiliates in the event of a breach hereof
by the Executive. The Company acknowledges that (i) the Executive will
be irreparably damaged if the provisions of Paragraphs 1(b) and 6 hereof
are not specifically enforced; and (ii) the award of monetary damages will
not adequately protect the Executive in the event of a breach thereof by
the Company. By virtue thereof, the Executive agrees and consents that
if he violates any of the provisions of this Agreement, and the Company
agrees and consents that if it violates any of the provisions of
Paragraphs 1(b) and 6 hereof, the other party, in addition to any other
rights and remedies available under this Agreement or otherwise, shall
(without any bond or other security being required and without the
necessity of proving monetary damages) be entitled to a temporary
and/or permanent injunction to be issued by a court of competent
jurisdiction restraining the breaching party from committing or
continuing any violation of this Agreement, or any other appropriate
decree of specific performance. Such remedies shall not be exclusive
and shall be in addition to any other remedy which any of them may have.
11. Miscellaneous.
-------------
a) Entire Agreement; Amendment. This Agreement constitutes the
---------------------------
whole employment agreement between the parties and may not be modified,
amended or terminated except by a written instrument executed by the
parties hereto. All other agreements between the parties pertaining
to the employment or remuneration of the Executive not specifically
contemplated hereby or incorporated or merged herein are terminated
and shall be of no further force or effect.
b) Assignment. Except as stated below, this Agreement
----------
is not assignable by the Company without the written consent of
the Executive, or by the Executive without the written consent
of the Company, and any purported assignment by either
party of such party's rights and/or obligations under this Agreement
shall be null and void; provided, however, that, notwithstanding the
foregoing, the Company may merge or consolidate with or into another
corporation, or sell all or substantially all of its assets to another
corporation or business entity or otherwise reorganize itself,
provided the surviving corporation or entity, if not the Company,
shall assume this Agreement and become obligated to perform all
of the terms and conditions hereof, in which event the Executive's
obligations shall continue in favor of such other corporation or entity.
c) Waivers, etc. No waiver of any breach or default hereunder
------------
shall be considered valid unless in writing, and no such waiver shall
be deemed a waiver of any subsequent breach or default of the same
or similar nature. The failure of any party to insist upon strict
adherence to any term of this Agreement on any occasion shall
not operate or be construed as a waiver of the right to insist upon strict
adherence to that term of any other term of this Agreement on that or
any other occasion.
d) Provisions Overly Broad. In the event that any term or
-----------------------
provision of this Agreement shall be deemed by a court of competent
jurisdiction to be overly broad in scope, duration or area of
applicability, the court considering the same shall have the power
and hereby is authorized and directed to modify such term or provision
to limit such scope, duration or area, or all of them, so that such
term or provision is no longer overly broad and to enforce the same
as so limited. Subject to the foregoing sentence, in the event any
provision of this Agreement shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability
shall attach only to such provision and shall not affect or render
invalid or unenforceable any other provision of this Agreement.
e) Notices. Any notice permitted or required hereunder
-------
shall be in writing and shall be deemed to have been
given on the date of delivery or, if mailed by registered or certified
mail, postage prepaid, on the date of mailing:
i. if to the Executive to:
Mark F. Settle
1674 Alexander Way
Los Altos, CA 94024
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: Robert E. Klatell
Executive Vice President
Either party may, by notice to the other, change his or its address
for notice hereunder.
f) New York Law. This Agreement shall be construed and
------------
governed in all respects by the internal laws of the State of New York,
without giving effect to principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
Attest: ARROW ELECTRONICS, INC.
By:
- ----------------------- ------------------------
Executive Vice President
THE EXECUTIVE
----------------------------
Mark F. Settle
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>11
<FILENAME>ex9-10fiv.txt
<DESCRIPTION>FIRST AMENDMENT TO AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
<TEXT>
EXECUTION COPY
FIRST AMENDMENT TO THE ARROW ELECTRONICS, INC.
AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
FIRST AMENDMENT, dated as of November 29, 2001 (the "Amendment")
---------
to the Amended and Restated 364-Day Credit Agreement, dated as of February
22, 2001 (as may be amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among ARROW ELECTRONICS, INC., a New York
----------------
corporation (the "Company"), the Subsidiary Borrowers (as defined therein),
-------
the several banks and other financial institutions from time to time parties
thereto (the "Banks"), BANK OF AMERICA, N.A., as Syndication Agent
-----
(the "Syndication Agent"), FLEET NATIONAL BANK, as Documentation Agent
----------------
(the "Documentation Agent"), and JPMORGAN CHASE BANK, as Administrative
-------------------
Agent (the "Administrative Agent").
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Subsidiary Borrowers, the Banks,
the Syndication Agent, the Documentation Agent and the Administrative
Agent are parties to the Credit Agreement; and
WHEREAS, the Company and each of the Subsidiary Borrowers
have requested that the Banks consent to the amendments contained
herein in the manner hereinafter provided, and the Banks are willing
to do so,
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
-------------
defined in the Credit Agreement shall have such meanings when used herein.
2. Amendment to Subsection 9.1(c). Subsection 9.1(c) of the
------------------------------
Credit Agreement is hereby amended by deleting such subsection in its
entirety and substituting, in lieu thereof, the following:
"(c) Interest Coverage. Permit the ratio of Adjusted Consolidated
-----------------
EBITDA to Consolidated Cash Interest Expense for any period of four
consecutive fiscal quarters of the Company ending (a) on or prior to
September 30, 2001, to be less than 3.0 to 1.0, (b) after September 30,
2001 and on or prior to December 31, 2001, to be less than 2.15 to 1.0,
and (c) after December 31, 2001, to be less than 3.0 to 1.0."
3. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective on the date on which the Administrative Agent shall have
received (a) an executed counterpart of this Amendment signed by the
Company, each Subsidiary Borrower and the Required Banks and consented
to by the Subsidiary Guarantors and (b) an amendment fee, for the account
of the Banks that have delivered an executed counterpart to the
Administrative Agent no later than 5:00 p.m., New York City time,
on November 29, 2001, in an amount equal to 0.075% of the aggregate
amount of the Commitments of such Banks.
4. Representations and Warranties. Each of the Company and
------------------------------
each subsidiary Borrower (in so far as the representations and
warranties by such Subsidiary Borrower relate to it) hereby confirms
that all of the representations and warranties made by the Loan Parties
contained in the Credit Documents (other than in subsection 6.2 of
the Credit Agreement) after giving effect to the Amendments herein are
true and correct in all material respects on and as of the date hereof
(other than representations as are made as of a specific date) after
giving effect to this Amendment.
5. No Default. The Company hereby confirms that no Default
----------
or Event of Default shall have occurred and be continuing on the date
hereof or after giving effect to this Amendment.
6. Counterparts. This Amendment may be executed by one
------------
or more of the parties hereof on any number of separate counterparts
and all such counterparts shall be deemed to be one and the same
instrument.
7. Payment Of Expenses. The Company agrees to pay or
-------------------
reimburse the Administrative Agent for all of its reasonable
out-of-pocket costs and expenses incurred in connection with this
Amendment, any other documents prepared in connection herewith and
the transactions contemplated hereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Administrative
Agent.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned have caused this
Amendment to be duly executed and delivered by their respective duly
authorized officer as of the day and year first above written.
ARROW ELECTRONICS, INC.
By:
-------------------
Name:
Title:
GATES/ARROW DISTRIBUTING, INC.
By:
-------------------
Name:
Title:
MID RANGE OPEN COMPUTING
ALLIANCE, INC.
By:
-------------------
Name:
Title:
SPOERLE ELECTRONIC GMBH
By:
-------------------
Name:
Title:
ARROW ELECTRONIQUE S.A.
By:
-------------------
Name:
Title:
TEKELEC EUROPE S.A.
By:
-------------------
Name:
Title:
JPMORGAN CHASE BANK, as
Administrative Agent and as a Bank
By:
-------------------
Name:
Title:
BANK OF AMERICA, N.A., as
Syndication Agent and as a Bank
By:
-------------------
Name:
Title:
FLEET NATIONAL BANK, as
Documentation Agent and as a Bank
By:
-------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, as a Bank
By:
-------------------
Name:
Title:
BNP PARIBAS, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
DEN DANSKE BANK AKTIESELSKAB,
as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
HSBC BANK USA, as a Bank
By:
-------------------
Name:
Title:
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
BANCA POPOLARE DI MILANO, NEW
YORK BRANCH, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
THE BANK OF NEW YORK, as a Bank
By:
-------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as a Bank
By:
-------------------
Name:
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS
BRANCH, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
CREDIT INDUSTRIEL ET
COMMERCIAL, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as a
Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
SUNTRUST BANK, as a Bank
By:
-------------------
Name:
Title:
DEUTSCHE BANK AG, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
FIRST UNION NATIONAL BANK, as a
Bank
By:
-------------------
Name:
Title:
BANCA NAZIONALE DEL LAVORO
S.P.A., NEW YORK BRANCH, as a Bank
By:
-------------------
Name:
Title:
By:
-------------------
Name:
Title:
THE FUJI BANK, LIMITED, as a Bank
By:
-------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.,
as a Bank
By:
-------------------
Name:
Title:
UNICREDITO ITALIANO, as a Bank
By:
-------------------
Name:
Title:
STATE BANK OF INDIA, as a Bank
By:
-------------------
Name:
Title:
By its signature each Guarantor hereby acknowledges and consents to the
foregoing amendment and confirms its Company Guarantee or Subsidiary
Guarantee, as the case may be.
ARROW ELECTRONICS, INC.
By:
-------------------
Name:
Title:
GATES/ARROW DISTRIBUTING, INC.
By:
-------------------
Name:
Title:
MID RANGE OPEN COMPUTING
ALLIANCE, INC.
By:
-------------------
Name:
Title:
SUPPORT NET, INC.
By:
-------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>12
<FILENAME>ex10-10lii.txt
<DESCRIPTION>FIRST AMENDMENT TO AMENDED AND RESTATED 3-YEAR CREDIT AGREEMENT
<TEXT>
EXECUTION COPY
FIRST AMENDMENT TO THE ARROW ELECTRONICS, INC.
AMENDED AND RESTATED THREE YEAR CREDIT AGREEMENT
FIRST AMENDMENT, dated as of November 29, 2001 (the "Amendment") to
---------
the Amended and Restated Three Year Credit Agreement, dated as of February
22, 2001 (as may be amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among ARROW ELECTRONICS, INC., a New York
----------------
corporation (the "Company"), the Subsidiary Borrowers (as defined therein),
the several banks and other financial institutions from time to time parties
thereto (the "Banks"), BANK OF AMERICA, N.A., as Syndication Agent
(the "Syndication Agent"), FLEET NATIONAL BANK, as Documentation Agent
----------------
(the "Documentation Agent"), and JPMORGAN CHASE BANK, as Administrative
-------------------
Agent (the "Administrative Agent").
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Subsidiary Borrowers, the Banks, the
Syndication Agent, the Documentation Agent and the Administrative Agent
are parties to the Credit Agreement; and
WHEREAS, the Company and each of the Subsidiary Borrowers
have requested that the Banks consent to the amendments contained
herein in the manner hereinafter provided, and the Banks are
willing to do so,
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
-------------
defined in the Credit Agreement shall have such meanings when used
herein.
2. Amendment to Subsection 11.1(c). Subsection 11.1(c)
-------------------------------
of the Credit Agreement is hereby amended by deleting such subsection
in its entirety and substituting, in lieu thereof, the following:
"(c) Interest Coverage. Permit the ratio of Adjusted
-----------------
Consolidated EBITDA to Consolidated Cash Interest Expense for any
period of four consecutive fiscal quarters of the Company ending
(a) on or prior to September 30, 2001, to be less than 3.0 to 1.0,
(b) after September 30, 2001 and on or prior to December 31, 2001,
to be less than 2.15 to 1.0, and (c) after December 31, 2001, to
be less than 3.0 to 1.0."
3. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective on the date on which the Administrative Agent shall have
received (a) an executed counterpart of this Amendment signed by the
Company, each Subsidiary Borrower and the Required Banks and consented
to by the Subsidiary Guarantors and (b) an amendment fee, for the account
of the Banks that have delivered an executed counterpart to the
Administrative Agent no later than 5:00 p.m., New York City time,
on November 29, 2001, in an amount equal to 0.075% of the aggregate
amount of the Commitments of such Banks.
4. Representations and Warranties. Each of the Company and each
------------------------------
Subsidiary Borrower (in so far as the representations and warranties
by such Subsidiary Borrower relate to it) hereby confirms that all of
the representations and warranties made by the Loan Parties contained
in the Credit Documents (other than in subsection 8.2 of the Credit
Agreement) after giving effect to the Amendments herein are true and
correct in all material respects on and as of the date hereof (other
than representations as are made as of a specific date) after giving
effect to this Amendment.
5. No Default. The Company hereby confirms that no Default
----------
or Event of Default shall have occurred and be continuing on the date
hereof or after giving effect to this Amendment.
6. Counterparts. This Amendment may be executed by one
------------
or more of the parties hereof on any number of separate counterparts
and all such counterparts shall be deemed to be one and the same
instrument.
7. Payment Of Expenses. The Company agrees to pay or
-------------------
reimburse the Administrative Agent for all of its reasonable out-of-
pocket costs and expenses incurred in connection with this Amendment,
any other documents prepared in connection herewith and the
transactions contemplated hereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Administrative
Agent.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.
IN WITNESS WHEREOF, the undersigned have caused this Amendment
to be duly executed and delivered by their respective duly authorized
officer as of the day and year first above written.
ARROW ELECTRONICS, INC.
By:
----------------------
Name
Title:
GATES/ARROW DISTRIBUTING, INC.
By:
----------------------
Name:
Title:
MID RANGE OPEN COMPUTING ALLIANCE,
INC.
By:
-----------------------
Name:
Title:
ARROW DENMARK A/S
By:
------------------------
Name
Title:
ARROW FINLAND OY
By:
------------------------
Name
Title:
ARROW COMPONENTS SWEDEN AB
By:
-----------------------
Name
Title:
ARROW EUROPE GMBH
By:
-------------------------
Name
Title:
SPOERLE ELECTRONIC GMBH
By:
-------------------------
Name
Title:
ARROW ELECTRONICS (UK) LTD.
By:
-------------------------
Name
Title:
ARROW NORWAY A/S
By:
-------------------------
Name
Title:
ARROW ELECTRONIQUE S.A.
By:
-------------------------
Name
Title:
ARROW COMPUTER PRODUCTS SNC
By:
-------------------------
Name
Title:
ARROW NORDIC COMPONENTS AB
By:
-------------------------
Name
Title:
MICROTRONICA UK
By:
-------------------------
Name
Title:
MICROTRONICA OY
By:
-------------------------
Name
Title:
MICROTRONICA SWEDEN AB
By:
-------------------------
Name
Title:
MICROTRONICA NORWAY AS
By:
-------------------------
Name
Title:
MICROTRONICA DENMARK AS
By:
-------------------------
Name
Title:
TEKELEC EUROPE S.A.
By:
-------------------------
Name
Title:
B.V. ARROW ELECTRONICS DLC
By:
-------------------------
Name
Title:
ARROW/TEXNY (H.K.) LIMITED
By:
-------------------------
Name
Title:
ARROW ASIA PAC LTD.
By:
-------------------------
Name
Title:
JPMORGAN CHASE BANK, as
Administrative Agent and as a Bank
By:
-------------------------
Name
Title:
BANK OF AMERICA, N.A., as Syndication
Agent and as a Bank
By:
-------------------------
Name:
Title:
FLEET NATIONAL BANK, as
Documentation Agent and as a Bank
By:
-------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, as a Bank
By:
-------------------------
Name:
Title:
BNP PARIBAS, as a Bank
By:
------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
DEN DANSKE BANK AKTIESELSKAB, as a
Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
HSBC BANK USA, as a Bank
By:
------------------------
Name:
Title:
BANCA COMMERCIALE ITALIANA, NEW
YORK BRANCH, as a Bank
By:
------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
BANCA POPOLARE DI MILANO, NEW YORK
BRANCH, as a Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
THE BANK OF NEW YORK, as a Bank
By:
-------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as a Bank
By:
-------------------------
Name:
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS
BRANCH, as a Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
CREDIT INDUSTRIEL ET COMMERCIAL, as a
Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as a
Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SUNTRUST BANK, as a Bank
By:
-------------------------
Name:
Title:
DEUTSCHE BANK AG, as a Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
FIRST UNION NATIONAL BANK, as a
Bank
By:
-------------------------
Name:
Title:
BANCA NAZIONALE DEL LAVORO S.P.A.,
NEW YORK BRANCH, as a Bank
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
THE FUJI BANK, LIMITED, as a Bank
By:
-------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD., as a
Bank
By:
-------------------------
Name:
Title:
UNICREDITO ITALIANO, as a Bank
By:
------------------------
Name:
Title:
STATE BANK OF INDIA, as a Bank
By:
-------------------------
Name:
Title:
By its signature each Guarantor hereby acknowledges and consents to the
foregoing amendment and confirms its Company Guarantee or Subsidiary
Guarantee, as the case may be.
ARROW ELECTRONICS, INC.
By:
-------------------------
Name:
Title:
GATES/ARROW DISTRIBUTING, INC.
By:
------------------------
Name:
Title:
MID RANGE OPEN COMPUTING
ALLIANCE, INC.
By:
------------------------
Name:
Title:
SUPPORT NET, INC.
By:
------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>13
<FILENAME>ex11-10liii.txt
<DESCRIPTION>SECOND AMENDMENT TO AMENDED AND RESTATED 3-YEAR CREDIT AGREEMENT
<TEXT>
SECOND AMENDMENT TO THE ARROW ELECTRONICS, INC.
AMENDED AND RESTATED THREE YEAR CREDIT AGREEMENT
SECOND AMENDMENT, dated as of February 19, 2002 (the "Amendment")
---------
to the Amended and Restated Three Year Credit Agreement, dated as of
February 22, 2001 (as may be amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among ARROW ELECTRONICS, INC.,
----------------
a New York corporation (the "Company"), the Subsidiary Borrowers (as defined
-------
therein), the several banks and other financial institutions from time to
time parties thereto (the "Banks"), BANK OF AMERICA, N.A., as Syndication
-----
Agent (the "Syndication Agent"), FLEET NATIONAL BANK, as Documentation
-----------------
Agent (the "Documentation Agent"), and JPMORGAN CHASE BANK, as Administrative
-------------------
Agent (the "Administrative Agent").
--------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Subsidiary Borrowers, the Banks, the
Syndication Agent, the Documentation Agent and the Administrative Agent are
parties to the Credit Agreement; and
WHEREAS, the Company and each of the Subsidiary Borrowers have
requested that the Banks consent to the amendments contained herein in the
manner hereinafter provided, and the Banks are willing to do so;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
-------------
defined in the Credit Agreement shall have such meanings when used herein.
2. Amendments to Subsection 1.1. Subsection 1.1 of the Credit
----------------------------
Agreement is hereby amended as follows:
(a) by inserting, after the word "Affiliates," in clause (d)
of the definition of "Adjusted Consolidated EBITDA" in such subsection,
the following:
"plus (e) to the extent deducted from earnings in determining Consolidated
Net Income for such period, non-cash charges due to impairments recorded in
such period in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 142,"
(b) by deleting the period at the end of the definition of
"Applicable Margin" in such subsection and substituting, in lieu thereof,
the following:
"; and provided, further, that the Applicable Margin as determined pursuant
-------- -------
to the foregoing shall be increased by 25 basis points for the period from
and including January 1, 2002 until and including the first fiscal quarter
end on which the ratio of Consolidated Total Debt as at such quarter end
to Adjusted Consolidated EBITDA for the period of four consecutive
quarters ending on such date is less than or equal to 4.0 to 1.0."
(c) be deleting the period at the end of the definition of
"Consolidated Net Worth" in such subsection and substituting, in lieu
thereof, the following:
", adjusted to exclude non-cash charges due to impairments recorded in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 142."
(d) by deleting the table in the definition of "Facility Fee Rate"
in such subsection in its entirety and substituting, in lieu thereof, the
following table:
Rating
(S&P/Moody's) (Facility Fee Rate (in basis points)
------------- ------------------------------------
Greater than or equal 13.50
to A-/A3
Greater than or equal 15.00
to BBB+/Baa1
Greater than or equal 17.50
to BBB/Baa2
Greater than or equal 20.00
to BBB-/Baa3
Less than 27.50
BBB-/Baa3
2. Amendment to Subsection 9.2. Subsection 9.2(a) of the Credit
---------------------------
Agreement is hereby amended by deleting the parenthetical clause contained
therein and substituting in lieu thereof the following:
"(other than, in respect of any Extension of Credit made after the
Closing Date the proceeds of which are to be applied by the Company to
repay maturing commercial paper (as specified in the applicable Notice of
Borrowing), subsection 8.2)"
3. Amendment to Subsection 10.9. Subsection 10.9 of the Credit
----------------------------
Agreement is hereby amended by deleting such subsection in its entirety
and substituting, in lieu thereof, the following:
"10.9 Additional Subsidiary Guarantees. In the event that any
--------------------------------
Domestic Subsidiary which is not a Guarantor shall own any assets or
generate any revenues (excluding any Domestic Subsidiary the sole
activities of which consist of entering into one or more Permitted
Receivables Securitizations), take all actions necessary to cause such
Domestic Subsidiary to execute and deliver a Subsidiary Guarantee, within
30 days of the occurrence of such event."
4. Amendment to Subsection 11.1(a). Subsection 11.1(a) of the Credit
-------------------------------
Agreement is hereby amended by deleting such subsection in its entirety and
substituting, in lieu thereof, the following:
"(a) Maintenance of Indebtedness. Permit Consolidated Total Debt at
---------------------------
any time to exceed (a) from the Closing Date through September 30, 2001, an
amount equal to 70.0% of Consolidated Total Capitalization, (b) from
October 1, 2001 through December 31, 2001, an amount equal to 67.5% of
Consolidated Total Capitalization, (c) from January 1, 2002 through March
31, 2002, an amount equal to 62.5% of Consolidated Total Capitalization,
(d) from April 1, 2002 through March 31, 2003, an amount equal to 60.0% of
Consolidated Total Capitalization, and (e) thereafter, an amount equal to
57.5% of Consolidated Total Capitalization; provided that the percentages
--------
set forth in the foregoing clauses (c) through (e) shall be increased by
2.5% if, and only for so long as, the ratio of Consolidated Total Debt as
at the most recent fiscal quarter end to Adjusted Consolidated EBITDA for
the period of four consecutive quarters ending on such date is less than or
equal to 4.0 to 1.0."
5. Amendment to Subsection 11.1(b). Subsection 11.1(b) of the Credit
--------------------------------
Agreement is hereby amended by deleting such subsection in its entirety and
substituting, in lieu thereof, the following:
"(b) Maintenance of Net Worth. Permit Consolidated Net Worth at any
------------------------
time to be less than an amount equal to the sum of 85.0% of Consolidated
Net Worth as of December 31, 2001 plus 50% of cumulative Consolidated Net
Income for the fiscal quarter commencing January 1, 2002 and for each
fiscal quarter thereafter (without subtraction for any fiscal quarter
during which Consolidated Net Income is a negative number) plus 50% of the
cash proceeds of any Capital Stock issued by any Loan Party commencing
January 1, 2002 (net of attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other
customary fees and expenses actually incurred in connection therewith)."
6. Amendment to Subsection 11.1(c). Subsection 11.1(c) of the Credit
------------------------------
Agreement is hereby amended by deleting such subsection in its entirety and
substituting, in lieu thereof, the following:
"(c) Interest Coverage. Permit the ratio of Adjusted Consolidated
-----------------
EBITDA to Consolidated Cash Interest Expense for any period of four
consecutive fiscal quarters of the Company ending (a) on or prior to
September 30, 2001, to be less than 3.0 to 1.0, (b) after September 30,
2001 and on or prior to December 31, 2001, to be less than 2.15 to 1.0,
(c) after December 31, 2001 and on or prior to June 30, 2002, to be less
than 1.75 to 1.0, (d) after June 30, 2002 and on or prior to September 30,
2002, to be less than 2.0 to 1.0, (e) after September 30, 2002 and on or
prior to December 31, 2002, to be less than 2.1 to 1.0, (f) after December
31, 2002 and on or prior to March 31, 2003, to be less than 2.25 to 1.0,
and (g) after March 31, 2003, to be less than 3.0 to 1.0."
7. Amendment to Subsection 11.3. Subsection 11. 3 of the Credit
----------------------------
Agreement is hereby amended by deleting the amount "$75,000,000" where it
appears in clause (i) thereof and substituting in lieu thereof the amount
"$50,000,000".
8. Amendments to Subsection 11. Section 11 of the Credit
---------------------------
Agreement is hereby amended by adding thereto the following Subsection
11.5:
"11.5 Limitation on Payments. For the period from and including
----------------------
January 1, 2002 until and including the first fiscal quarter end on which
the ratio of Consolidated Total Debt as at such quarter end to Adjusted
Consolidated EBITDA for the period of four consecutive quarters ending on
such date is less than or equal to 4.0 to 1.0, the Company shall not, and
shall not permit any of its Subsidiaries to, make any payment on account
of, or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other acquisition of, any
Capital Stock of any Loan Party, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of any Loan Party
(collectively, "Restricted Payments"), except that (x) any Subsidiary or
any Loan Party may make Restricted Payments to any other Loan Party and (y)
any Loan Party may make Restricted Payments consisting solely of Capital
Stock of any Loan Party."
9. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective on the date on which the Administrative Agent shall have received
(a) an executed counterpart of this Amendment signed by the Company, each
Subsidiary Borrower and the Required Banks and consented to by the
Subsidiary Guarantors, (b) an executed Subsidiary Guarantee from each
Domestic Subsidiary of the Company that is not already a Guarantor which
would be required as of the date hereof by Subsection 10.9 of the Credit
Agreement, as amended hereby, to execute and deliver a Subsidiary Guarantee
and (c) an amendment fee, for the account of the Banks that have delivered
an executed counterpart to the Administrative Agent no later than 12:00 noon,
New York City time, on February 19, 2002, in an amount equal to 0.15% of the
aggregate amount of the Commitments of such Banks.
10. Representations and Warranties. Each of the Company and each
------------------------------
Subsidiary Borrower (in so far as the representations and warranties by
such Subsidiary Borrower relate to it) hereby confirms that all of the
representations and warranties made by the Loan Parties contained in the
Credit Documents after giving effect to the Amendments herein are true and
correct in all material respects on and as of the date hereof (other than
representations as are made as of a specific date) after giving effect to
this Amendment (it being understood that the occurrence of a material
reduction in revenue and/or earnings during the 2001 calendar year shall
not constitute a breach of the representation and warranty contained in
subsection 8.2 of the Credit Agreement for purposes of this Section 10).
11. No Default. The Company hereby confirms that no Default or
----------
Event of Default shall have occurred and be continuing on the date hereof
or after giving effect to this Amendment.
12. Counterparts. This Amendment may be executed by one or more
------------
of the parties hereof on any number of separate counterparts and all such
counterparts shall be deemed to be one and the same instrument.
13. Payment Of Expenses. The Company agrees to pay or reimburse
-------------------
the Administrative Agent for all of its reasonable out-of-pocket costs
and expenses incurred in connection with this Amendment, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.
IN WITNESS WHEREOF, the undersigned have caused this Amendment
to be duly executed and delivered by their respective duly authorized officer
as of the day and year first above written.
ARROW ELECTRONICS, INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
GATES/ARROW DISTRIBUTING, INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
MID RANGE OPEN COMPUTING ALLIANCE,
INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW DENMARK A/S
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW FINLAND OY
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW COMPONENTS SWEDEN AB
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW EUROPE GMBH
By:
---------------------------
Name
-----------------------
Title:
----------------------
SPOERLE ELECTRONIC GMBH
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW ELECTRONICS (UK) LTD.
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW NORWAY A/S
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW ELECTRONIQUE S.A.
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW COMPUTER PRODUCTS SNC
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW NORDIC COMPONENTS AB
By:
---------------------------
Name
-----------------------
Title:
----------------------
MICROTRONICA UK
By:
---------------------------
Name
-----------------------
Title:
----------------------
MICROTRONICA OY
By:
---------------------------
Name
-----------------------
Title:
----------------------
MICROTRONICA SWEDEN AB
By:
---------------------------
Name
-----------------------
Title:
----------------------
MICROTRONICA NORWAY AS
By:
---------------------------
Name
-----------------------
Title:
----------------------
MICROTRONICA DENMARK AS
By:
---------------------------
Name
-----------------------
Title:
----------------------
TEKELEC EUROPE S.A.
By:
---------------------------
Name
-----------------------
Title:
----------------------
B.V. ARROW ELECTRONICS DLC
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW/TEXNY (H.K.) LIMITED
By:
---------------------------
Name
-----------------------
Title:
----------------------
ARROW ASIA PAC LTD.
By:
---------------------------
Name
-----------------------
Title:
----------------------
JPMORGAN CHASE BANK, as
Administrative Agent and as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
BANK OF AMERICA, N.A., as Syndication
Agent and as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
FLEET NATIONAL BANK, as
Documentation Agent and as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
THE BANK OF NOVA SCOTIA, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
BNP PARIBAS, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
DEN DANSKE BANK AKTIESELSKAB, as a
Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
HSBC BANK USA, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
BANCA COMMERCIALE ITALIANA, NEW
YORK BRANCH, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
BANCA POPOLARE DI MILANO, NEW YORK
BRANCH, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------:
THE BANK OF NEW YORK, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS
BRANCH, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
CREDIT INDUSTRIEL ET COMMERCIAL,
as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
CREDIT SUISSE FIRST BOSTON, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
SUNTRUST BANK, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
DEUTSCHE BANK AG, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
FIRST UNION NATIONAL BANK, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
BANCA NAZIONALE DEL LAVORO S.P.A.,
NEW YORK BRANCH, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By:
---------------------------
Name
-----------------------
Title:
----------------------
THE FUJI BANK, LIMITED, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
THE DAI-ICHI KANGYO BANK, LTD., as a
Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
UNICREDITO ITALIANO, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
STATE BANK OF INDIA, as a Bank
By:
---------------------------
Name
-----------------------
Title:
----------------------
By its signature each Guarantor hereby acknowledges and consents to the
foregoing amendment and confirms its Company Guarantee or Subsidiary Guarantee,
as the case may be.
ARROW ELECTRONICS, INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
GATES/ARROW DISTRIBUTING, INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
MID RANGE OPEN COMPUTING
ALLIANCE, INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
SUPPORT NET, INC.
By:
---------------------------
Name
-----------------------
Title:
----------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>14
<FILENAME>ex12-10mi.txt
<DESCRIPTION>TRANSFER AND ADMINISTRATION AGREEMENT
<TEXT>
TRANSFER AND ADMINISTRATION AGREEMENT
by and among
ARROW ELECTRONICS FUNDING CORPORATION,
ARROW ELECTRONICS, INC.,
Individually and as Master Servicer
The Persons Parties hereto as Conduit Investors,
Alternate Investors and Funding Agents
BANK OF AMERICA,
NATIONAL ASSOCIATION,
as Administrative Agent
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . .1
SECTION 1.2. Other Terms.. . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 1.3. Computation of Time Periods.. . . . . . . . . . . . . . . . .22
ARTICLE II PURCHASES AND SETTLEMENTS. . . . . . . . . . . . . . . . . . . . .22
SECTION 2.1. Transfer of Affected Assets; Intended Characterization. . . .22
SECTION 2.2. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 2.3. Investment Procedures.. . . . . . . . . . . . . . . . . . . .24
SECTION 2.4. [IS RESERVED AND IS SPECIFIED IN SCHEDULE I.] . . . . . . . .27
SECTION 2.5. Yield, Fees and Other Costs and Expenses. . . . . . . . . . .27
SECTION 2.6. Deemed Collections. . . . . . . . . . . . . . . . . . . . . .27
SECTION 2.7. Payments and Computations, Etc. . . . . . . . . . . . . . . .28
SECTION 2.8. Reports.. . . . . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 2.9. Collection Account. . . . . . . . . . . . . . . . . . . . . .28
SECTION 2.10. Sharing of Payments, Etc.. . . . . . . . . . . . . . . . . .29
SECTION 2.11. Right of Setoff. . . . . . . . . . . . . . . . . . . . . . .29
SECTION 2.16. Special Termination Date with Respect to a
Particular Conduit Investor.. . . . . . . . . . . . . . . .30
ARTICLE III ADDITIONAL ALTERNATE INVESTOR PROVISIONS. . . . . . . . . . . . .30
SECTION 3.1. Assignment to Alternate Investors.. . . . . . . . . . . . . .30
SECTION 3.2. Downgrade of an EFC Alternate Investor. . . . . . . . . . . .32
SECTION 3.3. Non-Renewing Alternate Investors. . . . . . . . . . . . . . .34
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . .35
SECTION 4.1. Representations and Warranties of the SPV and
the Master Servicer. . . . . . . . . . . . . . . . . . . . .35
SECTION 4.2. Additional Representations and Warranties of the
Master Servicer. . . . . . . . . . . . . . . . . . . . . . .41
ARTICLE V CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . .42
SECTION 5.1. Conditions Precedent to Closing. . . . . . . . . . . . . . . 42
SECTION 5.2. Conditions Precedent to All Investments and
Reinvestments. . . . . . . . . . . . . . . . . . . . . . . .45
ARTICLE VI COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
SECTION 6.1. Affirmative Covenants of the SPV and Master Servicer. . . . .46
SECTION 6.2. Negative Covenants of the SPV and Master Servicer.. . . . . .52
ARTICLE VII ADMINISTRATION AND COLLECTIONS. . . . . . . . . . . . . . . . . .54
SECTION 7.1. Appointment of Master Servicer. . . . . . . . . . . . . . . .54
SECTION 7.2. Duties of Master Servicer.. . . . . . . . . . . . . . . . . .55
SECTION 7.3. Blocked Account Arrangements. . . . . . . . . . . . . . . . .56
SECTION 7.4. Enforcement Rights After Designation of New
Master Servicer. . . . . . . . . . . . . . . . . . . . . . .57
SECTION 7.5. Master Servicer Default.. . . . . . . . . . . . . . . . . . .58
SECTION 7.6. Servicing Fee.. . . . . . . . . . . . . . . . . . . . . . . .59
SECTION 7.7. Protection of Ownership Interest of the Investors.. . . . . .59
ARTICLE VIII TERMINATION EVENTS.. . . . . . . . . . . . . . . . . . . . . . .60
SECTION 8.1. Termination Events. . . . . . . . . . . . . . . . . . . . . .60
SECTION 8.2. Termination.. . . . . . . . . . . . . . . . . . . . . . . . .63
ARTICLE IX INDEMNIFICATION; EXPENSES; RELATED MATTERS.. . . . . . . . . . . .63
SECTION 9.1. Indemnities by the SPV. . . . . . . . . . . . . . . . . . . .63
SECTION 9.2. Indemnity for Taxes, Reserves and Expenses. . . . . . . . . .66
SECTION 9.3. Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . .68
SECTION 9.4. Other Costs and Expenses; Breakage Costs. . . . . . . . . . .69
SECTION 9.5. Reconveyance Under Certain Circumstances. . . . . . . . . . .69
SECTION 9.6. Indemnities by the Master Servicer. . . . . . . . . . . . . .70
ARTICLE X THE ADMINISTRATIVE AGENT. . . . . . . . . . . . . . . . . . . . . .70
SECTION 10.1. Appointment and Authorization of Administrative Agent. . . .70
SECTION 10.2. Delegation of Duties.. . . . . . . . . . . . . . . . . . . .71
SECTION 10.3. Liability of Administrative Agent. . . . . . . . . . . . . .71
SECTION 10.4. Reliance by Administrative Agent.. . . . . . . . . . . . . .71
SECTION 10.5. Notice of Termination Event, Potential Termination
Event or Master Servicer Default. . . . . . . . . . . . . .72
SECTION 10.6. Credit Decision; Disclosure of Information by the
Administrative Agent. . . . . . . . . . . . . . . . . . . .72
SECTION 10.7. Indemnification of the Administrative Agent. . . . . . . . .73
SECTION 10.8. Administrative Agent in Individual Capacity. . . . . . . . .73
SECTION 10.9. Resignation of Administrative Agent. . . . . . . . . . . . .74
SECTION 10.10.Payments by the Administrative Agent.. . . . . . . . . . . .74
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .75
SECTION 11.1. Term of Agreement. . . . . . . . . . . . . . . . . . . . . .75
SECTION 11.2. Waivers; Amendments. . . . . . . . . . . . . . . . . . . . .75
SECTION 11.3. Notices; Payment Information.. . . . . . . . . . . . . . . .76
SECTION 11.4. Governing Law; Submission to Jurisdiction; Appointment
of Service Administrative Agent.. . . . . . . . . . . . . .76
SECTION 11.5. Integration. . . . . . . . . . . . . . . . . . . . . . . . .77
SECTION 11.6. Severability of Provisions.. . . . . . . . . . . . . . . . .77
SECTION 11.7. Counterparts; Facsimile Delivery.. . . . . . . . . . . . . .77
SECTION 11.8. Successors and Assigns; Binding Effect.. . . . . . . . . . .77
SECTION 11.9. Waiver of Confidentiality. . . . . . . . . . . . . . . . . .81
SECTION 11.10.Confidentiality Agreement. . . . . . . . . . . . . . . . . .81
SECTION 11.11 No Bankruptcy Petition Against the Conduit Investors.. . . .81
SECTION 11.12 No Recourse Against Conduit Investors, Stockholders,
Officers or Directors.. . . . . . . . . . . . . . . . . . .81
Schedules
---------
Schedule A Investors
Schedule B Match Funding Conduit Investors
Schedule I Yield and Rate Periods
Schedule II Calculation of Required Reserves
Schedule III Settlement Procedures
Schedule IV Fees
Schedule V Agreed Upon Procedures
Schedule 4.1(g) List of Actions and Suits
Schedule 4.1(i) Location of Certain Offices and Records
Schedule 4.1(j) List of Subsidiaries, Divisions and Tradenames; FEIN
Schedule 4.1(s) List of Blocked Account Banks and Blocked Accounts
Schedule 11.3 Address and Payment Information
EXHIBITS
--------
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Contract[s]
Exhibit C Credit and Collection Policies and Practices
Exhibit D Form of Investment Request
Exhibit E Form of Blocked Account Agreement
Exhibit F Form of Master Servicer Report
Exhibit G Form of SPV Secretary's Certificate
Exhibit H Forms of Originator/Master Servicer Secretary's Certificate
Exhibit I-1 Form of Opinion of Robert E. Klatell, Counsel to the SPV,
Originators and Master Servicer
Exhibit I-2 Form of Opinion of Milbank, Tweed, Hadley & McCloy LLP,
Counsel to the SPV, Originators and Master Servicer
Exhibit I-3 Form of Opinion of Davies, Ward, Phillips & Vineberg LLP,
Canadian Counsel to Arrow Electronics Canada Ltd.
Exhibit I-4 Form of Opinion of Counsel to SBM and Support Net, Inc.
TRANSFER AND ADMINISTRATION AGREEMENT
This TRANSFER AND ADMINISTRATION AGREEMENT (this "Agreement"), dated as of
---------
March 21, 2001, by and among Arrow Electronics Funding Corporation, a Delaware
corporation (the "SPV"), Arrow Electronics, Inc., a New York corporation,
---
individually ("Arrow") and as initial Master Servicer, the several commercial
paper conduits identified on Schedule A and their respective permitted
----------
successors and assigns (the "Conduit Investors"; each individually, a "Conduit
----------------- -------
Investor"), the financial institutions from time to time parties hereto as
- --------
Alternate Investors, the agent bank set forth opposite the name of each
Conduit Investor on Schedule A and its permitted successors and assigns
----------
(each a "Funding Agent") with respect to such Conduit Investor and Alternate
-------------
Investor and Bank of America, National Association, a national banking
association ("Bank of America"), as the Administrative Agent for the Conduit
---------------
Investors and the Alternate Investors.
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Additional Commitment Amendment" means an amendment to this Agreement
-------------------------------
pursuant to the provisions hereof, among the SPV, Arrow, the Administrative
Agent and a commercial paper conduit and the alternate investors related
thereto providing for such commercial paper conduit and alternate investors
to become a party to this Agreement with a corresponding increase in the
Facility Limit hereunder.
"Additional Costs" is defined in Section 9.2(d).
---------------- --------------
"Adjusted Consolidated EBITDA" means for any fiscal period, (a) the
----------------------------
Consolidated Net Income of Arrow and its CA Subsidiaries for such period,
plus (b) to the extent deducted from earnings in determining Consolidated
Net Income for such period, the sum, in each case for such period, of
income taxes, interest expense, depreciation expense, amortization
expense, including amortization of any goodwill or other intangibles,
minus (c) to the extent included in determining Consolidated Net Income
for such period, non-cash equity earnings of unconsolidated CA Affiliates,
plus (d) to the extent excluded in determining Consolidated Net Income
for such period, cash distributions received by Arrow from unconsolidated
CA Affiliates, all as determined on a consolidated basis in accordance
with GAAP.
"Administrative Agent" means Bank of America or an Affiliate thereof,
--------------------
as Administrative Agent for the Conduit Investors, the Funding Agents and
the Alternate Investors.
"Administrative Agent-Related Persons" means the Administrative Agent,
------------------------------------
together with its Affiliates, and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and their respective
Affiliates.
"Administrative Fee" means the fee payable to the Administrative
------------------
Agent as set forth in the Fee Letter.
"Adverse Claim" means a lien, security interest, charge or encumbrance,
-------------
or other right or claim in, of or on any Person's assets or properties
(including any UCC financing statement or any similar instrument filed against
such Person's assets or properties, and excluding (i) any repurchase right of
HP in the HP Receivables pursuant to the HP Receivables Purchase Agreement,
(ii) any lien, security interest, charge or encumbrance relating solely to
the Canadian Receivables prior to the satisfaction of the Canadian
Eligibility Conditions, (iii) any lien, security interest, charge or
encumbrance relating solely to Receivables with Allied Signal, Inc. as the
Obligor, at any time when such Receivables are not treated as "Eligible
Receivables" hereunder and (iv) the HP Financing Statement) in favor of any
other Person (including any bankruptcy trustee with respect to any
Originator or the SPV).
"Affected Assets" means, collectively, (a) the Receivables, (b) the
---------------
Related Security, (c) all rights and remedies of the SPV under the First
Tier Agreement, together with all financing statements filed by the SPV
against Arrow in connection therewith, (d) all Blocked Accounts and all
funds and investments therein and all Blocked Account Agreements, and (e)
all proceeds of the foregoing.
"Affiliate" means as to any Person, any other Person which, directly
---------
or indirectly, owns, is in control of, is controlled by, or is under common
control with, such Person, in each case whether beneficially, or as a
trustee, guardian or other fiduciary. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies
of the other Person, whether through the ownership of voting securities or
membership interests, by contract, or otherwise.
"Aggregate Commitment" means, at any time, the sum of the Commitments then
--------------------
in effect.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of (a)
-----------------
the aggregate unpaid Yield accrued and to accrue to maturity with respect to
all Rate Periods at such time, (b) the Net Investment at such time and (c)
all other amounts owed (whether or not then due and payable) hereunder and
under the other Transaction Documents by the SPV or Arrow to the
Administrative Agent, the Funding Agents, the Investors or the Indemnified
Parties at such time, including all Fees, expenses, breakage costs and
indemnities or any amounts payable to a successor administrative agent
pursuant to Section 10.9.
------------
"Agreement" is defined in the preamble.
--------- --------
"Alternate Investor Percentage" means, at any time, a fraction, expressed
-----------------------------
as a percentage, the numerator of which is the portion of the Net Investment
funded by the Alternate Investor(s) related to a particular Conduit Investor
and the denominator of which is the Net Investment funded through the Related
Funding Agent at such time; provided that at all times on and after the first
--------
Assignment Date occurring on or after a Conduit Investment Termination Date,
the Alternate Investor Percentage for the EFC Alternate Investors means 100%.
"Alternate Investors" means each financial institution identified as
-------------------
such on the signature pages hereof and any other financial institution that
shall become a party to this Agreement pursuant to Section 11.8.
------------
"Alternate Rate" is defined in Section 2.4.
--------------
"Arrow" means Arrow Electronics, Inc., a New York corporation.
----
"Arrow Rating Event" means the withdrawal or downgrade of the long-term
------------------
senior unsecured debt rating of Arrow below either BBB or Baa2 by S&P and
Moody's, respectively.
"Asset Interest" is defined in Section 2.1(b).
-------------- --------------
"Assignment Amount" means, with respect to an Alternate Investor at the
-----------------
time of any assignment pursuant to this Agreement, an amount equal to the
least of (a) such Alternate Investor's Special Pro Rata Share of the
applicable Net Investment requested by the related Conduit Investor to
be assigned at such time; (b) such Alternate Investor's unused Commitment
(minus the unrecovered principal amount of such Alternate Investor's
investments in the Asset Interest pursuant to the Program Support
Agreement to which it is a party); and (c) in the case of an assignment
on or after the Conduit Investment Termination Date, the sum of such
Alternate Investor's Special Pro Rata Share of the related Conduit
Investor Percentage of (i) the aggregate Unpaid Balance of the Receivables
(other than Defaulted Receivables), plus (ii) all Collections received by
the Master Servicer but not yet remitted by the Master Servicer to the
Administrative Agent, plus (iii) any amounts in respect of Deemed
----
Collections required to be paid by the SPV at such time.
"Assignment and Assumption Agreement" means an Assignment and Assumption
-----------------------------------
Agreement substantially in any of the forms set forth in Exhibit A.
---------
"Assignment Date" is defined in Section 3.1(a).
--------------- --------------
"Bank of America" is defined in the preamble.
---------------
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, 11 U.S.C. 101
---------------
et seq.
"Base Rate" is defined in Section 2.4.
---------
"Billing Date" means the 5th day of each calendar month or if such day is
------------
not a Business Day, the next succeeding Business Day.
"Billing Statement" means a statement prepared by each Funding Agent with
-----------------
respect to the prior calendar month, setting forth the Aggregate Unpaids due
and owing to each related Investor (other than with respect to Yield),
and specifying the nature of such Aggregate Unpaids, including without
limitation, any Fees due and owing to such Investor and any breakage costs
incurred by any such Investor.
"Blocked Account" means an account maintained by the SPV or an Originator
---------------
as Master Servicer or Sub-Servicer, as applicable, at a Blocked Account
Bank for the purpose of receiving Collections, set forth in Schedule 4.1(s)
---------------
or any account added as a Blocked Account pursuant to and in accordance
with Section 4.1(s) and which, if not maintained at and in the name of
-------------
the Administrative Agent, is subject to a Blocked Account Agreement.
"Blocked Account Agreement" means an agreement among the SPV or an
-------------------------
Originator, the Administrative Agent and a Blocked Account Bank in
substantially the form of Exhibit E, or as otherwise may be acceptable
---------
to the Administrative Agent in its sole discretion.
"Blocked Account Bank" means each of the banks set forth in Schedule
-------------------- --------
4.1(s), as such Schedule 4.1(s) may be modified pursuant to Section 4.1(s).
- ----- -------------- -------------
"Business Day" means any day excluding Saturday, Sunday and any day on
------------
which banks in New York, New York, Charlotte, North Carolina, Chicago,
Illinois, Toronto, Ontario, Boston, Massachusetts or San Francisco,
California are authorized or required by law to close, and, when used
with respect to the determination of any Offshore Rate or any notice
with respect thereto, any such day which is also a day for trading
by and between banks in United States dollar deposits in the London
interbank market.
"CA Affiliate" means, as to any Person, (a) any other Person (other
------------
than a CA Subsidiary) which, directly or indirectly, is in control of,
is controlled by, or is under common control with, such Person or (b)
any Person who is a director or officer of Arrow or any of its CA
Subsidiaries. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (i) vote 10% or more
of the securities having ordinary voting power for the election of
directors of such Person or (ii) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"CA Permitted Receivables Securitization" means any transaction involving
---------------------------------------
one or more sales, contributions or other conveyances by Arrow or any CA
Subsidiary of any CA Receivables to a special purpose entity (which may be
a CA Subsidiary or CA Affiliate of Arrow), which special purpose entity
finances such sales, contributions or other conveyances by in turn conveying
an interest in such CA Receivables to one or more CA Receivable Financiers,
provided that such transaction shall not involve any recourse to Arrow or
- --------
any CA Subsidiary (other than such special purpose entity) for any reason
other than (i) repurchases of non-eligible CA Receivables,
(ii) indemnification for losses (including any adjustments for dilutions),
other than credit losses related to the CA Receivables conveyed in such
transaction and (iii) payment of costs, fees, expenses and indemnities
relating to such transaction.
"CA Receivable Financier" means any Person (other than a CA Subsidiary
-----------------------
or CA Affiliate of Arrow) that finances the acquisition by a special purpose
entity of CA Receivables from Arrow or any CA Subsidiary.
"CA Receivables" means all accounts receivable of Arrow or any of its CA
--------------
Subsidiaries, and all proceeds thereof and rights (contractual and other) and
collateral related thereto.
"CA Subsidiary" means, as to any Person, a corporation, partnership or
-------------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect
a majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "CA Subsidiary" or to "CA Subsidiaries" in this Agreement
shall refer to a CA Subsidiary or CA Subsidiaries of Arrow.
"Canadian Eligibility Conditions" means that each of the Administrative
-------------------------------
Agent, each Funding Agent and each Investor shall have received (i) evidence
satisfactory to it, in its sole discretion, that all financing statements,
financing change statements, registrations, instruments, notices and
acknowledgements (in form and substance acceptable to the Administrative
Agent, the Funding Agents and the Investors in their sole discretion)
have been filed or received that are necessary to terminate all liens,
security interests, charges or encumbrances or claim in or any other
rights of any Person in the Canadian Receivables and the related
Affected Assets, (ii) an opinion of counsel as to security interest
matters, in form and substance acceptable to the Administrative Agent,
the Funding Agents and the Investors in their sole discretion and
(iii) upon satisfaction of the items specified in clauses (i) and
(ii) above, confirmation from S&P and Moody's, to the extent required
by the terms and conditions of the Commercial Paper program of any
Conduit Investor, that the inclusion of any Canadian Receivable as
an "Eligible Receivable" hereunder shall not result in a downgrade
or withdrawal by S&P or Moody's of the then current rating of the
Commercial Paper of such Conduit Investor.
"Canadian Receivable" means with respect to a Receivable, the Obligor of
-------------------
which is a Canadian resident.
"Closing Date" means March 22, 2001.
------------
"Code" means the Internal Revenue Code of 1986.
----
"Collateral Agent" means Bank of America, as collateral agent for a
----------------
Program Support Provider related to the EFC Conduit Investor, the holders of
Commercial Paper related to the EFC Conduit Investor and certain other
parties.
"Collection Account" is defined in Section 2.9.
------------------ -----------
"Collections" means, with respect to Receivables, all cash collections and
-----------
other cash proceeds of Receivables, including all finance charges, if any, and
cash proceeds of Related Security and all Deemed Collections, including any
proceeds from HP in respect of HP Receivables under the HP Receivables
Purchase Agreement.
"Commercial Paper" means the promissory notes issued or to be issued
----------------
by the Conduit Investors in the commercial paper market.
"Commitment" means, with respect to each Alternate Investor, as the
----------
context requires, (a) the commitment of such Alternate Investor to make
Investments and to pay Assignment Amounts in accordance herewith in an amount
not to exceed the amount described in the following clause (b), and (b) the
---------- -
dollar amount set forth opposite such Alternate Investor's signature on
the signature pages hereof under the heading "Commitment" (or (i) in the
----------
case of an Alternate Investor which becomes a party hereto pursuant to an
Assignment and Assumption Agreement, as set forth in such Assignment and
Assumption Agreement and (ii) in the case of an Alternate Investor which
becomes a party hereto pursuant to an Additional Commitment Amendment, as
specified in such Additional Commitment Amendment), minus the dollar amount
of any Commitment or portion thereof assigned by such Alternate Investor
pursuant to an Assignment and Assumption Agreement, plus the dollar amount
of any increase to such Alternate Investor's Commitment consented to by
such Alternate Investor prior to the time of determination;
provided, however, that in the event that the Facility Limit is reduced,
- -------- -------
the aggregate of the Commitments of all the Alternate Investors shall be
reduced in a like amount and the Commitment of each Alternate Investor shall
be reduced in proportion to such reduction.
"Commitment Termination Date" means March 20, 2002, or such later date
---------------------------
to which the Commitment Termination Date may be extended by the SPV, the
Administrative Agent and some or all of the Funding Agents, the Conduit
Investors and the Alternate Investors (each in its sole and absolute
discretion).
"Conduit Assignee" means, with respect to any Conduit Investor, any
----------------
commercial paper conduit that issues commercial paper rated at least
A-1 by S&P and P1 by Moody's and sponsored or administered by the Funding
Agent with respect to such Conduit Investor and designated by such Funding
Agent to accept an assignment from such Conduit Investor of all or a
portion of such Conduit Investor's rights and obligations pursuant to
Section 11.8(d)
- --------------
"Conduit Funding Limit" means, with respect to any Conduit Investor, the
---------------------
amount set forth opposite such Conduit Investor's name on Schedule A, as the
----------
same may be reduced from time to time pursuant to the terms hereof.
"Conduit Investment Termination Date" means the date of the delivery by an
-----------------------------------
EFC Conduit Investor to the SPV, the EFC Funding Agent and the Administrative
Agent of written notice that the EFC Conduit Investor elects, in its sole
discretion, to commence the amortization of the Net Investment funded by it
or otherwise liquidate its interest in the Asset Interest.
"Conduit Investor" is defined in the preamble.
----------------
"Conduit Investor Percentage" means at any time with respect to any
---------------------------
Conduit Investor, 100%, less the related Alternate Investor Percentage at
such time.
"Consolidated Cash Interest Expense" means for any period, (a) the amount
----------------------------------
which would, in conformity with GAAP, be set forth opposite the caption
"interest expense" or any like caption on a consolidated income statement of
Arrow and its CA Subsidiaries minus (b) the amount of non-cash interest
(including interest paid by the issuance of additional securities) included
in such amount; provided that in the event of the consummation of any CA
--------
Permitted Receivables Securitization (including the transactions contemplated
hereunder), "Consolidated Cash Interest Expense" shall be adjusted to include
(without duplication) an amount equal to the interest (or other fees in the
nature of interest or discount) accrued and paid or payable in cash for such
period by the special purpose entity to the CA Receivable Financiers under
such CA Permitted Receivables Securitization.
"Consolidated Net Income" means for any fiscal period, the consolidated
-----------------------
net income (or loss) of Arrow and its CA Subsidiaries after excluding all
unusual, extraordinary and non-recurring gains and after adding all unusual,
extraordinary and non-recurring losses, in all cases of Arrow and its CA
Subsidiaries determined on a consolidated basis during the relevant period
in accordance with GAAP.
"Contract" means, in relation to any Receivable, any and all contracts,
--------
instruments, agreements, leases, invoices, notes, or other writings pursuant
to which such Receivable arises or which evidence such Receivable or under
which an Obligor becomes or is obligated to make payment in respect of
such Receivable.
"CP Rate" is defined in Section 2.4.
-------
"Credit and Collection Policy" means, collectively, the Originators'
----------------------------
credit and collection policies and practices, relating to Contracts and
Receivables as in effect on the Closing Date and set forth in Exhibit C,
---------
as modified, from time to time, in compliance with Sections 6.1(a)(vii)
-------------------
and 6.2(c).
-----
"Credit Memo" means a credit to the account of an Obligor.
-----------
"Deemed Collections" means any Collections on any Receivable deemed to
------------------
have been received pursuant to Section 2.6.
-----------
"Default Ratio" is defined in Schedule II.
------------- -----------
"Defaulted Receivable" means as of any date of determination, a Receivable
--------------------
(a) as to which any payment, or part thereof, remains unpaid for 91 days or
more from the original invoice date for such Receivable; (b) as to which an
Event of Bankruptcy has occurred and is continuing with respect to the
Obligor thereof; (c) which has been identified by the SPV, the related
Originator or the Master Servicer as uncollectible; or (d) which, consistent
with the Credit and Collection Policy, would be written off as uncollectible.
"Defaulting Alternate Investor" is defined in Section 2.3(f).
----------------------------- -------------
"Dilution" has the meaning ascribed to such term in Schedule II.
-------- -----------
"Dilution Ratio" is defined in Schedule II.
--------------
"Dollar" or "$" means the lawful currency of the United States.
------ -
"Downgrade Collateral Account" is defined in Section 3.2(a).
---------------------------- -------------
"Downgrade Draw" is defined in Section 3.2(a).
-------------- -------------
"EFC Alternate Investor" means with respect to the EFC Conduit Investor,
----------------------
the Alternate Investor set forth opposite the EFC Conduit Investor's name on
Schedule A and any other financial institution that shall become a party to
- ----------
this Agreement as an EFC Conduit Investor pursuant to Section 11.8.
------------
"EFC Conduit Investor" means Enterprise Funding Corporation, Delaware
--------------------
corporation, as a Conduit Investor and any Conduit Assignee thereof.
"EFC Funding Agent" means Bank of America.
-----------------
"Eligible Investments" means highly rated short-term debt or the other
--------------------
highly rated liquid investments in which each Conduit Investor is permitted
to invest cash pursuant to its commercial paper program documents.
"Eligible Receivable" means, at any time, any Receivable:
-------------------
(a) which was originated by an Originator in the ordinary course of its
business;
(b) (i) which, arises pursuant to a Contract with respect to which each
of the related Originator and the SPV has performed all obligations (if
any) required to be performed by it thereunder, including shipment of the
merchandise and/or the performance of the services purchased thereunder;
(ii) which has been billed to the relevant Obligor; and (iii) which
according to the Contract related thereto, is required to be paid in full
within 61 days of the original billing date therefor;
(c) which satisfies all applicable requirements of the Credit and
Collection Policy;
(d) which has been sold or contributed to the SPV pursuant to (and in
accordance with) the First Tier Agreement, which does not arise from the
sale of any inventory subject to any Adverse Claim and to which the SPV has
good and marketable title, free and clear of all Adverse Claims (other than
any Adverse Claim arising hereunder) and, until the HP Financing Statement
has been terminated, such Receivable is not covered by, or otherwise
subject to, the HP Financing Statement;
(e) as to which at the time of the purchase by the Administrative Agent,
on behalf of the Funding Agents for the benefit of the Investors thereof
hereunder the Administrative Agent has not notified the SPV that either
such Receivable or any class of Receivables of which such Receivable is a
part is not acceptable for purchase hereunder, as determined by the
Administrative Agent in its reasonable discretion, because of the nature of
the business of the Obligor or because of a potential conflict of interest
between the interests of the SPV or the Originator, on the one hand, and
any Investor, any Funding Agent, Conduit Investor, any Program Support
Provider, any Alternate Investor or any of their Affiliates, on the other
hand;
(f) the Obligor of which is a United States or Canadian resident, is not
an Affiliate or employee of any Originator, and is not an Official Body;
(g) the Obligor of which has been directed to make all payments to a
Blocked Account;
(h) the Obligor of which at the time of creation of an interest therein
hereunder, is not the Obligor of Extended Defaulted Receivables for which
the Unpaid Balances of all such Extended Defaulted Receivables exceeds 33%
of the Unpaid Balances of all Receivables for which it is the Obligor;
(i) which under the related Contract and applicable Law is assignable
without the consent of, or notice to, the Obligor thereunder unless such
consent has been obtained and is in effect or such notice has been given;
(j) which, together with the related Contract, is in full force and
effect and constitutes the legal, valid and binding obligation of the
related Obligor enforceable against such Obligor in accordance with its
terms and is not subject to any litigation, material dispute, legal right
of offset, counterclaim or other defense;
(k) which is invoiced, denominated and payable only in Dollars in the
United States or in Canada;
(l) which, in respect of a Canadian Receivable, has been originated by
Arrow Electronics Canada Ltd., (i) has satisfied each of the Canadian
Eligibility Conditions, and (ii) when added to the aggregate Unpaid Balance
of all other Canadian Receivables, does not exceed the lesser of: (x) the
amount equal to 10% of the aggregate Unpaid Balance of all Eligible
Receivables and (y) $100,000,000;
(m) which is not a Defaulted Receivable at the time of the purchase
thereof by the Administrative Agent, on behalf of the Funding Agents for
the Investors, hereunder;
(n) which, in the case of an HP Receivable, (i) is an HP Purchased
Receivable, (ii) which, as of any date of determination, was invoiced not
less than 30 days prior to such date of determination, and (iii) was
transferred to SBM by HP pursuant to the HP Receivables Purchase Agreement,
which HP Receivables Purchase Agreement remains in full force, and effect;
and pursuant to which SBM is in compliance with all material terms thereof,
subject to a ten day grace period with respect to any such term or
provision;
(o) which has not been compromised, adjusted or modified (including by
the extension of time for payment or the granting of any discounts,
allowances or credits); provided, however, that, in the event such
-------- -------
Receivable is so comprised, adjusted or modified, and to the extent
quantifiable, only the dollar amount of such portion of such Receivable
that is the subject of such comprise, adjustment or modification shall be
deemed to be ineligible pursuant to the terms of this clause (o);
---------
(p) which is an "account" or "general intangible" and is not evidenced by
an "instrument" or "chattel paper" within the meaning of Article 9 of the
UCC of all applicable jurisdictions or [1] of the PPSA;
(q) which is an "eligible asset" as defined in Rule 3a-7 under the
Investment Company Act of 1940;
(r) which, together with the Contract related thereto, does not
contravene in any material respect any Laws applicable thereto (including
Laws relating to truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and
privacy) and with respect to which no part of the Contract related thereto
is in violation of any such Law in any material respect;
(s) the assignment of which under the First Tier Agreement by Arrow to
the SPV and hereunder by the SPV to the Administrative Agent for the
benefit of the Funding Agents on behalf of the Investors does not violate,
conflict or contravene any applicable Law or any contractual or other
restriction, limitation or encumbrance;
(t) which (together with the Related Security related thereto) has been
the subject of either a valid transfer and assignment from, or the grant of
a first priority perfected security interest therein by, the SPV to the
Administrative Agent, on behalf of the Funding Agents for the benefit of
the Investors, of all of the SPV's right, title and interest therein; and
(u) as to which no Tax is applicable, solely as a result of withholding
by the Obligor thereof or any assessment on the SPV or any Investor.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974 and
-----
any regulations promulgated and rulings issued thereunder.
"ERISA Affiliate" means, with respect to any Person, any corporation,
-----
partnership, trust, sole proprietorship or trade or business which, together
with such Person, is treated as a single employer under Section 414(b) or (c)
of the Code or, with respect to any liability for contributions under Section
302(c) of ERISA, Section 414(m) or Section 414(o) of the Code.
"Event of Bankruptcy" means, with respect to any Person, (a) that such
-------------------
Person or any Significant Subsidiary of such Person (i) shall generally not
pay its debts as such debts become due, (ii) shall admit in writing its
inability to pay its debts generally or (iii) shall make a general assignment
for the benefit of creditors; (b) any proceeding shall be instituted by or
against such Person or any Significant Subsidiary of such Person seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee or other similar official
for it or any substantial part of its property; or (c) such Person or any
Significant Subsidiary of such Person shall take any corporate, partnership
or other similar appropriate action to authorize any of the actions set forth
in the preceding clauses (a) or (b).
"Excluded Taxes" means, with respect to any particular Indemnified Party,
--------------
Taxes that are both (A) imposed (i) by the jurisdiction in which such
Indemnified Party is organized, a taxing authority thereof or therein or (ii)
by any other taxing authority of a United States jurisdiction as a result of
such Indemnified Party doing business or maintaining an office in such
jurisdiction (other than any such Taxes imposed solely by reason of (x)
having entered into, executed, delivered, performed, not performed or
enforced or failed to enforce the Agreement or any documents relating thereto
or (y) any of the transactions contemplated therein) and also (B) imposed on,
based on or measured by the net income or gross receipts of such Indemnified
Party.
"Extended Defaulted Receivable" mean any Receivable for which any
-----------------------------
payments, or part thereof, remains unpaid for 121 days or more from the
invoice date for such Receivables.
"Facility Limit" means $765,000,000; provided that such amount may not at
-------------- --------
any time exceed the aggregate Commitments then in effect; provided, further,
--------
that the Facility Limit may be increased to an amount not to exceed
$1,020,000,000 upon the request of the SPV, the consent of the Administrative
Agent (which consent shall not be unreasonably withheld or delayed) and the
execution and delivery of an Additional Commitment Amendment.
"Federal Funds Rate" is defined in Section 2.4.
------------------ -----------
"Fee Letter" means the confidential letter agreement dated March 21, 2001
----------
among the SPV, Arrow, and the Administrative Agent with respect to certain fees
to be paid by the SPV and Arrow to Bank of America, National Association and
Bank of America Securities LLC.
"Fees" means any of the fees payable pursuant to the Fee Letter or as set
----
forth on Schedule IV hereto.
-----------
"Final Payout Date" means the earliest date, after the Termination Date,
-----------------
on which the Net Investment has been reduced to zero, all accrued Servicing
Fees have been paid in full and all other Aggregate Unpaids have been paid in
full in cash.
"Financing Lease" means any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"First Tier Agreement" means the Sale Agreement dated as of March 21, 2001
--------------------
between Arrow and the SPV.
"Fitch" means Fitch, Inc., or any successor that is a nationally
-----
recognized statistical rating organization.
"Fluctuation Factor" is defined in Section 2.4.
------------------ -----------
"Funding Account" is defined in Section 2.9(b).
--------------- -------------
"Funding Agent" as defined in the preamble.
------------- --------
"GAAP" means generally accepted accounting principles in the United
----
States, in effect from time to time.
"Guarantee Obligation" means, as to any Person (the "guaranteeing
------------
person"), any obligation of (a) the guaranteeing person or (b) another
- ------
Person (including, without limitation, any bank under any letter of credit)
to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
-------------------
(the "primary obligor") in any manner, whether directly or indirectly,
---------------
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (1) for the purchase or
payment of any such primary obligation or (2) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall not
-------- -------
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability
in respect thereof as determined by Arrow in good faith.
"Hedging Agreements" means, (a) Interest Rate Agreements and (b) any swap,
------------------
futures, forward or option agreements or other agreements or arrangements
designed to limit or eliminate the risk and/or exposure of a Person to
fluctuations in currency exchange rates.
"HP" means Hewlett-Packard Company, a Delaware corporation.
--
"HP Financing Statement" means the UCC financing statement on Form UCC-1
----------------------
filed in Gwinnett County, Georgia (file No. 067-98-001717) in favor of HP,
as secured party, and SBM, as debtor.
"HP Purchased Receivables" means a "Purchased Receivable" as defined
------------------------
in the HP Receivables Purchase Agreement for which SBM has paid HP the
consideration specified under the HP Receivables Purchase Agreement and which,
as of any date of determination, was invoiced not less than 30 days prior to
such date of determination.
"HP Receivables" means all of HP's right, title and interest in and to the
--------------
specific unsecured accounts, accounts receivable and chattel paper owing to
HP by a Reseller (as defined in the HP Receivables Purchase Agreement) with
respect to the sale of HP products which are subject to the HP Receivables
Purchase Agreement.
"HP Receivables Purchase Agreement" means the Receivables Purchase
---------------------------------
Agreement, dated as of October 2, 2000, between HP and SBM.
"Indebtedness" means, of any Person at any date, without duplication, (a)
------------
the principal amount of all indebtedness of such Person for borrowed money
or for the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business
and payable in accordance with customary practices), (b) the principal
amount of any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) the portion of all
obligations of such Person under Financing Leases which must be capitalized
in accordance with GAAP, (d) the principal or stated amount of all obligations
of such Person in respect of letters of credit, banker's acceptances or
similar obligations issued or created for the account of such Person,
(e) all liabilities arising under Hedging Agreements of such Person,
(f) the principal or stated amount of all Guarantee Obligations of such
Person (other than guarantees by Arrow or any Subsidiary in respect of
current trade liabilities of Arrow or any Subsidiary incurred in the
ordinary course of business and payable in accordance with customary
terms), and (g) the principal amount of all liabilities secured by any lien
on any property owned by such Person even though such Person has not assumed
or otherwise become liable for the payment thereof.
"Indemnified Amounts" is defined in Section 9.1.
------------------- -----------
"Indemnified Parties" is defined in Section 9.1.
------------------- -----------
"Interest Component" means, at any time of determination, with respect to
------------------
Commercial Paper (i) issued by a Match Funding Conduit Investor, the aggregate
for all Related Commercial Paper at such time of (a) with respect to any
Commercial Paper issued on an interest-bearing basis, the interest payable on
such Commercial Paper at its maturity (including any dealer commissions) and
(b) with respect to any Commercial Paper issued on a discount basis, the
portion of the face amount of such Commercial Paper representing the discount
incurred in respect thereof (including any dealer commissions) and (ii) issued
by a Pooled Funding Conduit Investor, the aggregate Yield accrued and to accrue
through the end of the current Rate Period for the Portion of Investment
accruing Yield calculated by reference to the CP Rate at such time (determined
for such purpose using the CP Rate most recently determined by the Related
Funding Agent, multiplied by the Fluctuation Factor).
-------------
"Interest Rate Agreement" means, any interest rate protection agreement,
-----------------------
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement under which Arrow is a party
or a beneficiary.
"Investment" is defined in Section 2.2(a).
----------- -------------
"Investment Date" is defined in Section 2.3(a).
--------------- -------------
"Investment Deficit" is defined in Section 2.3(f).
------------------ -------------
"Investment Request" means each request substantially in the form of
------------------
Exhibit D.
- ---------
"Investor(s)" means any of the Conduit Investors and/or the Alternate
----------
Investors, as the context may require.
"Investor Interest" means on any day, with respect to any Investor, the
-----------------
beneficial interest of such Investor in the Affected Assets, which beneficial
interest shall equal the product of (i) the Unpaid Balance of all Receivables
and (ii) a fraction, the numerator of which is the aggregate portion of the
Net Investment funded by such Investor and the denominator of which is the
Net Investment.
"Law" means any law (including common law), constitution, statute, treaty,
---
regulation, rule, ordinance, order, injunction, writ, decree, judgment or award
of any Official Body.
"Majority Investors" means, at any time, each of the Alternate Investors
------------------
which hold Commitments aggregating in excess of 50% of the Facility Limit
as of such date (or, if the Commitments shall have been terminated, one or
more Alternate Investors whose aggregate pro rata shares of the Net Investment
exceed 50% of the aggregate share of the Net Investment held by all Alternate
Investors).
"Master Servicer" is defined in Section 7.1.
--------------- -----------
"Master Servicer Default" is defined in Section 7.5.
----------------------- -----------
"Master Servicer Report" means a report, in substantially the form
----------------------
attached hereto as Exhibit F or in such other form as is mutually agreed to
---------
by the SPV, the Master Servicer and the Administrative Agent, furnished
by the Master Servicer pursuant to Section 2.8.
-----------
"Match Funding Conduit Investor" means each Conduit Investor that is
------------------------------
identified on Schedule B as a Match Funding Conduit Investor, until such
----------
time as any such Match Funding Conduit Investor notifies the SPV and the
Administrative Agent that such Conduit Investor desires to be treated as a
Pooled Funding Conduit Investor for all purposes of this Agreement.
"Material Adverse Effect" means any event or condition which would have a
-----------------------
material adverse effect on (a) the collectibility of the Receivables, (b) the
condition (financial or otherwise), businesses or properties of the SPV, (c)
the ability of the SPV, the Master Servicer or any Originator to perform its
respective obligations under the Transaction Documents to which it is a party,
or (d) the interests of the Administrative Agent, Funding Agents or the
Investors under the Transaction Documents, including the first priority
perfected ownership or security interest in the Affected Assets in favor of
the Administrative Agent on behalf of the Funding Agents for the benefit of
the Investors.
"Maximum Net Investment" means $750,000,000 in the event the Facility
----------------------
Limit is $765,000,000, and at any other time, the Facility Limit divided by
1.02, rounded down to the nearest $1,000.
"Moody's" means Moody's Investors Service, Inc., or any successor that
-------
is a nationally recognized statistical rating organization.
"Multiemployer Plan" is defined in Section 4001(a)(3) of ERISA.
------------------
"Multi-year Credit Agreement" means the $625,000,000 Amended and Restated
---------------------------
Three Year Credit Agreement, dated February 22, 2001, among Arrow, the
Subsidiary Borrowers party thereto, the Several Banks party thereto, Bank
of America, N.A., as Syndication Agent, Fleet National Bank, as Documentation
Agent, and The Chase Manhattan Bank, as Administrative Agent.
"Net Investment" means, at any time, the amount equal to (a) the sum of
--------------
the cash amounts paid to the SPV in respect of Investments pursuant to Sections
--------
2.2(a) and 2.3 together with the amount of any funding under a Program Support
- ----- ---
Agreement allocated to the Interest Component at the time of such funding less
----
(b) the aggregate amount of Collections theretofore received and applied by the
Administrative Agent to reduce such Net Investment pursuant to Section 2.12;
------------
provided that the Net Investment shall be restored and reinstated in the amount
- --------
of any Collections so received and applied if at any time the distribution of
such Collections is rescinded or must otherwise be returned for any reason;
and provided further, that the Net Investment shall be increased by the amount
-------- -------
described in Section 3.1(b) as described therein.
-------------
"Net Pool Balance" means, at any time, (a) the aggregate Unpaid Balances
----------------
of Eligible Receivables at such time, minus (b) the sum of (i) the aggregate
-----
Unpaid Balances of such Eligible Receivables that have become Defaulted
Receivables and (ii) the aggregate, for all Obligors, of the amount by which
the Unpaid Balances of such Eligible Receivables (other than Defaulted
Receivables) of each Obligor exceeds the product of (A) the Concentration
Percentage for such Obligor, multiplied by (B) the Unpaid Balances of all
-------------
of the Eligible Receivables (other than Defaulted Receivables).
"Non-Defaulting Alternate Investor" is defined in Section 2.3(f).
--------------------------------- -------------
"Obligor" means, with respect to any Receivable, the Person obligated
------
to make payments in respect of such Receivable pursuant to a Contract.
"Official Body" means any government or political subdivision or any
-------------
agency, authority, bureau, central bank, commission, department or
instrumentality of any such government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"Offshore Rate" is defined in Section 2.4.
------------- -----------
"Originator" means any of Arrow, Support Net, Inc., an Indiana
---------
corporation; SBM; Consan Incorporated, a Minnesota corporation; Gates/Arrow
Distributing, Inc., a Delaware corporation; and Arrow Electronics Canada Ltd.,
a Canadian corporation, and such other originators as may be designated from
time to time by the SPV with the consent of the Administrative Agent and
each Investor.
"Originator Sale Agreement" means any Originator Sale Agreement between an
-------------------------
Originator (other than Arrow) and Arrow, dated as of the Closing Date, as the
same may be amended, modified or supplemented with the consent of the
Administrative Agent at the direction of the Majority Investors.
"Other SPV" means any Person other than the SPV that has entered into a
---------
receivables purchase agreement, loan and security agreement, note purchase
agreement, transfer and administration agreement or any other similar agreement
with any Conduit Investor.
"Pension Plan" means an employee pension benefit plan as defined in
------------
Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
Multiemployer Plan) and to which the Originator, the SPV or an ERISA
Affiliate of either may have any liability, including any liability by
reason of having been a substantial employer within the meaning of Section
4063 of ERISA or by reason of being deemed to be a contributing sponsor
under Section 4069 of ERISA.
"Permitted Investment Date" means each Settlement Date or such other
-------------------------
Business Day within five days of the delivery of a Master Servicer Report.
"Person" means an individual, partnership, limited liability company,
------
corporation, joint stock company, trust (including a business trust),
unincorporated association, joint venture, firm, enterprise, Official Body
or any other entity.
"Pooled Funding Conduit Investor" means each Conduit Investor that is
------------------------------
not a Match Funding Conduit Investor.
"Portion of Investment" is defined in Section 2.4(a).
--------------------- -------------
"Potential Termination Event" means an event which but for the lapse of
----------------------------
time or the giving of notice, or both, would constitute a Termination Event.
"PPSA" means the Personal Property Security Act [Ontario].
----
"Pro Rata Share" means, on any date of determination, (a) with respect
--------------
to a Conduit Investor, the ratio (expressed as a percentage) of such Conduit
Investor's Conduit Funding Limit to the Facility Limit at such time and (b)
with respect to an Alternate Investor, the ratio (expressed as a percentage)
of such Alternate Investor's Commitment to the Aggregate Commitment at such
time.
"Program Support Agreement" means any agreement entered into by any
-------------------------
Program Support Provider providing for (i) cash collateral, (ii) the issuance
of one or more letters of credit for the account of a Conduit Investor,
(iii) the issuance of one or more surety bonds for which such Conduit
Investor is obligated to reimburse the applicable Program Support Provider
for any drawings thereunder, (iv) the sale by such Conduit Investor to any
Program Support Provider of the Asset Interest (or portions thereof or
participations therein) and/or the making of loans and/or (v) other
extensions of credit to such Conduit Investor in connection with such
Conduit Investor's commercial paper program, together with any letter of
credit, surety bond or other instrument issued thereunder.
"Program Support Provider" means any Person now or hereafter extending
------------------------
credit or having a commitment to extend credit to or for the account of, or
to make purchases from, a Conduit Investor or providing cash collateral or
issuing a letter of credit, surety bond or other instrument to support any
obligations arising under or in connection with such Conduit Investor's
commercial paper program.
"Purchase Termination Date" is defined in Section 7.1 of the First Tier
-------------------------
Agreement.
"Rate Period" is defined in Section 2.4.
-----------
"Rate Type" is defined in Section 2.4.
---------
"Receivable" means any indebtedness and other obligations owed by any
-----------
Obligor to HP, in the case of HP Purchased Receivables, or an Originator
(without giving effect to any transfer under the First Tier Agreement or any
Originator Sale Agreement or the HP Receivables Purchase Agreement) under a
Contract or any right of the SPV to payment from or on behalf of an Obligor,
whether constituting an account, chattel paper, instrument or general
intangible, (i) arising in connection with the sale or lease of goods or
the rendering of services in the ordinary course of business by such
Originator or HP, and includes the obligation to pay any finance charges,
fees and other charges with respect thereto, (ii) denominated in Dollars
and payable only in the United States or Canada, and (iii) the Obligors of
which are United States or Canadian residents and are not an
Official Body.
"Recipient" is defined in Section 2.10.
--------- ------------
"Records" means all Contracts and other documents, purchase orders,
-------
invoices, agreements, books, records and any other media, materials or devices
for the storage of information (including tapes, disks, punch cards, computer
programs and databases and related property) maintained by the SPV, the
related Originator or the Master Servicer with respect to the Receivables, any
other Affected Assets or the Obligors.
"Reinvestment" is defined in Section 2.2(b).
------------
"Reinvestment Period" means the period commencing on the Closing Date and
-------------------
ending on the Termination Date.
"Related Alternate Investor" means, with respect to any Conduit Investor,
--------------------------
each Alternate Investor set forth opposite such Conduit Investor's name on
Schedule A (and any transferee of any such Alternate Investor pursuant to
- ----------
Section 11.8).
"Related Commercial Paper" means, at any time of determination, Commercial
------------------------
Paper the proceeds of which are then allocated by the Related Funding Agent as
the source of funding the acquisition or maintenance of, the Asset Interest.
"Related Funding Agent" means, with respect to any Conduit Investor, the
---------------------
Funding Agent set forth opposite such Conduit Investor's name on Schedule A.
----------
"Related Security" means, with respect to any Receivable, all of the
----------------
Originator's (without giving effect to any transfer under the Originator Sale
Agreement), Arrow's (without giving effect to any transfer under the First Tier
Agreement) or the SPV's rights, title and interest in, to and under:
(a) any goods (including returned or repossessed goods) and documentation
or title evidencing the shipment or storage of any goods relating to any
sale giving rise to such Receivable;
(b) all other security interests or liens and property subject thereto
from time to time, if any, purporting to secure payment of such Receivable,
whether pursuant to the Contract related to such Receivable or otherwise,
together with all financing statements and other filings signed by an
Obligor relating thereto;
(c) the Contract and all guarantees, indemnities, warranties, insurance
(and proceeds and premium refunds thereof) or other agreements or
arrangements of any kind from time to time supporting or securing payment
of such Receivable, whether pursuant to the Contract related to such
Receivable or otherwise;
(d) all Records related to such Receivable;
(e) in the case of HP Receivables, the HP Receivables Purchase Agreement;
and
(f) all Collections on and other proceeds of any of the foregoing.
"Remittance Date" means the 10th day of each month, or if such day is
---------------
not a Business Day, the next succeeding Business Day.
"Reportable Event" means any event, transaction or circumstance which is
----------------
required to be reported with respect to any Pension Plan under Section 4043 of
ERISA and the applicable regulations thereunder (other than an event for which
the 30 day notice period is waived).
"Reporting Date" is defined in Section 2.8.
-------------- -----------
"Required Downgrade Assignment Period" is defined in Section 3.2(a).
------------------------------------ -------------
"Required Reserves" is defined in Schedule II.
----------------- -----------
"Restricted Payments" is defined in Section 6.2(k).
------------------- -------------
"SBM" means Scientific & Business Minicomputers, Inc., a Georgia
---
corporation.
"Servicing Fee" means the fees payable by the SPV to the Master Servicer
-------------
from Collections, in an amount equal to either (i) at any time when Arrow or
any of its Affiliates, is the Master Servicer, the lesser of 110% of the
expenses of Arrow or such Affiliate incurred or otherwise attributable to its
services as Master Servicer during any period and 0.50% per annum on the
--- -----
daily average of the aggregate Unpaid Balances of the Receivables, or (ii) at
any time when Arrow or any of its Affiliates is not the Master Servicer,
the amount determined upon the agreement of such Person and the Administrative
Agent, payable in arrears on each Settlement Date from Collections pursuant to,
provided that such amount shall not exceed 110% of the reasonable and
appropriate out-of-pocket costs and expenses of such successor Master Servicer,
and subject to the priority of payments set forth in Section 2.12. With
------------
respect to any Portion of Investment, the Servicing Fee allocable thereto
shall be equal to the Servicing Fee determined as set forth above,
multiplied by a fraction, the numerator of which is the amount of
- ----------
such Portion of Investment and the denominator of which is the Net Investment.
"Settlement Date" means (a) prior to the Termination Date, the 23rd day of
---------------
each calendar month (or if such day is not a Business Day, the next succeeding
Business Day) or such other day as the SPV, the Administrative Agent and the
Majority Investors may from time to time mutually agree, and (b) for any
Portion of Investment on and after the Termination Date, each day selected
from time to time by the Majority Investors (it being understood that the
Majority Investors may select such Settlement Date to occur as frequently
as daily) or, in the absence of any such selection, the date which would be
the Settlement Date for such Portion of Investment pursuant to clause (a) of
----------
this definition.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
---
Hill Companies, Inc., or any successor that is a nationally recognized
statistical rating organization.
"Significant Subsidiary" means any Subsidiary that, directly or
----------------------
indirectly, accounts for more than five percent (5%) of the assets of Arrow
and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
"Special Pro Rata Share" means, for an Alternate Investor, the Commitment
----------------------
of such Alternate Investor, divided by the sum of the Commitments of all
Related Alternate Investors (or, if the Commitments shall have been terminated,
the portion of the Net Investment funded by such Alternate Investor divided by
the aggregate Net Investment funded by such Alternate Investor and its Related
Alternate Investors).
"Special Termination Date" means with respect (i) to an EFC Conduit
------------------------
Investor, a Conduit Investment Termination Date with respect to the EFC
Conduit Investor (unless the EFC Conduit Investor's interest in the Net
Investment and the Asset Interest has been assigned to the EFC Alternate
Investors by close of business on the related Assignment Date) and (ii)
with respect to any Conduit Investor and its Related Alternate Investors,
five (5) Business Days prior to the Commitment Termination Date if such
Conduit Investor or its Related Alternate Investors do not agree to extend
the Commitment Termination Date.
"SPV" means Arrow Electronics Funding Corporation, a Delaware corporation.
---
"Sub-Servicer" is defined in Section 7.1(d).
------------ -------------
"Subordinated Obligations" has the meaning assigned to it in Section
------------------------
1.1 of the First Tier Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
----------
Person (a) of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such Person or (b) that is directly or indirectly controlled by such Person
within the meaning of control under Section 15 of the Securities Act of 1933.
"Tangible Net Worth" means the total of all assets appearing on a balance
------------------
sheet prepared for the SPV in accordance with GAAP, after deducting therefrom
(without duplication of deductions):
(i) any write-up in the book carrying value of any asset resulting from
a revaluation thereof subsequent to Closing Date;
(ii) all reserves required by GAAP, including but not limited to reserves
for liabilities, fixed or contingent, deferred income taxes, obsolescence,
depletion, insurance, and inventory valuation, which are not deducted from
assets;
(iii) all Indebtedness of the SPV, including the Subordinated Obligations;
and
(iv) the book value of all assets which would be treated as intangibles
under GAAP, including, without limitation, good will, trademarks, trade
names, patents, copyrights and licenses.
"Taxes" shall have the meaning specified in Section 9.3.
----- -----------
"Termination Date" means the earliest of (a) the Business Day designated
----------------
by the SPV to the Administrative Agent and each Funding Agent as the
Termination Date at any time following not less than thirty (30) days'
written notice to the Administrative Agent and Funding Agents, (b) the day
upon which the Termination Date is declared or automatically occurs pursuant
to Section 8.2, (c) the day which is five (5) Business Days prior to the
-----------
Commitment Termination Date and (d) the Purchase Termination Date.
"Termination Event" is defined in Section 8.1.
----------------- -----------
"Transaction Costs" is defined in Section 9.4(a).
----------------- -------------
"Transaction Documents" means, collectively, this Agreement, the First
---------------------
Tier Agreement, the Originator Sale Agreements, the Fee Letter, the Blocked
Account Agreements, and all of the other instruments, documents and other
agreements executed and delivered by the Master Servicer, any Originator or
the SPV in connection with any of the foregoing.
"UCC" means the Uniform Commercial Code as in effect in the applicable
---
jurisdiction or jurisdictions.
"Unpaid Balance" of any Receivable means at any time the unpaid principal
--------------
amount thereof.
"U.S." or "United States" means the United States of America.
--- -------------
"Yield" is defined in Section 2.4.
----- -----------
"Yield Payment Date" means (i) with respect to a Match Funding Conduit
------------------
Investor and its Related Alternate Investors, the last day of each Rate Period
and (ii) with respect to a Pooled Funding Conduit Investor and its Related
Alternate Investor, each Remittance Date, provided, however, that after the
occurrence of a Termination Date, the Yield Payment Date with respect to a
Pooled Funding Conduit Investor and its Related Alternate Investors shall be
the last day of each Rate Period.
SECTION 1.2. Other Terms. All terms defined directly or by incorporation
-----------
herein shall have the defined meanings when used in any certificate or other
document delivered pursuant hereto unless otherwise defined therein. For
purposes of this Agreement and all such certificates and other documents,
unless the context otherwise requires: (a) accounting terms not otherwise
defined herein, and accounting terms partly defined herein to the extent not
defined, shall have the respective meanings given to them under, and shall be
construed in accordance with, GAAP; (b) terms used in Article 9 of the UCC in
the State of New York, and not specifically defined herein, are used herein
as defined in such Article 9; (c) references to any amount as on deposit or
outstanding on any particular date means such amount at the close of business
on such day; (d) the words "hereof," "herein" and "hereunder" and words of
similar import refer to this Agreement (or the certificate or other document
in which they are used) as a whole and not to any particular provision of this
Agreement (or such certificate or document); (e) references to any Section,
Schedule or Exhibit are references to Sections, Schedules and Exhibits in or
to this Agreement (or the certificate or other document in which the reference
is made) and references to any paragraph, subsection, clause or other
subdivision within any Section or definition refer to such paragraph,
subsection, clause or other subdivision of such Section or definition; (f)
the term "including" means "including without limitation"; (g) references
to any Law refer to that Law as amended from time to time and include any
successor Law; (h) references to any agreement refer to that agreement as
from time to time amended or supplemented or as the terms of such agreement
are waived or modified in accordance with its terms; (i) references to any
Person include that Person's successors and permitted assigns; and (j) headings
are for purposes of reference only and shall not otherwise affect the meaning
or interpretation of any provision hereof.
SECTION 1.3. Computation of Time Periods. Unless otherwise stated in
---------------------------
this Agreement, in the computation of a period of time from a specified
date to a later specified date, the word "from" means "from and including",
the words "to" and "until" each means "to but excluding", and the word "within"
means "from and excluding a specified date and to and including a later
specified date".
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1. Transfer of Affected Assets; Intended Characterization. Sale
------------------------------------------------------ ----
of Asset Interest. In consideration of the payment by the Administrative Agent
- -----------------
(on behalf of the Funding Agents on behalf of the Conduit Investors and/or the
Alternate Investors) of the amount of the initial Net Investment on the Closing
Date and the Administrative Agent's agreement (on behalf of the Funding Agents
on behalf of the Conduit Investors or the Alternate Investors) to make payments
to the SPV from time to time in accordance with Section 2.2, effective upon the
-----------
SPV's receipt of payment for such initial Net Investment on the Closing Date,
the SPV hereby sells, conveys, transfers and assigns to the
Administrative Agent, on behalf of the Funding Agents on behalf of the Conduit
Investors or the Alternate Investors, as applicable, all of the SPV's right,
title and interest in, to and under (i) all Receivables existing on the Closing
Date or thereafter arising or acquired by the SPV from time to time prior to
the Final Payout Date and (ii) all other Affected Assets, whether existing
on the Closing Date or thereafter arising at any time. The Alternate
Investors' several obligations to make purchases from the SPV hereunder
shall terminate on the Termination Date.
(b) Purchase of Asset Interest. Subject to the terms and conditions
--------------------------
hereof, the Administrative Agent on behalf of the Funding Agents (on behalf
of their related Conduit Investors and/or the Related Alternate Investors as
applicable) hereby purchases and accepts from the SPV an undivided percentage
ownership interest in the Receivables and all other Affected Assets sold,
assigned and transferred pursuant to subsection (a). The Funding Agents'
-------------
right, title and interest in and to the Receivables and all other Affected
Assets hereunder is herein called the "Asset Interest". The Funding Agents
--------------
shall hold the Asset Interest on behalf of their Related Conduit Investor
and Related Alternate Investors in accordance with the related Investor
Interest, from time to time. To the extent a Funding Agent holds the Asset
Interest on behalf of the Related Alternate Investors, such Funding Agent
shall hold the Alternate Investor Percentage of the Asset Interest on behalf
of such Alternate Investors pro rata in accordance with their respective
--- ----
outstanding portions of the Net Investment funded by them.
(c) Obligations Not Assumed. The foregoing sale, assignment and
-----------------------
transfer does not constitute and is not intended to result in the creation,
or an assumption by any Funding Agent, the Administrative Agent or any
Investor, of any obligation of the SPV, any Originator, or any other Person
under or in connection with the Receivables or any other Affected Asset, all
of which shall remain the obligations and liabilities of the SPV and the
applicable Originator.
(d) Intended Characterization; Grant of Security Interest.
-----------------------------------------------------
(i) The SPV, each Funding Agent, the Administrative Agent and the
Investors intend that the sale, assignment and transfer of the Affected
Assets to the Funding Agent (on behalf of their related Conduit Investors
and/or the Related Alternate Investors as applicable) hereunder shall be
treated as a sale for all purposes, other than federal and state income tax
purposes. If notwithstanding the intent of the parties, the sale,
assignment and transfer of the Affected Assets to the Funding Agents is not
treated as a sale for all purposes, other than federal and state income tax
purposes (as to which the foregoing shall constitute indebtedness of the
SPV secured by the Affected Assets), such sale, assignment and transfer of
the Affected Assets shall be treated as the grant of, and the SPV hereby
does grant, a security interest in the Affected Assets to secure the
payment and performance of the SPV's obligations to the Administrative
Agent, for the benefit of the Funding Agents (on behalf of the related
Conduit Investor and/or the Related Alternate Investors as applicable)
hereunder and under the other Transaction Documents or as may be determined
in connection therewith by applicable Law.
(ii) Each of the parties hereto further expressly acknowledges and
agrees that the Commitments of the Alternate Investors hereunder,
regardless of the intended true sale nature of the overall transaction, are
financial accommodations (within the meaning of Section 365(c)(2) of the
Bankruptcy Code) to or for the benefit of the SPV.
SECTION 2.2. Purchase Price. Subject to the terms and conditions hereof,
--------------
including Article V, in consideration for the sale, assignment and transfer of
---------
the Affected Assets by the SPV to the Funding Agents (on behalf of their
related Conduit Investors and/or the Related Alternate Investors as applicable)
hereunder:
(a) Investments. On the Closing Date, and thereafter from time to
-----------
time during the Reinvestment Period, on request of the SPV in accordance with
Section 2.3, each Funding Agent (on behalf of its related Conduit Investor or
- -----------
the Related Alternate Investors as determined pursuant to Section 2.3) shall
-----------
deposit in the Funding Account for payment to the SPV from funds received
from the related Investors pursuant to Section 2.3(d) an amount equal in each
--------------
instance to the least of (i) its Pro Rata Share of the amount requested by the
SPV under Section 2.3(a), (ii) its Pro Rata Share of the largest amount that
-------------
will not cause (A) the Net Investment to exceed the Maximum Net Investment or
(B) the sum of the Net Investment and the Required Reserves to exceed the Net
Pool Balance and (iii) the largest amount which will not cause such Investor
to exceed its Conduit Funding Limit or Commitment, as applicable. Each such
payment is herein called an "Investment".
----------
(b) Reinvestments. On each Business Day during the Reinvestment
-------------
Period, the Master Servicer, on behalf of the Administrative Agent (on behalf
of the Funding Agents for the benefit of the Conduit Investor and/or the
Alternate Investors as applicable), shall pay to the SPV, out of Collections
of Receivables, the amount available for Reinvestment in accordance with
Section 2.12(a)(iii). Each such payment is hereinafter called a
- -------------------
"Reinvestment". All Reinvestments with respect to the Conduit Investor
------------
Percentage and the Alternate
Investor Percentage of the Asset Interest shall be made ratably on behalf
of the Conduit Investors and Alternate Investors, as applicable, pro rata
--- ----
in accordance with their respective outstanding portions of the Alternate
Investor Percentage and Conduit Investor Percentage, as applicable, of the
Net Investment funded by them.
(c) Deferred Purchase Price. On each Business Day on and after the
-----------------------
Final Payout Date, the Master Servicer, on behalf of the Administrative Agent
on behalf of the Funding Agents for the benefit of the Investors, shall pay
to the SPV an amount equal to the Collections of Receivables received by the
SPV less the accrued and unpaid Servicing Fee (and the SPV (or the Master
Servicer on its behalf) shall apply such Collections in the manner described
in Section 2.14).
------------
(d) SPV Payments Limited to Collections. Notwithstanding any
-----------------------------------
provision contained in this Agreement to the contrary, the Administrative
Agent shall not, and shall not be obligated (whether on behalf of the Funding
Agents for the benefits of the Conduit Investors or the Alternate Investors,
as applicable), to pay any amount to the SPV as the purchase price of
Receivables pursuant to subsections (b) and (c) above except to the extent
-------------- -
of Collections on Receivables available for distribution to the SPV in
accordance with this Agreement. Any amount which the Administrative Agent
(whether on behalf of the Funding Agents for the benefit of the Conduit
Investors or the Alternate Investors, if applicable) does not pay pursuant
to the preceding sentence shall not constitute a claim (as defined in
Section 101 of the Bankruptcy Code) against or corporate obligation of the
Administrative Agent, any Funding Agent or any Investor for any such
insufficiency unless and until such amount becomes available for
distribution to the SPV under Section 2.12.
------------
SECTION 2.3. Investment Procedures.
---------------------
(a) Notice. The SPV shall request an Investment hereunder, by
------
request to the Administrative Agent given by facsimile in the form of an
Investment Request at least three (3) Business Days prior to the proposed
date of any Investment (including the initial Investment). Each such
Investment Request shall specify (i) the desired amount of such Investment
(which shall be at least $5,000,000 or an integral multiple of $1,000,000
in excess thereof or, to the extent that the then available unused portion
of the Maximum Net Investment is less than such amount, such lesser amount
equal to such available unused portion of the Maximum Net Investment),
including the aggregate Pro Rata Shares per Funding Agent of such
Investment, (ii) the desired date of such Investment
(the "Investment Date") which shall be a Permitted Investment Date
---------------
and (iii) the desired Rate Period(s) and allocations of such Investment
thereto as required by Section 2.4. The Administrative Agent will promptly
notify the Funding Agent for each Conduit Investor and Alternate Investor,
as applicable, of the Administrative Agent's receipt of an Investment Request
to be made to such Person.
(b) Conduit Investor Acceptance or Rejection; Investment Request
------------------------------------------------------------
Irrevocable.
- -----------
(i) Each Funding Agent will promptly notify the related Conduit
Investor of each Funding Agent's receipt of any Investment Request. If the
Investment Request is received prior to the related Conduit Investment
Termination Date, the Conduit Investor shall instruct such Funding Agent to
accept or reject (on such Conduit Investor's behalf) such Investment
Request by notice given to the SPV, the Administrative Agent and such
Funding Agent by telephone or facsimile by no later than 10:00 a.m. (New
York City time) on the requested Investment Date. Failure by a Conduit
Investor to timely deliver such notice shall be deemed to be an acceptance
of such Investment Request.
(ii) Each Investment Request shall be irrevocable and binding on
the SPV, and the SPV shall indemnify each Investor against any loss or
expense incurred by such Investor, either directly or indirectly
(including, in the case of a Conduit Investor, through a Program Support
Agreement) as a result of any failure by the SPV to complete such
Investment, including any loss (including loss of profit) or expense
incurred by a Funding Agent or any Investor, either directly or indirectly
(including, in the case of a Conduit Investor, pursuant to a Program
Support Agreement) by reason of the liquidation or reemployment of funds
acquired by such Investor (or the applicable Program Support Provider(s))
(including funds obtained by issuing commercial paper or promissory notes
or obtaining deposits or loans from third parties) in order to fund such
Investment.
(c) Alternate Investor's Commitment. Subject to Section 2.2(b)
------------------------------- -------------
concerning Reinvestments, at no time will a Conduit Investor have any
obligation to fund an Investment or Reinvestment. At all times on and after
the Conduit Investment Termination Date, all Investments and Reinvestments
shall be made by the EFC Funding Agent on behalf of the EFC Alternate
Investors. At any time when a Conduit Investor has rejected a request for
Investment or has failed to make an Investment in connection with an
Investment Request it has accepted, the Related Funding Agent shall so
notify the Related Alternate Investors and such Alternate Investors shall
make such Investment, on a pro rata basis, in accordance with their
--- ----
respective Special Pro Rata Shares. Notwithstanding anything contained
in this Section 2.3(c) or elsewhere in this Agreement to the
-------------
contrary, no Alternate Investor shall be obligated to provide any Funding
Agent or the SPV with funds in connection with an Investment in an amount that
would result in the portion of the Net Investment then funded by it exceeding
its Commitment then in effect (minus the unrecovered principal amount of such
-----
Alternate Investor's investment in the Asset Interest pursuant to the Program
Support Agreement to which it is a party). The obligation of each Alternate
Investor to remit its Special Pro Rata Share of any such Investment shall be
several from that of each other Alternate Investor, and the failure of any
Alternate Investor to so make such amount available to the Related Funding
Agent shall not relieve any other Alternate Investor of its obligation
hereunder.
(d) Payment of Investment. On any Investment Date, each Conduit
---------------------
Investor and/or Alternate Investor, as the case may be, shall, not later
than 1:00 p.m. (New York City time) on such date, remit its share of the
aggregate amount of such Investment (determined pursuant to Section 2.2(a))
-------------
to the Funding Account specified from time to time by the Administrative
Agent to each Funding Agent by notice to such Persons by wire transfer of same
day funds. Following the Administrative Agent's receipt of funds from the
Investors as aforesaid, the Administrative Agent shall promptly remit such
funds in the Funding Account in respect of each Investment to the SPV's account
designated pursuant to Section 11.3, by wire transfer of same day funds.
------------
(e) Administrative Agent May Advance Funds. Unless the
--------------------------------------
Administrative Agent shall have received notice from a Funding Agent that any
related Investor will not make its share of any Investment available on the
applicable Investment Date therefor, the Administrative Agent may (but shall
have no obligation to) make any such Investor's share of any such Investment
available to the SPV in anticipation of the receipt by the Administrative
Agent of such amount from the applicable Investor. To the extent any such
Investor or Funding Agent on behalf of such Investor fails to remit any such
amount to the Administrative Agent after any such advance by the
Administrative Agent on such Investment Date, such Investor, on the one
hand, and the SPV, on the other hand, shall be required to pay such amount
to the Administrative Agent for its own account, together with interest
thereon at a per annum rate equal to the Federal Funds Rate, in
--- -----
the case of such Investor, or the Base Rate, in the case of the SPV, to the
Administrative Agent upon its demand therefor (provided that a Conduit Investor
--------
shall have no obligation to pay such interest amounts except to the extent that
it shall have sufficient funds to pay the face amount of its Commercial Paper
in full). Until such amount shall be repaid, such amount shall be deemed to be
Net Investment paid by the Administrative Agent and the Administrative Agent
shall be deemed to be the owner of an interest in the Asset Interest hereunder
to the extent of such Investment. Upon the payment of such amount to the
Administrative Agent (i) by the SPV, the amount of the aggregate Net Investment
shall be reduced by such amount or (ii) by such Investor, such payment shall
constitute such Investor's payment of its share of the applicable Investment.
(f) Defaulting EFC Alternate Investor. If, by 2:00 p.m. (New York
---------------------------------
City time) on any Investment Date or Assignment Date, whether or not the
Administrative Agent has advanced the amount of the applicable Investment, one
or more EFC Alternate Investors (each, a "Defaulting Alternate Investor", and
-----------------------------
each EFC Alternate Investor other than any Defaulting Alternate Investor being
referred to as a "Non-Defaulting Alternate Investor") fails to make its Special
---------------------------------
Pro Rata Share of any Investment available to the Funding Account pursuant to
Section 2.3(d) or any Assignment Amount payable by it pursuant to Section 3.1
- ------------- -----------
(the aggregate amount not so made available to such Funding Account being
herein called in either case the "Investment Deficit"), then the EFC Funding
------------------
Agent shall, by no later than 2:30 p.m. (New York City time) on the applicable
Investment Date or the applicable Assignment Date, as the case may be, instruct
each Non-Defaulting Alternate Investor to pay, by no later than 3:00 p.m. (New
York City time), in immediately available funds, to the account designated by
the EFC Funding Agent, an amount equal to the lesser of (i) such Non-Defaulting
Alternate Investor's proportionate share (based upon the relative Commitments
of the Non-Defaulting Alternate Investors) of the Investment Deficit and (ii)
its unused Commitment. A Defaulting Alternate Investor shall forthwith, upon
demand, pay to such Funding Agent for the ratable benefit of the Non-Defaulting
Alternate Investors all amounts paid by each Non-Defaulting Alternate Investor
on behalf of such Defaulting Alternate Investor, together with interest
thereon, for each day from the date a payment was made by a Non-Defaulting
Alternate Investor until the date such Non-Defaulting Alternate Investor has
been paid such amounts in full, at a rate per annum equal to the sum of the
--- -----
Base Rate, plus 2.00% per annum. In addition, if, after giving effect to
---- --- -----
the provisions of the immediately preceding sentence, any Investment
Deficit with respect to any Assignment Amount continues to exist, each such
Defaulting Alternate Investor shall pay interest to the EFC Funding Agent,
for the account of the Related Conduit Investor, on such Defaulting Alternate
Investor's portion of such remaining Investment Deficit, at a rate per annum,
--- -----
equal to the sum of the Base Rate, plus 2.00% per annum, for each day
---- --- -----
from the applicable Assignment Date until the date such Defaulting
Alternate Investor shall pay its portion of such remaining Investment
Deficit in full to such Conduit Investor.
SECTION 2.4. [IS RESERVED AND IS SPECIFIED IN SCHEDULE I.]
----------
SECTION 2.5. Yield, Fees and Other Costs and Expenses. Notwithstanding
----------------------------------------
any limitation on recourse herein, the SPV shall pay, as and when due in
accordance with this Agreement, all Fees, Yield, all amounts payable pursuant
to Article IX, if any, and the Servicing Fees. On each Remittance Date, to the
----------
extent not paid pursuant to Section 2.12 for any reason, the SPV shall pay to
------------
the Administrative Agent, for the benefit of the Funding Agents on behalf of
the Conduit Investors or the Alternate Investors, as applicable, an amount
equal to the accrued and unpaid Yield in respect of the prior calendar month
together with, to the extent any portion of the Asset Interest is held on
behalf of a Match Funding Conduit Investor, an amount equal to the interest
or discount accrued on such Match Funding Conduit Investor's Commercial Paper
to the extent such Commercial Paper was issued in order to fund such portion
of the Asset Interest in an amount in excess of the amount of any Investment
(which excess amount shall be commercially reasonable). Nothing in this
Agreement shall limit in any way the obligations of the SPV to pay the amounts
set forth in this Section 2.5.
-----------
SECTION 2.6. Deemed Collections. (a) Dilutions. If on any day the
------------------ ---------
Unpaid Balance of a Receivable is reduced or such Receivable is canceled as
a result of any Dilution, the SPV shall be deemed to have received on such
day a Collection of such Receivable in the amount of the Unpaid Balance
(as determined immediately prior to such Dilution) of such Receivable
(if such Receivable is canceled) or, otherwise in the amount of such
reduction, and the SPV shall pay to the Master Servicer an amount equal to
such Deemed Collection and such amount shall be applied by the
Master Servicer as a Collection in accordance with Section 2.12.
------------
(b) Breach of Representation or Warranty. If on any day any of the
------------------------------------
representations or warranties in Article IV was or becomes untrue with respect
----------
to a Receivable (whether on or after the date of transfer thereof to the
Administrative Agent, for the benefit of the Funding Agents, on behalf of the
Investors, as contemplated hereunder), the SPV shall be deemed to have received
on such day a Collection of such Receivable in full and the SPV shall on such
day pay to the Master Servicer an amount equal to the Unpaid Balance of such
Receivable and such amount shall be allocated and applied by the Master
Servicer as a Collection in accordance with Section 2.12. Notwithstanding
------------
the foregoing, any representation or warranty made with respect to a
Receivable in respect of the criteria set forth in clause (e), (h) or (m)
of the definition of "Eligible Receivable" in Section 1.1 shall be made
-----------
with respect to such criteria solely as of the date such Receivable was
purchased hereunder.
SECTION 2.7. Payments and Computations, Etc. All amounts to be paid or
------------------------------
deposited by the SPV or the Master Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 a.m.
(New York City time) on the day when due in immediately available funds;
if such amounts are payable to the Administrative Agent (whether on behalf
of any Funding Agent, any Investor or otherwise) they shall be paid or
deposited in the account designated pursuant to Section 11.3, until
------------
otherwise notified by the Administrative Agent. The SPV shall, to the
extent permitted by Law, pay to the Administrative Agent, for the
benefit of the Funding Agents, on behalf of the Investors, upon
demand, interest on all amounts not paid or deposited
when due hereunder at a rate equal to 2.00% per annum, plus the Base Rate.
--- -----
All computations of Yield and all per annum fees hereunder shall be made on
--- -----
the basis of a year of 360 days for the actual number of days (including
the first but excluding the last day(except in the case of a Rate Period
applicable to a Pooled Funding Conduit Investor, which shall include the
first and the last day)) elapsed. Any computations by the Administrative
Agent of amounts payable by the SPV hereunder shall be binding upon the
SPV absent manifest error. The determination of the CP Rate by each
Funding Agent on behalf of its related Conduit Investor shall be conclusive
and binding upon the SPV absent manifest error.
SECTION 2.8. Reports. By no later than 4:00 p.m. (New York City time) on
-------
the 18th day of each calendar month or if such day is not a Business Day, the
next succeeding Business Day (and, after (i) an Arrow Rating Event, on the
third Business Day of each week, and (ii) the occurrence of a Termination
Event, within two (2) Business Days after a request from the Administrative
Agent) (each, a "Reporting Date"), the Master Servicer shall prepare and
--------------
forward to the Administrative Agent a Master Servicer Report, as at, and
for the Calculation Period ending on, the immediately preceding Month End
Date, provided, however, that with respect to a Master Servicer Report
delivered more frequently, the information shall be provided as of the
Friday of the preceding week. The Master Servicer Report shall be
certified by the SPV and the Master Servicer. The Administrative Agent
shall promptly provide a copy of such Master Servicer Report to each
Investor.
SECTION 2.9. Collection Account. (a) The Administrative Agent shall
------------------
establish in its name on or before the day of the initial Investment hereunder
and shall maintain a segregated account (the "Collection Account"), bearing a
------------------
designation clearly indicating that the funds deposited therein are held for
the benefit of the Administrative Agent, for the benefit of the Funding Agents,
on behalf of the Investors. The Administrative Agent shall have exclusive
dominion and control over the Collection Account and all monies, instruments
and other property from time to time in the Collection Account. On and after
the occurrence of a Termination Event or a Potential Termination Event (which
Potential Termination Event is not capable of being cured), the Master Servicer
shall remit daily within one Business Day of receipt to the Collection Account
all Collections received. Funds on deposit in the Collection Account (other
than investment earnings) shall be invested by the Administrative Agent, in the
name of the Administrative Agent for the benefit of the Funding Agents on
behalf of the Investors, in Eligible Investments that will mature so that such
funds will be available so as to permit amounts in the Collection Account to
be paid and applied on the next Settlement Date and otherwise in accordance
with the provisions of Section 2.12; provided that such funds shall not reduce
------------ --------
the Net Investment or accrued Yield hereunder until so applied under
Section 2.12. On each Remittance Date, all interest and earnings (net of
- ------------
losses and investment expenses) on funds on deposit in the Collection
Account shall be applied as Collections set aside for the Administrative
Agent in accordance with Section 2.12. On the Final Payout Date, any
------------
funds remaining on deposit in the Collection Account shall be paid to the
SPV for application as set forth in Section 2.14.
------------
(b) The Administrative Agent shall establish in its name on or before
the day of the initial Investment hereunder and shall maintain a segregated
account (the "Funding Account") for the benefit of the Funding Agents, on
---------------
behalf of the Conduit Investors and the Alternate Investors, into which all
payments received by the Administrative Agent from the Funding Agents and
the Investors shall be deposited pursuant to Section 2.3(d). The
-------------
Administrative Agent shall have the sole right of withdrawal from the
Funding Account.
SECTION 2.10. Sharing of Payments, Etc. If any Investor (for purposes of
------------------------
this Section 2.10 only, being a "Recipient") shall obtain any payment (whether
------------ ---------
voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of the portion of the Asset Interest owned by it (other
than pursuant to the Fee Letter, or Article IX and other than as a result of
----------
the differences in the timing of the applications of Collections pursuant
to Section 2.12 and other than a result of the different methods for
------------
calculating Yield) in excess of its ratable share of payments on account
of the Asset Interest obtained by the Investors entitled thereto, such
Recipient shall forthwith purchase from the Investors entitled to a share of
such amount participations in the portions of the Asset Interest owned by
such Persons as shall be necessary to cause such Recipient to share the
excess payment ratably with each such other Person entitled thereto;
provided, however, that if all or any portion of such
- -------- -------
excess payment is thereafter recovered from such Recipient, such purchase from
each such other Person shall be rescinded and each such other Person shall
repay to the Recipient the purchase price paid by such Recipient for such
participation to the extent of such recovery, together with an amount equal
to such other Person's ratable share (according to the proportion of (a) the
amount of such other Person's required payment to (b) the total amount so
recovered from the Recipient) of any interest or other amount paid or payable
by the Recipient in respect of the total amount so recovered.
SECTION 2.11. Right of Setoff. Without in any way limiting the
---------------
provisions of Section 2.10, the Administrative Agent, each Funding Agent
------------
and each Investor is hereby authorized (in addition to any other rights
it may have) at any time after the occurrence of the Termination Date due
to the occurrence of a Termination Event or during the continuance of a
Potential Termination Event (which Potential Termination Event is not
capable of being cured) to set-off, appropriate and apply (without
presentment, demand, protest or other notice which are hereby expressly
waived) any deposits and any other indebtedness held or owing by the
Administrative Agent, such Funding Agent or such Investor to, or for the
account of, the SPV against the amount of the Aggregate Unpaids owing by
the SPV to such Person or to the Administrative Agent, or such Funding
Agent on behalf of such Person (even if contingent or unmatured).
[SECTIONS 2.12 THROUGH 2.15 ARE RESERVED AND SPECIFIED
IN SCHEDULE III (SETTLEMENT PROCEDURES).]
------------
SECTION 2.16. Special Termination Date with Respect to a Particular
-----------------------------------------------------
Conduit Investor. Notwithstanding anything to the contrary contained in this
- ----------------
Agreement, if there shall occur a Special Termination Date with respect to a
Conduit Investor or its Related Alternate Investors, then, from and after such
Special Termination Date, (a) no further Investments or Reinvestments shall be
made by such Conduit Investors or Related Alternate Investor, (b) the
Administrative Agent shall distribute Collections to such Conduit Investor or
Related Alternate Investor in accordance with the provisions of Sections 2.12
and 2.13 applicable to a Special Termination Date, (c) in all respects, the
provisions of this Agreement with respect to a Termination Date shall be deemed
to apply with respect to such Conduit Investor or Related Alternate Investor
for which a Special Termination Date has occurred, other than as explicitly
set forth herein, and (d) all provisions of this Agreement shall continue to
apply to the other Conduit Investors and Related Alternate Investors.
ARTICLE III
ADDITIONAL ALTERNATE INVESTOR PROVISIONS
SECTION 3.1. Assignment to Alternate Investors.
---------------------------------
(a) Assignment Amounts. At any time on or prior to the Commitment
------------------
Termination Date, if (i) the EFC Funding Agent on behalf of the EFC Conduit
Investor so elects, by written notice to the Administrative Agent, or (ii) the
EFC Conduit Investor has delivered notice to the SPV and the Administrative
Agent of the Conduit Investment Termination Date, then in each such case, the
SPV hereby irrevocably requests and directs that the EFC Conduit Investor
assign, and the EFC Conduit Investor does hereby assign effective on the
Assignment Date referred to below all or such portions as may be elected
by the EFC Conduit Investor of, its interest in the Net Investment and the
Asset Interest at such time to the EFC Alternate Investors pursuant to this
Section 3.1 and the SPV hereby agrees to pay the amounts described in
- -----------
Section 3.1(b); provided, however, that unless such
--------------
assignment is an assignment of all of the EFC Conduit Investor's interest
in the Net Investment and the Asset Interest in whole on or after the
Conduit Investment Termination Date with respect to the EFC Conduit Investor,
no such assignment shall take place pursuant to this Section 3.1 if a
-----------
Termination Event described in Section 8.1(g) shall then exist; and
-------------
provided, further, that no such assignment shall take place pursuant to
this Section 3.1 at a time when an Event of Bankruptcy with respect to
-----------
the EFC Conduit Investor exists. No further documentation or action
on the part of the EFC Conduit Investor or the SPV shall be required to
exercise the rights set forth in the immediately preceding sentence,
other than the giving of the notice by the EFC Funding Agent on behalf
of the EFC Conduit Investor referred to in such sentence and the delivery
by the EFC Funding Agent or the EFC Conduit Investor of a copy of such
notice specified in clause (i) or (ii) in the preceding sentence to each
Related Alternate Investor (the date of the receipt by the EFC Funding Agent
of any such notice being the "Assignment Date"). Each EFC Alternate
--------------
Investor hereby agrees, unconditionally and irrevocably and under all
circumstances, without setoff, counterclaim or defense of any kind, to
pay the full amount of its Assignment Amount on such Assignment Date to
the EFC Conduit Investor in immediately available funds to an account
designated by the EFC Funding Agent. If by 2:00 P.M. (New York City
Time) on the Assignment Date, one or more EFC Alternate Investors (each, a
"Defaulting Alternate Investor", and each EFC Alternate Investor other than any
-----------------------------
Defaulting Alternate Investor being referred to as a "Non-Defaulting Alternate
------------------------
Investor") fails to pay its Assignment Amount (the aggregate amount not so made
- -------
available to the EFC Conduit Investor being herein called the "Assignment
----------
Amount Deficit"), then the EFC Funding Agent shall, by no later than 2:30 P.M.
- --------------
(New York City time) on the Assignment Date, instruct each Non-Defaulting
Alternate Investor to pay, by no later than 3:00 P.M. (New York City time)
on the Assignment Date, in immediately available funds, to the account
designated by the EFC Conduit Investor, an amount equal to the lesser of
(x) such Non-Defaulting Alternate Investor's proportionate share (based upon
the relative Commitments of the Non-Defaulting Alternate Investors) of the
Assignment Amount Deficit and (y) its unused Commitment. A Defaulting
Alternate Investor shall forthwith, upon demand, pay to the EFC Funding Agent
for the ratable benefit of the Non-Defaulting Alternate Investors all amounts
paid by each Non-Defaulting Alternate Investor on behalf of such Defaulting
Alternate Investor, together with interest thereon for each day from the date
a payment was made by a Non-Defaulting Alternate Investor until the date of
such Non-Defaulting Alternate Investor has been paid such amounts in full at
a rate per annum equal to the Base Rate plus two percent (2%). In addition,
if, after giving effect to the provisions of the immediately preceding
sentence, any Assignment Amount Deficit continues to exist, each such
Defaulting Alternate Investor shall pay interest to the EFC Funding Agent
on such Defaulting Alternate Investor's portion of such remaining Assignment
Amount Deficit, at a rate per annum equal to the rate determined in accordance
with clause (i) of the definition of "Base Rate" plus two percent (2%), for
each day from the Assignment Date until the date such Defaulting Alternate
Investor shall pay its portion of such remaining Assignment Amount Deficit
in full to the EFC Conduit Investor. Upon payment of its Assignment Amount,
each EFC Alternate Investor shall acquire an interest in the Asset
Interest and the Net Investment equal to its pro rata share (based on the
--- ----
outstanding portions of the Net Investment funded by it) of the Alternate
Investor Percentage thereof. Upon any assignment in whole by the EFC Conduit
Investor to the EFC Alternate Investors on or after the Conduit Investment
Termination Date as contemplated hereunder, the EFC Conduit Investor shall
cease to make any additional Investments or Reinvestments hereunder. At all
times prior to the Conduit Investment Termination Date, nothing herein shall
prevent the EFC Conduit Investor from making a subsequent Investment or
Reinvestment hereunder, in its sole discretion, following any assignment
pursuant to this Section 3.1 or from making more than one assignment pursuant
to this Section 3.1.
-----------
(b) SPV's Obligation to Pay Certain Amounts; Additional Assignment
--------------------------------------------------------------
Amount. The SPV shall pay to the Administrative Agent, on behalf of a
- ------
Funding Agent, for the account of the Related Conduit Investor, in
connection with any assignment by such Conduit Investor to the Related
Alternate Investors pursuant to this Agreement, an aggregate amount
equal to all Yield to accrue through the end of the current Rate
Period to the extent attributable to the portion of the Net
Investment so assigned to such Alternate Investors (which Yield shall be
determined for such purpose using the CP Rate most recently determined by such
Funding Agent) (as determined immediately prior to giving effect to such
assignment), plus all other accrued Aggregate Unpaids (other than the Net
----
Investment and other than any Yield not described above) payable to such
Conduit Investor in respect of such portion of the Net Investment so assigned.
If the SPV fails to make payment of such amounts at or prior to the time of
assignment by such Conduit Investor to the Related Alternate Investors, such
amount shall be paid by the Alternate Investors (in accordance with their
respective Special Pro Rata Shares) to such Conduit Investor as additional
consideration for the interests assigned to the Alternate Investors and the
amount of the "Net Investment" hereunder held by the Alternate Investors shall
be increased by an amount equal to the additional amount so paid by the
Alternate Investors.
(c) [Reserved].
--------
(d) Payments to Funding Agent's Account. After any assignment in
-----------------------------------
whole by a Conduit Investor to the Related Alternate Investors pursuant to
this Agreement at any time on or after the Conduit Investment Termination Date,
all payments to be made hereunder by the SPV or the Master Servicer to such
Conduit Investor shall be made to the Related Funding Agent's account as such
account shall have been designated by such Funding Agent to the Administrative
Agent, the SPV and the Master Servicer.
(e) Recovery of Net Investment. In the event that the aggregate of
--------------------------
the Assignment Amounts paid by the Related Alternate Investors on any
Assignment Date occurring on or after the Conduit Investment Termination Date
with respect to any Conduit Investor is less than the Net Investment of such
Conduit Investor on such Assignment Date (the "Assignment Amount Difference"),
then to the extent Collections thereafter received by the Administrative
Agent hereunder in respect of the Net Investment exceed the sum of (i) the
aggregate of the Assignment Amounts paid to such Conduit Investor and (ii)
the Net Investment funded directly by such Related Alternate Investors, such
excess shall be remitted by the Administrative Agent to such Conduit Investor
(or to the Related Funding Agent on its behalf or for the Collateral Agent)
for the account of such Conduit Investor until such Conduit Investor has
received an amount equal to the Assignment Amount Difference.
SECTION 3.2. Downgrade of an EFC Alternate Investor. Downgrades
-------------------------------------- ----------
Generally. If at any time on or prior to the Commitment Termination Date, the
- ---------
short term debt rating of any EFC Alternate Investor shall be "A-2" or "P-2"
from S&P or Moody's, respectively, with negative credit implications, such EFC
Alternate Investor, upon request of the EFC Funding Agent, shall, within thirty
(30) days of such request, assign its rights and obligations hereunder to
another financial institution (which institution's short term debt shall be
rated at least "A-2" or "P-2" from S&P or Moody's, respectively, and which
shall be so rated without negative credit implications and which is acceptable
to the EFC Conduit Investor and the EFC Funding Agent). If the short term debt
rating of an EFC Alternate Investor shall be "A-3" or "P-3", or lower, from
S&P or Moody's, respectively (or such rating shall have been withdrawn by
S&P or Moody's), such EFC Alternate Investor, upon request of the EFC Funding
Agent, shall, within five (5) Business Days of such request, assign its rights
and obligations hereunder to another financial institution (which
institution's short term debt shall be rated at least "A-2" or "P-2", from
S&P or Moody's, respectively, and which shall be so rated without negative
credit implications and which is acceptable to the EFC Conduit Investor and
such EFC Funding Agent). In either such case, if any such EFC Alternate
Investor shall not have assigned its rights and obligations under this
Agreement within the applicable time period described above (in either such
case, the "Required Downgrade Assignment Period"), the EFC
------------------------------------
Funding Agent on behalf of the EFC Conduit Investor shall have the right to
require such EFC Alternate Investor to pay upon one (1) Business Day's notice
at any time after the Required Downgrade Assignment Period (and each such EFC
Alternate Investor hereby agrees in such event to pay within such time) to the
EFC Funding Agent an amount equal to such EFC Alternate Investor's unused
Commitment (a "Downgrade Draw") for deposit by the EFC Funding Agent into an
--------------
account, in the name of the EFC Funding Agent (a "Downgrade Collateral
--------------------
Account"), which shall be in satisfaction of such EFC Alternate
- ------
Investor's obligations to
make Investments and to pay its Assignment Amount upon an assignment
from the Conduit Investor in accordance with Section 3.1; provided,
----------- --------
however, that if, during the Required Downgrade Assignment Period,
- -------
such EFC Alternate Investor
delivers (at such EFC Alternative Investor's own expense) a written
notice to the EFC Funding Agent of its intent to deliver a direct pay
irrevocable letter of credit pursuant to this proviso in lieu of the
payment required to fund the Downgrade Draw, then such EFC Alternate
Investor will not be required to fund such Downgrade Draw. If any EFC
Alternate Investor gives the EFC Funding Agent such notice, then such
EFC Alternate Investor shall, within one (1) Business Day after the
Required Downgrade Assignment Period, deliver to the EFC Funding Agent
a direct pay irrevocable letter of credit in favor of the EFC
Funding Agent in an amount equal to the unused portion of such EFC Alternate
Investor's Commitment, which letter of credit shall be issued through a United
States office of a bank or other financial institution (i) whose short-term debt
ratings by S&P and Moody's are at least equal to the ratings assigned by such
statistical rating organization to the Commercial Paper issued by the EFC
Conduit Investor and (ii) that is acceptable to the EFC Conduit Investor
and the EFC Funding Agent. Such letter of credit shall provide that the
EFC Funding Agent may draw thereon for payment of any Investment or
Assignment Amount payable by such EFC Alternate Investor which is not
paid hereunder when required, shall expire no earlier than the
Commitment Termination Date and shall otherwise be in form and substance
acceptable to the EFC Funding Agent. The EFC Funding Agent shall draw
upon such letter of credit for the benefit of the SPV for the
payment of any Investment or Assignment Amount payable by such EFC
Alternate Investor which is not paid hereunder when required.
(b) Application of Funds in Downgrade Collateral Account. If any EFC
----------------------------------------------------
Alternate Investor shall be required pursuant to Section 3.2(a) to fund a
-------------
Downgrade Draw, then the EFC Funding Agent shall apply the monies in the
Downgrade Collateral Account applicable to such EFC Alternate Investor's
Special Pro Rata Share of Investments required to be made by the EFC Alternate
Investors, to any Assignment Amount payable by such EFC Alternate Investor
pursuant to Section 3.1 at the times, in the manner and subject to the
-----------
conditions precedent set forth in this Agreement. The deposit of monies in
such Downgrade Collateral Account by any EFC Alternate Investor shall not
constitute an Investment or the payment of any Assignment Amount (and such
EFC Alternate Investor shall not be entitled to interest on such monies
except as provided below in this Section 3.2(b), unless and until (and then
-------------
only to the extent that) such monies are used to fund Investments or to pay
any Assignment Amount pursuant to the first sentence of this Section 3.2(b).
The amount on deposit in such Downgrade Collateral Account shall be invested
by the EFC Funding Agent in Eligible Investments and such Eligible
Investments shall be selected by the EFC Funding Agent in its sole discretion.
The EFC Funding Agent shall remit to such EFC Alternate Investor, on the last
Business Day of each month, the income actually received thereon. Unless
required to be released as provided below in this subsection, Collections
received by the EFC Funding Agent in respect of such EFC Alternate Investor's
portion of the Net Investment shall be deposited in the Downgrade Collateral
Account for such EFC Alternate Investor. Amounts on deposit in such Downgrade
Collateral Account shall be released to such EFC Alternate Investor (or
the stated amount of the letter of credit delivered by such EFC Alternate
Investor pursuant to subsection (a) above may be reduced)
-------------
within one Business Day after each Settlement Date following the Termination
Date to the extent that, after giving effect to the distributions made and
received by the Investors on such Settlement Date, the amount on deposit in
such Downgrade Collateral Account would exceed such EFC Alternate Investor's
Special Pro Rata Share (determined as of the day prior to the Termination Date)
of the sum of all Portions of Investment then funded by the EFC Conduit
Investor, plus the Interest Component. All amounts remaining in such Downgrade
----
Collateral Account shall be released to such EFC Alternate Investor no later
than the Business Day immediately following the earliest of (i) the effective
--------
date of any replacement of such EFC Alternate Investor or removal of such EFC
Alternate Investor as a party to this Agreement, (ii) the date on
which such EFC Alternate Investor shall furnish the EFC Funding Agent with
confirmation that such EFC Alternate Investor shall have short-term debt
ratings of at least "A-2" or "P-2" from S&P or Moody's, respectively, without
negative credit implications, and (iii) the Commitment Termination Date
(or if earlier, the Commitment Termination Date in effect prior to any renewal
pursuant to Section 3.3 to which such EFC Alternate Investor does not consent).
-----------
Nothing in this Section 3.2 shall affect or diminish in any way any such
----------
downgraded EFC Alternate Investor's Commitment to the SPV or the EFC Conduit
Investor or such downgraded EFC Alternate Investor's other obligations and
liabilities hereunder and under the other Transaction Documents.
(c) Program Support Agreement Downgrade. Notwithstanding the other
-----------------------------------
provisions of this Section 3.2, an EFC Alternate Investor shall not be required
-----------
to make a Downgrade Draw (or provide for the issuance of a letter of credit in
lieu thereof) pursuant to Section 3.2(a) at a time when such EFC Alternate
-------------
Investor has a downgrade collateral account (or letter of credit in lieu
thereof) established pursuant to a Program Support Agreement to which it is
a party in an amount at least equal to its Commitment, and the Administrative
Agent may apply monies in such downgrade collateral account in the manner
described in Section 3.3(b) as if such downgrade collateral account were a
-------------
Downgrade Collateral Account.
SECTION 3.3 Non-Renewing Alternate Investors. If at any time the SPV
--------------------------------
requests that the Alternate Investors renew their Commitments hereunder and
some but less than all the Alternate Investors consent to such renewal within
30 days of the SPV's request, the SPV may arrange for an assignment to one or
more financial institutions of all the rights and obligations hereunder of each
such non-consenting Alternate Investor in accordance with Section 11.8,
------------
provided that any such financial institution shall be acceptable to the Related
Funding Agent in its sole and absolute discretion. Any such assignment shall
become effective on the then-current Commitment Termination Date. Each
Alternate Investor which does not so consent to any renewal shall cooperate
fully with the SPV in effectuating the administrative details of any such
assignment. If none or less than all the Commitments of the non-renewing
Alternate Investors are so assigned as provided above and the related Conduit
Investor Percentage equals 100%, then (i) the extended Commitment Termination
Date shall be effective solely with respect to the renewing Alternate
Investors, (ii) the Facility Limit shall automatically be reduced by an
amount equal to the aggregate of the Commitments of all non-renewing Alternate
Investors, (iii) the Conduit Funding Limit of the Related Conduit Investor
shall automatically be reduced by an amount equal to the aggregate of the
Commitments of all non-renewing Related Alternate Investors, and (iv) this
Agreement and the Commitments of the renewing Alternative Investors shall
remain in effect in accordance with their terms notwithstanding the
expiration of the Commitments of such non-renewing Alternate Investors.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the SPV and the Master
--------------------------------------------------------
Servicer. Each of the SPV and the Master Servicer represents and warrants to
- --------
each Funding Agent, the Administrative Agent and each Investor, as to itself,
that, on the Closing Date and on each Investment Date and Reinvestment Date:
(a) Corporate Existence and Power. It (i) is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, (ii) has all corporate power and all licenses,
authorizations, consents and approvals of all Official Bodies required to carry
on its business in each jurisdiction in which its business is now and proposed
to be conducted (except where the failure to have any such licenses,
authorizations, consents and approvals would not individually or in the
aggregate have a Material Adverse Effect) and (iii) is duly qualified to do
business and is in good standing in every other jurisdiction in which the
nature of its business requires it to be so qualified, except where the failure
to be so qualified or in good standing would not have a Material Adverse
Effect.
(b) Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance by it of this Agreement and the other
Transaction Documents to which it is a party are (i) within the its corporate
powers, (ii) have been duly authorized by all necessary corporate and
shareholder action, (iii) require no action by or in respect of, or filing
with, any Official Body or official thereof (except as contemplated by
Sections 5.1(f), 5.1(g) and 7.7, all of which have been (or as of the
- -------------- ----- ---
Closing Date will have been) duly made and in full force and effect),
(iv) do not contravene or constitute a default under (A) its articles
of incorporation or by-laws, (B) any Law applicable to it, except to
the extent (solely in the case of the Master Servicer) that the failure to
comply therewith could not, in the aggregate, be expected to have a Material
Adverse Effect or a material adverse effect on the condition (financial or
otherwise), business or properties of Arrow and the other Originators, taken
as a whole, (C) any contractual restriction binding on or affecting it or its
property or (D) any order, writ, judgment, award, injunction, decree or other
instrument binding on or affecting it or its property, or (v) result in the
creation or imposition of any Adverse Claim upon or with respect to its
property or the property of any of its Subsidiaries (except as
contemplated hereby).
(c) Binding Effect. Each of this Agreement and the other Transaction
--------------
Documents to which it is a party has been duly executed and delivered and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally
and the application of general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
(d) Perfection. In the case of the SPV, it is the owner of all
----------
of the Receivables and other Affected Assets, free and clear of all Adverse
Claims (other than any Adverse Claim arising hereunder), and upon the making
of the initial Investment on the Closing Date and at all times thereafter
until the Final Payout Date, all financing statements and other documents
required to be recorded or filed in order to perfect and protect the first
priority perfected ownership or security interest of the Administrative Agent
for the benefit of each Funding Agent on behalf of the related Investors in
the Asset Interest against all creditors of and purchasers from the SPV,
Arrow and the other Originators will have been duly filed in each filing
office necessary for such purpose and all filing fees and taxes, if any,
payable in connection with such filings shall have been paid in full.
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
it (including the Master Servicer Reports and its financial statements) to any
Investor, any Funding Agent or the Administrative Agent for purposes of or in
connection with this Agreement or any transaction contemplated hereby was true,
complete and accurate in every material respect, on the date such information
is stated or certified, and no such item contains or contained any untrue
statement of a material fact or omits or did omit to state a material fact
necessary in order to make the statements contained therein, in the light of
the circumstances under which (and as of the date) they were made, not
misleading.
(f) Tax Status; GAAP Treatment. It has (i) in the case of the SPV,
--------------------------
timely filed all tax returns (federal, state and local) required to be filed
and, in the case of the Master Servicer, filed all material tax returns
(federal, state and local) required to be filed, (ii) paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges and, solely with respect to the Master Servicer, which, individually
or in the aggregate, would not result in liability in excess of $5,000,000
and (iii) in the case of the SPV, accounted for the sale of the Asset
Interest hereunder, in its books and financial statements as sales,
consistent with GAAP.
(g) Action, Suits. It is not in violation of any order of Official
-------------
Body or arbitrator which could not, in the aggregate, be expected to have a
Material Adverse Effect or a material adverse effect on the condition
(financial or otherwise), businesses or properties of Arrow and the other
Originators, taken as a whole. Except as set forth in Schedule 4.1(g),
--------------
there are no actions, suits, litigation or proceedings pending, or to its
knowledge, threatened, against or affecting it or any of its
Subsidiaries or their respective properties, in or before any Official
Body or arbitrator which in each case with respect to the Master Servicer
or any of its Subsidiaries (other than the SPV), if adversely determined
could have a Material Adverse Effect or a material adverse effect on
the condition (financial or otherwise), businesses or properties of
Arrow and the other Originators, taken as a whole.
(h) Use of Proceeds. In the case of the SPV, no proceeds of any
---------------
Investment or Reinvestment will be used by it (i) to acquire any security
in any transaction which is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, (ii) to acquire any equity security of a class
which is registered pursuant to Section 12 of such act or (iii) for any
other purpose that violates applicable Law, including Regulation U of
the Federal Reserve Board.
(i) Principal Place of Business; Chief Executive Office; Location
-------------------------------------------------------------
of Records. Its principal place of business, chief executive office and the
- ----------
offices where it keeps all its material Records, are located at the address(es)
described on Schedule 4.1(i) or such other locations notified to the
--------------
Administrative Agent in accordance with Section 7.7 in jurisdictions where all
-----------
action required by Section 7.7 has been taken and completed.
-----------
(j) Subsidiaries; Tradenames, Etc. In the case of the SPV, as of the
-----------------------------
Closing Date: (i) it has only the Subsidiaries and divisions listed on Schedule
--------
4.1(j); and (ii) it has, within the last five (5) years, operated only under
- ------
the tradenames identified in Schedule 4.1(j), and, within the last five
--------------
(5) years, has not changed its name, the location of its chief executive
office, merged with or into or consolidated with any other Person or
been the subject of any proceeding under the Bankruptcy Code, except as
disclosed in Schedule 4.1(j). Schedule 4.1(j) also lists the correct
-------------- --------------
Federal Employer Identification Number of the SPV.
(k) Good Title. In the case of the SPV, upon each Investment and
----------
Reinvestment, the Administrative Agent for the benefit of each Funding Agent,
on behalf of the related Investors shall acquire a valid and enforceable
perfected first priority ownership interest or a first priority perfected
security interest in each Receivable and all other Affected Assets that
exist on the date of such Investment or Reinvestment, with respect thereto,
free and clear of any Adverse Claim (other than that created by the
Administrative Agent, any Funding Agent or any Investor).
(l) Nature of Receivables. Each Receivable (i) represented by it to
----------------------
be an Eligible Receivable in any Master Servicer Report or (ii) included in the
calculation of the Net Pool Balance in fact satisfies at such time the
definition of "Eligible Receivable" set forth herein and, in the case of
clause (ii) above, is not a Receivable of the type described in
clauses (b)(i) or (b)(ii) of the definition of "Net Pool Balance".
- ------------- -----
It has no knowledge of any fact (including any defaults by the Obligor
thereunder on any other Receivable) that would cause it or should have
caused it to expect any payments on such Receivable not
to be paid in full when due or that is reasonably likely to cause or result
in any other Material Adverse Effect with respect to such Receivable.
(m) Coverage Requirement;. The sum of the Net Investment, plus the
--------------------
Required Reserves does not exceed the Net Pool Balance.
(n) Credit and Collection Policy. Since January 31, 2001, there have
----------------------------
been no material changes in the Credit and Collection Policy other than in
accordance with this Agreement. Since such date, no material adverse change
has occurred in the overall rate of collection of the Receivables other
than as disclosed in writing to the Administrative Agent and each Funding
Agent. It has at all times materially complied with the Credit and
Collection Policy with regard to each Receivable.
(o) Material Adverse Effect. Since December 31, 1999, there has been
-----------------------
no Material Adverse Effect.
(p) No Termination Event. In the case of the SPV, no event has
--------------------
occurred and is continuing and no condition exists, or would result from any
Investment or Reinvestment or from the application of the proceeds therefrom,
which constitutes or may be reasonable be expected to constitute a Termination
Event or a Potential Termination Event. In the case of the Master Servicer, no
Master Servicer Default has occurred and is continuing to exist.
(q) Not an Investment Company or Holding Company. It is not, and is
-------------------------------------------
not controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, or is exempt from all provisions of such act. It is not a
"holding company," or a subsidiary or affiliate of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935.
(r) ERISA. No steps have been taken by any Person to terminate any
-----
Pension Plan the assets of which will not be sufficient to satisfy all of its
benefit liabilities (as determined under Title IV of ERISA) on the date of such
termination. Neither Arrow, the SPV nor any ERISA Affiliates of either such
Person has incurred any withdrawal liability (which has not been satisfied)
under Title IV of ERISA with respect to any Multiemployer Plan. No
contribution failure has occurred with respect to any Pension Plan sufficient
to give rise to a lien under Section 302(f) of ERISA, and each Pension Plan
has been administered in all material respects in compliance with its terms
and applicable provisions of ERISA and the Code.
(s) Blocked Accounts. The names and addresses of all the Blocked
----------------
Account Banks, together with the account numbers of the Blocked Accounts
at such Blocked Account Banks, are specified in Schedule 4.1(s) (or at
--------------
such other Blocked Account Banks and/or with such other Blocked Accounts
as have been notified to the Administrative Agent and for which Blocked
Account Agreements have been executed in accordance with
Section 7.3 and delivered to the Master Servicer). All Blocked Accounts
- -----------
are subject to Blocked Account Agreements. All Obligors have been
instructed to make payment to a Blocked Account and only Collections
are deposited into the Blocked Accounts, except for other amounts (i)
that are withdrawn from such Blocked Accounts within one (1) Business
Day of receipt thereof or (ii) that are deposited in respect of HP
Receivables which are not HP Purchased Receivables.
(t) Bulk Sales. In the case of the SPV, no transaction contemplated
----------
hereby or by the First Tier Agreement requires compliance with any bulk sales
act or similar law.
(u) Transfers Under First Tier Agreement. In the case of the SPV,
------------------------------------
each Receivable has been purchased by it from Arrow pursuant to, and in
accordance with, the terms of the First Tier Agreement. In the case of Arrow,
each Receivable has either been originated by Arrow or purchased by Arrow from
an Originator pursuant to, and in accordance with, the terms of the applicable
Originator Sale Agreement.
(v) Preference; Voidability. In the case of the SPV, it shall have
-----------------------
given reasonably equivalent value to Arrow in consideration for the transfer
to it of the Affected Assets from Arrow, and each such transfer shall not have
been made for or on account of an antecedent debt owed by Arrow to it and no
such transfer is or may be voidable under any section of the Bankruptcy Code.
(w) Nonconsolidation. The SPV is operated in such a manner that the
----------------
separate corporate existence of the SPV, on the one hand, and each Originator
or any Affiliate thereof, on the other, would not be disregarded in the event
of the bankruptcy or insolvency of any Originator or any Affiliate thereof and,
without limiting the generality of the foregoing:
(i) the SPV is a limited purpose corporation whose activities are
restricted in its certificate of incorporation to activities related to
purchasing or otherwise acquiring receivables (including the Receivables)
and related assets and rights and conducting any related or incidental
business or activities it deems necessary or appropriate to carry out its
primary purpose, including entering into agreements like the Transaction
Documents;
(ii) the SPV has not engaged, and does not presently engage, in any
activity other than those activities expressly permitted hereunder and
under the other Transaction Documents, nor has the SPV entered into any
agreement other than this Agreement, the other Transaction Documents to
which it is a party, and with the prior written consent of the Investors,
each Funding Agent and the Administrative Agent, any other agreement
necessary to carry out more effectively the provisions and purposes hereof
or thereof;
(iii) (A) the SPV maintains its own deposit account or accounts,
separate from those of any of its Affiliates, with commercial banking
institutions, (B) the funds of the SPV are not and have not been diverted
to any other Person or for other than the corporate use of the SPV and (C)
except as may be expressly permitted by this Agreement, the funds of the
SPV are not and have not been commingled with those of any of its
Affiliates;
(iv) to the extent that the SPV contracts or does business with
vendors or service providers where the goods and services provided are
partially for the benefit of any other Person, the costs incurred in so
doing are fairly allocated to or among the SPV and such entities for whose
benefit the goods and services are provided, and each of the SPV and each
such entity bears its fair share of such costs; and all material
transactions between the SPV and any of its Affiliates shall be only on an
arm's-length basis;
(v) the SPV maintains stationery through which all business
correspondence and communication are conducted, in each case separate from
those of each Originator and its respective Affiliates;
(vi) the SPV conducts its affairs strictly in accordance with its
certificate of incorporation and observes all necessary, appropriate and
customary corporate formalities, including (A) holding all regular and
special stockholders' and directors' meetings appropriate to authorize all
corporate action (which, in the case of regular stockholders' and
directors' meetings, are held at least annually), (B) keeping separate and
accurate minutes of such meetings, (C) passing all resolutions or consents
necessary to authorize actions taken or to be taken, and (D) maintaining
accurate and separate books, records and accounts, including intercompany
transaction accounts;
(vii) all decisions with respect to its business and daily
operations are independently made by the SPV (although the officer making
any particular decision may also be an employee, officer or director of an
Affiliate of the SPV) and are not dictated by any Affiliate of the SPV (it
being understood that the Master Servicer, which is an Affiliate of the
SPV, will undertake and perform all of the operations, functions and
obligations of it set forth herein and it may appoint Sub-Servicers, which
may be Affiliates of the SPV, to perform certain of such operations,
functions and obligations);
(viii) the SPV acts solely in its own corporate name and through its
own authorized officers and agents, and no Affiliate of the SPV shall be
appointed to act as its agent, except as expressly contemplated by this
Agreement;
(ix) no Affiliate of the SPV advances funds to the SPV, other than
as is otherwise provided herein or in the other Transaction Documents, and
no Affiliate of the SPV otherwise supplies funds to, or guaranties debts
of, the SPV; provided, however, that an Affiliate of the SPV may provide
-------- -------
funds to the SPV in connection with the capitalization of the SPV;
(x) other than organizational expenses and as expressly provided
in the Transaction Documents, the SPV pays all expenses, indebtedness and
other obligations incurred by it;
(xi) the SPV does not guarantee, and is not otherwise liable, with
respect to any obligation of any of its Affiliates;
(xii) any financial reports required of the SPV comply with
generally accepted accounting principles and are issued separately from,
but may be consolidated with, any reports prepared for any of its
Affiliates;
(xiii) at all times the SPV is adequately capitalized to engage in
the transactions contemplated in its certificate of incorporation;
(xiv) the financial statements and books and records of the SPV and
Arrow reflect the separate corporate existence of the SPV;
(xv) the SPV does not act as agent for any Originator or any
Affiliate thereof, but instead presents itself to the public as a
corporation separate from each such member and independently engaged in the
business of purchasing and financing Receivables;
(xvi) the SPV maintains a three-person board of directors, including
at least one independent director, who has never been, and shall at no time
be a stockholder, director, officer, employee or associate, or any relative
of the foregoing, of any Originator or any Affiliate thereof (other than
the SPV and any other bankruptcy-remote special purpose entity formed for
the sole purpose of securitizing, or facilitating the securitization of,
financial assets of any Originator or any Affiliate thereof), all as
provided in its certificate or articles of incorporation, and is otherwise
reasonably acceptable to the Investors, the Funding Agents and the
Administrative Agent; and
(xvii) the bylaws or the certificate or articles of incorporation of
the SPV require the affirmative vote of the independent director before a
voluntary petition under Section 301 of the Bankruptcy Code may be filed by
the SPV, and the SPV to maintain correct and complete books and records of
account and minutes of the meetings and other proceedings of its
stockholders and board of directors.
(x) Dilution. In the case of the Master Servicer, upon the issuance
--------
of a Credit Memo relating to a specific Receivable, the amount of such
Credit Memo is applied against such Receivable, and the Unpaid Balance of
such Receivable is aged in accordance with the original invoice date of
such Receivable.
(y) Representations and Warranties in other Related Documents. In the
---------------------------------------------------------
case of the SPV, each of the representations and warranties made by it
contained in the Transaction Documents (other than this Agreement) was
true, complete and correct in all respects and it hereby makes, as of the
date that such representation or warranty was made or deemed made, each
such representation and warranty to, and for the benefit of, each Funding
Agent, the Administrative Agent and the Investors as if the same were set
forth in full herein.
(z) No Master Servicer Default. In the case of the Master Servicer,
--------------------------
no event has occurred and is continuing and no condition exists, or would
result from a purchase in respect of any Investment or Reinvestment or from
the application of the proceeds therefrom, which constitutes or may
reasonably be expected to constitute a Master Servicer Default.
SECTION 4.2. Additional Representations and Warranties of the Master
-------------------------------------------------------
Servicer. The Master Servicer represents and warrants on the Closing Date and
- --------
on each Investment Date and Reinvestment Date to each Funding Agent, to the
Administrative Agent and the Investors, which representation and warranty shall
survive the execution and delivery of this Agreement, that each of the
representations and warranties of the Master Servicer (whether made by the
Master Servicer in its capacity as an Originator or as the Master Servicer)
contained in any Transaction Document (other than this Agreement) was true,
complete and correct as of the date made or deemed made and, if made by the
Master Servicer in its capacity as an Originator, applies with equal force to
the Master Servicer in its capacity as Master Servicer, and the Master Servicer
hereby so makes each such representation and warranty to, and for the benefit
of, each Funding Agent, the Administrative Agent and the Investors as if the
same were set forth in full herein.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. Conditions Precedent to Closing. The occurrence of the
-------------------------------
Closing Date and the effectiveness of the Commitments hereunder shall be
subject to the conditions precedent that (i) the SPV or Arrow shall have
paid in full (A) all amounts required to be paid by either of them on or
prior to the Closing Date pursuant to the Fee Letter or otherwise hereunder
and (B) the fees and expenses described in clause (i) of Section 9.4(a)
--------- -------------
and invoiced prior to the Closing Date, and (ii) the Administrative Agent
shall have received, sufficient original (unless otherwise indicated)
copies for itself and each of the Investors and the Administrative Agent's
counsel, of each of the following documents, each in form and substance
satisfactory to the Administrative Agent and each Funding Agent.
(a) A duly executed counterpart of this Agreement, the First Tier
Agreement, the Fee Letter and each of the other Transaction Documents executed
by the Originators, the SPV and the Master Servicer, as applicable.
(b) A certificate, substantially in the form of Exhibit G, of the
---------
secretary or assistant secretary of the SPV, certifying and (in the case of
clauses (i) through (iii) below) attaching as exhibits thereto, among other
- ---------- -----
things:
(i) the articles of incorporation, charter or other organizing
document (including a limited liability company agreement, if applicable)
of the SPV (certified by the Secretary of State or other similar official
of the SPV's jurisdiction of incorporation or organization, as applicable,
as of a recent date);
(ii) the by-laws of the SPV;
(iii) resolutions of the board of directors or other governing body
of the of the SPV authorizing the execution, delivery and performance by
the SPV of this Agreement, the First Tier Agreement and the other
Transaction Documents to be delivered by the SPV hereunder or thereunder
and all other documents evidencing necessary corporate action (including
shareholder consents) and government approvals, if any; and
(iv) the incumbency, authority and signature of each officer of the
SPV executing the Transaction Documents or any certificates or other
documents delivered hereunder or thereunder on behalf of the SPV.
(c) A certificate, substantially in the form of Exhibit H of the
---------
secretary or assistant secretary of each Originator and the Master Servicer
certifying and (in the case of clauses (i) through (iii) below) attaching
---------- ---
as exhibits thereto, among other things:
(i) the articles of incorporation, charter or other organizing
document (including a limited liability company agreement, if applicable)
of such Originator or Master Servicer (certified by the Secretary of State
or other similar official of its jurisdiction of incorporation or
organization, as applicable, as of a recent date);
(ii) the by-laws of such Originator or the Master Servicer;
(iii) resolutions of the board of directors or other governing body
of such Originator or the Master Servicer authorizing the execution,
delivery and performance by it of this Agreement, the First Tier Agreement
and the other Transaction Documents to be delivered by it hereunder or
thereunder and all other documents evidencing necessary corporate action
(including shareholder consents) and government approvals, if any; and
(iv) the incumbency, authority and signature of each officer of
such Originator or the Master Servicer executing the Transaction Documents
or any certificates or other documents delivered hereunder or thereunder on
its behalf.
(d) A good standing certificate for the SPV issued by the Secretary
of State or a similar official of the SPV's jurisdiction of incorporation or
organization, as applicable, and certificates of qualification as a foreign
corporation issued by the Secretaries of State or other similar officials of
each jurisdiction where such qualification is material to the transactions
contemplated by this Agreement and the other Transaction Documents, in each
case, dated as of a recent date.
(e) A good standing certificate for each Originator and the Master
Servicer issued by the Secretary of State or a similar official of its
jurisdiction of incorporation or organization, as applicable, and certificates
of qualification as a foreign corporation issued by the Secretaries of State or
other similar officials of each jurisdiction where such qualification is
material to the transactions contemplated by this Agreement and the other
Transaction Documents, in each case, dated as of a recent date.
(f) Acknowledgment copies of proper financing statements
(Form UCC-1), filed on or before the initial Investment Date naming the
SPV, as debtor, in favor of the Administrative Agent, as secured party,
for the benefit of the Investors or other similar instruments or documents
as may be necessary or in the reasonable opinion of the Administrative Agent
desirable under the UCC of all appropriate jurisdictions or any comparable
law to perfect the Administrative Agent's ownership or security interest
in all Receivables and the other Affected Assets.
(g) Acknowledgment copies of proper financing statements (Form
UCC-1), filed on or before the initial Investment Date naming Arrow, as
debtor, in favor of the SPV, as secured party and Administrative Agent
for the benefit of the Investors, assignee or other similar instruments
or documents as may be necessary or in the reasonable opinion of the
Administrative Agent desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Administrative Agent's
ownership or security interest in all Receivables and the other Affected
Assets.
(h) Acknowledgment copies of proper financing statements (Form
UCC-1 or Form PPSA 1[c] [Ontario]) or certified statements (Form RG), as
applicable, filed on or before the initial Investment Date naming the
applicable Originator, as the debtor, in favor of Arrow, as secured party,
and the Administrative Agent, for the benefit of the Investors, as assignee,
or other similar instruments or documents as may be necessary or in the
reasonable opinion of the Administrative Agent desirable under the UCC of
all appropriate jurisdictions or any comparable law to perfect the SPV's
ownership interest in all Receivables and the other Affected Assets.
(i) Copies of proper financing statements (Form UCC-3), if any, filed
on or before the initial Investment Date necessary to terminate all security
interests and other rights of any Person in Receivables or the other Affected
Assets previously granted by SPV.
(j) Copies of proper financing statements (Form UCC-3 or Form PPSA
2[c]) or certified statements (Form RG), as applicable, or appropriate
acknowledgments, waivers or consents, if any, filed or obtained on or before
the initial Investment Date necessary to terminate all security interests and
other rights of any Person in Receivables or the other Affected Assets
previously granted by any Originator.
(k) Certified copies of requests for information or copies
(Form UCC-11, PPSA Registration System Inquiry Response Certificate or
Certified Statement) (or a similar search report certified by parties
acceptable to the Administrative Agent) dated a date reasonably near
the date of the initial Investment listing all effective financing
statements which name the SPV or an Originator (under their respective
present names and any previous names) as debtor and which are filed in
jurisdictions in which the filings were made pursuant to clauses (f) or
----------
(g) above and such other jurisdictions where the Administrative Agent
-
may reasonably request together with copies of such financing
statements (none of which shall cover any Receivables, other Affected
Assets or Contracts), and similar search reports with respect to federal
tax liens and liens of the Pension Benefit Guaranty Corporation in such
jurisdictions, showing no such liens on any of the Receivables, other
Affected Assets or Contracts.
(l) Executed copies of the Blocked Account Agreements
relating to each of the Blocked Accounts.
(m) A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP,
(i) special counsel to the SPV, the Master Servicer and the Originators,
substantially in the form set forth in Exhibit I-2, including the time
-----------
period over which UCC financing statements filed in all appropriate
jurisdictions remain effective and as to such other matters as any
Funding Agent may reasonably request, (ii) a favorable opinion of
Davies, Ward, Phillips & Vineberg LLP, special counsel to the SPV,
the Master Servicer and the Originator, substantially in the form set
forth in Exhibit I-3, and (iii) a favorable opinion of Robert E. Klatell,
counsel to the SPV, the Master Servicer and certain Originators
substantially in the form set forth in Exhibit I-1.
(n) A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP,
special counsel to the SPV, the Master Servicer and the Originators,
covering certain bankruptcy and insolvency matters in form and substance
satisfactory to the Administrative Agent, Administrative Agent's counsel
and each Funding Agent.
(o) A listing in form reasonably acceptable to the
Administrative Agent setting forth all Receivables and the Unpaid
Balances thereon as of March 2, 2001 and such other information as
the Administrative Agent may reasonably request.
(p) Satisfactory results of a review and audit by the Administrative
Agent and each Investor (including discussions with the Originators'
independent accountants) of the Originators' collection, operating and
reporting systems, Credit and Collection Policy, historical receivables
data and accounts, including satisfactory results of a review of the
Originators' operating location(s) and satisfactory review and approval
of the Eligible Receivables in existence on the date of the initial
purchase under the First Tier Agreement and a written outside audit
report of a nationally-recognized accounting firm as to such matters.
(q) A Master Servicer Report as of March 2, 2001 showing the
calculation of the Net Investment and Required Reserves after giving
effect to the initial Investment.
(r) Evidence of the appointment of Arrow as agent for process
as required by Section 11.4(c).
(s) Evidence that each of the Collection Account and the
Funding Account required to be established hereunder has been established.
(t) To the extent required by each Conduit Investor's commercial
paper program documents, a letter from the applicable rating agencies
confirming that such Conduit Investor's participation in the transaction
contemplated by this Agreement will not result in the withdrawal or
downgrading of the rating of such Conduit Investor's commercial paper.
(u) Such other approvals, documents, instruments, certificates and
opinions as the Administrative Agent, any Funding Agent or any Investor, may
reasonably request.
SECTION 5.2. Conditions Precedent to All Investments and
-------------------------------------------
Reinvestments. Each Investment and Reinvestment hereunder (including
- -------------
the initial Investment) shall be subject to the conditions
precedent that (i) the Closing Date shall have occurred, (ii) the
Administrative Agent shall have received such approvals,
documents, instruments, certificates and opinions as the
Administrative Agent may reasonably request, and (iii) on
the date of such Investment or Reinvestment the following statements
shall be true (and the SPV by accepting the amount of such Investment
or Reinvestment shall be deemed to have certified that):
(a) The representations and warranties contained in Sections 4.1 and
------------
4.2 are true, complete and correct on and as of such day as though made on and
- ---
as of such day and shall be deemed to have been made on such day,
(b) In the case of a Reinvestment, the amount of the Reinvestment will
not exceed the amount available therefor under Section 2.12, and in the case of
------------
an Investment, the amount of such Investment will not exceed the amount
available therefor under Section 2.2 and after giving effect thereto, the
-----------
sum of the Net Investment and Required Reserves will not exceed the Net
Pool Balance,
(c) In the case of an Investment, the Administrative Agent shall have
received an Investment Request, appropriately completed, within the time period
required by Section 2.3,
-----------
(d) In the case of an Investment, the Administrative Agent shall have
received a Master Servicer Report dated no more than five (5) days prior to the
proposed Investment Date and the information set forth therein shall be true,
complete and correct.
(e) No Termination Event or Potential Termination Event has occurred
and is continuing.
ARTICLE VI
COVENANTS
SECTION 6.1. Affirmative Covenants of the SPV and Master Servicer.
----------------------------------------------------
At all times from the date hereof to the Final Payout Date, unless the Majority
Investors shall otherwise consent in writing:
(a) Reporting Requirements. The SPV shall maintain, for itself
----------------------
and each of its Subsidiaries, a system of accounting established and
administered in accordance with GAAP, and furnish to the Administrative Agent
who shall in turn promptly forward each of the reports outlined below to
each of the Investors:
(i) Annual Reporting. Within one hundred twenty (120) days
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after the close of the SPV's and Arrow's fiscal years, (A) financial
statements, audited by a nationally-recognized accounting firm in
accordance with GAAP on a consolidated basis for Arrow and its consolidated
Subsidiaries, in each case, including balance sheets as of the end of such
period, related statements of operations, shareholder's equity and cash
flows, accompanied by an unqualified audit report certified by independent
certified public accountants (without a "going concern" or like
qualification or exception and without any qualifications or exception as
to the scope of the audit), acceptable to the Administrative Agent,
prepared in accordance with GAAP, and (B) unaudited financial statements of
the SPV, to include balance sheets as of the end of such period and the
related statements of operations, prepared in accordance with GAAP and
certified by an officer of the SPV, provided that in lieu of furnishing
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such financial statements of Arrow and its consolidated Subsidiaries, it
may furnish to the Administrative Agent Arrow's Form 10-K filed with the
Securities and Exchange Commission.
(ii) Quarterly Reporting. Within sixty (60) days after the
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close of the first three quarterly periods of each of the SPV's and
Arrow's fiscal years, for (A) Arrow and its consolidated Subsidiaries,
consolidated unaudited balance sheets as at the close of each such
period and consolidated related statements of operations, shareholder's
equity and cash flows for the period from the beginning of such
fiscal year to the end of such quarter, all certified by its chief
financial officer, and (B) unaudited financial statements of the
SPV, to include balance sheets as of the end of such period and the
related statements of operations, prepared in accordance with GAAP and
certified by an officer of the SPV, provided that in lieu of
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furnishing such unaudited consolidated balance sheet of Arrow and its
consolidated Subsidiaries, it may furnish to the Administrative Agent
Arrow's Form 10-Q filed with the Securities and Exchange Commission.
(iii) Compliance Certificate. Together with the financial
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statements required hereunder, a compliance certificate signed by the SPV's
or Arrow's, as applicable, chief financial officer stating that (A) the
attached financial statements have been prepared in accordance with GAAP
and accurately reflect the financial condition of the SPV or Arrow and its
consolidated Subsidiaries as applicable and (B) to the best of such
Person's knowledge, no Termination Event or Potential Termination Event
exists, or if any Termination Event or Potential Termination Event
exists, stating the nature and status thereof and showing the computation
of, and showing compliance with, the financial ratio set forth in
Section 8.1(o).
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(iv) Shareholders Statements and Reports. Promptly upon the
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furnishing thereof to the shareholders of the SPV, Arrow or any Originator,
copies of all financial statements, reports and proxy statements so
furnished.
(v) SEC Filings. Promptly upon the filing thereof, copies
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of all registration statements and annual, quarterly, monthly or other
regular reports which Arrow or any Subsidiary of Arrow files (or causes
to be filed) with the Securities and Exchange Commission.
(vi) Notice of Termination Events or Potential Termination
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Events; Etc. (A) As soon as possible and in any event within two (2)
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Business Days after the SPV or the Master Servicer obtains (or should have
obtained) knowledge of each and any Termination Event or Potential
Termination Event, a statement of the chief financial officer or chief
accounting officer of the SPV setting forth details of such Termination
Event or Potential Termination Event and the action which the SPV proposes
to take with respect thereto, which information shall be updated promptly
from time to time; (B) promptly after the SPV obtains knowledge thereof,
notice of any litigation, investigation or proceeding that may exist at any
time between the SPV and any Person that may result in a Material Adverse
Effect or any litigation or proceeding relating to any Transaction
Document; and (C) promptly after the occurrence thereof, notice of a
Material Adverse Effect.
(vii) Change in Credit and Collection Policy and Debt
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Ratings. Within ten (10) Business Days after the date any material
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change in or amendment to the Credit and Collection Policy is made,
a copy of such change in or amendment to the Credit and
Collection Policy then in effect indicating such change or amendment.
Within five (5) days after the date of any change in Arrow's public or
private debt ratings, if any, a written certification of Arrow's public
and private debt ratings after giving effect to any such change.
(viii) Credit and Collection Policy. Within ninety (90) days
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after the close of each of Arrow's and the SPV's fiscal years, a complete
copy of the Credit and Collection Policy then in effect, if requested by
the Administrative Agent.
(ix) ERISA. Promptly after the filing, giving or receiving
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thereof, copies of all reports and notices with respect to any Reportable
Event pertaining to any Pension Plan and copies of any notice by any Person
of its intent to terminate any Pension Plan or any notice received by any
Person regarding withdrawal liability from any Multiemployer Plan, and
promptly upon the occurrence thereof, written notice of any contribution
failure with respect to any Pension Plan sufficient to give rise to a lien
under Section 302(f) of ERISA.
(x) Change in Accountants or Accounting Policy. Promptly,
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notice of any change in the accountants or any material change in the
accounting policy of either the SPV, Arrow or any Originator.
(xi) Modification of Systems. The Master Servicer agrees,
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promptly after the replacement or any material modification of any
computer, automation or other operating systems (in respect of hardware or
software) used to perform its services as Master Servicer or to make any
calculations or report hereunder or otherwise relating to the Receivables,
to give notice of any such replacement or modification to the
Administrative Agent to the extent such replacement or material
modification could be expected to have a Material Adverse Effect.
(xii) Litigation. As soon as possible, and in any event
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within ten Business Days of the Master Servicer's knowledge thereof,
the Master Servicer shall give the Administrative Agent and Funding
Agents notice of (i) any litigation, investigation or proceedings
against the SPV which may exist at any time, and (ii) any material
adverse development in any such previously disclosed litigation.
No notices, waivers or communications in respect of the matters
disclosed pursuant to the preceding sentence shall be required
except that the Master Servicer shall give the Administrative
Agent and each Funding Agent prompt notice of any final court decisions,
at the trial level or