-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ARdtxGKTBmFDnRl8ObHc8qmA85CICQxjiDPy7jFl2wguoGe5J+2by+h77SeL7hky 0KU2dOx3cuwGApnDmQ8Bow== 0000007536-99-000008.txt : 19990402 0000007536-99-000008.hdr.sgml : 19990402 ACCESSION NUMBER: 0000007536-99-000008 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: SEC FILE NUMBER: 001-04482 FILM NUMBER: 99579633 BUSINESS ADDRESS: STREET 1: 25 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5163911300 10-K405 1 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, 1998 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 February 26, 1999 was $1,365,898,195. 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: 95,632,701 shares outstanding at February 26, 1999. The following documents are incorporated herein by reference: 1. Proxy Statement filed in connection with Annual Meeting of Shareholders to be held May 12, 1999(incorporated in Part III). PART I Item 1. Business. -------- Arrow Electronics, Inc. (the "company") is the world's largest distributor of electronic components and computer products to industrial and commercial customers. As the global electronics distribution industry's leader in state- of-the-art 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 dominant electronics markets - North America, Europe, and the Asia/Pacific region. The company is the largest electronics distributor in each of these vital industrialized regions, serving a diversified base of original equipment manufacturers (OEMs) 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 26 distribution centers in 34 countries. The North American components operations ("NACO") is comprised of eight segmented marketing groups. As the largest distributor of electronic components in North America, NACO offers the broadest line card in the industry. Gates/Arrow Distributing, Inc. ("Gates/Arrow") is a full-line technical distributor of computer systems, peripherals, and software to value-added resellers in the U.S. and Canada. In May 1998, Gates/Arrow acquired a majority interest in Scientific and Business Minicomputers, Incorporated, a leading technical distributor of mass storage products in the United States. In November 1998, the company entered into a joint venture with Marubun Corporation, Japan's largest independent distributor to serve Japanese customers in the Asia/Pacific region and North America. In November 1998, the company acquired Unitronics Componentes, S.A., one of the leading distributors of electronic components in Spain and Portugal. In January 1999, the company acquired Richey Electronics, Inc. a leading specialty distributor of interconnect, electromechanical, and passive electronic components and a provider of related value-added services to customers throughout North America. In January 1999, the company also acquired Bell Industries, Inc.'s Electronics Distribution Group, one of the ten largest distributors of electronic components in North America. In February 1999, Spoerle Electronic acquired Industrade AG, one of Switzerland's leading distributors of electronic components. Through its wholly-owned subsidiary, Arrow Electronics Distribution Group-Europe B.V., Arrow is the largest pan-European electronics distributor. In its Northern European region, the company is among the largest distributors in Britain, Denmark, Finland, Norway, and Sweden. In its Central European region the company is the largest distributor in Germany, Austria, Switzerland, Belgium, and the Netherlands, and in its Southern European region it is the largest distributor in Italy, France, Spain, and Portugal. Arrow is the largest electronics distributor in the Asia/Pacific region. Components Agent Limited (C.A.L.), the Lite-On Group, and the Melbourne-based Veltek and Zatek companies in Australia are the region's leading multi-national distributors. C.A.L., headquartered in Hong Kong, maintains additional facilities in key cities in Singapore, Malaysia, the People's Republic of China, India, and South Korea. Lite-On, Inc., headquartered in Taipei, serves customers Taiwan, South Korea, Singapore, and Malaysia. Arrow Ally also serves customers in Taiwan and Arrow Components (NZ) services customers in New Zealand. The company distributes a broad range of electronic components, computer products, and related equipment. About 59 percent of the company's consolidated sales are comprised of semiconductor products; industrial and commercial computer products, including microcomputer boards and systems, design systems, desktop computer systems, terminals, printers, disk drives, controllers, and communication control equipment account for about 33 percent; and the remaining sales are of passive, electromechanical, and interconnect products, principally capacitors, resistors, potentiometers, power supplies, relays, switches, and connectors. Most manufacturers of electronic components and computer products rely on independent authorized distributors, such as the company, to augment their product 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 and accounts receivable), 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 diverse inventories 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 original equipment manufacturers to small engineering firms, while commercial customers include value-added resellers. 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. No single customer accounted for more than two percent of the company's 1998 sales. 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 business' central computer, which provides fully integrated, on-line, real-time data with respect to nationwide inventory levels and facilitates control of purchasing, shipping, and billing. The company's foreign operations utilize Arrow's Worldwide Stock Check System, which affords access to the company's on-line, real-time inventory system. There are approximately 600 manufacturers whose products are sold by the company. Intel Corporation accounted for approximately 18 percent and Hewlett- Packard accounted for approximately 13 percent of the business' purchases. No other supplier accounted for more than 9 percent of 1998 purchases. 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 69 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 the world's largest electronics distributor, the company's financial resources and sales are greater than those of its competitors. The company and its affiliates employ over 9,700 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 57 Chairman and Chief Executive Officer Robert E. Klatell 53 Executive Vice President, General Counsel, and Secretary Francis M. Scricco 49 Executive Vice President and Chief Operating Officer Carlo Giersch 61 Chief Executive Officer of Spoerle Electronic Sam R. Leno 53 Senior Vice President and Chief Financial Officer Steven W. Menefee 54 Senior Vice President Betty Jane Scheihing 50 Senior Vice President Michael J. Long 40 Vice President Jan M. Salsgiver 42 Vice President 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 since May 1994 and President and Chief Executive Officer of the company for more than five years prior thereto. Robert E. Klatell has been Executive Vice President since July 1995 and has served as Senior Vice President, General Counsel, and Secretary of the company for more than five years. He also served as Chief Financial Officer from January 1992 to April 1996 and Treasurer from 1990 to April 1996. Francis M. Scricco has been Executive Vice President and Chief Operating Officer since September 1997. From March 1994 through August 1997 he was a Group Vice President at Fischer Scientific International, Inc. Prior thereto he was President of Whirlpool Canada. Carlo Giersch has been Chief Executive Officer of Spoerle Electronic for more than five years. Sam R. Leno was appointed Senior Vice President and Chief Financial Officer effective March 1999. From July 1995 through February 1999, he served as Executive Vice President and Chief Financial Officer of Corporate Express, Inc. Prior thereto he was Chief Financial Officer of Coram Healthcare. Steven W. Menefee has been a Senior Vice President of the company since July 1995 and prior thereto a Vice President of the company since November 1990. Betty Jane Scheihing has been a Senior Vice President since May 1996 and has served as Vice President of the company for more than five years prior thereto. Michel J. Long has been a Vice President of the company since September 1991 and President of Gates/Arrow Distributing since November 1995. Prior thereto, he was President of Capstone Electronics since 1994. Jan M. Salsgiver has been a Vice President of the company since September 1993 and 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 and President of Zeus Electronics from July 1993 to November 1995. Item 2. Properties. ---------- The company's executive office, located in Melville, New York, is owned by the company. The company occupies additional locations under leases due to expire on various dates to 2053. Five additional facilities are owned by the company, and another facility has been sold and leased back in connection with the financing thereof. Item 3. Legal Proceedings. ----------------- Through a wholly-owned subsidiary, the company was previously engaged in the refining and selling of lead. The subsidiary was sold in 1988, except for a battery-breaking site used by the subsidiary in Plant City, Florida, which had been placed on the National Priorities List under the Federal Super Fund program. The company remains liable for the environmental remediation of the site, and in 1992 entered into a consent decree setting forth the terms of that remediation with the U.S. EPA and the State of Florida. The environmental remediation of the site has been substantially completed. All contaminated soils on the site have been collected, treated and stabilized, and the EPA has acknowledged that the soil stabilization aspects of the consent decree have been met. Groundwater on the site has been treated and is being monitored, as required by the consent decree, to ensure that it continues to meet the standards set forth in the decree. Approximately 11 acres of wetlands have been recreated and are being managed in accordance with the requirements of the consent decree. Final approval of the wetlands phase of the remediation is expected shortly. The company believes that the amount expected to be expended in any year in connection with the continued monitoring of the site and the completion of activities thereon will not have a material adverse impact on the company's liquidity, capital resources or results of operations. On March 23, 1999, the company, its Gates/Arrow subsidiary and certain officers and employees, were named as defendants in a civil action in the U.S. District Court for the Eastern District of New York, filed by Henry N. Camferdam, Jr. and others who were formerly stockholders or employees of Support Net, Inc. ("Support Net"", a corporation in which Gates/Arrow, through a wholly-owned subsidiary, SN Holding, Inc. ("SN Holding") acquired a 50.1% stock interest on December 1, 1997 for approximately $28,000,000. Plaintiffs allege that they were fraudulently induced into selling their shares in Support Net, that the company and Gates/Arrow have breached the employment agreements and shareholders agreement also entered into on December 1, 1997 in connection with the acquisition, and that defendants have denied them certain rights under the several agreements, including their right to pit a portion of their remaining Support Net shares to Gates/Arrow. Plaintiffs have asked for compensatory damages of $162,000,000, punitive damages of $300,000,000 and an injunction that would, among other things, prevent the company from disposing of Support Net or SN Holding, pending a determination of the fair value of plaintiffs' minority interest. The company has not yet filed an answer to the complaint. The company believes the claims are unfounded and without merit, and it intends to contest them vigorously. 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 1998 and 1997 were as follows (1997 has been restated to reflect the two-for-one stock split effective October 15, 1997): Year High Low - ---- ---- ---- 1998: Fourth Quarter $26 7/8 $11 3/4 Third Quarter 22 5/8 12 1/2 Second Quarter 28 3/8 20 9/16 First Quarter 36 1/4 27 1997: Fourth Quarter $36 $25 1/8 Third Quarter 32 1/16 26 5/16 Second Quarter 29 7/16 25 3/4 First Quarter 29 7/8 25 7/8 Holders On February 26, 1999, there were approximately 4,500 shareholders of record of the company's common stock. Dividend History and Restrictions The company has not paid cash dividends on its common stock during the past five years. 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. The terms of the company's global multi-currency credit facility, senior notes, and senior debentures (see Note 4 of the Notes to Consolidated Financial Statements) limit, among other things, the payment of cash dividends and the incurrence of additional borrowings and require that working capital, net worth, and certain other financial ratios be maintained at designated levels. 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: 1998 1997(a) 1996 1995 1994(b) - ------------------------------------------------------------------------------ Sales Components $6,343,890 $6,465,521 $5,520,202 $5,127,258 $3,914,737 Gates/Arrow 2,000,769 1,298,424 1,014,375 792,162 734,497 ---------- ---------- ---------- ---------- ---------- Consolidated 8,344,659 7,763,945 6,534,577 5,919,420 4,649,234 - ------------------------------------------------------------------------------ Operating income Components 326,695 426,778 401,849 444,029 312,103 Gates/Arrow 54,397 31,229 19,932 3,803 16,415 Corporate (28,588) (83,286) (21,154) (24,623) (72,544) ---------- ---------- ---------- ---------- --------- Consolidated 352,504 374,721 400,627 423,209 255,974 - ------------------------------------------------------------------------------ Net income $ 145,828 $ 163,656 $ 202,709 $ 202,544 $ 111,889 ============================================================================== Diluted earnings per share (c) $ 1.50 $ 1.64 $ 1.98 $ 2.03 $ 1.16 ============================================================================== At year-end: - ------------------------------------------------------------------------------ Accounts receivable and inventories $2,675,612 $2,475,407 $1,947,719 $1,979,160 $1,422,457 Total assets 3,839,871 3,537,873 2,710,351 2,701,01 2,038,774 Total long-term debt and subordinated debentures 1,040,173 823,099 344,562 451,706 349,398 Shareholders' equity 1,487,319 1,360,758 1,358,482 1,195,881 837,885 - ------------------------------------------------------------------------------- (a) Operating and net income include special charges totaling $59.5 million ($40.4 million after taxes) associated with the realignment of Arrow's 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 net income per share on a diluted basis were $434.2 million, $204.1 million, and $2.05, respectively. (b) Operating and net income include special charges totaling $45.3 million ($28.8 million after taxes) associated with the acquisition and integration of Gates/FA Distributing, Inc. and Anthem Electronics, Inc. in transactions accounted for as poolings of interests. Excluding these charges, operating income, net income, and net income per share on a diluted basis were $301.3 million, $140.7 million, and $1.44, respectively. (c) All per share amounts have been restated to reflect the two-for-one stock split effective October 15, 1997.
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 report. Sales Consolidated sales of $8.3 billion in 1998 were 7 percent higher than 1997 sales of $7.8 billion. This sales growth was due to increased sales of commercial computer products in the company's Gates/Arrow operation from $1.3 billion in 1997 to more than $2 billion in 1998. Excluding the impact of acquisitions, 1998 sales of Gates/Arrow increased by 24 percent when compared to 1997. The worldwide market for electronic components continued to be characterized by product availability well in excess of demand and resultant pressure on average selling prices and gross profit margins resulting in a decline in sales from $6.5 billion in 1997 to $6.3 billion in 1998. In 1997, consolidated sales increased to $7.8 billion, an increase of 19 percent over 1996 sales of $6.5 billion. This sales growth was due to increased activity levels throughout the world and acquisitions, principally the volume electronic component distribution businesses of Premier Farnell plc offset, in part, by the impact of a stronger U.S. dollar. Sales of Gates/Arrow increased by 21 percent, excluding the impact of acquistions. Consolidated sales of $6.5 billion in 1996 were 10 percent higher than 1995 sales of $5.9 billion. This sales growth was principally due to increased sales of commercial computer products and microprocessors. The sales of semiconductor products were characterized by an oversupply of product, competitive pricing pressures, and reductions in memory prices. Operating Income The company's consolidated operating income decreased to $352.5 million in 1998, compared with operating income of $374.7 million in 1997, including special charges of $59.5 million. Excluding the special charges, operating income in 1997 was $434.2 million. The reduction in operating income reflected a decline in the sales of the North American components operation, a further decline in gross margins due to proportionately higher sales of lower margin commercial computer products, and competitive pricing pressures throughout the world offset, in part, by the impact of increased sales and the benefits of continuing economies of scale. Operating expenses as a percent of sales remained consistent with 1997 at 9.7 percent, the lowest in the company's history. In 1997, the company's consolidated operating income decreased to $374.7 million, compared with operating income of $400.6 million in 1996, principally as a result of special charges of $59.5 million 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. The improvement in operating income, excluding the special charges, reflects the impact of increased sales, acquisitions, and continuing economies of scale offset, in part, by lower gross profit margins caused by competitive pricing pressures and a greater sales mix of commercial computer products. Operating expenses, excluding the special charges, as a percent of sales declined to 9.7 percent in 1997. The company's consolidated operating income decreased to $400.6 million in 1996, compared with operating income of $423.2 million in 1995. The reduction in operating income reflected a further decline in gross margins due to proportionately higher sales of lower margin commercial computer products and microprocessors throughout the world and competitive pricing pressures in Europe and the Asia/Pacific region offset, in part, by the impact of increased sales and the benefits of continuing economies of scale. Operating expenses as a percent of sales declined to 9.8 percent in 1996. Interest Interest expense of $81.1 million in 1998 increased by $14 million from the 1997 level, reflecting increases in borrowings associated with acquisitions and investments in working capital. In 1997, interest expense increased to $67.1 million from $38 million in 1996, reflecting increases in borrowings associated with acquisitions, the purchases of the company's common stock, and investments in working capital. Interest expense of $38 million in 1996 decreased by $8.4 million from the 1995 level. The decrease reflected the conversion of the company's 5 3/4% convertible subordinated debentures in October 1995, lower borrowings resulting from improved working capital usage, and lower borrowing costs offset, in part, by borrowings to fund purchases of common stock. Income Taxes The company recorded a provision for taxes at an effective tax rate of 42.2 percent in 1998 compared with 41 percent, excluding the special charges, in 1997. The higher effective rate in 1998 is due to the non-deductibility of goodwill amortization. In 1997, the company recorded a provision for taxes at an effective tax rate of 41 percent, excluding the special charges, compared with 39.9 percent in 1996. The increased rate for 1997 is due to increased earnings in countries with higher marginal tax rates and the non-deductibility of goodwill amortization. The company recorded a provision for taxes at an effective tax rate of 39.9 percent in 1996, compared with 40.4 percent in 1995. The lower effective rate was the result of decreased earnings in countries with higher marginal tax rates. Net Income Net income in 1998 was $145.8 million, a decrease from $204.1 million, before the special charges of $59.5 million ($40.4 million after taxes), in 1997. The decrease in net income is attributable to lower operating income and increases in interest expense. In 1997, the company's net income advanced to $204.1 million from $202.7 million in 1996, before the special charges. The increase in net income was attributable to higher operating income offset, in part, by an increase in interest expense. Net income in 1996 was $202.7 million, an increase from $202.5 million in 1995. The increase in net income was attributable to decreases in interest expense, income taxes, and minority interest offset, in part, by lower operating income. Liquidity and Capital Resources The company maintains a high level of current assets, primarily accounts receivable and inventories. Consolidated current assets, as a percentage of total assets, were approximately 75 percent and 74 percent in 1998 and 1997, respectively. In 1998, working capital increased by 18 percent, or $262 million, compared with 1997. This increase was due to higher working capital requirements and acquisitions. The net amount of cash provided by operations in 1998 was $43.6 million, the principal element of which was the cash flow resulting from net earnings offset, in part, by working capital usage. The net amount of cash used by the company for investing purposes was $129.6 million, including $70.6 million for various acquisitions. Cash flows provided by financing activities were $131.4 million, principally reflecting the $445.7 million of proceeds from the issuance of the company's 6 7/8% senior debentures and 6.45% senior notes offset, in part, by the reduction in the company's credit facilities, purchases of common stock, and distributions to partners. Working capital increased by $160 million, or 13 percent, in 1997 compared with 1996, primarily as a result of increased sales and acquisitions. This percentage increase was less than the percentage increase of sales as a result of improvements in working capital usage. The net amount of cash used for the company's operating activities in 1997 was $14.2 million, principally reflecting earnings offset by increased working capital requirements supporting higher sales. The net amount of cash used for investing activities was $410.8 million, including $381.5 million for acquisitions and investments. The net amount of cash provided by financing activities was $422.1 million, principally reflecting the $392.8 million of proceeds from the issuance of the company's senior notes and senior debentures and increases in the company's credit facilities offset, in part, by the purchase of the company's common stock. In 1996, working capital increased by 5 percent, or $56 million, compared with 1995. This percentage increase was less than the percentage increase of sales as a result of improvements in working capital usage. The net amount of cash provided by operations in 1996 was $306.8 million, the principal element of which was the cash flow resulting from higher net earnings and improved working capital usage. The net amount of cash used by the company for investing purposes was $55.3 million, including $38.9 million for various acquisitions. Cash flows from financing activities were $202.6 million, principally reflecting the reduction in the company's borrowings, purchases of common stock, and distributions to partners. Market and Other Risks 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 and the Asia/Pacific region. At the present time, the company hedges only these currency exposures and does not hedge anticipated foreign currency cash flows and earnings or its investments in businesses in Europe and the Asia/Pacific region as in many instances there are natural offsetting positions. The translation of the financial statements of the non-North American operations is impacted by fluctuation in foreign currency exchange rates. Had the various average foreign currency exchange rates remained the same during 1998 as compared with 1997, 1998 sales and operating income would have been $48 million and $3 million higher, respectively, than the actual results for 1997. The company's interest expense, in part, is sensitive to the general level of short-term interest rates in the United States and Europe. To mitigate the impact of fluctuations in interest rates, at December 31, 1998, the company has approximately 74 percent of its debt as fixed rate long-term borrowings and 26 percent of its debt subject to short-term floating rates. Interest expense would fluctuate by approximately $1 million if average short-term interest rates had changed by one percentage point in 1998. This amount was determined by considering the impact of a hypothetical interest rate on the company's borrowing cost. 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. Year 2000 Update The company previously initiated a comprehensive, worldwide review to identify, evaluate and address Year 2000 issues and implemented a plan to resolve those issues. Included within the scope of this initiative are operational and information technology computer systems; embedded systems contained in machinery and equipment including warehousing and telecommunications equipment; and third party relationships, including trade and non-trade vendors, carriers, and other principal business partners. In the information technology arena, the company divided its remediation plan into the following phases: inventory, assessment, remediation, testing, and monitoring. The inventory, assessment, and remediation phases have been substantially completed, and the testing and monitoring phases are progressing on schedule, with completion anticipated by June 30, 1999. With respect to non- information technology, or embedded systems, the company has substantially completed the inventory and assessment phases, and remediation and testing are progressing according to schedule, with completion anticipated during the third quarter of 1999. Spending related to Year 2000 modification is not expected to exceed $10 million in 1999. Amounts incurred to date in addressing Year 2000 issues have not exceeded $10 million. The company is currently engaged in a review of the Year 2000 compliance efforts of key suppliers and other principal business partners upon whom it depends for essential products and services. There can be no guarantee that these parties will resolve their Year 2000 issues with respect to products, services or critical systems, and processes in a timely manner. Management believes that failure or delay by any of these parties could possibly cause a significant disruption to the company's business. The company is in the process of developing contingency plans to address these and other issues. 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 computer and electronic components 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 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, 1998 and 1997, and the related consolidated statements of income, cash flows, and shareholders' equity for each of the three years in the period ended December 31, 1998. 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 generally accepted auditing standards. 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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. ERNST & YOUNG LLP New York, New York February 17, 1999 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 outside 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 generally accepted auditing standards. 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. Stephen P. Kaufman Chairman and Chief Executive Officer Paul J. Reilly Vice President and Corporate Controller
ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF INCOME (In thousands except per share data) Years Ended December 31, -------------------------------------- 1998 1997 1996 ---- ---- ---- Sales $8,344,659 $7,763,945 $6,534,577 ---------- ---------- ---------- Costs and expenses: Cost of products sold 7,183,413 6,574,415 5,492,556 Selling, general, and administrative expenses 756,770 712,213 604,412 Depreciation and amortization 51,972 43,096 36,982 Integration charge - 21,600 - Realignment charge - 37,900 - ---------- ---------- ---------- 7,992,155 7,389,224 6,133,950 ---------- ---------- ---------- Operating income 352,504 374,721 400,627 Equity in earnings (loss) of affiliated companies 937 781 (97) Interest expense, net 81,126 67,117 37,959 ---------- ---------- ---------- Earnings before income taxes and minority interest 272,315 308,385 362,571 Provision for income taxes 115,018 131,617 144,667 ---------- ---------- ---------- Earnings before minority interest 157,297 176,768 217,904 Minority interest 11,469 13,112 15,195 ---------- ---------- ---------- Net income $ 145,828 $ 163,656 $ 202,709 ========== ========== ========== Per common share: Basic $ 1.53 $ 1.67 $ 2.01 ========== ========== ========== Diluted $ 1.50 $ 1.64 $ 1.98 ========== ========== ========== Average number of common shares outstanding: Basic 95,397 98,006 100,972 ====== ====== ======= Diluted 97,113 99,769 102,380 ====== ====== ======= See accompanying notes.
ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands) December 31, ----------------------- 1998 1997 ---- ---- ASSETS Current assets: Cash and short-term investments $ 158,924 $ 112,665 Accounts receivable, less allowance for doubtful accounts ($48,423 in 1998 and $46,055 in 1997) 1,354,351 1,245,354 Inventories 1,321,261 1,230,053 Prepaid expenses and other assets 26,279 42,268 ---------- ---------- Total current assets 2,860,815 2,630,340 ---------- ---------- Property, plant and equipment at cost Land 15,087 9,699 Buildings and improvements 90,851 75,431 Machinery and equipment 183,227 143,030 ---------- ---------- 289,165 228,160 Less accumulated depreciation and amortization 134,359 113,923 ---------- ---------- 154,806 114,237 ---------- ---------- Investment in affiliated companies 23,279 54,914 Cost in excess of net assets of companies acquired, less accumulated amortization ($91,837 in 1998 and $69,899 in 1997) 721,323 645,152 Other assets 79,648 93,230 ---------- ---------- $3,839,871 $3,537,873 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 785,596 $ 767,088 Accrued expenses 211,438 285,673 Short-term borrowings, including current maturities of long-term debt 168,066 143,723 --------- --------- Total current liabilities 1,165,100 1,196,484 Long-term debt 1,040,173 823,099 Other liabilities 77,587 87,254 Minority interest 69,692 70,278 Shareholders' equity: Common stock, par value $1: Authorized--120,000,000 shares in 1998 and 1997 Issued--102,949,640 shares in 1998 and 1997 102,950 102,950 Capital in excess of par value 506,002 506,656 Retained earnings 1,114,826 968,998 Foreign currency translation adjustment (23,648) (35,881) --------- --------- 1,700,130 1,542,723 Less: Treasury stock (7,321,540 and 6,011,903 shares in 1998 and 1997), at cost 198,281 164,207 Unamortized employee stock award 14,530 17,758 ---------- ---------- Total shareholders' equity 1,487,319 1,360,758 ---------- ---------- $3,839,871 $3,537,873 ========== ========== See accompanying notes.
ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Years Ended December 31, --------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 145,828 $ 163,656 $ 202,709 Adjustments to reconcile net income to net cash provided by (used for) operations: Minority interest in earnings 11,469 13,112 15,195 Depreciation and amortization 55,101 47,057 39,453 Equity in (earnings) loss of affiliated companies (937) (781) 97 Deferred income taxes 19,661 (9,814) 10,280 Integration charge - 21,600 - Realignment charge - 37,900 - Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (38,792) (219,488) 45,845 Inventories (33,490) (94,144) (8,426) Prepaid expenses and other assets 10,785 (8,048) (2,893) Accounts payable (17,049) 36,784 26,276 Accrued expenses (88,808) (4,917) (23,870) Other (20,164) 2,913 2,135 --------- --------- --------- Net cash provided by (used for) operating activities 43,604 (14,170) 306,801 --------- --------- --------- Cash flows from investing activities: Acquisition of property, plant and equipment (59,006) (29,335) (28,596) Proceeds from sale of building - - 10,442 Cash consideration paid for acquired businesses (67,521) (364,499) (38,851) Investment in affiliates (3,078) (16,973) 1,734 -------- -------- --------- Net cash used for investing activities (129,605) (410,807) (55,271) --------- -------- --------- Cash flows from financing activities: Change in short-term borrowings (4,850) 55,018 (53,992) Change in credit facilities (223,127) 122,830 (96,906) Proceeds from long-term debt 445,665 392,844 - Repayment of long-term debt (25,411) (338) (7,097) Proceeds from exercise of stock options 7,504 20,209 12,323 Distributions to minority partners (18,227) (17,464) (7,967) Purchases of common stock (50,129) (151,010) (48,993) --------- -------- --------- Net cash provided by (used for) financing activities 131,425 422,089 (202,632) --------- -------- --------- Effect of exchange rate changes on cash (3,964) (20,847) (6,445) --------- --------- --------- Net increase (decrease) in cash and short-term investments 41,460 (23,735) 42,453 Cash and short-term investments at beginning of year 112,665 136,400 93,947 Cash and short-term investments of acquired affiliate 4,799 - - --------- -------- --------- Cash and short-term investments at end of year $ 158,924 $ 112,665 $ 136,400 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $ 88,718 $ 121,251 $ 130,834 Interest 81,500 52,265 38,118 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, 1995 $101,296 $479,676 $602,633 $18,398 $ (24) $(6,098) $1,195,881 Net income - - 202,709 - - - 202,709 Translation adjustment - - - (9,645) - - (9,645) Comprehensive income 193,064 Exercise of stock options 924 11,774 - - (375) - 12,323 Tax benefits related to exercise of stock options - 3,345 - - - - 3,345 Restricted stock awards, net 172 3,922 - - 327 (4,421) - Amortization of employee stock awards - - - - - 2,862 2,862 Purchases of common stock - - - - (48,993) - (48,993) ------- -------- ------- -------- ------- ------ --------- Balance at December 31, 1996 102,392 498,717 805,342 8,753 (49,065) (7,657) 1,358,482 Net income - - 163,656 - - - 163,656 Translation adjustments - - - (44,634) - - (44,634) Comprehensive income 119,022 Exercise of stock options 198 (8,626) - - 28,637 - 20,209 Tax benefits related to exercise of stock options - 7,074 - - - - 7,074 Restricted stock awards, net 360 9,491 - - 7,231 (17,082) - Amortization of employee stock awards - - - - - 6,981 6,981 Purchases of common stock - - - - (151,010) - (151,010) -------- -------- -------- -------- -------- -------- ---------- Balance at December 31, 1997 102,950 506,656 968,998 (35,881) (164,207) (17,758) 1,360,758 Net income - - 145,828 - - - 145,828 Translation adjustments - - - 12,233 - - 12,233 Comprehensive income 158,061 Exercise of stock options - (2,777) - - 10,281 - 7,504 Tax benefits related to exercise of stock options - 1,619 - - - - 1,619 Restricted stock awards, net - 503 - - 5,766 (6,269) - Amortization of employee stock awards - - - - - 9,497 9,497 Purchases of common stock - - - - (50,129) - (50,129) Other - 1 - - 8 - 9 -------- -------- ---------- -------- -------- -------- --------- Balance at December 31, 1998 $102,950 $506,002 $1,114,826 $(23,648) $(198,281) $(14,530) $1,487,319 ======== ======== ========== ======== ========= ======== ========== 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. The company's investments in affiliated companies which are not majority-owned are accounted for using the equity method. 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. Property and Depreciation - ------------------------- 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. 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, principally over 40 years. Foreign Currency - ---------------- 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 weighted 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. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Split - ----------- The company's board of directors authorized a two-for-one stock split effected in the form of a 100 percent stock dividend distributed on October 15, 1997 to shareholders of record on October 3, 1997. Shareholders' equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from capital in excess of par value to common stock the par value of the additional shares arising from the split. All references in the financial statements and the related notes to the number of shares and per share amounts for 1997 and 1996 have been restated to reflect the two-for-one stock split. Net Income Per Share - -------------------- Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Comprehensive Income - -------------------- Effective January 1, 1998, the company adopted Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" which requires disclosure of comprehensive income and its components. Comprehensive income is defined as the aggregate change in shareholders' equity excluding changes in ownership interests. The foreign currency translation adjustments included in comprehensive income have not been tax effected as investments in foreign affiliates are deemed to be permanent. Segment and Geographic Information - ---------------------------------- Effective January 1, 1998, the company adopted Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and Related Information" which requires that an enterprise disclose the factors that management considers most significant in determining its reportable segments. 2. Acquisitions During 1998, the company acquired a majority interest in Scientific and Business Minicomputers, Inc. and Unitronics Componentes S.A. The company also increased its holdings in Spoerle Electronic Handelsgesellschaft mbH ("Spoerle") to 90 percent and the Veltek/Zatek companies in Australia and Strong Electronics Co., Ltd. in Taiwan to 100 percent. The aggregate cost of these acquisitions was $62,918,000. During 1997, the company acquired the volume electronic component distribution businesses of Premier Farnell plc for approximately $298,000,000 and a majority interest in Consan Incorporated and Support Net, Inc. During 1997, the company increased its holdings in Spoerle to 80 percent; Silverstar Ltd., S.p.A. ("Silverstar") to 98 percent; and TH:s Elektronik AB, Exatec A/S, Amitron S.A., and ATD Electronica S.A. to 100 percent. The aggregate cost of these acquisitions was $364,499,000. In September 1997, the company recorded a special charge of $21,600,000 before taxes ($.17 per share on a diluted basis) associated with the integration of the volume electronic component distribution businesses of Premier Farnell plc and related transaction fees. Such integration costs include real estate termination costs, severance and other expenses related to personnel performing duplicative functions, professional fees, and the disposal of duplicative fixed assets. 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 beginning in the respective month of acquisition. The aggregate consideration paid for all acquisitions exceeded the net assets acquired by $46,591,000 and $296,379,000 in 1998 and 1997, respectively. 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 1998, the company made additional payments of $2,942,000 which have been capitalized as cost in excess of net assets of companies acquired. 3. Investment in Affiliated Companies During 1998, the company acquired a 50 percent interest in Marubun/Arrow, a joint venture with Marubun Corporation, Japan's largest independent distributor. This joint venture was formed to specifically serve Japanese customers in the Asia/Pacific region and North America. The company also has a 50 percent interest in Altech Industries (Pty) Ltd., a joint venture with Allied Technologies Limited, a South African electronics distributor. Prior to 1998 when it increased its holdings to 100 percent, the company had a 45 percent interest in Strong Electronics Co., Ltd., a joint venture with Lite-On, Inc. 4. Debt Long-term debt consisted of the following at December 31 (in thousands): 1998 1997 ---- ---- Global multi-currency credit facility $ 173,633 $377,765 7% senior notes, due 2007 197,976 197,623 7 1/2% senior debentures, due 2027 196,071 196,033 8.29% senior notes 50,000 75,000 6 7/8% senior debentures, due 2018 195,939 - 6.45% senior notes, due 2003 249,855 - Other obligations with various interest rates and due dates 1,699 1,678 ---------- -------- 1,065,173 848,099 ---------- -------- Less installments due within one year 25,000 25,000 $1,040,173 $823,099 ========== ======== The company's revolving credit agreement (the "global multi-currency credit facility"), as amended, provides up to $650,000,000 of available credit and has a maturity date of September 2001. The interest rate for loans under this facility is at the applicable eurocurrency rate (5.0625 percent for U.S. dollar denominated loans at December 31, 1998) plus a margin of .225 percent. The company may also utilize the facility's competitive advance option to obtain loans, generally at a lower rate. The company pays the banks a facility fee of.125 percent per annum. The 7% senior notes and the 7 1/2% senior debentures are not redeemable prior to their maturity. The 8.29% senior notes are payable in three equal annual installments. The first installment was paid on December 30, 1998 with the remaining installments due in 1999 and 2000. The 6 7/8% senior debentures and the 6.45% senior notes may be prepaid at the option of the company on at least 30 days' prior notice subject to a "make whole" clause. The global multi-currency credit facility, the senior notes, and the senior debentures limit, among other things, the payment of cash dividends and the incurrence of additional borrowings and require that working capital, net worth, and certain other financial ratios be maintained at designated levels. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The company maintains uncommitted lines of credit with a group of banks under which up to $65,000,000 could be borrowed at December 31, 1998 on such terms as the company and the banks may agree. Borrowings under the lines of credit would be classified as long-term debt as the company has the ability to renew them or refinance them under the global multi-currency credit facility. There are no fees or compensating balances associated with these borrowings. There were no outstanding borrowings under the lines of credit at December 31, 1998. Short-term borrowings are principally utilized to support the working capital requirements of certain foreign operations. The weighted average interest rates of these borrowings at December 31, 1998 and 1997 were 7 percent and 8 percent, respectively. At December 31, 1998, the estimated fair market value of the 7% senior notes and the 7 1/2% senior debentures was 103 percent of par, the 8.29% senior notes was 109 percent of par, and the 6 7/8% senior debentures was 97 percent of par. The balance of the company's borrowings approximate their fair value. 5. Income Taxes The provision for income taxes consists of the following (in thousands): 1998 1997 1996 ---- ---- ---- Current Federal $ 46,449 $ 81,278 $ 78,715 State 11,373 19,679 21,482 Foreign 35,796 31,096 29,507 -------- -------- -------- 93,618 132,053 129,704 -------- -------- -------- Deferred Federal 15,667 (9,321) 4,758 State 3,815 (2,130) 1,087 Foreign 1,918 11,015 9,118 -------- -------- -------- 21,400 (436) 14,963 -------- -------- -------- $115,018 $131,617 $144,667 ======== ======== ======== The principal causes of the difference between the U.S. statutory and effective income tax rates are as follows (in thousands): 1998 1997 1996 ---- ---- ---- Provision at statutory rate $ 95,311 $107,935 $126,900 State taxes, net of federal benefit 9,872 11,407 14,670 Foreign tax rate differential 858 2,499 6,625 Other 8,977 9,776 (3,528) -------- -------- -------- $115,018 $131,617 $144,667 ======== ======== ======== For financial reporting purposes, income before income taxes attributable to the United States was $183,048,000 in 1998, $216,993,000 in 1997, and $279,149,000 in 1996, and income before income taxes attributable to foreign operations was $89,267,000 in 1998, $91,392,000 in 1997, and $83,422,000 in 1996. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The significant components of the company's deferred tax assets, which are included in other assets, are as follows (in thousands): 1998 1997 ---- ---- Inventory reserves $11,148 $14,407 Allowance for doubtful accounts 9,208 10,803 Accrued expenses 919 7,789 Realignment reserve 1,869 11,002 Integration reserve 19,116 20,897 Other (3,912) (1,076) ------- ------- $38,348 $63,822 ======= ======= Included in other liabilities are deferred tax liabilities of $40,909,000 and $40,327,000 at December 31, 1998 and 1997, respectively. The deferred tax liabilities are principally the result of the differences in the bases of the German assets and liabilities for tax and financial reporting purposes. 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, and 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. Realignment Charge During 1997, the company announced the realignment of its North American components operations into seven operating groups based upon customer needs. The company recorded a special charge of $37,900,000 before taxes ($.24 per share on a diluted basis) for costs associated with the realignment, including real estate termination costs, severance and other expenses related to personnel as well as costs of communicating the realignment to customers, suppliers, and employees. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings Per Share The following table sets forth the calculation of basic and diluted earnings per share ("EPS") for the years ended December 31 (in thousands): 1998 1997 1996 ---- ---- ---- Net income for EPS $145,828 $163,656(a) $202,709 Weighted average common shares outstanding for basic EPS 95,397 98,006 100,972 Net effect of dilutive stock options and restricted stock awards 1,716 1,763 1,408 ------- -------- -------- Weighted average common shares outstanding for diluted EPS 97,113 99,769 102,380 ======= ======== ======== Basic EPS $ 1.53 $ 1.67(a) $ 2.01 ======= ======== ======== Diluted EPS $ 1.50 $ 1.64(a) $ 1.98 ======= ======== ======== (a) Net income includes special charges totaling $59,500,000 ($40,435,000 after taxes) 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, net income and net income per share on a basic and diluted basis were $204,091,000, $2.08, and $2.05, respectively. 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. 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 vesting restrictions generally over a four-year period. The company awarded 275,000 shares of common stock in early 1999 to 100 key employees in respect of 1998, 215,400 shares of common stock to 140 key employees during 1998, 292,304 shares of common stock to 209 key employees during 1997, and 239,720 shares of common stock to 81 key employees during 1996. Forfeitures of shares awarded under the Plan were 7,359, 31,250 and 49,274 during 1998, 1997, and 1996, 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 Plan - ----------------- Under the terms of the Arrow Electronics, Inc. Stock Option Plan (the "Option Plan"), both nonqualified and incentive stock options for an aggregate of 21,000,000 shares of common stock were authorized for grant to 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 plan after May 1997 are 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. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In October 1997, all employees of the North American operations below the level of vice president were granted a special award of stock options totaling 1,255,320 at the then market price of the company's stock as an incentive related to the realignment of the North American components operation. In December 1998, the board of directors approved the repricing of the remaining unforfeited options, totaling 1,050,760, reducing the exercise price from $27.50 to $22.5625. The company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for the Option Plan. Accordingly, no compensation expense has been recognized in the company's accounts for this plan. The following information relates to the Option Plan for the years ended December 31: Average Average Average Exercise Exercise Exercise 1998 Price 1997 Price 1996 Price ---- -------- ---- -------- ---- ------- Options outstanding at beginning of year 8,231,809 $24.00 7,107,042 $20.25 4,877,150 $16.69 Granted 131,120 (a) 25.87 2,648,340 29.51 3,267,920 23.67 Exercis (375,501) 19.96 (1,316,962) 15.34 (923,970) 13.75 Forfeited (425,279)(a) 26.53 (206,611) 22.16 (114,058) 18.88 --------- ---------- --------- Options outstanding at end of year 7,562,149 $23.41 8,231,809 $24.00 7,107,042 $20.25 ========= ========= ========= Prices per share of options outstanding $1.81-34.00 $1.81-32.25 $1.81-27.69 Options available for future grant: Beginning of year 6,962,805 432,700 3,586,562 End of year 7,255,214 6,962,805 432,700 (a) Excludes 1,050,760 options granted in October 1997 to all employees of the North American operations below the level of vice president and repriced on December 14, 1998 from $27.50 to $22.5625. The following table summarizes information about stock options outstanding at December 31, 1998: Options Outstanding Options Exercisable - ----------------------------------------------- ---------------------- Weighted Weighted Weighted Maximum Average Average Average Exercise Number Remaining Exercise Exercise Number Exercise Price Outstanding Contractual Life Price Exercisable Price - -------- ----------- ---------------- ------- ----------- -------- $20.00 1,318,899 61 months $15.90 1,291,949 $15.88 25.00 3,236,353 87 months 21.75 2,406,262 21.46 30.00 1,821,447 94 months 26.20 1,574,959 26.07 35.00 1,185,450 107 months 31.99 288,918 31.97 --------- --------- All 7,562,149 90 months 23.41 5,562,088 22.02 ========= ========= Had stock-based compensation costs been determined as prescribed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," net income would have been reduced by $6.7 million ($.04 per share on a diluted basis) in 1998, $7.6 million ($.06 per share on a diluted basis) in 1997 and $5.2 million ($.04 per share on a diluted basis) in 1996. ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated weighted average fair value, utilizing the Black-Scholes option- pricing model, at date of option grant during 1998 and 1997 was $8.35 and $9.41, per option, respectively. The weighted average fair value was estimated using the following assumptions: 1998 1997 ---- ---- Expected life (months) 48 47 Risk-free interest rate (percent) 5.4 5.8 Expected volatility (percent) 31 29 There is no expected dividend yield. 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 1998, 1997, and 1996 amounted to $5,531,000, $5,147,000, and $4,218,000, respectively. 10. Retirement 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 $4,387,000, $4,988,000 and $4,608,000, in 1998, 1997, and 1996, respectively. Certain domestic and foreign subsidiaries maintain separate defined contribution plans for their employees and made contributions thereunder, which amounted to $2,035,000, $1,915,000 and $1,162,000, in 1998, 1997, and 1996, respectively. The company maintains an unfunded supplemental retirement plan for certain executives. The company's board of directors determines those employees eligible to participate in the plan and their maximum annual benefit upon retirement. 11. Lease Commitments The company leases certain office, warehouse, and other property under noncancelable operating leases expiring at various dates through 2053. Rental expenses of noncancelable operating leases amounted to $29,231,000 in 1998, $29,190,000 in 1997, and $29,390,000 in 1996. Aggregate minimum rental commitments under all noncancelable operating leases, exclusive of real estate taxes, insurance, and leases related to facilities closed in connection with the North American realignment and the integration of the acquired businesses, approximate $153,039,000. Such commitments on an annual basis are: 1999- $30,604,000; 2000-$21,876,000; 2001-$15,821,000; 2002-$13,706,000; 2003- $11,951,000; and $50,111,000 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 French francs, German deutsche marks, 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, 1998 and ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, was $79,595,000 and $97,321,000, respectively. The carrying amounts, which are nominal, approximated fair value at December 31, 1998 and 1997. 13. Segment and Geographic Information The company is engaged in the distribution of electronic components to original equipment manufacturers and computer products to value-added resellers (VARS). Operating income excludes the effects of special charges relating to the integration of acquired businesses and the realignment of the North American components operations. Revenue, operating income, and assets by segment are as follows (in thousands): Electronic Computer Components Products Corporate Total ---------- -------- --------- ----- 1998 - ---- Revenue from external customers $6,343,890 $2,000,769 $ - $8,344,659 Operating income (loss) 343,129 55,889 (46,514) 352,504 Total assets 3,014,100 640,786 184,985 3,839,871 1997 - ---- Revenue from external customers $6,465,521 $1,298,424 $ - $7,763,945 Operating income (loss) 440,917 31,672 (97,868)(a) 374,721 Total assets 2,777,625 545,872 214,376 3,537,873 1996 - ---- Revenue from external customers $5,520,202 $1,014,375 $ - $6,534,577 Operating income (loss) 411,607 20,226 (31,206) 400,627 Total assets 2,293,495 283,555 133,301 2,710,351 (a) Includes special charges totaling $59,500,000 million associated with the realignment of the North American components operations and the acquistion and integration of the volume electronic component distribution businesses of Premier Farnell plc. 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 ARROW ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS attributable to the individual operating segments. In its evaluation of its operating groups performance, the company ignores the impact of unusual items such as realignment and integration charges. Revenues, by geographic area, are as follows (in thousands): 1998 1997 1996 ---- ---- ---- North America $5,351,061 $4,964,660 $4,309,839 Europe 2,396,452 2,279,951 1,855,821 Asia/Pacific 597,146 519,334 368,917 $8,344,659 $7,763,945 $6,534,577 Total assets, by geographic area, are as follows (in thousands): 1998 1997 1996 ---- ---- ---- North America $2,066,785 $1,952,348 $1,525,551 Europe 1,473,857 1,386,976 1,030,343 Asia/Pacific 299,229 198,549 154,457 $3,839,871 $3,537,873 $2,710,351 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 ------- ------- ------- ------- 1998 - ---- Sales $2,025,760 $2,023,966 $2,134,769 $2,160,164 Gross profit 294,879 291,331 285,282 289,754 Net income 41,945 35,990 35,563 32,330 Per common share: Basic .44 .37 .37 .34 Diluted .43 .37 .37 .34 1997 - ---- Sales $1,855,333 $1,848,742 $1,949,396 $2,110,474 Gross profit 285,561 293,390 291,546 319,033 Net income 50,294 51,779 9,282(a) 52,301 Per common share: Basic .51 .52 .10(a) .54 Diluted .50 .52 .09(a) .53 (a) Net income includes special charges totaling $59,500,000 ($40,435,000 after taxes) 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, net income and net income per share on a basic and diluted basis were $49,717,000, $.51, and $.50, respectively. 15. Subsequent Event In January 1999, the company completed its previously announced acquisitions of Richey Electronics, Inc. and the Electronics Distribution Group of Bell Industries, Inc. for an estimated $315,000,000, including the assumption of approximately $38,000,000 of debt. 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 the response to 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 12, 1999 hereby is 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 12, 1999 hereby is 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 12, 1999 hereby is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- 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 12, 1999 hereby is incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. -------------------------------------------------------------- (a)1. Financial Statements. -------------------- The financial statements listed in the accompanying index to financial statements and financial statement schedule are filed as part of this annual report. 2. Financial Statement Schedule. ---------------------------- The financial statement schedule listed in the accompanying index to financial statements is filed as part of this annual report. 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. ARROW ELECTRONICS, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14 (a)) Page Report of Ernst & Young LLP, independent auditors 13 Management's responsibility for financial reporting 14 Consolidated statement of income for the years ended December 31, 1998, 1997, and 1996 15 Consolidated balance sheet at December 31, 1998 and 1997 16 For the years ended December 31, 1998, 1997, and 1996: Consolidated statement of cash flows 17 Consolidated statement of shareholders' equity 18 Notes to consolidated financial statements for the years ended December 31, 1998, 1997, and 1996 20 Consolidated schedule for the three years ended December 31, 1998: II - Valuation and qualifying accounts 39 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) Agreement and Plan of Merger, dated as of September 30, 1998, by and among Arrow Electronics, Inc., Lear Acquisition Corp. and Richey Electronics, Inc. (i) 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. (f) Agreement of Purchase and Sale, dated as of October 1, 1998, by and between Bell Industries, Inc. and Arrow Electronics, Inc. (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). (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)(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. (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. (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. (iv) Amendment No. 3 to the Arrow Electronics Savings Plan in (10)(a)(i) above. (v) Amendment No. 4 dated May 26, 1998 to the Arrow Electronics Savings Plan in (10)(a)(i) above. (vi) 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). (vii) Amendment No. 1, dated March 29, 1996, to the Arrow Electronics Stock Ownership Plan in (10)(a)(iii) 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). (viii) Second Amendment No. 1 to the Arrow Electronics Stock Ownership Plan in (10)(b)(i). (ix) Amendment No. 3 to the Arrow Electronics Stock Ownership Plan in (10)(b)(i). (x) Amendment No. 4 dated May 26, 1998, to the Arrow Electronics Stock Ownership Plan in (10)(b)(i). (b)(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) 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). (iii) Form of agreement between the company and the employees parties to the Employment Agreements listed in 10(b)(i)-(iii) 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). (iv) Employment Agreement, dated as of March 1, 1999, between the company and Sam R. Leno. (v) 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). (vi) 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). (vii) Employment Agreement, dated as of September 1, 1997, between the company and Francis M. Scricco (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 April 15, 1996, between the company and Gerald Luterman (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). (ix) 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). (x) Employment Agreement, dated as of September 1, 1994 between the company and Steven W. Menefee (incorporated by reference to Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-4482). (xi) Form of agreement between the company and all corporate Vice Presidents, including the employees parties to the Employment Agreements listed in 10(b)(v)-(x) 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). (xii) 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). (xiii) 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). (xiv) Amendment, dated May 1998, to the Unfunded Pension Plan for Selected Executives of Arrow Electronics, Inc. (xv) Grantor Trust Agreement, dated June 25, 1998, by and between Arrow Electronics, Inc. and Wachovia Bank, N.A. (xvi) 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). (c)(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(c)(i) above (incorporated by reference to Exhibit 10(d)(ii) in 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(c)(i) above (incorporated by reference to Exhibit 10(c)(iii) in 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(c)(i) above (incorporated by reference to Exhibit 10(c)(iv) in 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(c)(i). (d)(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) in 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)(d)(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). (e)(i) Arrow Electronics, Inc. Stock Option Plan, as amended and restated, effective as of May 15, 1997 (incorporated by reference to 99(a) to the company's Registration Statement on Form S-8, Registration No. 333- 45631). (ii) Form of Stock Option Agreement under (e)(i) above (incorporated by reference to Exhibit 10(e)(ii)in 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 (e)(i) above (incorporated by reference to Exhibit 10(k)(iv) to the company's Registration Statement on Form S-4, Registration No. 33-17942). (f)(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 (f)(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). (g)(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(g)(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). (h) 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). (i) 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). (11) Statement Re: Computation of Earnings Per Share. (21) List of Subsidiaries. (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). 14(b) Reports on Form 8-K During the quarter ended December 31, 1998, the following Current Reports on Form 8-K were filed: Date of Report (Date of Earliest Event Reported) Items Reported -------------------------------- -------------- EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 333-45631, No. 33-55565, No. 33-66594, No. 33-48252, No. 33-20428 and No. 2-78185) and in the related Prospectuses pertaining to the employee stock plans of Arrow Electronics, Inc., in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-19431) and in the related Prospectus pertaining to the registration and issuance of the senior notes and senior debentures of Arrow Electronics, Inc., in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-54473) and in the related Prospectus pertaining to the registration of 1,376,843 shares of Arrow Electronics, Inc. Common Stock, in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-67890) and in the related Prospectus pertaining to the registration of 1,009,086 shares of Arrow Electronics, Inc. Common Stock, and in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-42176) and in the related Prospectus pertaining to the registration of up to 944,445 shares of Arrow Electronics, Inc. Common Stock held by Aquarius Investments Ltd. and Andromeda Investments Ltd. of our report dated February 17, 1999 with respect to the consolidated financial statements and schedule of Arrow Electronics, Inc. included in this Annual Report on Form 10-K for the year ended December 31, 1998. ERNST & YOUNG LLP New York, New York March , 1999 ARROW ELECTRONICS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the three years ended December 31, 1998 Additions Balance at Balance beginning Charged Charged at end of year to income to other (1) Write-offs of year ---------- --------- ----------- ---------- -------- Allowance for doubtful accounts 1998 $46,055,000 $31,643,000 $ 542,000 $29,817,000 $48,423,000 =========== =========== ========== =========== =========== 1997 $39,753,000 $20,360,000 $1,896,000 $15,954,000 $46,055,000 =========== =========== ========== =========== =========== 1996 $38,670,000 $15,495,000 $ - $14,412,000 $39,753,000 =========== =========== ========== =========== =========== (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 30, 1999 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 30, 1999 ------------------------------------------- Stephen P. Kaufman, Chairman, Principal Executive Officer, and Director By: /s/ Robert E. Klatell March 30, 1999 ------------------------------------------- Robert E. Klatell, Executive Vice President, Secretary, and Director By: /s/ Sam R. Leno March 30, 1999 -------------------------------------------- Sam R. Leno, Senior Vice President and Chief Financial Officer By: /s/ Paul J. Reilly March 30, 1999 -------------------------------------------- Paul J. Reilly, Vice President, Controller and Principal Accounting Officer By: /s/ Daniel W. Duval March 30, 1999 -------------------------------------------- Daniel W. Duval, Director By: /s/ Carlo Giersch March 30, 1999 -------------------------------------------- Carlo Giersch, Director By: /s/ John N. Hanson March 30, 1999 -------------------------------------------- John N. Hanson, Director By: /s/ Roger King March 30, 1999 -------------------------------------------- Roger King, Director By: /s/ Karen Gordon Mills March 30, 1999 -------------------------------------------- Karen Gordon Mills, Director By: /s/ Barry W. Perry March 30, 1999 -------------------------------------------- Barry W. Perry, Director By: /s/ Richard S. Rosenbloom March 30, 1999 -------------------------------------------- Richard S. Rosenbloom, Director By: /s/ Robert S. Throop March 30, 1999 -------------------------------------------- Robert S. Throop, Director By: /s/ John C. Waddell March 30, 1999 -------------------------------------------- John C. Waddell, Director EX-2 2 RICHEY ACQUISITION AGREEMENT AGREEMENT AND PLAN OF MERGER BY AND AMONG ARROW ELECTRONICS, INC., LEAR ACQUISITION CORP. AND RICHEY ELECTRONICS, INC. DATED AS OF SEPTEMBER 30, 1998 TABLE OF CONTENTS Page Article 1 THE MERGER 1 1.1 Effective Time of the Merger 1 1.2 Closing 1 1.3 Effects of the Merger 2 1.4 Directors and Officers of the Surviving Corporation 2 1.5 Further Assurances 3 Article 2 CONVERSION OF SECURITIES 3 2.1 Conversion of Capital Stock 3 2.2 Exchange of Certificates 4 Article 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6 3.1 Corporate Organization and Authority of the Company 6 3.2 Capitalization 7 3.3 No Violation; Consents and Approvals 8 3.4 SEC Reports and Financial Statements of the Company 9 3.5 Absence of Undisclosed Liabilities 10 3.6 Inventory 10 3.7 Accounts Receivable 11 3.8 Title to Property 11 3.9 Intellectual Property 12 3.10 Tax Matters 12 3.11 Employee Matters 14 3.12 Labor Matters 17 3.13 No Material Change 17 3.14 Absence of Change or Event 18 3.15 Litigation 19 3.16 Compliance With Law and Other Instruments 20 3.17 Insurance 23 3.18 Affiliate Interests 24 3.19 Customers and Suppliers 24 3.20 Absence of Questionable Payments 25 3.21 Information Supplied 25 3.22 Opinion of Financial Advisor 25 3.23 Vote Required 26 3.24 Company Not an Interested Shareholder or a 30% Shareholder 26 3.25 Section 203 of the DGCL Not Applicable 26 3.26 Disclosure 26 3.27 The Company's Knowledge 26 Article 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND Sub. 26 4.1 Organization and Authority 26 4.2 No Violation; Consents and 27 4.3 SEC Reports and Financial Statements of Parent 28 4.4 Information Supplied 28 4.5 Litigation 29 4.6 Parent's Knowledge 29 Article 5 CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY AND PARENT 29 5.1 Conduct of the Company's Business Prior to the Closing Date 29 5.2 Conduct of Business of Sub 31 5.3 Preparation of the Proxy Statement 31 5.4 Legal Conditions to Merger 32 5.5 Stockholder's Meeting 32 5.6 Fees and Expenses 33 5.7 Broker's and Finder's Fees 34 5.8 Takeover Statutes 34 5.9 Access to Information and Confidentiality 34 5.10 Indemnification 35 5.11 Additional Agreements; Best Efforts 36 5.12 No Solicitation 36 5.13 Advice of Changes; Government Filings 37 5.14 Press Releases 37 5.15 Company Option Plans 37 5.16 Notice and Cure 38 5.17 Canadian Subsidiary 38 5.18 Observance of Operations of the Business 38 5.19 Certain Company Employees 39 5.20 Company Bank Debt 39 5.21 Employee Matters 39 Article 6 CONDITIONS PRECEDENT 39 6.1 Conditions to Each Party's Obligation to Effect the Merger 39 6.2 Conditions to Obligations of Parent and Sub 40 6.3 Conditions to Obligations of the Company 41 Article 7 TERMINATION AND AMENDMENT 42 7.1 Termination 42 7.2 Effect of Termination 43 7.3 Extension; Waiver 43 7.4 Amendment and Modification 43 Article 8 GENERAL PROVISIONS 44 8.1 Nonsurvival of Representations, Warranties and Agreements 44 8.2 Notices 44 8.3 Governing Law 45 8.4 Interpretation 45 8.5 Counterparts 45 8.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership 45 8.7 No Remedy in Certain Circumstances 46 8.8 Severability 46 8.9 Assignment 46 8.10 Headings 46 8.11 Enforcement of Agreement 46 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of September 30, 1998, by and among ARROW ELECTRONICS, INC., a New York corporation ("Parent"), LEAR ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and RICHEY ELECTRONICS, INC., a Delaware corporation (the "Company"). WHEREAS, the respective Boards of Directors of Parent, Sub and the Company deem it advisable and in the best interests of their respective stockholders to consummate, and have approved, the business combination transaction provided for herein in which Sub would merge with and into the Company and the Company would become a wholly owned subsidiary of Parent (the "Merger"); WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parent and Sub to enter into this Agreement each of the directors of the Company named on Exhibit A hereto has on the date hereof granted to Parent an irrevocable proxy to vote the shares of the common stock, par value $.001 per share, of the Company (the "Company Common Stock") owned by such person to approve the Merger; and WHEREAS, Parent, Sub and the Company desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE 1 THE MERGER 1.1 Effective Time of the Merger. Subject to the provisions of this Agreement, a certificate of merger (the "Certificate of Merger") shall be duly prepared, executed and acknowledged by the Surviving Corporation (as defined in Section 1.3) and thereafter delivered to the office of the Secretary of State of the State of Delaware, for filing and thereafter recorded, as provided in the Delaware General Corporation Law (the "DGCL"), as soon as practicable on or after the Closing Date (as defined in Section 1.2). The Merger shall become effective upon the filing of the Certificate of Merger with the office of the Secretary of State of the State of Delaware or at such time thereafter as is provided in the Certificate of Merger (the "Effective Time"). 1.2 Closing. The closing of the Merger (the "Closing") will take place at the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York, at 10:00 A.M. (local time) on a date to be specified by Parent and the Company, which shall be no later than the third business day after satisfaction or waiver of the latest to occur of the conditions set forth in Article 6 (other than Sections 6.2(a)(i) and 6.3(a)(i) and the delivery of the officer's certificates referred to in Sections 6.2(a) and 6.3(a)) (the "Closing Date") or at such other place, time and date as may be agreed upon in writing by Parent and the Company. At the Closing there shall be delivered to Parent, Sub and the Company the certificates and other documents and instruments required to be delivered hereunder. 1.3 Effects of the Merger. (a) At the Effective Time (i) the separate existence of Sub shall cease and Sub shall be merged with and into the Company (Sub and the Company are sometimes referred to herein as the "Constituent Corporations" and the Company is sometimes referred to herein as the "Surviving Corporation"), (ii) the Certificate of Incorporation of Sub as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, except that the name of the Surviving Corporation as provided in such Certificate of Incorporation shall be "Richey Electronics, Inc." and (iii) the By-laws of Sub as in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation. (b) The Merger shall have the effects set forth in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers, immunities and franchises, of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of the Constituent Corporations; and all and singular rights, privileges, powers, immunities and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to either of the Constituent Corporations on whatever account, including subscriptions to shares and all other choses in action, and all and every other interest of or belonging to or due to each of the Constituent Corporations, shall be taken and deemed to be transferred to and vested in the Surviving Corporation, and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the Constituent Corporations, and the title to any real estate vested by deed or otherwise, in either of the Constituent Corporations, shall not revert or be in any way impaired; but all rights of creditors and all liens upon any property of either of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if said debts and liabilities had been incurred by it. 1.4 Directors and Officers of the Surviving Corporation. The directors and officers of Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and By- laws. 1.5 Further Assurances. Each party hereto will, either prior to or after the Effective Time, execute such further documents, instruments, deeds, bills of sale, assignments and assurances and take such further actions as may be reasonably requested by one or more of the others to consummate the Merger, to vest the Surviving Corporation with full title to all assets, properties, privileges, rights, approvals, immunities and franchises of either of the Constituent Corporations or to effect the other purposes of this Agreement. ARTICLE 2 CONVERSION OF SECURITIES 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any further action on the part of the holder of any shares of Company Common Stock or capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $0.01 per share, of the Surviving Corporation ("Surviving Corporation Common Stock"). Each certificate representing outstanding shares of Sub Common Stock shall at the Effective Time represent an equal number of shares of Surviving Corporation Common Stock. (b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares of the Company Common Stock that are owned by the Company as treasury stock and any shares of the Company Common Stock owned by Parent, Sub or any wholly owned Subsidiary of the Company or Parent shall be canceled and retired and shall cease to exist and no stock of Parent or other consideration shall be delivered in exchange therefor. All shares of Common Stock, par value $1.00 per share, of Parent (the "Parent Common Stock" ), if any, owned by the Company shall remain unaffected by the Merger. As used in this Agreement, the word "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. (c) Merger Consideration for the Company Common Stock. Each issued and outstanding share of the Company Common Stock (other than shares to be canceled in accordance with Section 2.1(b) and other than Dissenting Shares as defined in Section 2.1(e)) shall be converted into the right to receive $10.50 in cash (the "Merger Consideration"). All such shares of the Company Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. (d) Simmonds Warrant. The Holder (as defined in the Warrant to Purchase Common Stock of Richey Electronics, Inc., dated June 13, 1997 (the "Simmonds Warrant")) shall be entitled to receive the aggregate Merger Consideration with respect to the number of shares of Company Common Stock that the Holder shall be deemed to have received pursuant to Article VI of the Simmonds Warrant. Promptly after surrender of the Simmonds Warrant to Parent, the Holder shall receive in exchange therefor a check in the amount equal to the Merger Consideration which the Holder has the right to receive pursuant to this Section 2.1(d). In no event shall the Holder be entitled to receive interest on any such funds. (e) Dissenting Shares. (i) Notwithstanding any provision of this Agreement to the contrary, each outstanding share of Company Common Stock the holder of which has not voted in favor of the Merger, has perfected such holder's right to an appraisal of such holder's shares in accordance with the applicable provisions of the DGCL and has not effectively withdrawn or lost such right to appraisal (a "Dissenting Share"), shall not be converted into or represent a right to receive the Merger Consideration pursuant to Section 2.1(c), but the holder thereof shall be entitled only to such rights as are granted by the applicable provisions of the DGCL; provided, however, that any Dissenting Share held by a person at the Effective Time who shall, after the Effective Time, withdraw the demand for appraisal or lose the right of appraisal, in either case pursuant to the DGCL, shall be deemed to be converted into, as of the Effective Time, the right to receive the Merger Consideration pursuant to Section 2.1(c). (ii) The Company shall give Parent (x) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to the applicable provisions of the DGCL relating to the appraisal process received by the Company and (y) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company will not voluntarily make any payment with respect to any demands for appraisal and will not, except with the prior written consent of Parent, settle or offer to settle any such demands. 2.2 Exchange of Certificates. (a) Exchange Agent. As of the Effective Time, Parent shall make available to the Surviving Corporation for deposit with a bank or trust company designated by Parent (and reasonably acceptable to the Company) (the "Exchange Agent"), for the benefit of the holders of shares of the Company Common Stock, for exchange in accordance with this Article 2, through the Exchange Agent, an amount of cash equal to the aggregate Merger Consideration (such cash, together with earnings thereon, being hereinafter referred to as the "Exchange Fund") in each case issuable pursuant to Section 2.1 in exchange for outstanding shares of the Company Common Stock. (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of the Company Common Stock (the "Certificates") whose shares were converted pursuant to Section 2.1 into the right to receive the Merger Consideration (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as the Surviving Corporation may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent and Sub, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a check in the amount equal to the Merger Consideration which such holder has the right to receive pursuant to the provisions of this Article 2, and the Certificate so surrendered shall forthwith be canceled. In no event shall the holder of any Certificate be entitled to receive interest on any funds to be received in the Merger. In the event of a transfer of ownership of the Company Common Stock which is not registered in the transfer records of the Company, a check for the appropriate amount of cash may be issued to a transferee if the Certificate representing the Company Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration. (c) No Further Ownership Rights in the Company Common Stock. The Merger Consideration paid upon the surrender for exchange of shares of the Company Common Stock in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of the Company Common Stock, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of the Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article 2. (d) Termination of Exchange Fund. Any portion of the Exchange Fund made available to the Exchange Agent which remains undistributed to the stockholders of the Company for six months after the Effective Time shall be delivered to Parent, upon demand, and any stockholders of the Company who have not theretofore complied with this Article 2 shall thereafter look only to Parent for payment of their claim for the Merger Consideration. (e) No Liability. Neither Parent nor the Company shall be liable to any holder of shares of the Company Common Stock for the Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: 3.1 Corporate Organization and Authority of the Company. (a) Each of the Company and its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and, is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the activities conducted by it or the character of the properties owned, leased or operated by it requires it to be so licensed or so qualified, except where the failure to be so licensed or so qualified would not be reasonably likely to result in a Company Material Adverse Effect (as defined below). The Company's Disclosure Memorandum furnished to Parent on the date hereof (the "Disclosure Memorandum") with specific reference to this Section sets forth (A) the name and jurisdiction of incorporation of each Subsidiary of the Company, (B) its authorized capital stock, (C) the number of issued and outstanding shares of capital stock and (D) the record owners of such shares. Except for interests in the Subsidiaries of the Company and as disclosed in the Disclosure Memorandum with specific reference to this Section, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity (other than (i) non-controlling investments in the ordinary course of business, (ii) any such interest received in the ordinary course of business as a settlement of indebtedness, (iii) corporate partnering, development, cooperative marketing and similar undertakings and arrangements entered into in the ordinary course of business and (iv) other investments of less than $25,000). The Company has heretofore delivered to Parent complete and correct copies of the certificate of incorporation and bylaws of the Company and its Subsidiaries (or other comparable charter documents), as currently in effect. For the purposes of this Agreement, "Company Material Adverse Effect" shall mean a material adverse effect on the financial condition, assets, liabilities (contingent or otherwise), results of operation, business or business prospects of the Company nd its Subsidiaries, if any, taken as a whole. For purposes of this Agreement, a Company Material Adverse Effect shall not include a material adverse effect on the financial condition, assets, liabilities (contingent or otherwise), results of operation, business or business prospects of the Company as a result of (i) the transactions contemplated hereby or the public announcement hereof, or (ii) changes in the conditions or prospects of the Company and its Subsidiaries taken as a whole which are consistent with general economic conditions or general changes affecting the electronic component distribution or electronics assembly industries, or (iii) any matter disclosed in the Company SEC Documents (as defined in Section 3.4) or in the Disclosure Memorandum. (b) The Company has full corporate power and authority to enter into this Agreement and, subject to approval of this Agreement by the stockholders of the Company in accordance with the applicable provisions of the DGCL (the "Company Stockholders' Approval"), to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of the Company, the Board of Directors of the Company has recommended adoption of this Agreement by the stockholders of the Company and directed that this Agreement be submitted to the stockholders of the Company for their consideration, and no other corporate proceedings on the part of the Company or its stockholders are necessary to authorize the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, other than obtaining the Company Stockholders' Approval. This Agreement has been duly executed and delivered by the Company, and (assuming due execution and delivery by Parent and Sub) this Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally, and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought, and except as indemnification may be limited by public policy. 3.2 Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 30,000,000 shares of the Company Common Stock and 10,000 shares of Preferred Stock, par value $0.001 per share ("Company Preferred Stock"). As of the date hereof, 9,146,113 shares of the Company Common Stock are issued and outstanding, and 1,300,000 shares of the Company Common Stock are reserved for issuance in the aggregate pursuant to the Company's Amended and Restated 1992 Stock Option Plan (the "Company Option Plan"), no more than 3,947,256 shares of the Company Common Stock are reserved for issuance under the Indenture by and between the Company and First Trust, of California, National Association, as Trustee dated February 15, 1996 (the "Indenture") and 200,000 shares of the Company Common Stock are reserved for issuance pursuant to the Simmonds Warrant. As of the date hereof, no shares of Company Preferred Stock are issued and outstanding. All such issued and outstanding shares of the Company Common Stock have been, and any shares of the Company Common Stock which may be issued pursuant to the Company Option Plans, the Indenture and the Simmonds Warrant will be, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, there are no (a) outstanding options obligating the Company or any of its Subsidiaries to issue or sell any shares of capital stock of any Subsidiary of the Company or to grant, extend or enter into any such option or (b) voting trusts, proxies or other commitments, understandings, restrictions or arrangements in favor of any person other than the Company or a Subsidiary wholly owned, directly or indirectly, by the Company with respect to the voting of or the right to participate in dividends or other earnings on any capital stock of any Subsidiary of the Company. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, and except for (i) the rights created pursuant to this Agreement, (ii) the rights outstanding on the date hereof created pursuant to the Company Option Plan, the Indenture or the Simmonds Warrant and (iii) the issued and outstanding shares of the Company Common Stock set forth herein, as of the date hereof, there are no (x) outstanding shares of capital stock, or any notes, bonds, debentures or other indebtedness having the right to vote (or convertible into or exchangeable for securities having the right to vote) ("Voting Debt"), of the Company, (y) outstanding options, warrants, calls, subscriptions or other rights of any kind to acquire, or agreements or commitments in effect to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound obligating the Company or any Subsidiary to issue or sell, or cause to be issued or sold, any additional shares of capital stock or any Voting Debt of the Company or any Subsidiary, or granting any rights to obtain any benefit measured by the value of the Company's capital stock (including without limitation, stock appreciation rights granted under the Company's 1993 Stock Appreciation Rights Plan (the "Company Stock Appreciation Rights Plan")) or (z) outstanding securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares or Voting Debt. Except pursuant to the preceding sentence, neither the Company nor any of its Subsidiaries is committed to issue any such option, warrant, call, subscription, right or security, and after the Effective Time, there will be no such option, warrant, call, subscription, right, agreement, commitment or security. There are no contracts, commitments or agreements relating to voting, purchase or sale of the Company's or any of its Subsidiary's capital stock or Voting Debt (including, without limitation, any redemption by the Company thereof) (A) between or among the Company, any Subsidiary of the Company and any of its stockholders and (B) to the Company's knowledge, between or among any of the Company's stockholders, except for the proxies set forth on Exhibit A. 3.3 No Violation; Consents and Approvals. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, neither the Company nor its Subsidiaries or any of their respective properties or assets are subject to or bound by any provision of: (a) to the Company's knowledge, any law, statute, rule, regulation, ordinance or judicial or administrative decision; (b) any articles or certificate of incorporation, bylaws, or similar organizational document; (c) any (i) credit or loan agreement, mortgage, deed of trust, note, bond, indenture, license, concession, franchise, permit, trust, custodianship, other restriction, (ii) instrument, lease, obligation, contract or agreement (including, without limitation, any plan, fund or arrangement contemplated by Section 3.11(a)) or (iii) instruments, obligations, contracts or agreements (including, without limitation, plans, funds or arrangements contemplated by Section 3.11(a)), other than those which do not involve the payment or receipt by the Company or its Subsidiaries of an amount in excess of $250,000, individually or $500,000 in the aggregate; or (d) any judgment, order, writ, injunction or decree; that would impair, prohibit or prevent, or would be violated or breached by, or would result in the creation of any pledges, liens, charges, encumbrances, easements, defects, security interests, claims, options and restrictions of every kind ("Encumbrance") as a result of, or under which there would be a material default (with or without notice or lapse of time, or both) or right of termination, cancellation or acceleration of any material obligation or the loss of a material benefit as a result of, the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby, except where, (i) as of the date hereof such event or occurrence is not reasonably likely to result in losses, liabilities, costs or expenses (including but not limited to attorneys fees and expenses), damage or decline in value to the business, condition or properties of the Company and its Subsidiaries, taken as a whole, or to Parent (collectively, "Losses") in excess of $250,000 individually or $500,000 in the aggregate, or (ii) between the date hereof and the Closing Date would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the merger, consolidation or amalgamation of the Surviving Corporation or any or all of its Subsidiaries with or into Parent or its affiliates or, the transfer of any or all of the assets of the Surviving Corporation or any of its Subsidiaries to Parent or its affiliates will not, with or without the giving of notice or the passage of time or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any Encumbrance, under any provision of any material mortgage, deed of trust, lease, license, or agreement (including any debt instrument) to which the Company, or any of its Subsidiaries is a party or by which any of them may be bound or affected. Except as disclosed in the Disclosure Memorandum with specific reference to this Section and other than (i) the filing of the Certificate of Merger as provided in Section 1.1, (ii) the filing with the Securities and Exchange Commission (the "SEC") and Nasdaq of the Proxy Statement (as defined in Section 3.21), (iii) such consents, orders, approvals, authorizations, registrations, declarations and filings as may be required under the Investment Canada Act and the Competition Act (Canada) and applicable state securities laws and the securities laws of any foreign country, (iv) such filings as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (v) such local consents, orders, approvals, authorizations, registrations, declarations and filings which, if not obtained or made, (x) as of the date hereof would not reasonably be likely to result in Losses in excess of $250,000 individually or $500,000 in the aggregate, or (y) between the date hereof and the Closing Date would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, and that would not impair, prohibit or prevent the consummation of the transactions contemplated hereby, no consent, order, approval or authorization of, or declaration, notice, registration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality (each a "Governmental Entity" ), individual, corporation, partnership, trust or unincorporated organization (together with Governmental Entities, each a "Person") is required by or with respect to the Company in connection with the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby. 3.4 SEC Reports and Financial Statements of the Company. The Company and its Subsidiaries have filed with the SEC, and have made available to Parent true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by the Company and its Subsidiaries since January 1, 1993 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the Securities Act of 1933, as amended (the "Securities Act") (as such documents have been amended since the time of their filing, collectively, the "Company SEC Documents"). The Company has heretofore provided to Parent true and complete copies of the interim financial statements for the eight (8) months ending August 28, 1998 (the "Management Accounts"). Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the Company SEC Documents, including without limitation any financial statements and schedules included therein, at the time filed or, if subsequently amended, as so amended, (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the audited consolidated financial statements and unaudited interim consolidated financial statements (including, in each case, the notes, if any, thereto) of the Company included in the Company SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to customary year-end audit adjustments) the consolidated financial position of the Company and its consolidated Subsidiaries as at the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended. Except as set forth in the Disclosure Memorandum with specific reference to this Section, the Management Accounts are the only Management Accounts of the Company prepared by the Company with respect to the periods covered thereby and have been prepared in the ordinary course of business from the books and records of the Company and its Subsidiaries in accordance with GAAP, consistently applied and maintained throughout the period indicated. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, each Subsidiary of the Company is treated as a consolidated subsidiary of the Company in the financial statements of the Company for all relevant periods covered thereby. 3.5 Absence of Undisclosed Liabilities. Except as and to the extent set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, or as disclosed in the Form 10-Q for the quarterly period ended July 3, 1998, or as disclosed in the Disclosure Memorandum with specific reference to this Section, as of July 3, 1998, neither the Company nor its Subsidiaries had any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by GAAP to be reflected on the consolidated balance sheet of the Company and its consolidated subsidiaries (including the notes thereto) as of such date. Since July 3, 1998, neither the Company nor any of its Subsidiaries have incurred any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, not in the ordinary course of business or which, individually or in the aggregate, would be reasonably likely to result in a Company Material Adverse Effect. 3.6 Inventory. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the inventories of the Company disclosed in the Company SEC Documents as of July 3, 1998 and in any subsequently filed Company SEC Documents are stated consistently with the audited consolidated financial statements of the Company and its consolidated subsidiaries, such presentation appropriately reflects current Company practice which is supported historically by cost reductions received from vendors and is appropriate based upon the relationship with the Company's vendors, and due provision was made to provide for all slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values and such inventory reserves are adequate to provide for such slow-moving, obsolete or unusable inventory and inventory shrinkage. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, since July 3, 1998, due provision was made on the books of the Company and its Subsidiaries in the ordinary course of business consistent with past Company practices to provide for all slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values and such inventory reserves are adequate to provide for such slow-moving, obsolete or unusable inventory and inventory shrinkage. Except as set forth in the Disclosure Memorandum with specific reference to this Section, to the extent that any items of inventory intended to be sold to the military are, in order to meet military or similar specifications, required to be accompanied by (or the seller thereof is required to maintain) traceability, testing or other documentation, all such documentation has been so maintained and is in the possession of the Company or its Subsidiaries at one of their respective offices. 3.7 Accounts Receivable. The accounts receivable disclosed in the Company SEC Documents as of July 3, 1998, and, with respect to accounts receivable created since such date, disclosed in any subsequently filed Company SEC Documents, or as accrued on the books of the Company in the ordinary course of business consistent with past practices in accordance with GAAP since the last filed Company SEC Documents, represent and will represent bona fide claims against debtors for sales and other charges, are not subject to discount except for normal cash and immaterial trade discounts, and the amount carried for doubtful accounts and allowances disclosed in each of such Company SEC Documents or accrued on such books is sufficient to provide for any losses which may be sustained on realization of the receivables. 3.8 Title to Property. (a) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the Company and its Subsidiaries have good and valid title to all of their respective properties, assets and other rights that do not constitute real property, free and clear of all Encumbrances, except for such Encumbrances securing indebtedness that is not, in the aggregate, greater than $250,000. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the Company and its Subsidiaries own, have leasehold interests in or contractual rights to use, all of the assets, tangible and intangible, used by, or necessary for the conduct of the business of, the Company and its Subsidiaries taken as a whole. (b) The machinery, tools, equipment and other tangible physical assets of the Company and its Subsidiaries (other than items of inventory) are in good working order, except for normal wear and tear, and are in an operating condition sufficient to conduct the business of the Company and its Subsidiaries taken as a whole as now being conducted. (c) Neither the Company nor any of its Subsidiaries owns any real estate. The Disclosure Memorandum sets forth with specific reference to this Section each and every parcel of real property or interest in real estate, held under a lease or used by, or necessary for the conduct of the business of, the Company and its Subsidiaries taken as a whole (the "Real Property"). (d) Except as disclosed in the Disclosure Memorandum with specific reference to Section 3.8(d), the Company or a Subsidiary: (i) is in peaceful and undisturbed possession of the Real Property under each lease under which it is a tenant, and there are no material defaults by it as tenant thereunder; and (ii) has good and valid rights of ingress and egress to and from all the Real Property from and to the public street systems for all usual street, road and utility purposes. (e) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, all of the buildings, structures, improvements and fixtures used by or useful in the business of the Company, owned or leased by the Company, are in a good state of repair, maintenance and operating condition and, except as so disclosed and, except for normal wear and tear, there are no defects with respect thereto which would materially impair the day-to-day use of any such buildings, structures, improvements or fixtures or which would subject the Company to material liability under applicable law. 3.9 Intellectual Property. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, to the Company's knowledge the Company or a Subsidiary owns or has valid rights to use all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, service marks, trade secrets, applications for trademarks and for service marks, know-how and other proprietary rights and information used or held for use in connection with the business of the Company and its Subsidiaries taken as a whole as currently conducted or as contemplated to be conducted and to the Company's knowledge there is no assertion or claim challenging the validity of any of the foregoing which, individually or in the aggregate, would be reasonably likely to have a Company Material Adverse Effect. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, to the Company's knowledge, the conduct of the business of the Company and its Subsidiaries as currently conducted does not conflict in any way with any patent, patent right, license, trademark, trademark right, trade name, trade name right, service mark or copyright of any third party that, individually or in the aggregate, would be reasonably likely to result in a Company Material Adverse Effect. Except as disclosed in the Disclosure Memorandum with specific reference to this Section and to the Company's knowledge, there are no infringements of any proprietary rights owned by the Company or a Subsidiary which, individually or in the aggregate, would be reasonably likely to have a Company Material Adverse Effect. 3.10 Tax Matters. Except as set forth in the Disclosure Memorandum with specific reference to this Section or as would not be reasonably likely to have a Company Material Adverse Effect: (a) The Company (or any predecessor) and any consolidated, combined, unitary, affiliated or aggregate group for Tax purposes of which the Company (or any predecessor) is or has been a member (a "Consolidated Group") has timely filed all Tax Returns required to be filed by it, has paid all Taxes shown to be due on any Tax Return and has provided adequate reserves in its financial statements for any Taxes that are due and have not been paid, whether or not shown as being due on any Tax Returns. All Taxes owed by any of the Company and its Subsidiaries (whether or not shown on any Tax Return) have been paid or accrued. None of the Company and its Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where any of the Company and its Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no security interests on any of the assets of any of the Company and its Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax. Except as disclosed to Parent in the event of changes in circumstances between the date hereof and the Closing Date which have occurred in the ordinary course of business and, individually or in the aggregate, would not be reasonably likely to result in a Company Material Adverse Effect (i) no material claim for unpaid Taxes that are due and payable has become a lien against the property of the Company or is being asserted against the Company, (ii) no audit of any Tax Return of the Company is being conducted by a Tax authority, and (iii) no extension of the statute of limitations on the assessment of any Taxes has been granted by the Company and is currently in effect. As used herein, "Taxes" shall mean all taxes of any kind, including, without limitation, those on or measured by or referred to as income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, similar assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority, domestic or foreign. As used herein, "Tax Return" shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. (b) To the Company's knowledge, each of the Company and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (c) There is no dispute or claim concerning any Taxes of any of the Company and its Subsidiaries either (i) claimed or raised by any authority in writing or (ii) as to which any of the Company directors and officers (and employees responsible for Tax matters) of the Company and its Subsidiaries has knowledge based upon personal contact with any agent of the taxing authority. The Disclosure Memorandum with specific reference to this Section lists, or other information provided to Parent within twenty (20) days after the date hereof will list, all federal, state, local, and foreign income Tax Returns filed with respect to any of the Company and its Subsidiaries for taxable periods ended on or after December 31, 1990, indicates, or will indicate, those Tax Returns that have been audited, and indicates, or will indicate, those Tax Returns that currently are the subject of audit. The Company has made available to Parent complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the Company and its Subsidiaries since January 1, 1991. (d) None of the Company and its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) None of the Company and its Subsidiaries has filed a consent under Section 341(f) of the Internal Revenue Code of 1986, as amended ("Code") concerning collapsible corporations. None of the Company and its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that by reason of the transactions contemplated hereby obligate it to make any payments that will not be deductible under Code 280G. None of the Company and its Subsidiaries has been a United States real property holding corporation within the meaning of Code 897(c)(2) during the applicable period specified in Code 897(c)(1)(A)(ii). Each of the Company and its Subsidiaries has disclosed on its federal income tax returns all positions taken therein that could give rise to a substantial under statement of federal income tax within the meaning of Code 6662. None of the Company and its Subsidiaries is a party to any Tax allocation or sharing agreement. None of the Company and its Subsidiaries (i) has been a member of an Affiliated Group (as defined in Code 1504) filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) or (ii) has any Losses for the Taxes of any Person (other than any of the Company and its Subsidiaries) under Treasury Regulation 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (f) The information with respect to the Company and each of its Subsidiaries that has been, or prior to Closing will be, provided to Parent setting forth (i) the tax basis for the United States and Canadian income tax purposes of the Company or any Subsidiary in its assets; (ii) the basis of the stockholder(s) of the Subsidiary in its stock; (iii) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution allocable to the Company or Subsidiary; and (iv) the amount of any deferred gain or loss allocable to the Company or any Subsidiary arising out of any intercompany transaction is materially correct. (g) The unpaid Taxes of the Company and its Subsidiaries (i) did not, as of July 3, 1998, exceed the reserve for Taxes (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth in the July 3, 1998 balance sheet (rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company and its Subsidiaries in filing their Tax Returns. 3.11 Employee Matters. (a) With respect to each Benefit Plan, the Company has made available to Parent a true and correct copy of (i) the most recent annual report (Form 5500 and Schedules thereto) filed with the Internal Revenue Service, (ii) such Benefit Plan, (iii) each trust agreement and group annuity contract, if any, relating to such Benefit Plan and any predecessor plans referred to therein, service provider agreements, insurance contracts, and agreements with investment managers, including all amendments thereto (iv) current summary plan descriptions of each Benefit Plan subject to ERISA and any similar descriptions of all other Benefit Plans, (v) the most recent determination of the IRS with respect to the qualified status of each Benefit Plan that is intended to qualify under Section 401(a) of the Code (a "Qualified Plan"), and (vi) the most recent accountings with respect to any Benefit Plan funded through a trust. (b) Neither the Company nor any of its Subsidiaries maintains or is obligated to provide benefits under any life, medical or health plan which provides benefits to retirees or other terminated employees other than benefit continuation rights under the Consolidated Omnibus Budget Reconciliation of 1985, as amended ("COBRA"). (c) Neither the Company, its Subsidiaries nor any ERISA Affiliate has at any time contributed to any "multiemployer plan", as that term is defined in Section 4001 of ERISA. (d) Neither the Company nor any of its Subsidiaries or any ERISA Affiliate or any predecessor thereof maintains, has maintained at any time during the five-year period preceding the date of this Agreement, or is obligated to provide benefits under any pension plan subject to Part 3 of Title I of ERISA, Section 412 of the Code, or Title IV of ERISA. (e) No rights have been granted to any person under the Company Stock Appreciation Rights Plan. (f) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, each Benefit Plan covers only employees and directors who are employed by, or a director of, the Company or a Subsidiary (or former employees, directors or beneficiaries with respect to service with the Company or a Subsidiary), so that the transactions contemplated by this Agreement will require no spin-off of assets and liabilities or other division or transfer of rights with respect to any such plan. (g) Each of the Benefit Plans is, and its administration is and has been since inception, in all material respects in compliance with, and neither the Company nor any Subsidiary has received any claim or notice that any such Benefit Plan is not in compliance with, all applicable laws, regulations, orders, and prohibited transactions exemptions, including the requirements of ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act and Title VII of the Civil Rights Act of 1964. Each Qualified Plan is qualified under Section 401(a) of the Code, and, if applicable, complies with the requirements of Section 401(k) of the Code. Each Benefit Plan which is intended to provide for the deferral of income, the reduction of salary or other compensation or to afford other tax benefits complies with the requirements of the applicable provisions of the Code or other laws required in order to provide such tax benefits. (h) No event has occurred, and, to the knowledge of the Company, there exists no condition or set of circumstances in connection with any Benefit Plan, under which the Company or any Subsidiary, directly or indirectly (through any indemnification agreement or otherwise), could reasonably be expected to be subject to any risk of material liability under Section 409 of ERISA, Section 502(l) of ERISA, Title IV of ERISA or Section 4975 of the Code. (i) No employer securities, employer real property or other employer property is included in the assets of any Benefit Plan. (j) With respect to the Benefit Plans, individually and in the aggregate, no event has occurred, and to the knowledge of the Company, there exists no condition or set of circumstances, other than as disclosed in the Disclosure Memorandum with specific reference to this Section, in connection with which the Company or any of its Subsidiaries could be subject to any liability that, (i) as of the date hereof is reasonably likely to result in Losses in excess of $250,000 individually or $750,000 in the aggregate, or (ii) between the date hereof and the Closing Date would, individually or in the aggregate, be reasonably likely to have a Company Material Adverse Effect (except liability for benefits claims and funding obligations payable in the ordinary course), under ERISA, the Code or any other applicable law. Neither the Company nor any of its Subsidiaries has scheduled or agreed upon future increases of benefit levels (or creations of new benefits) with respect to any Benefit Plan, and no such increases or creation of benefits have been proposed, made the subject of representations to employees or requested or demanded by employees under circumstances which make it reasonable to expect that such increases will be granted. (k) Except as set forth in the Disclosure Memorandum with specific reference to this Section, with respect to the Benefit Plans, individually and in the aggregate, there are no funded benefit obligations for which contributions have not been made or properly accrued in accordance with GAAP and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP, on the consolidated financial statements of the Company and its consolidated subsidiaries, which obligations, (i) as of the date hereof could result in Losses in excess of $250,000 individually or $750,000 in the aggregate, or (ii) between the date hereof and the Closing Date would, individually or in the aggregate, be reasonably likely to have a Company Material Adverse Effect. (l) Except as set forth in the Disclosure Memorandum with specific reference to this Section, and except as described in Sections 5.15 and 3.18 hereof, neither the Company nor any Subsidiary is a party to any oral or written (i) consulting agreement not terminable on 60 days or less notice, (ii) agreement with any director, executive officer or key employee of the Company or any Subsidiary the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement, or agreement with respect to any executive officer of the Company or any Subsidiary providing any term of employment or compensation guarantee extending for a period longer than one year, or (iii) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (m) The following terms shall be defined as follows: "Benefit Plan" means any of the following established by the Company or any of its Subsidiaries, or any ERISA Affiliate of any of the foregoing, existing at the Closing Date or prior thereto, to which the Company or any of its Subsidiaries contributes or has contributed, or under which any employee, former employee or director of the Company or any Subsidiary or any beneficiary thereof is covered, is eligible for coverage or has benefit rights: any employment, bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock appreciation rights, stock purchase, stock option, phantom stock, retirement, vacation, severance, layoff, change of control, disability, sick leave, death benefit, hospitalization, day or dependent care, cafeteria, worker compensation or other employee-related insurance or other plan, arrangement or understanding, whether or not legally binding, whether written or oral, including, but not limited to any "employee benefit plan" within the meaning of Section 3(3) of ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any person who is in the same controlled group of corporations or who is under common control with the Company or, before the Closing, the Company or any of its Subsidiaries within the meaning of Section 414 of the Code. 3.12 Labor Matters. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement with any labor union, confederation or association and there are no discussions, negotiations, demands or proposals that are pending or have been conducted or made with or by any labor union, confederation or association. Except as disclosed in the Company SEC Reports filed prior to the date of this Agreement or in the Disclosure Memorandum with specific reference to this Section, there are no material controversies pending or, to the knowledge of the Company, threatened between the Company or any of its Subsidiaries and any representatives of its employees and, to the knowledge of the Company, there are no material organizational efforts presently being made involving Subsidiaries. Since January 1, 1991, there has been no work stoppage, strike or other concerted action by employees of the Company or any of its Subsidiaries. During that period, the Company and its Subsidiaries have complied in all material respects with all applicable laws relating to the employment of labor, including, without limitation those relating to wages, hours and collective bargaining. Except as set forth in the Disclosure Memorandum with specific reference to this Section, there is no present or former employee, manager or director of the Company or any of its Subsidiaries who has made any claim since January 1, 1998 against the Company or any of its Subsidiaries (whether under law, any employment agreement or otherwise) on account of or for: (i) overtime pay, other than overtime pay for the current payroll period; (ii) wages or salaries, other than wages or salaries for the current payroll period; (iii) vacations, sick leave, time off or pay in lieu of vacation, sick leave or time off, other than vacation, sick leave or time off (or pay in lieu thereof) earned in the twelve-month period immediately preceding the date of this Agreement; or (iv) termination of employment, and to the Company's knowledge, there is no basis for any such claim. 3.13 No Material Change. Except as set forth in the Disclosure Memorandum with specific reference to this Section, since July 3, 1998, there have been no events, changes or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. 3.14 Absence of Change or Event. Except as contemplated by this Agreement or as disclosed in the Disclosure Memorandum with specific reference to this Section, since July 3, 1998, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course and consistent with prior practice and have not: (a) amended or proposed to amend their respective certificates or articles of incorporation or bylaws (or other comparable corporate charter documents); (b) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except liabilities or obligations incurred in the ordinary course of business and consistent with prior practice; (c) mortgaged, pledged or subjected to lien, restriction or any other Encumbrance any of their respective properties, businesses or assets, tangible or intangible, of the Company or its Subsidiaries, except for liens arising in the ordinary course of business and consistent with prior practice to secure debt incurred for the purpose of financing all or part of the purchase price or the cost of construction or improvement of the equipment or other property subject to such liens, provided that (i) the principal amount of any debt secured by such lien does not exceed 100% of such purchase price or cost, (ii) such lien does not extend to or cover any other property other than such item of property and any improvements on such item and (iii) the incurrence of such debt was in the ordinary course of business and consistent with prior practice; (d) except in the ordinary course of business and consistent with prior practice, sold, transferred, leased or loaned to others or otherwise disposed of any of their respective assets (or committed to do any of the foregoing), including the payment of any loans owed to any affiliate, except for inventory sold to customers or returned to vendors in the ordinary course of business and consistent with prior practice, or canceled, waived, released or otherwise compromised any debt or claim, or any right of significant value; (e) suffered any damage, destruction or loss (whether or not covered by insurance) which, (i) as of the date hereof, is reasonably likely to result in Losses in excess of $500,000 in the aggregate, or, (ii) from the date hereof until the Closing Date, would, individually or in the aggregate, be reasonably likely to result in a Company Material Adverse Effect; (f) made or committed to make any capital expenditures or capital additions or betterments in excess of $1,000,000 in the aggregate; (g) encountered any labor union organizing activity, had any actual or threatened employee strikes, or any work stoppages, slow-downs or lock-outs related to any labor union organizing activity or any actual or threatened employee strikes; (h) instituted any litigation, action or proceeding before any court, governmental body or arbitration tribunal relating to it or its property, except for litigation, actions or proceedings instituted in the ordinary course of business and consistent with prior practice; (i) split, combined or reclassified any of their respective capital stock, or declared or paid any dividend or made any other payment or distribution in respect of their respective capital stock, or directly or indirectly redeemed, purchased or otherwise acquired any of their respective capital stock; (j) acquired, or agreed to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquired, or agreed to acquire, any assets which are material, individually or in the aggregate, to the Company and its Subsidiaries taken as a whole, except for purchases of inventory in the ordinary course of business and consistent with prior practice; (k) increased, or agreed or promised to increase, the compensation of any officer, employee or agent of the Company or any Subsidiary, directly or indirectly, including by means of any bonus, pension plan, profit sharing, deferred compensation, savings, insurance, retirement, or any other employee benefit plan, except in the ordinary course of business and consistent with prior practice; (l) except in the ordinary course of business and consistent with prior practice, increased promotional or advertising expenditures or otherwise changed their respective policies or practices with respect thereto; (m) except to the extent required by applicable law, permitted any material change in (A) any pricing, marketing, purchasing, investment, accounting, financial reporting, inventory, credit, allowance or tax practice or policy or (B) any method of calculating any bad debt contingency or other reserve for accounting, financial reporting or tax purposes; (n) made or changed any material election concerning Taxes or Tax Returns, changed an annual accounting period or adopted or changed any accounting method; (o) except in the ordinary course of business and consistent with prior practice, filed any amended Tax Return or extended the applicable statute of limitations for any taxable period, entered into any closing agreement with respect to Taxes, settled or compromised any material Tax claim or assessment or surrendered any right to claim a refund of Taxes or obtained or entered into any Tax ruling, agreement, or contract, or, except to the extent promptly disclosed to Parent upon the receipt thereof, received notification of an examination, audit or pending assessment with respect to Taxes; or (p) entered into a contract to do or engage in any of the foregoing after the date hereof. 3.15 Litigation. Except as disclosed in the Disclosure Memorandum with specific reference to this Section or in the Company SEC Documents filed prior to the date hereof, there is no (i) outstanding consent, order, judgment, writ, injunction, award or decree of any Governmental Entity or arbitration tribunal against or involving the Company or any of its Subsidiaries or any of their respective properties or assets, (ii) action, suit, claim, counterclaim, litigation, arbitration, dispute or proceeding pending or, to the Company's knowledge, threatened against or involving the Company or any of its Subsidiaries or any of their respective properties or assets or (iii) to the Company's knowledge, investigation or audit pending or threatened against or relating to the Company or any of its Subsidiaries or any of their respective properties or assets or any of its officers or directors (in their capacities as such) (collectively, "Proceedings") which, (x) as of the date hereof is reasonably likely to result in Losses in excess of $500,000 in the aggregate, or (y) between the date hereof and the Closing Date would, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, or would impair, prohibit or prevent the consummation of the transactions contemplated hereby. To the Company's knowledge, there are no existing facts or circumstances which could form a basis for any Proceeding which, if commenced, would be reasonably likely to result in a Company Material Adverse Effect, or would impair, prohibit or prevent the consummation of the transactions contemplated hereby. 3.16 Compliance With Law and Other Instruments. (a) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the Company and its Subsidiaries and their respective properties, assets, operations and activities, have complied and are in compliance in all respects with all applicable federal, state and local laws, rules, regulations, ordinances, orders, judgments and decrees including, without limitation, health and safety statutes and regulations and all Environmental Laws (as defined herein), including, without limitation, all restrictions, conditions, standards, limitations, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except, with respect to laws, rules, regulations, ordinances, orders, judgments and decrees other than those relating to Environmental Laws, the Foreign Corrupt Practices Act and applicable criminal statutes, where the failure to have complied or be in compliance is not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect, or that would impair, prohibit or prevent the consummation of the transactions contemplated hereby. Neither the Company nor any Subsidiary is in violation of or in default under any terms or provisions of (i) their respective articles or certificates of incorporation, bylaws or similar organizational documents, (ii) any credit or loan agreement, mortgage or security agreement, deed of trust, note, bond or indenture, or (iii) any other instrument, obligation, contract or agreement to which it is subject or by which it is bound, except, in the case of clauses (ii) and (iii), for violations or defaults which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (b) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, (i) the Company and its Subsidiaries have obtained all Permits that are (A) required under all federal, state and local laws, rules, regulations, ordinances, orders, judgments and decrees, including, without limitation, the Environmental Laws, for the ownership, construction, use and operation of each property, facility or location owned, operated or leased by the Company or any Subsidiary (the "Property") or (B) otherwise necessary in the conduct of the business of the Company, except for failures to obtain Permits (other than those that would result in the imposition of criminal sanctions) which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect and (ii) all such Permits are in effect, no appeal nor any other action is pending to revoke any such Permit, and the Company and its Subsidiaries are in full compliance with all terms and conditions of all such Permits, except for failures to be in compliance which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (c) The Company has heretofore delivered to Parent true and complete copies of all environmental studies in the Company's possession relating to the Property or any other property or facility previously owned, operated or leased by the Company or any Subsidiary. (d) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending relating to the Company, any Subsidiary or the Property (or any other property or facility formerly owned, operated or leased by the Company or any Subsidiary) or, to the Company's knowledge, threatened relating to the Company, any Subsidiary or the Property (or any other such property of facility) and relating in any way to the Environmental Laws or any regulation, code, plan, Permits, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except for such actions, suits, demands, claims, hearings, notices of violation, proceedings, notices or demand letters which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (e) Neither the Company nor any Subsidiary or any other Person has, Released (as defined herein), placed, stored, buried or dumped any Hazardous Substances, Oils, Pollutants or Contaminants or any other wastes produced by, or resulting from, any business, commercial, or industrial activities, operations, or processes, on, beneath, or adjacent to the Property (or any other property or facility formerly owned, operated or leased by the Company or any Subsidiary) except for inventories of such substances to be used, and wastes generated therefrom, in the ordinary course of business of the Company and its Subsidiaries (which inventories and wastes, if any, were and are stored or disposed of in accordance with applicable laws and regulations and in a manner such that there has been no Release of any such substances into the environment), except where such Releases, placement, storage, burial or dumping of Hazardous Substances, Oils, Pollutants or Contaminants are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (f) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, no Release or Cleanup occurred at the Property (or any other property or facility formerly owned, operated or leased by the Company or any Subsidiary) which could result in the assertion or creation of a lien on the Property by any Governmental Entity with respect thereto, nor has any such assertion of a lien been made by any Governmental Entity with respect thereto, except for such Releases, Cleanups or assertions of liens which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (g) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, no employee of the Company or any Subsidiary in the course of his or her employment with the Company or any Subsidiary has been exposed to any Hazardous Substances, Oils, Pollutants or Contaminants or any other substance, generated, produced or used by the Company or any Subsidiary which could give rise to any claim against the Company or any Subsidiary, except for such claims which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (h) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, neither the Company nor any Subsidiary has received any notice or order from any Governmental Entity or private or public entity advising it that the Company or any Subsidiary is responsible for or potentially responsible for Cleanup or paying for the cost of Cleanup of any Hazardous Substances, Oils, Pollutants or Contaminants or any other waste or substance, and neither the Company nor any Subsidiary has entered into any agreements concerning such Cleanup, nor is the Company or any Subsidiary aware of any facts which might reasonably give rise to such notice, order or agreement, except for such notices, orders or agreements which are not, individually or in the aggregate, reasonably likely to result in a Company Material Adverse Effect. (i) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, and except for such items which are not reasonably likely to result in a Company Material Adverse Effect, the Property does not contain any: (i) underground storage tanks; (ii) asbestos; (iii) equipment using PCBs; (iv) underground injection wells; or (v) septic tanks in which process wastewater or any Hazardous Substances, Oils, Pollutants or Contaminants have been disposed. (j) Except as disclosed in the Disclosure Memorandum with specific reference to this Section, with regard to the Company, its Subsidiaries and the Property (or any other property or facility formerly owned, operated or leased by the Company or any Subsidiary), and except where the following are not reasonably likely to result in a Company Material Adverse Effect, there are no past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance with the Environmental Laws as in effect on the date hereof or with any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, or which may give rise to any common law or legal liability under the Environmental Laws, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study or investigation, based on or related to the manufacture, generation, processing, distribution, use, treatment, storage, place of disposal, transport or handling, or the Release or threatened Release into the indoor or outdoor environment by the Company, any Subsidiary or a present or former facility of the Company or any Subsidiary taken as a whole, of any Hazardous Substances, Oils, Pollutants or Contaminants. (k) Except as disclosed in the Disclosure Memorandum with specific reference to this section, neither the Company nor any Subsidiary has entered into any agreement that may require it to pay to, reimburse, guaranty, pledge, defend, indemnify or hold harmless any person for or against Environmental Liabilities and Costs. (l) The following terms shall be defined as follows: "Cleanup" means all actions required to: (1) cleanup, remove, treat or remediate Hazardous Substances, Oils, Pollutants or Contaminants in the indoor or outdoor environment; (2) prevent the Release of Hazardous Substances, Oils, Pollutants or Contaminants so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (3) perform pre-remedial studies and investigations and post-remedial monitoring and care; or (4) respond to any government requests for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Substances, Oils, Pollutants or Contaminants in the indoor or outdoor environment. "Environmental Laws" means all foreign, federal, state and local laws, regulations, rules and ordinances relating to pollution or protection of the environment, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances, Oils, Pollutants or Contaminants into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Substances, Oils, Pollutants or Contaminants, and all laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances, Oils, Pollutants or Contaminants. "Environmental Liabilities and Costs" means all liabilities, obligations, responsibilities, obligations to conduct Cleanup, losses, damages, deficiencies, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigations and feasibility studies and responding to government requests for information or documents), fines, penalties, restitution and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future, resulting from any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, joint and several liability, criminal or civil statute, including any Environmental Law, or arising from environmental, health or safety conditions, involving the Release or threatened Release of Hazardous Substances, Oils, Pollutants or Contaminants into the environment, as a result of past or present ownership, leasing or operation of any properties, owned, leased or operated by the Company or any Subsidiary, including, without limitation, any of the foregoing incurred in connection with the conduct of any Cleanup. "Hazardous Substances, Oils, Pollutants or Contaminants" means all substances defined as such in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. sec. 300.5, or defined as such by, or regulated as such under, any Environmental Law. "Release" means, when used as a noun, any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances, Oils, Pollutants or Contaminants through or in the air, soil, surface water, groundwater or property, and when used as a verb, the occurrence of any Release. 3.17 Insurance. Except as disclosed in the Disclosure Memorandum with specific reference to this Section, the insurance policies in force with respect to the business and properties of the Company and its Subsidiaries are in full force and effect, all premiums with respect thereto covering all periods up to and including the Closing Date have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for material compliance with all requirements of law and all agreements to which the Company or any Subsidiary is a party; are valid, outstanding and enforceable policies; and provide adequate insurance coverage for the assets and operations of the Company and its Subsidiaries. Such insurance policies are placed with financially sound and reputable insurers and, in light of the respective business, operations and assets and properties of the Company and its Subsidiaries, are in amounts and have coverages that are reasonable and customary for persons engaged in such businesses and operations and having such assets and properties. Neither the Company nor any Subsidiary or the Person to whom such policy has been issued has received notice that any insurer under any policy referred to in this Section is denying liability with respect to a claim thereunder or defending under a reservation of rights clause. 3.18 Affiliate Interests. (a) Except as disclosed by the Company SEC Documents and except for services provided by the directors and executive officers of the Company and its Subsidiaries in their capacities as such and the compensation paid therefor, the Disclosure Memorandum with specific reference to this Section, sets forth all amounts paid (or deemed for accounting purposes to have been paid) and services provided by the Company and its Subsidiaries to, or received by the Company and its Subsidiaries from, any affiliate of the Company or any Subsidiary since December 31, 1993 and all such amounts currently owed by the Company or any Subsidiary to, or to the Company or any Subsidiary by, any affiliate of the Company or any Subsidiary. For purposes of this Agreement, the term "affiliate" shall have the meaning ascribed thereto in Rule 405 of the Securities Act. (b) Each contract, agreement, plan or arrangement between the Company or any Subsidiary on the one hand, and any affiliate of the Company or any Subsidiary or affiliate thereof, on the other hand ("Affiliate Arrangements") is disclosed in the Disclosure Memorandum with specific reference to this Section or Section 3.18(a). Except as disclosed in the Disclosure Memorandum with specific reference to this Section or Section 3.18(a), each of the transactions described in Section 3.18(a) and each of the Affiliate Arrangement was entered into in the ordinary course of business and on commercially reasonable terms and conditions. 3.19 Customers and Suppliers. Except as set forth in the Disclosure Memorandum with specific reference to this Section, as of the date hereof, no customer which individually accounted for more than 1% of the gross revenues of the Company and all its Subsidiaries during the 12 month period preceding the date hereof, and no supplier of the Company and all its Subsidiaries, has canceled or otherwise terminated, or made any written threat to the Company or any Subsidiary to cancel or otherwise terminate, its relationship with the Company or any Subsidiary, or has at any time on or after July 3, 1998 decreased materially its services or supplies to the Company and all its Subsidiaries in the case of any such supplier, or its usage of the services or products of the Company and all its Subsidiaries in the case of any such customer, and to the knowledge of the Company no such supplier or customer intends to cancel or otherwise terminate its relationship with the Company or any Subsidiary or to decrease materially its services or supplies to the Company and all its Subsidiaries or its usage of the services or products of the Company and all its Subsidiaries, as the case may be. From and after the date hereof, no customer which individually accounted for more than 5% of the gross revenues of the Company and all its Subsidiaries during the 12 month period preceding the Closing Date, has canceled or otherwise terminated, or made any written threat to the Company to cancel or otherwise terminate, for any reason, including without limitation the consummation of the transactions contemplated hereby, its relationship with the Company and all Subsidiaries, and no such customer intends to cancel or otherwise terminate its relationship with the Company and all its Subsidiaries or to decrease materially its usage of the services or products of the Company and all its Subsidiaries. Neither the Company nor any Subsidiary has breached, so as to provide a benefit to the Company or any Subsidiary that was not intended by the parties, any agreement with, or engaged in any fraudulent conduct with respect to, any customer or supplier of the Company or any Subsidiary. The Disclosure Memorandum with specific reference to this Section, sets forth the dates of each audit conducted since January 1, 1995 by each material supplier of the Company and its Subsidiaries and summaries of the results of such audits. 3.20 Absence of Questionable Payments. To the Company's knowledge, neither the Company nor any Subsidiary or any director, officer, agent, employee or other Person acting on behalf of the Company or any Subsidiary has used, or authorized the use of, any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or unrecorded funds in violation of Section 30A of the Exchange Act. To the Company's knowledge, the directors, employees and independent commission agents of the Company and its Subsidiaries are in compliance with ethical standards and other trading practices mandated by applicable laws and contractual arrangements and have not made payments to any third parties other than in the ordinary course of business pursuant to contracts. 3.21 Information Supplied. None of the information supplied or to be supplied by or on behalf of the Company or any Subsidiary for inclusion or incorporation by reference in (i) the proxy statement in definitive form relating to the meeting of the Company's stockholders to be held in connection with the Merger (the "Proxy Statement") will, at the date first mailed to stockholders, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of circumstances under which they are made, not misleading and (ii) the Proxy Statement or any amendment thereof or supplement thereto will, at the time of the meeting of the Company's stockholders to be held in connection with the Merger, contain any untrue statement of a material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meetings of stockholders. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. 3.22 Opinion of Financial Advisor. The Company has received the opinion of Jefferies & Company, Inc., dated as of September 29, 1998, to the effect that, as of such date, from a financial point of view, the Merger Consideration to be offered to the stockholders of the Company in the Merger is fair to such stockholders, a copy of which opinion has been delivered to Parent. 3.23 Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of the Company Common Stock is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions contemplated hereby. 3.24 Company Not an Interested Shareholder or a 30% Shareholder. As of the date hereof, neither the Company nor any Subsidiary or any of their respective affiliates is an "interested shareholder" of Parent as such term is defined in Section 912 of the New York Business Corporation Law or a "30% Shareholder" of Parent as such term is defined in Article TENTH of Parents' Restated Certificate of Incorporation. 3.25 Section 203 of the DGCL Not Applicable. The provisions of Section 203 of the DGCL will not, prior to the termination of this Agreement, apply to this Agreement, the Merger or the other transactions contemplated hereby. 3.26 Disclosure. No representation or warranty by the Company in this Agreement, including the Disclosure Memorandum, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, to make the statements herein or therein not misleading. There is no fact known to the Company and its Subsidiaries taken as a whole which could have a material adverse effect on the financial condition, results of operations, prospects or business of the Company and its Subsidiaries taken as a whole, which has not been set forth in the Company SEC Documents or in this Agreement, including the Disclosure Memorandum. 3.27 The Company's Knowledge. The term "the Company's knowledge" or words of similar import shall mean the actual knowledge after due inquiry of any of the Company's directors and officers. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as follows: 4.1 Organization and Authority. Each of Parent and Sub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and, is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the activities conducted by it or the character of the properties owned, leased or operated by it requires it to be so licensed or so qualified, except where the failure to be so licensed or so qualified would not have a material adverse effect on Parent and its Subsidiaries taken as a whole (a "Parent Material Adverse Effect"). Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated hereby. (b) Each of Parent and Sub has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby have been duly and validly approved by its Board of Directors and by Parent in its capacity as the sole stockholder of Sub; and no other corporate proceedings on the part of the either Parent or Sub or their stockholders are necessary to authorize the execution, delivery and performance of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of Parent and Sub, and (assuming due execution and delivery by the Company) this Agreement constitutes a valid and binding obligation of each of Parent and Sub, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally, and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought, and except as indemnification may be limited by public policy. 4.2 No Violation; Consents and Approvals. Neither Parent, Sub nor any of their respective properties or assets, is subject to or bound by any provision of: (a) to Parent's knowledge, any law, statute, rule, regulation, ordinance or judicial or administrative decision; (b) any articles or certificate of incorporation or by-laws; (c) any (i) credit or loan agreement, mortgage, deed of trust, note, bond, indenture, license, concession, franchise, permit, trust, custodianship, other restriction, or (ii) instrument, lease, obligation, contract or agreement; or (d) any judgment, order, writ, injunction or decree; that would impair, prohibit or prevent, or would be violated or breached by, or under which there would be a material default (with or without notice or lapse of time, or both) as a result of, the execution, delivery and performance by each of Parent and Sub of this Agreement and the consummation of the transactions contemplated hereby, except where such event or occurrence is not, individually or in the aggregate, reasonably likely to have a Parent Material Adverse Effect. Other than (i) the filing of the Certificate of Merger as provided in Section 1.1, (ii) the filing with the SEC and Nasdaq of the Proxy Statement, (iii) such consents, orders, approvals, authorizations, registrations, declarations and filings as may be required under the Investment Canada Act, the Competition Act (Canada), applicable state securities laws and the securities laws of any foreign country, (iv) such filings as may be required under the HSR Act and (v) such local consents, orders, approvals, authorizations, registrations, declarations and filings which, if not obtained or made, would not, individually or in the aggregate, reasonably be likely to have a Parent Material Adverse Effect on and that would not impair, prohibit or prevent the consummation of the transactions contemplated hereby, no consent, order, approval or authorization of, or declaration, notice, registration or filing with, any Person is required by or with respect to the execution, delivery and performance by Parent and Sub of this Agreement and the consummation of the transactions contemplated hereby. 4.3 SEC Reports and Financial Statements of Parent. Parent has filed with the SEC, and has heretofore provided to the Company true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it since December 31, 1993 under the Exchange Act or the Securities Act (as such documents have been amended since the time of their filing, collectively, the "Parent SEC Documents"). The Parent SEC Documents, including without limitation any financial statements and schedules included therein, at the time filed or, if subsequently amended, as so amended, (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to customary year-end audit adjustments) the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows. 4.4 Information Supplied. None of the information supplied or to be supplied by or on behalf of Parent or Sub for inclusion or incorporation by reference from documents filed by Parent or any of its Subsidiaries with the SEC in (i) the Proxy Statement will, at the date first mailed to stockholders, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of circumstances under which they are made, not misleading and (ii) the Proxy Statement or any amendment thereof or supplement thereto will, at the time of the meeting of the Company's stockholders to be held in connection with the Merger, contain any untrue statement of a material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meetings of stockholders. All such documents filed by Parent or Sub with the SEC under the Exchange Act will comply as to form in all material respect with the requirements of the Exchange Act. 4.5 Litigation. There is no (i) outstanding consent, order, judgment, writ, injunction, award or decree of any Governmental Entity or arbitration tribunal against or involving Parent or Sub or any of their respective properties or assets, (ii) action, suit, claim, counterclaim, litigation, arbitration, dispute or proceeding pending or, to Parent's knowledge, threatened against or involving Parent or Sub or any of their respective properties or assets or (iii) to Parent's knowledge, investigation or audit pending or threatened against or relating to Parent or Sub or any of their respective properties or assets or any of their respective officers or directors (in their capacities as such) (collectively, "Parent Proceedings") which is, individually or in the aggregate, reasonably likely to impair, prohibit or prevent the consummation of the transactions contemplated hereby. To Parent's knowledge, there are no existing facts or circumstances which could form a basis for any Parent Proceeding which, if commenced, would be reasonably likely to impair, prohibit or prevent the consummation of the transactions contemplated hereby. 4.6 Parent's Knowledge. The term "Parent's knowledge" or words of similar import shall mean the actual knowledge after due inquiry of any of Parent's directors and executive officers. ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY AND PARENT 5.1 Conduct of the Company's Business Prior to the Closing Date. The Company agrees as to itself and its Subsidiaries that, between the date hereof and the Closing Date: (a) Except as contemplated by this Agreement, as disclosed in the Disclosure Memorandum with specific reference to this Section or Section 3.14 or as permitted by the prior written consent of Parent, the Company and its Subsidiaries shall operate their respective businesses only in the usual, regular and ordinary course consistent with prior practice, and the Company and its Subsidiaries shall not: (i) take any action of the nature referred to in Section 3.14, except as expressly permitted therein; (ii) issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of their respective capital stock (except pursuant to, and in accordance with the terms of, the options outstanding on the date hereof created pursuant to the Company Option Plan, the Indenture and the Simmonds Warrant) or any Voting Debt, or any securities convertible into or exchangeable for, or any rights, warrants, calls, subscriptions or options to acquire, any shares of their respective capital stock or any Voting Debt; (iii) increase, decrease or modify, or authorize or propose the increase, decrease or modification of, the authorized capital of the Company or the number of issued and outstanding shares of Company Common Stock except such increases, decreases or modifications as may occur upon the issuance of capital stock of the Company pursuant to the exercise of options or warrants, or the conversion of securities or instruments convertible into the capital stock of the Company, which options, warrants and convertible securities or instruments are outstanding as of the date hereof; (iv) modify or amend, or authorize or propose to modify or amend, the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or similar organizational documents; (v) except as required by law, create or enter into an agreement or benefit plan which, if existing as of the date hereof would constitute a Benefit Plan, or modify an existing Benefit Plan; (vi) maintain or provide, or agree to maintain or provide, benefits under any life, medical or health plan for retirees or other terminated employees of the Company other than benefit continuation rights under COBRA; (vii) take or permit any affiliate thereof to take any action that would or is reasonably likely to result in any of the Company's representations and warranties set forth in this Agreement not to be true as of the date made (to the extent so limited) or in any of the conditions to the Merger set forth in Article 6 not being satisfied; (viii) modify, change, increase or decrease the Company's equity interest or investment in any of the Company's Subsidiaries other than intercompany transfers in the ordinary course as part of the Company's cash management arrangements; (ix) except as required by law, negotiate or enter into any collective bargaining agreement; or (x) enter into any agreement or contract with any Affiliate of the Company or any of its Subsidiaries or modify or amend, or authorize or propose to modify or amend, any existing agreement or contract with any Affiliate of the Company of its Subsidiaries. (b) The Company shall preserve the business organization of the Company and its Subsidiaries intact and shall use its best efforts to keep available to Parent the services of the present officers and employees of the Company and its Subsidiaries and to preserve for Parent the good will of the Company's suppliers, customers, and others having business relations with the Company; provided, that the Company shall not be required to incur any additional expenses with regard to such officers and employees, except for such expenses that are mutually agreed upon by the parties. Except with the prior written consent of Parent (not to be unreasonably withheld), the Company shall not terminate or cause to be terminated any distribution agreement to which it is a party. (c) The Company and its Subsidiaries shall maintain in force the insurance policies referred to in Section 3.17 or insurance policies providing the same or substantially similar coverage; provided, however, that the Company will notify Parent prior to the expiration of any of such insurance policies. (d) The Company shall use its best efforts to pursue its rights with respect to the matters listed in the Disclosure Memorandum with respect to Section 3.14(h) and the Proceedings contemplated by Section 3.15. (e) Except as contemplated by this Agreement or permitted by the prior written consent of Parent, no plan, fund, or arrangement referred to in Section 3.11, or any option or award agreement thereunder, has been or will be: (i) terminated by the Company or any Subsidiary; (ii) amended (except as expressly required by law) in any manner which would directly or indirectly increase the benefits accrued, or which may be accrued, by any participant thereunder; or (iii) amended in any manner which would materially increase the cost to Parent of maintaining such plan, fund, or arrangement. 5.2 Conduct of Business of Sub. Prior to the Effective Time, except as may be required by applicable law and subject to the other provisions of this Agreement, Parent shall cause Sub to (a) perform its obligations under this Agreement in accordance with its terms, (b) not incur directly or indirectly any liabilities or obligations other than those incurred in connection with the Merger, (c) not engage directly or indirectly in any business or activities of any type or kind and not enter into any agreements or arrangements with any person, or be subject to or bound by any obligation or undertaking, which is not contemplated by this Agreement and (d) not create, grant or suffer to exist any lien upon its properties or assets which would attach to any properties or assets of the Surviving Corporation after the Effective Time. 5.3 Preparation of the Proxy Statement. The Company shall promptly prepare and file with the SEC the Proxy Statement and shall use its best efforts to (i) have the Proxy Statement cleared by the SEC and (ii) cause the Proxy Statement to be mailed to the stockholders of the Company at the earliest practicable date. Parent, Sub and the Company shall cooperate with each other in the preparation of the Proxy Statement, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information, and shall provide to Parent promptly copies of all correspondence between the Company or any representative of the Company and the SEC with respect to the Proxy Statement. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement and all responses to requests for additional information by and replies to comments of the SEC before their being filed with, or sent to, the SEC. Each of the Company, Parent and Sub agrees to use its best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC and to cause the Proxy Statement to be mailed to the holders of Company Common Stock entitled to vote at the Company Stockholders' Meeting at the earliest practicable time. 5.4 Legal Conditions to Merger. Each of the Company, Parent and Sub will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on itself with respect to the Merger (which actions shall include, without limitation, furnishing all information required in connection with approvals of or filing with any Governmental Entity) and will promptly cooperate with each other and furnish information to each other in connection with any such requirements imposed upon any of them or any of their Subsidiaries in connection with the Merger. Each of the Company, Parent and Sub will, and will cause its Subsidiaries to, take all reasonable actions necessary to (a) obtain (and will cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party, required to be obtained or made by Parent, the Company or any of their respective Subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement and (b) provide such other information and communications to such Governmental Entities or other public or private third parties as the other party or such Governmental or Regulatory Authorities or other public or private third parties may reasonably request in connection therewith. In addition to and not in limitation of the foregoing, each of the parties will (x) take promptly all actions necessary to make the filings required of Parent and the Company or their affiliates under the HSR Act, (y) comply at the earliest practicable date with any request for additional information received by such party or its affiliates from the Federal Trade Commission (the "FTC") or the Antitrust Division of the Department of Justice (the "Antitrust Division") pursuant to the HSR Act, and (z) cooperate with the other party in connection with such party's filings under the HSR Act and in connection with resolving any investigation or other inquiry concerning the Merger or the other matters contemplated by this Agreement commenced by either the FTC or the Antitrust Division or state attorneys general. 5.5 Stockholder's Meeting. The Company shall call a meeting of its stockholders to be held as promptly as practicable for the purpose of voting upon the adoption of this Agreement. The Company will, through its Board of Directors, unanimously recommend to its stockholders adoption of this Agreement and will solicit proxies in favor of the adoption of this Agreement, and shall take all other action reasonably necessary or advisable to secure the vote or consent of stockholders required to effect the Merger; provided, however, that the Board of Directors of the Company shall not be obligated to recommend approval of this Agreement to its stockholders if such Board of Directors, acting with the advice of its counsel and financial advisors, determines that such recommendation would not be consistent with its fiduciary obligations imposed by applicable law. In the event that the Company Stockholders' Approval is not obtained on the date on which the Company Stockholders' Meeting is initially convened, the Board of Directors of the Company agrees to adjourn such Company Stockholders' Meeting at least twice for the purpose of obtaining the Company Stockholders' Approval and to use its best efforts during any such adjournments to obtain the Company Stockholders' Approval. 5.6 Fees and Expenses. (a) Except as set forth in Section 5.6(b), whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, except that expenses incurred in connection with printing the Proxy Statement, registration and filing fees incurred in connection with the Proxy Statement, and fees, costs and expenses associated with compliance with applicable state securities laws in connection with the Merger shall be shared equally by Parent and the Company. (b) In the event that (i) either Parent or the Company shall terminate this Agreement pursuant to Section 7.1(e), (ii) either Parent or the Company shall terminate this Agreement pursuant to Section 7.1(f)(ii) and, prior to the time of the meeting of the Company's stockholders, there shall have been (A) a Trigger Event with respect to the Company or (B) a Takeover Proposal (as defined in Section 5.12) with respect to the Company which at the time of the meeting of the Company's stockholders shall not have been (x) rejected by the Company and (y) withdrawn by the third party, or (iii) Parent shall terminate this Agreement pursuant to Section 7.1(c), due in whole or in part to any failure by the Company to use its best efforts to perform and comply with all agreements and conditions required by this Agreement to be performed or complied with by the Company prior to or on the Closing Date or any failure by the Company's affiliates to take any actions required to be taken hereby, and prior thereto there shall have been (A) a Trigger Event with respect to the Company or (B) a Takeover Proposal with respect to the Company which shall not have been (x) rejected by the Company and (y) withdrawn by the third party, then in each case, the Company shall reimburse Parent for costs and expenses incurred by Parent in the amount of $1,500,000, without any requirement that Parent account for actual costs or expenses, and, in addition, the Company shall promptly pay to Parent the sum of $5,500,000. In the event that Parent or the Company shall terminate this Agreement pursuant to Section 7.1(c) or (d), as applicable, due to a willful breach of this Agreement by the non-terminating party, the non- terminating party shall reimburse the terminating party for actual expenses incurred within a reasonable time after presentment by the terminating party to the non-terminating party of documentary evidence that such expenses were incurred and paid; provided, however, that notwithstanding such reimbursement, the terminating party may seek such additional remedies for damages against the non-terminating party with respect to such willful breach as are available at law or in equity. As used herein, a "Trigger Event" shall occur if any Person (A) acquires securities representing 10% or more of the voting power of the Company (provided that if any Person beneficially owns 10% or more of the voting power of the Company on the date hereof, a Trigger Event shall occur if such Person acquires additional securities representing 1% or more of all voting power of the Company), or (B) commences a tender or exchange offer following the successful consummation of which the offeror and its affiliates would beneficially own securities representing 25% or more of the voting power of the Company; provided, however, that a Trigger Event shall not be deemed to include the acquisition by any Person of securities representing 10% or more (or 10% owner acquiring 1% or more) of the Company if such Person has acquired such securities not with the purpose nor with the effect of changing or influencing the control of the Company, nor in connection with or as a participant in any transaction having such purpose or effect, including without limitation not in connection with such Person (i) making any public announcement with respect to the voting of such shares at any meeting to consider any merger, consolidation, sale of substantial assets or other business combination or extraordinary transaction involving the Company, (ii) making, or in any way participating in, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act) to vote any voting securities of the Company (including, without limitation, any such solicitation subject to Rule 14a-11 under the Exchange Act) or seeking to advise or influence any Person with respect to the voting of any voting securities of the Company, (iii) forming, joining or in any way participating in any "group" within the meaning of Section 13(d)(3) of the Exchange Act with respect to any voting securities of the Company or (iv) otherwise acting, alone or in concert with others, to seek control of the Company or to seek to control or influence the management or policies of the Company. 5.7 Broker's and Finder's Fees. Each of Parent, Sub and the Company represents, as to itself, its Subsidiaries, and its affiliates, that no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, except Jefferies & Co., Inc., whose fees and expenses will be paid by the Company in accordance with the Company's agreement with such firm (copies of which have been delivered by the Company to Parent on or prior to the date of this Agreement). 5.8 Takeover Statutes. If any "fair price", "moratorium", "control share acquisition" or other form of antitakeover statute or regulation shall become applicable to the transactions contemplated hereby, the Company and the members of the Board of Directors of the Company shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby and thereby. 5.9 Access to Information and Confidentiality. The Company agrees that Parent and Sub may conduct such reasonable investigation with respect to the business, business prospects, assets, liabilities (contingent or otherwise), results of operations, employees and financial condition of the Company as will permit Parent and Sub to evaluate their interest in the transactions contemplated by this Agreement. Each parties' obligations under that certain confidentiality agreement, dated as of April 29, 1998 (the "Confidentiality Agreement"), which are hereby adopted, and incorporated by reference herein, shall apply to all confidential information furnished to it by the other party pursuant to this Agreement. No later than the Closing, the Company will cause all books and records of the Company (including those relating to Taxes) to be physically located at one of the offices of the Company. 5.10 Indemnification. (a) Each of the Constituent Corporations shall, and from and after the Effective Time Parent and the Surviving Corporation shall, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of such Constituent Corporation (the "Indemnified Parties") against (i) all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement with the approval of the indemnifying party of or in connection with any claim, action, suit, proceeding or investigation based on or arising out of the fact that such person is or was a director or officer of such Constituent Corporation, whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether reasserted or claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities based on, or arising out of, or pertaining to this Agreement or the transactions contemplated hereby, in each case to the full extent such corporation is permitted under the DGCL or the Business Corporation Law of the State of New York, its Certificate of Incorporation or Bylaws, in each case as in effect on the date hereof, to indemnify its own directors and officers, as the case may be (and each of the Constituent Corporations, Parent and the Surviving Corporation, as the case may be, will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law; provided that the person to whom expenses are advanced provides any undertaking required by applicable law to repay such advance if it is ultimately determined that such person is not entitled to indemnification). Without limiting the foregoing, in the event any such claim, action, suit, proceeding or investigation is brought against any Indemnified Party (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain counsel satisfactory to them and such Constituent Corporation (or them, Parent and the Surviving Corporation after the Effective Time); (ii) such Constituent Corporation (or after the Effective Time, Parent and the Surviving Corporation) shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; and (iii) such Constituent Corporation (or after the Effective Time, Parent and the Surviving Corporation) will use all reasonable efforts to assist in the vigorous defense of any such matter, provided that neither such Constituent Corporation nor Parent or the Surviving Corporation shall be liable for any settlement of any claim effected without its written consent, which consent, however, shall not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under this Section 5.10, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Constituent Corporation (or after the Effective Time, Parent or the Surviving Corporation) (but the failure so to notify a party shall not relieve such party from any liability which it may have under this Section 5.10 except to the extent such failure prejudices such party). The Indemnified Parties as a group may retain only one law firm to represent them with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties, in which case they may retain such number of law firms as is necessary to address such conflict. (b) For a period of six years after the Effective Time, Parent shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company (provided that Parent may substitute therefor policies of substantially the same coverage and amounts containing terms and conditions which are no less advantageous) with respect to claims arising from facts or events that occurred before the Effective Time. (c) The provisions of this Section 5.10 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives. 5.11 Additional Agreements; Best Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use best efforts to take, or cause to be taken, all action and, to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, subject to the appropriate vote of the stockholders of the Company described in Section 5.5, and to satisfy the conditions to Closing set forth in Article VI including cooperation fully with the other party, including by provision of information and making all necessary filings in connection with, among other things, any approvals required from Governmental Entities. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall take all such necessary action. 5.12 No Solicitation. The Company shall not, and shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it to, (a) solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Takeover Proposal (as hereinafter defined), or (b) agree to or endorse any Takeover Proposal. Notwithstanding the immediately preceding sentence, if the Company shall not have breached the covenant provided by clause (a) of the immediately preceding sentence and a Takeover Proposal, or a written expression of interest that can reasonably be expected to lead to a Takeover Proposal, shall occur, then, upon the good faith determination of the Board of Directors of the Company, acting upon the advice of its legal and financial advisors, that the Takeover Proposal is a better offer than the transactions contemplated by this Agreement and consistent with the fiduciary obligations under applicable law of the Company's Board of Directors, the Company and its officers, directors, employees, investment bankers, financial advisors, attorneys, accountants and other representatives retained by it may furnish in connection therewith information (including non-public information, but only pursuant to a confidentiality agreement in customary form, including customary standstill provisions) and take such other actions as are consistent with the fiduciary obligations of the Company's Board of Directors, and such actions shall not be considered a breach of this Section 5.12 or any other provision of this Agreement; provided, however, that the Company shall not, and shall not permit any of its officers, directors, employees or other representatives to, agree to or endorse any Takeover Proposal unless the Company shall have terminated this Agreement pursuant to Section 7.1(e) and paid to Parent all amounts payable to Parent pursuant to Section 5.6(b). The Company shall promptly advise Parent orally and in writing of any inquiries or Takeover Proposals and keep Parent informed of the status and material information with respect to such inquiries or Takeover Proposals. As used in this Agreement, "Takeover Proposal" shall mean any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Company or the Company Common Stock and made by a Person other than Parent or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets of, the Company other than the transactions contemplated by this Agreement. 5.13 Advice of Changes; Government Filings. The Company shall confer on a regular and frequent basis with Parent, report on operational matters and promptly advise Parent of any change or event having, or which, insofar as can reasonably be foreseen, could result in a Company Material Adverse Effect. Each party shall promptly provide the other (or its counsel) copies of all filings made by such party with any state or Federal Governmental Entity in connection with this Agreement and the transactions contemplated hereby and thereby. 5.14 Press Releases. Prior to the Effective Time, the Company and Parent shall consult with each other as to the form and substance of any press release or other public disclosure related to this Agreement or any of the transactions contemplated hereby; provided, however, that nothing in this Section 5.14 or any other provision of this Agreement shall be deemed to prohibit any party from making any disclosure which its legal counsel deems necessary or advisable in order to satisfy such disclosure obligations under applicable laws or regulations. 5.15 Company Option Plans. (a) At the Effective Time, each unexpired and unexercised option to purchase shares of Company Common Stock (each a "Company Option") under the Company Option Plan shall be deemed to be automatically converted into an option to purchase the number of shares of Parent Common Stock (a "Parent Option") equal to the number of shares of Company Common Stock that could have been purchased under such Company Option multiplied by a fraction, the numerator of which is $10.50 and the denominator of which is the average of the closing prices per share on the New York Stock Exchange of Parent Common Stock for the ten trading days immediately preceding the Closing Date (with the resulting number of shares rounded down to the nearest whole share) (the "Option Conversion Ratio"), at a price per share of Parent Common Stock equal to the exercise price of such Company Option divided by the Option Conversion Ratio and the result thereof rounded up to the nearest whole cent; provided, however, that, in case any Company Option intended to qualify as an incentive stock option under Section 422 of the Code (or a predecessor thereto) is deemed converted into a Parent Option as provided above, the option price, the number of shares of Parent common stock that may be purchased pursuant to such Parent Option and the terms and conditions of such Parent Option shall be determined in order to comply with Section 424(a) of the Code. Such Parent Option shall otherwise be subject to the same terms and conditions as the Company Option. The date of grant of the substituted Parent Option shall be the date on which the corresponding Company Option was granted. The Board of Directors of the Company shall take such actions as are necessary or advisable to effect the transactions contemplated by this Section 5.15. (b) At the Effective Time, Parent shall (i) assume all of the Company's obligations with respect to Company Options as contemplated by Section 5.15(a) above, (ii) reserve for issuance the number of shares of Parent Common Stock that will become subject to Parent Options pursuant to this Section 5.15, (iii) from and after the Effective Time, upon exercise of the Parent Options in accordance with the terms thereof, make available for issuance all shares of Parent Common Stock covered thereby, and (iv) as soon as practicable after the Effective Time, issue to each holder of an outstanding Company Option a document evidencing the foregoing assumption by Parent. (c) The Company Stock Appreciation Rights Plan shall be terminated effective as of the Effective Time and the Company shall not grant any rights under said plan prior to its termination. (d) As promptly as practicable after the Effective Time, Parent shall file a registration statement covering the shares of Parent Common Stock that may be issued upon the exercise of Company Options (converted to Parent Options pursuant to this Section 5.15) and shall use its best efforts to cause the offer and sale of such shares to be registered under the Securities Act, and to maintain such registration in effect until the exercise or termination of the Company Options. Parent shall also use its best efforts to cause such shares of Parent Common Stock to be authorized for listing on the NYSE and shall make all necessary blue sky law filings in connection therewith. 5.16 Notice and Cure. Each of Parent and the Company will notify the other of, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practicable after it becomes known to such party, that causes or will cause any covenant or agreement of Parent or the Company under this Agreement to be breached or that renders or will render untrue any representation or warranty of Parent or the Company contained in this Agreement. Each of Parent and the Company also will notify the other in writing of, and will use all commercially reasonable efforts to cure, before the Closing, any violation or breach, as soon as practicable after it becomes known to such party, of any representation, warranty, covenant or agreement made by Parent or the Company. No notice given pursuant to this Section shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein. 5.17 Canadian Subsidiary. Immediately prior to and conditioned upon the Closing, the Company shall sell all of the issued and outstanding shares of Richey Electronics Limited, the Company's Canadian subsidiary, to Parent or a Subsidiary of Parent designated by Parent for a purchase price of US$730,001. 5.18 Observance of Operations of the Business. From the date hereof until the Closing Date, Parent may, at its election, without unduly interfering with the management or operations of the Company, have a reasonable number of representatives at the facilities of the Company and its Subsidiaries to observe and consult with representatives of the Company and its Subsidiaries with respect to the management of the operations of the Company. Notwithstanding anything in this Agreement to the contrary, all rights of Parent or its representatives to access to or inspection of such business operations of the Company or to obtain information with respect to the Company pursuant to Sections 5.1, 5.9 and 5.18 shall be effected solely through the representatives of the Company set forth on the Disclosure Memorandum with specific reference to this Section and shall be subject to the right of a representative of the Company to accompany Parent or its representative in connection therewith. 5.19 Certain Company Employees. The Company shall provide notice of the non-renewal of the employment agreements listed on the Disclosure Memorandum with specific reference to this Section in accordance with the terms of such agreements, in each case prior to the date after which such agreement will be extended or renewed in accordance with its terms. 5.20 Company Bank Debt. Parent agrees to cause the repayment at the Closing of the outstanding indebtedness under the Loan Agreement, dated as of December 20, 1995 among the Company, the banks named therein and First Interstate Bank of California, as Agent, as amended. 5.21 Employee Matters. Each employee benefit plan, program, policy or arrangement provided as of the Closing by Parent to employees of the Company who are employed by the Surviving Corporation (the "Continuing Employees") shall give full credit, to the extent credited under a comparable Benefit Plan, for each Continuing Employee's period of service (as recognized by the Company as of the Closing) prior to the Closing Date for purposes of determining eligibility and vesting of benefits (but not for benefit accrual purposes). Each employee welfare benefit plan provided by Parent to the Continuing Employees from and after the Closing Date shall (i) give full credit for deductibles and out-of- pocket expenses under the Benefit Plans with respect to the current plan year toward any deductibles for the remainder of the plan year during which the Closing occurs, and (ii) shall waive any pre-existing condition limitation for any such Continuing Employee to the extent that such limitation would not apply to such Continuing Employee under the applicable Benefit Plan; provided, however, that if a Continuing Employee's pre-existing condition is a condition which is not currently covered under Parent's group health plan, such exclusion of condition shall not be waived and Parent shall have no obligation or liability therefor except as required by law. ARTICLE 6 CONDITIONS PRECEDENT 6.1 Conditions to Each Party's Obligation to Effect the Merger. The obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions: (a) Stockholder Approval. This Agreement shall have been adopted by the affirmative vote of the holders of a majority of the outstanding shares of the Company Common Stock entitled to vote on the Merger. (b) Other Approvals. All authorizations, consents, orders or approvals of, or declarations or filings with, or expirations or terminations of waiting periods imposed by, any Governmental Entity the failure to obtain which would have a material adverse effect on the Surviving Corporation, including, without limitation, such approvals, waivers and consents as may be required under the Securities Act and the HSR Act, shall have been filed, occurred or been obtained. (c) No Injunctions or Legal Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition (an "Injunction"), and no law, statute, rule, regulation, ordinance or judicial or administrative decision, preventing the consummation of the Merger shall be in effect. (d) No Governmental Actions. No investigation by any Governmental Entity shall have been commenced, and no action, suit or proceeding by any Governmental Entity shall have been threatened, against Parent, Sub, the Company or any Subsidiary thereof or any of the principals, officers or directors of any of them, seeking to restrain, prevent or change the transactions contemplated hereby or questioning the legality or validity of any such transactions or seeking damages in connection with any such transactions. (e) Indenture. The Surviving Corporation and Parent shall have entered into such supplemental indentures as are required under the Indenture as a result of the Merger. 6.2 Conditions to Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger are subject to the satisfaction of the following conditions, unless waived by Parent and Sub: (a) Representations and Warranties; Performance of Obligations. Except as otherwise contemplated or permitted by this Agreement, (i) the representations and warranties of the Company contained in this Agreement or in any certificate or document delivered to Parent pursuant hereto shall as of the Closing Date, (x) to the extent qualified by Company Material Adverse Effect, be true in all respects and (y) to the extent not qualified by Company Material Adverse Effect, be true in all respects; provided, however, that for purposes of clause (y) of this paragraph, such representations and warranties, with respect to the period of time between the date of this Agreement and the Closing Date, shall be deemed to be true in all respects for such period unless failure or failures of such representations and warranties to be true in all respects, either individually or in the aggregate, and without giving effect to any qualification as to materiality set forth in such representations or warranties, would have a Company Material Adverse Effect, except for those representations and warranties contained in (1) Section 3.1(b) and (2) the third sentence of Section 3.4 up to, but not including, clause (ii) of such sentence, which representations and warranties shall be true in all respects, and (ii) the Company shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by the Company prior to or on the Closing Date, and Parent shall have been furnished with a certificate of an appropriate officer of the Company, dated the Closing Date, certifying to the effect of clauses (i) and (ii) hereof. (b) No Actions. No action, suit or proceeding before any court or governmental or regulatory authority shall be pending (other than those referred to in Section 6.1(d)), against Parent, Sub, the Company, any Subsidiary thereof or any of the principals, officers or directors of any of them, seeking to restrain, prevent or change the transactions contemplated hereby or questioning the legality or validity of any such transactions or seeking damages in connection with any such transactions. (c) Consents Under Agreements. The Company shall have obtained the consent or approval of each Person (other than the Governmental Entities referred to in Section 6.1(b) and of the Company's suppliers under franchise agreements) whose consent or approval shall be required in order to permit the succession by the Surviving Corporation pursuant to the Merger to any obligation, right or interest of the Company or the Company's Subsidiary under any loan or credit agreement, note, mortgage, indenture, lease or other agreement or instrument, except those disclosed in the Disclosure Memorandum with specific reference to this Section and those for which failure to obtain such consents and approvals would not, individually or in the aggregate, have a Company Material Adverse Effect or impair, prohibit or prevent the consummation of the transactions contemplated hereby. (d) Lending Moratorium. There shall be no moratorium or other limitation on commercial bank lending declared by any Federal or New York State regulatory authority or other circumstances or state of facts constituting a disruption in the financial markets causing banks and other financial institutions generally not to extend credit. (e) Material Adverse Change. Since the date hereof, there shall not have been any events, changes or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. (f) No Amendments to Resolutions. Neither the Board of Directors of the Company nor any committee thereof shall have amended, modified, rescinded or repealed the resolutions adopted by the Board of Directors on September 29, 1998 (accurate and complete copies of which have been provided to Parent) and shall not have adopted any other resolutions in connection with this Agreement and the transactions contemplated hereby inconsistent with such resolutions. (g) Dissenting Shares. The aggregate number of Dissenting Shares shall not exceed 10 % of the total number of shares of Company Common Stock outstanding on the Closing Date. 6.3 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is subject to satisfaction of the following conditions, unless waived by the Company: (a) Representations and Warranties; Performance of Obligations. Except as otherwise contemplated or permitted by this Agreement, (i) the representations and warranties of Parent and Sub contained in this Agreement or in any certificate or document delivered to the Company pursuant hereto shall as of the Closing Date, (x) to the extent qualified by Parent Material Adverse Effect, be true in all respects and (y) to the extent not qualified by Parent Material Adverse Effect, be true in all respects; provided, however, that for purposes of clause (y) of this paragraph, such representations and warranties, with respect to the period of time between the date of this Agreement and the Closing Date, shall be deemed to be true in all respects for such period unless failure or failures of such representations and warranties to be true in all respects, either individually or in the aggregate, and without giving effect to any qualification as to materiality set forth in such representations or warranties, would have a Parent Material Adverse Effect, and (ii) Parent and Sub shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or on the Closing Date, and the Company shall have been furnished a certificate of an appropriate officer of Parent, dated the Closing Date, certifying to the effect of clauses (i) and (ii) hereof. (b) Consents Under Agreements. Parent shall have obtained the consent or approval of each Person (other than the Governmental Entities referred to in Section 6.1(c)) whose consent or approval shall be required in connection with the transactions contemplated hereby under any loan or credit agreement, note, mortgage, indenture, lease or other agreement or instrument, except those for which failure to obtain such consents and approvals would not, prohibit or prevent the consummation of the transactions contemplated hereby. (c) No Amendments to Resolutions. Neither the Board of Directors of Parent nor any committee thereof shall have amended, modified, rescinded or repealed the resolutions adopted by the Board of Directors on September 27, 1998 (accurate and complete copies of which have been provided to the Company) and shall not have adopted any other resolutions in connection with this Agreement and the transactions contemplated hereby inconsistent with such resolutions. ARTICLE 7 TERMINATION AND AMENDMENT 7.1 Termination. At any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the stockholders of the Company or Sub, this Agreement may be terminated: (a) by mutual consent of Parent and the Company; (b) by either Parent or the Company, if, without fault of the terminating party, the Closing shall not have occurred on or before February 15, 1999 (or such later date as may be agreed upon in writing by the parties hereto); (c) by Parent, if the Company shall breach any of its representations, warranties or obligations hereunder and such breach shall not have been cured or waived and the Company shall not have provided reasonable assurance that such breach will be cured on or before the Closing Date; provided, however, that Parent shall not have the right to so terminate this Agreement if such breach, if it existed as of the Closing Date, would not result in the Company's failure to satisfy the conditions set forth in Section 6.2(a); (d) by the Company, if Parent or Sub shall breach any of their respective representations, warranties or obligations hereunder and such breach shall not have been cured or waived and Parent shall not have provided reasonable assurance that such breach will be cured on or before the Closing Date; (e) by either Parent or the Company if a Takeover Proposal shall have occurred and the Board of Directors of the Company in connection therewith, after consultation with its legal counsel, withdraws or modifies its approval and recommendation of this Agreement and the transactions contemplated hereby after determining that to cause the Company to proceed with the transactions contemplated hereby would not be consistent with the Board of Directors' fiduciary duty to the stockholders of the Company; or (f) by either Parent or the Company (i) if any permanent Injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable or (ii) if any required approval of the stockholders of the Company shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at a duly held meeting of stockholders or at any adjournment thereof. 7.2 Effect of Termination. In the event of termination of this Agreement by either Parent or the Company as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Sub or the Company or their respective officers or directors except (i) with respect to Section 5.6, 5.7, and 5.9, (ii) to the extent that such termination results from the willful breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement except as provided in Section 8.7 and (iii) this Section 7.2 shall survive such termination. 7.3 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action duly taken, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. 7.4 Amendment and Modification. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after adoption of the Agreement by the stockholders of Parent or the Company, but after any such adoption, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. ARTICLE 8 GENERAL PROVISIONS 8.1 Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for the agreements contained in Section 2.1, 2.2, 5.10, 5.15 and the last sentence of Section 7.4 and Article 8. 8.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt of: hand delivery, overnight courier, certified or registered mail, return receipt requested, or facsimile transmission with confirmation of receipt: (i) If to the Company, to: Richey Electronics, Inc. 7441 Lincoln Way, Suite 100 Garden Grove, California 92642 Facsimile: (714) 897-7887 Telephone: (714) 898-8288 Attention: Richard N. Berger (with a copy to) Dewey Ballantine LLP 333 South Hope Street Los Angeles, California 90071-1406 Facsimile: (213) 625-0562 Telephone: (213) 626-3399 Attention: Alan M. Albright, Esq. (ii) If to Parent, to: Arrow Electronics, Inc. 25 Hub Drive Melville, New York 11747 Facsimile: (516) 391-1683 Telephone: (516) 391-1830 Attention: Robert E. Klatell (with a copy to) Milbank, Tweed, Hadley & McCloy One Chase Manhattan Plaza New York, New York 10005 Facsimile: (212) 530-5219 Telephone: (212) 530-5000 Attention: Howard S. Kelberg, Esq. Such names and addresses may be changed by written notice to each person listed above. 8.3 Governing Law. Except to the extent that the DGCL is mandatorily applicable to the Merger and the rights of the stockholders of the Constituent Corporations, this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to a contract executed and performed in such State, without giving effect to the conflicts of law principles thereof. 8.4 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". 8.5 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 8.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership. (a) This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof other than the Confidentiality Agreement, which shall survive the execution and delivery of this Agreement in accordance with its terms, and (b) except as otherwise contemplated by Sections 2.1, 2.2 and 5.10 (which covenants shall be enforceable by the persons affected thereby following the Effective Time), is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. The parties hereby acknowledge that, except as hereafter agreed to in writing, no party shall have the right to acquire or shall be deemed to have acquired shares of common stock of the other party pursuant to the Merger until consummation thereof. (b) The Company Disclosure Letter, the Parent Disclosure Letter and any Exhibit attached to this Agreement and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 8.7 No Remedy in Certain Circumstances. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take any action required herein, the other party shall not be entitled to specific performance of such provision or part hereof or thereof or to any other remedy, including but not limited to money damages, for breach hereof or thereof or of any other provision of this Agreement or part hereof as a result of such holding or order. 8.8 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so be broad as is enforceable. 8.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to Parent or to any direct or indirect wholly owned Subsidiary of Parent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 8.10 Headings. The Headings used in this Agreement have been inserted for convenience of reference only and do not define, modify or limit the provisions hereof. 8.11 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specified terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell --------------------- Name: Robert E. Klatell Title: Executive Vice President LEAR ACQUISITION CORP. By: /s/ Robert E. Klatell --------------------- Name: Robert E. Klatell Title: President RICHEY ELECTRONICS, INC. By: /s/ Richard N. Berger --------------------- Name: Richard N. Berger Title: Vice President EXHIBIT A PROXIES Thomas W. Blumenthal William C. Cacciatore Edward L. Gelbach Greg A. Rosenbaum Norbert W. St. John Donald I. Zimmerman EX-2 3 AMENDMENT RICHEY ACQUISITION AGREEMENT AMENDMENT TO AGREEMENT AND PLAN OF MERGER AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of October 21, 1998 ("Amendment"), by and among Arrow Electronics, Inc., a New York corporation ("Parent"), Lear Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent ("Sub") and Richey Electronics, Inc., a Delaware corporation (the "Company"). WHEREAS, Parent, Sub and the Company have entered into an Agreement and Plan of Merger dated as of September 30, 1998 (the "Merger Agreement"); and WHEREAS, Parent, Sub and the Company desire to amend certain provisions of the Merger Agreement; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree that: 1. The first sentence of Section 5.15(a) shall be amended by deleting the word "ten" and adding the word "five" in lieu thereof. 2. Section 8.1 shall be amended by adding the section number ",5.21" after the section number "5.15" and before the word "and". Except as specifically amended hereby, the Merger Agreement shall remain in full force and effect in accordance with its terms. This Amendment shall be governed and construed in accordance with the laws of the State of New York applicable to a contract executed and performed in such State, without giving effect to the conflicts of law principles thereof. This Amendment may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell --------------------- Name: Robert E. Klatell Title: Executive Vice President LEAR ACQUISITION CORP. By: /s/ Robert E. Klatell --------------------- Name: Robert E. Klatell Title: President RICHEY ELECTRONICS, INC. By: /s/ Richard N. Berger --------------------- Name: Richard N. Berger Title: Vice President EX-2 4 BELL ACQUISITION AGREEMENT AGREEMENT OF PURCHASE AND SALE DATED AS OF OCTOBER 1, 1998 BY AND BETWEEN BELL INDUSTRIES, INC. AND ARROW ELECTRONICS, INC. TABLE OF CONTENTS Page 1. Purchase and Sale of the Business 1 (a) Assets Transferred 1 (b) Excluded Assets 4 (c) Assumed Liabilities 5 (d) Retained Liabilities 7 2. Purchase Price 9 (a) Calculation of Purchase Price 9 (b) Closing Payments 9 (c) Allocation 9 (d) Distribution of Payments 10 3. Audited Balance Sheet; Adjustment to the Estimated Purchase Price 11 4. Closing 12 5. Obligations of Seller and Purchaser at Closing; Further Assurances 12 6. Representations and Warranties of Seller 13 (a) Organization, Standing and Qualification 13 (b) The Electronics Components Distribution Business 14 (c) Execution, Delivery and Performance of Agreement; Authority 14 (d) Ownership and Capitalization 15 (e) Financial Statements 15 (f) Absence of Undisclosed Liabilities 16 (g) Absence of Changes or Events 17 (h) Litigation 18 (i) Compliance with Laws and Other Instruments 18 (j) Title to Properties 19 (k) Contracts 20 (l) Patents, etc. 21 (m) Employee Benefit Plans 21 (n) Taxes 22 (o) Proxy Statement 23 (p) Affiliate Transactions 24 (q) Inventory; Accounts Receivable 24 (r) Rights of Return 25 (s) Insurance 25 (t) Environmental Matters 25 (u) Determination of Taxability 27 (v) Vote Required 27 (w) Article SEVEN of Seller's Articles of Incorporation Not Applicable 27 (x) Subsidiary Ownership of Real Property 28 (y) Proxies 28 (z) Labor Matters 28 (aa) Supplier Audits 28 (bb) Trading Practices; Ethical Standards 28 (cc) Value-Added Business 28 7. Purchaser's Representations and Warranties 29 (a) Organization and Standing 29 (b) Execution, Delivery and Performance of Agreement 29 (c) Information to be Included in the Definitive Proxy Statement 29 (d) Litigation 29 (e) Ownership of Seller Common Stock 30 8. Certain Agreements 30 (a) Observance of Operations of the Business 30 (b) Maintain Business 30 (c) Approval of Shareholders; Proxy Statement 31 (d) Insurance 32 (e) Hiring of Employees 33 (f) Tax Matters 33 (g) Option Agreement 34 (h) Transition Services 34 9. Certain Covenants of Seller 35 (a) Obtain Consents 35 (b) Accomplish Sale 35 (c) Cooperate with Purchaser 35 (d) No Solicitation 35 (e) Access to Information 36 (f) Employee Benefits Plan 36 (g) Hart-Scott Compliance 36 (h) Elimination of Intercompany Indebtedness 37 (i) Delivery of Documents 37 (j) Resignations of Directors 37 (k) Real Property 37 (l) Canadian Antitrust Compliance 38 (m) Security Deposits 38 (n) Delivery of Books and Records, etc.; Removal of Property 38 (o) Noncompetition 38 (p) Takeover Statutes 39 (q) Declaration of Distribution 39 (r) Use of Name 40 10. Certain Covenants of Purchaser 40 (a) Obtain Consents 40 (b) Accomplish Sale 40 (c) Cooperate with Seller 40 (d) Hart-Scott Compliance 40 (e) Employee Benefits and Employee Benefit Plans 40 (f) Required Documents 41 (g) Canadian Antitrust Compliance 41 (h) License of Bell Name 41 11. Conditions Precedent to Purchaser's Obligations 41 12. Conditions Precedent to Seller's Obligations 43 13. Indemnification 43 (a) Indemnification and Reimbursement of Purchaser 43 (b) Indemnification and Reimbursement of Seller 44 (c) Defense of Claims by Third Parties 44 (d) Notice of Other Claims; Non-Waiver 45 (e) Threshold 45 (f) Exclusive Remedy 45 14. Commission and Finder's Fees 45 15. Survival of Representations and Warranties 45 16. Expenses 46 17. Termination 46 18. Notices 47 19. Entire Agreement, Amendments and Certain Other Matters 47 20. Assignment 48 21. Counterparts 48 22. Effectiveness 48 23. Consent to Jurisdiction and Governing Law 48 24. Severability 48 LIST OF EXHIBITS AND SCHEDULES Exhibit A Valuation Principles Exhibit B General Assignment and Bill of Sale Exhibit C Assumption Agreement Exhibit D Trademark License Agreement Exhibit E Certificate of Non-Foreign Status Exhibit F Opinion of Counsel to Seller Exhibit G Opinion of Counsel to Purchaser Exhibit H Stock Option Agreement Schedule 1(a)(i) Real Property Schedule 1(a)(ii)(A) Real Property Leases (Seller as Lessor or Sublessor) Schedule 1(a)(ii)(B) Real Property Leases (Seller as Lessee or Sublessee) Schedule 1(a)(v) Tangible Personal Property Schedule 1(a)(vi)(A) Personal Property Leases (Seller as Lessor or Sublessor) Schedule 1(a)(vi)(B) Personal Property Leases (Seller as Lessee or Sublessee) Schedule 1(a)(viii) Prepaid Expenses Schedule 1(a)(ix) Intangible Personal Property Schedule 1(a)(x) Business Licenses Schedule 1(a)(xi) Vehicles Schedule 1(a)(xiv) Business Litigation Schedule 1(a)(xv) Acquired Subsidiaries Schedule 1(b)(vii) Excluded Contracts and Inventory Schedule 1(b)(viii) Excluded Real Estate Schedule 1(b)(ix) Remaining Businesses Schedule 1(c)(ii) Accounts Payable Schedule 1(c)(v) Accrued Expenses Schedule 1(c)(x) Ontario Warehouse Agreements Schedule 1(c)(xii) Employment Agreements Schedule 1(d)(i) Certain Indebtedness Schedule 1(d)(vi) Retained Litigation Liabilities Schedule 3(d) Terminated Lines Schedule 6(b) Shared Facilities or Services Schedule 6(c)(i) Conflicting Contracts - Seller Schedule 6(c)(ii) Merger/Consolidation Conflicts Schedule 6(d)(ii) Capitalization of Subsidiaries Schedule 6(e)(ii) Exceptions to Financial Statements Schedule 6(f) Certain Liabilities Schedule 6(g) Material Changes Since June Balance Sheet Schedule 6(g)(vi) Contractual Commitments to Employees Schedule 6(h) Litigation Schedule 6(j)(i) Exceptions to Good Title (Tangible Personal Property) Schedule 6(j)(ii)(B) Exceptions to Good Title (Real Property) Schedule 6(j)(ii)(C) Defaults under Real Property Lease Schedule 6(j)(ii)(E) Tenant's Purchase Rights Schedule 6(j)(ii)(F) Exceptions to Condition of Improvements Schedule 6(k) Contracts and Material Defaults Schedule 6(l) Exceptions to Patents Schedule 6(n) Tax Filing Exceptions Schedule 6(p) Affiliate Agreements Schedule 6(q)(i) Inventory Exceptions Schedule 6(q)(ii) Accounts Receivable Exceptions Schedule 6(r) Inventory - Subject to a Right of Return Schedule 6(s) Seller's Insurance Policies Schedule 6(t) Environmental Matters Schedule 6(y) Proxies Schedule 6(z) Labor Matters Schedule 6(aa) Supplier Audits Schedule 7(b) Conflicting Contracts - Purchaser Schedule 10(e)(i) Exceptions to Employees Schedule 11(i) Ontario Warehouse Consents AGREEMENT OF PURCHASE AND SALE AGREEMENT dated as of October 1, 1998 (the "Agreement") by and between BELL INDUSTRIES, INC., a California corporation having its principal office at 2201 East El Segundo Boulevard, El Segundo, California 90245 ("Seller") and ARROW ELECTRONICS, INC., a New York corporation having its principal office at 25 Hub Drive, Melville, New York 11747 ("Purchaser"). RECITALS Seller is engaged, among other things, in the distribution of electronic components, including primarily semiconductors, passive components, connectors and power supplies and board-level products, and the provision of value-added services, including primarily kitting, turnkey, SMART (automated replenishment system), assembly of custom cables, harnesses and connectors, contract purchasing and direct programming of chips (collectively, the "Business"). Purchaser wishes to purchase and acquire from Seller the Business (but specifically excluding the other businesses conducted by Seller). Seller will sell, transfer and assign to Purchaser, and Purchaser will purchase and acquire from Seller, the assets, and assume the liabilities of the Business for the consideration and on the terms and conditions hereinafter set forth. Simultaneously with the execution and delivery of this Agreement, Seller and Purchaser have entered into a stock option agreement in the form of Exhibit H (the "Option Agreement"). NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereby agree as follows: 1. Purchase and Sale of the Business. (a) Assets Transferred. On the terms and subject to the conditions set forth in this Agreement, Seller will, or will cause its subsidiaries to, sell, transfer, convey, assign and deliver to Purchaser, and Purchaser will purchase and pay for, at the Closing, all of Seller's, or its applicable subsidiary's, right, title and interest in, to and under the following Assets and Properties of Seller (or its subsidiaries) used or held for use in connection with the Business (except as otherwise provided in Section 1(a)(xvi)), as the same shall exist on the Closing Date (the "Assets"): (i) Real Property. The real property set forth on Schedule 1(a)(i), and all of the rights arising out of the ownership thereof or appurtenant thereto (the "Real Property"), together with all buildings, structures, facilities, fixtures and other improvements thereto (the "Improvements"); (ii) Real Property Leases. Subject to Section 5(c), (A) the leases and subleases of real property set forth on Schedule 1(a)(ii)(A) as to which Seller (and its applicable subsidiaries) is the lessor or sublessor and (B) the leases and subleases of real property set forth on Schedule 1(a)(ii)(B) as to which Seller (and its applicable subsidiaries) is the lessee or sublessee, other than such leases and subleases involving annual rental payments of less than $75,000 individually or $500,000 in the aggregate (which shall be included in the updated Schedule 1(a)(ii)(B) to be redelivered to Purchaser within thirty (30) days after the date hereof), together with any options to purchase the underlying property and leasehold improvements thereon, and in each case all other rights, subleases, licenses, permits, deposits and profits appurtenant to or related to such leases and subleases (the leases and subleases described in subclauses (A) and (B), the "Real Property Leases"); (iii) Inventory. All inventories of raw materials, work-in-process, finished goods, products under research and development, demonstration equipment, office and other supplies, parts, packaging materials and other accessories related thereto which are held at, or are in transit from or to, the locations at which the Business is conducted, or located at customers' premises on consignment or at the premises of third party processors, in each case, which are used or held for use by Seller (or its applicable subsidiaries) in the conduct of the Business, including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person, together with all rights of Seller (or its applicable subsidiaries) against suppliers of such inventories (the "Inventory"); (iv) Accounts Receivable. All trade accounts receivable and all notes, bonds and other evidences of indebtedness of and rights to receive payments arising out of sales occurring in the conduct of the Business, and any security arrangements and collateral securing the repayment or other satisfaction thereof or related thereto, including any rights of Seller (or its applicable subsidiaries) with respect to any third party collection procedures or any other actions, suits, proceedings, arbitrations, or Governmental Entity investigation or audit which have been commenced in connection therewith (the "Accounts Receivable"); (v) Tangible Personal Property. All furniture, fixtures, equipment, machinery and other tangible personal property (other than Inventory and Vehicles) used or held for use in the conduct of the Business at the locations at which the Business is conducted or at customers' premises on consignment, or otherwise used or held for use by Seller (or its applicable subsidiaries) in the conduct of the Business (including but not limited to the items set forth on Schedule 1(a)(v), including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person (the "Tangible Personal Property")); (vi) Personal Property Leases. Subject to Section 5(c), (A) the leases or subleases of Tangible Personal Property including but not limited to the items set forth on Schedule 1(a)(vi)(A) as to which Seller (or any of its applicable subsidiaries) is the lessor or sublessor (which Schedule shall be updated and redelivered to Purchaser within five (5) days prior to the Closing Date) and (B) the leases of Tangible Personal Property including but not limited to the items set forth on Schedule 1(a)(vi)(B) as to which Seller (or its applicable subsidiaries) is the lessee or sublessee (which Schedule shall be updated and redelivered to Purchaser within five (5) days prior to the Closing Date), together with any options to purchase the underlying property (the leases and subleases described in subclauses (A) and (B), the "Personal Property Leases"); (vii) Business Contracts. Subject to Section 5(c), all contracts (other than the Real Property Leases, the Personal Property Leases and the Accounts Receivable) to which Seller (or any of its applicable subsidiaries) is a party and which are utilized in the conduct of the Business, including without limitation, contracts relating to suppliers, sales representatives, distributors, purchase orders, marketing arrangements and manufacturing arrangements (the "Business Contracts"); (viii) Prepaid Expenses. All prepaid expenses to the extent relating to the Business, including but not limited to the items set forth on Schedule 1(a)(viii) (the "Prepaid Expenses"); provided, however, that the extent to which any such Asset relates to the Remaining Businesses (as defined in Section 1(b)(ix)) shall be expressly noted on such Schedule and if not so noted shall be an Asset; (ix) Intangible Personal Property. All Intellectual Property to the extent used or held for use in the conduct of the Business (including Seller's or its applicable subsidiaries, goodwill therein) and all rights, privileges, claims, causes of action and options relating or pertaining to the Business or the Assets, including but not limited to the items set forth on Schedule 1(a)(ix) (the "Intangible Personal Property"); provided, however, that the extent to which any such Asset relates to the Remaining Businesses shall be expressly noted on such Schedule and if not so noted shall be an Asset; (x) Licenses. To the extent their transfer is permitted under applicable laws, rules and regulations and subject to Section 5(c), all licenses (including applications therefor) to the extent utilized in the conduct of the Business, including but not limited to the licenses set forth on Schedule 1(a)(x) (the "Business Licenses") (which Schedule shall be updated and redelivered to Purchaser within thirty (30) days after the date hereof); provided, however, that the extent to which any such Asset relates to the Remaining Businesses shall be expressly noted on such Schedule and if not so noted shall be an Asset; (xi) Vehicles. All motor vehicles owned or leased by Seller (or its applicable subsidiaries) and used or held for use in the conduct of the Business, including but not limited to the vehicles set forth on Schedule 1(a)(xi) (the "Vehicles"); (xii) Security Deposits. All security deposits deposited by or on behalf of Seller (or its applicable subsidiaries) as lessee or sublessee under the Real Property Leases (the "Tenant Security Deposits"); (xiii) Books and Records. All Books and Records used or held for use in the conduct of the Business or otherwise relating to the Assets, other than the Excluded Books and Records (the "Business Books and Records"); (xiv) Litigation Claims. Any rights (including indemnification) and claims and recoveries under litigation of Seller (or its applicable subsidiaries) against third parties arising out of or relating to the Business set forth on Schedule 1(a)(xiv) (the "Business Litigation"); (xv) Subsidiary Stock. All of the right, title and interest of Seller in, to and under the issued and outstanding shares of capital stock (the "Acquired Shares") of the subsidiaries of Seller set forth on Schedule 1(a)(xv) (the "Subsidiaries"); (xvi) Tradenames and Logos. All of Seller's right, title and interest in, to and under the names "Bell Industries", "Bell", "BI" and "Milgray Electronics" and all derivatives thereof and all logos and typestyles used or registered by Seller, and all goodwill associated therewith, whether or not used or held for use in connection with the Business (the "Acquired Names"); and (xvii) Other Assets and Properties. All other Assets and Properties of Seller (or its applicable subsidiaries) used or held for use in connection with the Business except as otherwise provided in Section 1(b) (the "Other Assets"). To the extent any of the Business Books and Records are items susceptible to duplication and are either (x) used in connection with any of Seller's businesses other than the Business or (y) are required by any law, rule or regulation to be retained by Seller, Seller may deliver photostatic copies or other reproductions from which, in the case of Business Books and Records referred to in clause (x), information solely concerning Seller's businesses other than the Business has been deleted. To the extent any of the Business Books and Records relates to the Remaining Businesses, Purchaser will afford the other party, its counsel and its accountants, during normal business hours, reasonable access to such Business Books and Records and the right to make copies and extracts therefrom. Further, Purchaser agrees for a period extending six (6) years after the Closing Date not to destroy or otherwise dispose of any such Business Books and Records unless Purchaser shall first offer in writing to surrender such Business Books and Records to Seller and Seller shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made. (b) Excluded Assets. Notwithstanding anything in this Agreement to the contrary, the following Assets and Properties of Seller and its applicable subsidiaries used or held for use in connection with the Business shall be excluded from and shall not constitute Assets (the "Excluded Assets"): (i) Cash. Cash (including checks received prior to the close of business on the Closing Date, whether or not deposited or cleared prior to the close of business on the Closing Date), commercial paper, certificates of deposit and other bank deposits, treasury bills and other cash equivalents; (ii) Insurance. Life insurance policies of officers and other employees of Seller and all other insurance policies relating to the operation of the Business; (iii) Employee Benefit Plans. All assets owned or held by any Employee Benefit Plans (as defined in Section 6(m)); (iv) Tax Refunds. All refunds or credits, if any, of Taxes due to or from Seller; (v) Excluded Books and Records. The minute books, stock transfer books and corporate seal of Seller and its subsidiaries other than the Subsidiaries and any other Books and Records relating primarily to the Excluded Assets or the Retained Liabilities (the "Excluded Books and Records"); (vi) Litigation Claims. Any rights (including indemnification) and claims and recoveries under litigation of Seller against third parties arising out of or relating to the Business, except the Business Litigation set forth on Schedule 1(a)(xiv); (vii) Excluded Contracts and Inventory. The rights of Seller in, to and under all of the contracts and inventory set forth on Schedule 1(b)(vii); (viii) Excluded Real Estate. The real property set forth on Schedule 1(b)(viii), together with all buildings, structures, facilities, fixtures and the improvements thereto; (ix) Other Business. All of Seller's Assets and Properties that are not used or held for use in connection with the Business, including, without limitation, those businesses set forth on Schedule 1(b)(ix) (the "Remaining Businesses") and the shares of any direct or indirect subsidiaries of Seller other than the Subsidiaries; (x) Claims Against Third Parties. Claims against third parties for damages suffered in connection with Excluded Assets and Retained Liabilities; and (xi) Agreements. Seller's rights under this Agreement, the Option Agreement and any other agreements, instruments or documents executed by Seller pursuant to or in connection with this Agreement and the transactions contemplated hereby. To the extent any Excluded Books and Records relate to the Business, Seller will afford the other party, its counsel and its accountants, during normal business hours, reasonable access to such Excluded Books and Records and the right to make copies and extracts therefrom. Further, Seller agrees for a period extending six (6) years after the Closing Date not to destroy or otherwise dispose of any such Excluded Books and Records unless Seller shall first offer in writing to surrender such Excluded Books and Records to Purchaser and Purchaser shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made. (c) Assumed Liabilities. In connection with the sale, transfer, conveyance, assignment and delivery of the Assets pursuant to this Agreement, on the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser will assume and agree to pay, perform and discharge when due all of the obligations of Seller (or its applicable subsidiaries) relating exclusively to the Business and arising in connection with the ordinary course of operation of the Business other than the Retained Liabilities (the "Assumed Liabilities"), including but not limited to the following: (i) Real Property Lease Obligations. All obligations of Seller (or its applicable subsidiaries) under the Real Property Leases; (ii) Accounts Payable. All obligations of Seller (or its applicable subsidiaries) with respect to accounts payable reflected or reserved against in the June Balance Sheet (as defined in Section 6(e)(i)) or those arising in the ordinary course of business since June 30, 1998, including but not limited to the items set forth on Schedule 1(c)(ii) (the "Accounts Payable"); (iii) Personal Property Lease Obligations. All obligations of Seller (or its applicable subsidiaries) under the Personal Property Leases; (iv) Obligations under Contracts and Licenses. All obligations of Seller (or its applicable subsidiaries) under the Business Contracts and Business Licenses; (v) Accrued Expenses. All obligations of Seller (or its applicable subsidiaries) with respect to accrued expenses reflected or reserved against in the June Balance Sheet or those incurred in the ordinary course of business since June 30, 1998, including without limitation the items set forth on Schedule 1(c)(v) (the "Accrued Expenses"); (vi) Returned Goods. All obligations with respect to the Business of Seller (or its applicable subsidiaries) for replacement of, or refund for, damaged, defective or returned goods, except Retained Returned Goods (as defined in Section 1(d)(x)); (vii) Product Liabilities. All liabilities with respect to the Business arising out of claims of third parties for damage or injury suffered as the result of defective products sold by Seller (or its applicable subsidiaries) prior to the Closing Date, except the Retained Product Liabilities (as defined in Section 1(d)(xi)); (viii) Security Deposits. All obligations of Seller (or its applicable subsidiaries) with respect to any security deposit held as lessor or sublessor under the Real Property Leases (the "Landlord Security Deposits"); (ix) Sales Tax Liabilities. All sales and use Taxes collected from customers with respect to the Business and held by Seller on the Closing Date, except the Retained Sales Tax Liabilities (as defined in Section 1(d)(viii)) (the "Assumed Sales Tax Liabilities"); (x) Ontario Warehouse Agreements. All obligations of Seller (or its applicable subsidiaries) under the agreements set forth on Schedule 1(c)(x); (xi) Litigation Claims. All obligations and liabilities of Seller and its applicable subsidiaries arising from litigation of third parties against Seller or its applicable subsidiaries arising out of the activities of the Business, except the Retained Litigation (as defined in Section 1(d)(vi)); (xii) Employment Agreements. All obligations of Seller under the employment agreements and severance agreements set forth on Schedule 1(c)(xii) (the "Assumed Employment Agreements"); and (xiii) Other Liabilities. All other liabilities reserved or reflected on the Audited Balance Sheet. (d) Retained Liabilities. Notwithstanding anything in this Agreement to the contrary, Purchaser shall not assume by virtue of this Agreement or the transactions contemplated hereby, and shall have no liability for, any of the following liabilities of Seller or any of its subsidiaries (the "Retained Liabilities"): (i) Certain Indebtedness. All obligations of Seller and its subsidiaries for indebtedness set forth on Schedule 1(d)(i); (ii) Tax Liabilities. All obligations of Seller and its subsidiaries for Taxes other than the Assumed Sales Tax Liabilities; (iii) Liabilities under this Agreement. Seller's liabilities under this Agreement, the Option Agreement and any other agreements, instruments or documents executed by Seller pursuant to or in connection with this Agreement and the transactions contemplated hereby; (iv) Employee Benefit Plan Liabilities. All liabilities and obligations under each of the Employee Benefit Plans (as defined in Section 6(m)(i)) or any employee benefit plan, agreement or other arrangement, program or policy maintained or sponsored by Seller or any of its subsidiaries; (v) Post-Retirement Medical Plan Liabilities. All obligations of Seller and its subsidiaries under any post-retirement medical benefits plan; (vi) Litigation Claims. All liabilities of Seller and its subsidiaries arising from claims and recoveries under litigation of third parties against Seller or its subsidiaries set forth on Schedule 1(d)(vi) (the "Retained Litigation"); (vii) Excluded Assets. All obligations of Seller and its subsidiaries arising in connection with the Excluded Assets; (viii) Retained Sales Tax Liabilities. All sales, use or other Taxes collected from customers by Seller for delivery to a taxing authority, except those Taxes reflected as liabilities on the Audited Balance Sheet (the "Retained Sales Tax Liabilities"); (ix) Other Businesses. All obligations of Seller related to the Remaining Businesses; (x) Retained Returned Goods. All obligations of Seller (or its applicable subsidiaries) for replacement of, or refund for, damaged, defective or returned goods to the extent that (A) such goods are not subject to full return privileges from the supplier thereof or (B) such goods are not non- franchised products sold in the ordinary course of Seller's value-added business (the "Retained Returned Goods"); (xi) Retained Product Liabilities. All liabilities arising out of claims of third parties for damages or injury suffered as the result of defective products sold by Seller (or its applicable subsidiaries) that (A) were not sold under customary authorized distributor agreements, (B) were not sold in the ordinary course under Seller's value-added business or (C) arise out of the negligent acts or willful misconduct of Seller, its subsidiaries or its employees or agents (the "Retained Product Liabilities"); and (xii) Retained Employment Agreements. All obligations of Seller under employment agreements and severance agreements, except the Assumed Employment Agreements. Seller shall discharge, or shall cause the discharge, in a timely manner or shall make adequate provision for all of the Retained Liabilities, provided that Seller shall have the ability to contest, in good faith, any such claim of liability asserted in respect thereof by any Person other than Purchaser and its affiliates. For purposes of this Agreement: "Assets and Properties" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including without limitation cash, cash equivalents, investment assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property. "Books and Records" of any Person means all files, documents, instruments, papers, books and records relating to the business, operations, condition of (financial or other), results of operations and Assets and Properties of such Person, including without limitation financial statements, Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, contracts, licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans. "Governmental Entity" means any nation or government, any state or other political subdivision thereof, including any municipality, town, village, and subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of, or pertaining to, governance. "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of patents, trademarks, service marks and copyrights. "Person" means any individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Entity. 2. Purchase Price. (a) Calculation of Purchase Price. The purchase price (the "Purchase Price") to be paid by Purchaser hereunder shall be $187,600,000, as adjusted pursuant to Section 3. (b) Closing Payments. Subject to the terms and conditions hereof, Purchaser shall, subject to the adjustments, if any, contemplated under Section 3, pay to Seller an amount (the "Closing Cash Payment") equal to (A) $187,600,000 less the Estimated Balance Sheet Adjustment (as defined below), if any (the "Estimated Purchase Price") less (B) $20,000,000. Seller shall prepare and deliver to Purchaser an estimated consolidated balance sheet (the "Estimated Balance Sheet") of the Business as of the last day of the month immediately prior to the Closing Date (the "Preceding Month"), or in the event the Closing Date shall be within the first ten (10) days of any calendar month, as of the last day of the month immediately prior to the Preceding Month. Such Estimated Balance Sheet shall be prepared on the same terms and basis as specified in the second sentence of Section 3(a) with respect to the Preliminary Audited Balance Sheet (as defined in Section 3). If the net investment shown on the Estimated Balance Sheet is at least $155 million, then there shall be no Estimated Balance Sheet Adjustment. If the net investment shown on the Estimated Balance Sheet is less than $135 million, Purchaser may at its option (1) terminate this Agreement or (2) proceed with the transactions contemplated herein, including the determination of the Closing Cash Payment as reduced by the Estimated Balance Sheet Adjustment described in the following sentence. If the net investment shown on the Estimated Balance Sheet is less than $155 million (the difference between the net investment and $155 million is hereinafter referred to as the "Estimated Shortfall"), then the Closing Cash Payment shall be reduced on a dollar-for-dollar basis by the amount of the Estimated Shortfall (such reduction being referred to as the "Estimated Balance Sheet Adjustment"). (c) Allocation. (i) As promptly as practicable after the Audited Balance Sheet Date (as defined in Sections 3(b)), Purchaser and Seller shall use their best efforts to agree on the allocation of the Purchase Price among the Assets. As promptly as practicable and in any event not later than fifteen (15) days following the Audited Balance Sheet Date, Purchaser shall deliver to Seller an initial schedule allocating the Purchase Price among the Assets (the "Initial Allocation"). The Initial Allocation shall be final and binding upon Seller and Purchaser unless within ten (10) days of receipt thereof Seller gives written notice to Purchaser that it does not agree with the Initial Allocation. If Seller so notifies Purchaser within the ten-day period, Purchaser and Seller will use good faith efforts to resolve any disagreements within seven (7) days after Purchaser's receipt of Seller's written notice. If Seller and Purchaser cannot reach agreement during such seven-day period, their disagreements shall be promptly submitted to an independent public accounting firm jointly selected by Purchaser and Seller (the "Independent Accountant"), which will conduct such review as it deems necessary to resolve their disagreements regarding the Initial Allocation. The allocation of the Purchase Price among the Assets determined under this Section 2(c)(i) is referred to the "Final Allocation". (ii) The review of the Independent Accountant will be restricted as to scope to address only those matters as to which Seller and Purchaser have not reached agreement pursuant to Section 2(c)(i). The Independent Accountant's decision resolving any disagreements will be binding on Seller and Purchaser and will be provided in writing to the parties as promptly as practicable and in any event not later than thirty (30) days after the disagreements are submitted to the Independent Accountant pursuant to Section 2(c)(i). The fees and expenses incurred by the Independent Accountant in connection with resolving any disagreements pursuant to Sections 2(c)(i) will be shared equally by Seller and Purchaser. (iii) Each of Seller and Purchaser agrees: (A) that the Final Allocation will be consistent with the requirements of Code Section 1060, (B) to complete jointly and to file separately Form 8594 with its federal income Tax Return consistent with the Final Allocation for the tax year in which the Closing Date occurs and (C) that no party will take a position on any federal, state or local Tax Return, before any Governmental Entity charged with the collection of any tax or in any action or proceeding that is in any manner inconsistent with the terms of the Final Allocation without the consent of the other party. (d) Distribution of Payments. Following the receipt by Seller of the Closing Cash Payment due under Section 2(b), Seller shall, subject to applicable fraudulent conveyance laws and to the provisions of Section 500 et seq. of the California Corporations Code (the "CCC"): (i) first apply the Closing Cash Payment to the repayment of the outstanding principal under the Credit Agreement dated as of January 7, 1997, as amended from time to time, by and among Seller, Bell Ontario Holding, Inc., the lenders thereunder and Union Bank of California N.A., as agent (as amended, the "Credit Agreement") as may be necessary to obtain the release of any mortgage, pledge, lien, charge, security interest, encumbrance, lease, license or claim ("Encumbrance") on the Assets securing indebtedness under the Credit Agreement except as otherwise provided in this Agreement; and (ii) except as otherwise provided in Section 9(q) of this Agreement, prior to the Audited Balance Sheet Date, make no payments, dividends or distributions to its shareholders (including the adoption by its Board of Directors of a resolution declaring a dividend or distribution or declaring a record date with respect thereto). 3. Audited Balance Sheet; Adjustment to the Estimated Purchase Price. (a) After the Closing, Purchaser shall prepare or cause to be prepared, and shall cause Ernst & Young LLP, independent accountants (the "Accountants"), to prepare a certification of an audited consolidated balance sheet as of the Closing Date for the Business (the "Preliminary Audited Balance Sheet"). The Preliminary Audited Balance Sheet shall (i) be prepared from the books and records of the Business in accordance with generally accepted accounting principles, applied on a basis consistent with the Financial Statements, (ii) be prepared in accordance with Seller's valuation principles attached as Exhibit A, and (iii) reflect no write-up of any individual asset of the Business which was included in the Financial Statements and is included in the Preliminary Audited Balance Sheet to a book value greater than its book value in the Financial Statements. As a part of the preparation of the Preliminary Audited Balance Sheet, Purchaser and its employees shall conduct a complete physical inventory of the Business as of the Closing Date, and the results of such inventory shall be reflected in the Preliminary Audited Balance Sheet. Purchaser shall deliver the Preliminary Audited Balance Sheet, and shall use its reasonable efforts to cause the Accountants to deliver the form of the Accountants' report thereon, to Seller as promptly as practicable and, in any event, not later than ninety (90) days after the Closing Date. (b) Employees of Seller and PricewaterhouseCoopers LLP ("PWC Representatives") shall have the right, at Seller's expense, to observe and reasonably review and comment to the Accountants upon the preparation of the Preliminary Audited Balance Sheet. In addition, Seller and PWC Representatives shall have the right to observe the taking of the physical inventory and to comment to the Accountants with respect thereto. In the event that Seller shall object to any matter relating to the Preliminary Audited Balance Sheet (which objections shall be solely on the basis that such balance sheet has not been prepared in accordance with the second sentence of Section 3(a) above or is derived from obvious mathematical errors), Seller shall, as promptly as practicable but in any event within thirty (30) days after receipt of the Preliminary Audited Balance Sheet, notify Purchaser of such objections in writing. The parties shall use their best efforts to resolve any such objections as promptly as practicable. If the parties are unable to resolve any such objections within twenty (20) days after the date that Seller receives the certified Preliminary Audited Balance Sheet, then a nationally recognized independent public accounting firm as shall be mutually agreed by the parties shall be appointed as arbitrator to resolve the dispute in accordance with Section 3(a) above as soon as practicable and its determination with respect to such dispute shall be final and binding upon both parties hereto. The costs of such accounting firm in connection with its acting as such arbitrator shall be borne 50% by Seller and 50% by Purchaser. The final audited balance sheet, reflecting the results of any resolution of objections or arbitrated settlement, accompanied by the Accountants' report thereon, shall be the "Audited Balance Sheet" and the date of delivery thereof to Purchaser and Seller shall be the "Audited Balance Sheet Date". (c) If the net investment shown on the Audited Balance Sheet is greater than $155 million, then the Purchase Price shall be increased on a dollar-for-dollar basis by the amount equal to the lesser of (i) the difference between such net investment and $155 million and (ii) $10 million. If the net investment shown on the Audited Balance Sheet is $155 million or less (the difference between such net investment and $155 million is hereinafter referred to as the "Audited Shortfall"), then the Purchase Price shall be reduced on a dollar-for-dollar basis by the amount of the Audited Shortfall. (d) The Purchase Price shall also be reduced by the amount, if any, of the Terminated Lines Reduction. The "Terminated Lines Reduction" shall be the sum of (i) the inventory related to terminated lines described on Schedule 3(d) which has not been returned for full credit to the applicable manufacturer prior to the Closing Date and for which value has been given on the Audited Balance Sheet and (ii) to the extent reflected as an asset on the Audited Balance Sheet, the pending debits related to terminated lines described on Schedule 3(d) which have not been honored by the applicable manufacturer prior to the Closing Date. (e) Within five (5) business days after the Audited Balance Sheet Date: (i) in the event that the Purchase Price is greater than the Closing Cash Payment, Purchaser shall promptly pay to Seller such difference with interest thereon (accruing from the Closing Date until such payment is made) at the Interest Rate (as defined below); and (ii) in the event that the Purchase Price is less than the Closing Cash Payment, Seller shall promptly pay to Purchaser such difference with interest thereon (accruing from the Closing Date until such payment is made) at the Interest Rate. For purposes of this Agreement, "Interest Rate" means 6% per annum (based on a year of 360 days). The payments required pursuant to this Section 3(e) shall not be subject to any right of setoff, counterclaim or recoupment. 4. Closing. The Closing (the "Closing") shall take place at 10:00 A.M., local time, on the earliest practicable date after all of the conditions set forth in Sections 11 and 12 shall have been satisfied or waived but in any event not later than three (3) business days after such date (the "Closing Date"), at the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York, or such other time and place as the parties may agree. 5. Obligations of Seller and Purchaser at Closing; Further Assurances. (a) At the Closing: (i) Seller will assign and transfer to Purchaser all of its right, title and interest in and to the Assets (free and clear of all Encumbrances) by delivery of (A) a General Assignment and Bill of Sale substantially in the form of Exhibit B, duly executed by Seller, (B) an assignment of the Intellectual Property in form and substance reasonably satisfactory to Purchaser, (C) general warranty deeds in proper statutory form for recording and otherwise in form and substance reasonably satisfactory to Purchaser conveying title to the Real Property, (D) such other good and sufficient instruments of conveyance, assignment and transfer, in form and substance reasonably acceptable to Purchaser's counsel, as shall be effective to vest in Purchaser good title to the Assets; (ii) Seller will deliver the other documents, certificates and opinions specified in Section 9; (iii) Purchaser will pay to Seller, by wire transfer of immediately available funds to the account previously designated by Seller to Purchaser, an amount equal to the Closing Cash Payment; (iv) Purchaser will assume from Seller the due payment, performance and discharge of the Assumed Liabilities by delivery of (A) an Assumption Agreement substantially in the form of Exhibit C duly executed by Purchaser, (B) such other good and sufficient instruments of assumption, in form and substance reasonably acceptable to Seller's counsel, as shall be effective to cause Purchaser to assume the Assumed Liabilities as and to the extent provided in Section 1(c); and (v) Purchaser will deliver the other documents, certificates and opinions specified in Section 10. (b) At any time and from time to time after the Closing, at Purchaser's request and without further consideration, Seller will take all action necessary to execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such action as Purchaser may reasonably deem necessary or desirable in order to more effectively transfer, convey and assign to Purchaser the Business. (c) To the extent that any Real Property Lease, Personal Property Lease, Business Contract or Business License is not assignable without the consent of another party, this Agreement shall not constitute an assignment or an attempted assignment thereof if such assignment or attempted assignment would constitute a breach thereof or a default thereunder. Seller and Purchaser shall use commercially reasonable efforts to obtain the consent of such other party to the assignment of any such Real Property Lease, Personal Property Lease, Business Contract or Business License to Purchaser in all cases in which such consent is or may be required for such assignment. If any such consent shall not be obtained, Seller shall cooperate with Purchaser in any reasonable arrangement designed to provide for Purchaser the benefits intended to be assigned to Purchaser under the relevant Real Property Lease, Personal Property Lease, Business Contract or Business License, including enforcement at the cost and for the account of Purchaser of any and all rights of Seller against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise. If and to the extent that such arrangement cannot be made, Purchaser shall have no obligation pursuant to Section 1(c) or otherwise with respect to any such Real Property Lease, Personal Property Lease, Business Contract or Business License. The provisions of this Section 5(c) shall not affect the right of Purchaser not to consummate the transactions contemplated by this Agreement if the condition to its obligations hereunder contained in Section 11(i) has not been fulfilled. 6. Representations and Warranties of Seller Seller represents and warrants to Purchaser, as of the date of this Agreement as follows: (a) Organization, Standing and Qualification. Each of Seller and the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation, and has the corporate power and authority to carry on its business as now being conducted and to own, lease or operate its properties; and each of Seller and the Subsidiaries is duly qualified or licensed and in good standing as a foreign corporation authorized to do business in all of the jurisdictions where the nature of the activities conducted by it or the character of the properties owned, leased or operated by it requires such qualification or licensing, except where the failure to be so qualified or licensed would not result in loss, liability, cost, expense (including but not limited to attorneys fees and expenses), damage or decline in value to the business, condition or properties of the Business, taken as a whole, or to Purchaser (collectively, "Losses") in excess of $25,000 individually or $100,000 in the aggregate. Seller has delivered to Purchaser true and complete copies (initialed by the Secretary of Seller) of the certificates of incorporation (and all amendments thereto) and the by-laws as presently in effect of Seller and each of the Subsidiaries. (b) The Electronics Components Distribution Business. The Business is conducted solely through Seller's Electronic Distribution Group (excluding any Remaining Businesses) and the Subsidiaries. The sale of the Assets by Seller to Purchaser pursuant to this Agreement will convey to Purchaser the entire Business and all of the tangible and intangible property used by Seller (whether owned, leased or held under license by Seller, by any of Seller's affiliates or by others) in connection with the conduct of the Business as heretofore conducted by Seller (except for the Excluded Assets) including, without limitation, all Assets and Properties of Seller and its subsidiaries reflected in the June Balance Sheet (as defined in Section 6(e)) included in the Financial Statements and Assets and Properties acquired since June 30, 1998 used or held for use in connection with the Business, other than the Excluded Assets and Assets and Properties disposed of since such date, consistent with Section 6(g)(iii). Except as set forth on Schedule 6(b),with respect to the Assets or the Business, there are no shared facilities or services which are used in connection with any business or other operations of Seller or any of Seller's affiliates other than the Business. (c) Execution, Delivery and Performance of Agreement; Authority. The execution, delivery and performance of the Agreement in accordance with its terms by Seller will not, with or without the giving of notice or the passage of time, or both, conflict with, result in a violation of, result in a default, right to accelerate or loss of rights under, or result in the creation of any Encumbrance pursuant to, any provision of the articles of incorporation (or certificate of incorporation, as the case may be) or by-laws (and all amendments thereto), of Seller or any of the Subsidiaries, or any mortgage, deed of trust, lease, license, agreement (including any debt instrument), law, rule, regulation, order or judgment or decree to which Seller, or any of the Subsidiaries, is a party or by which any of them may be bound or affected, except (i) as set forth on Schedule 6(c)(i) or as specifically noted on Schedule 1(a)(ii)(B), (ii) those which would not result in Losses in excess of $25,000 individually or $100,000 in the aggregate and (iii) any agreements pursuant to which Seller or any of the Subsidiaries purchases inventory from the manufacturers thereof ("Franchise Agreements"). Except as set forth on Schedule 6(c)(ii), the merger, consolidation, combination or amalgamation of any or all of the Subsidiaries with or into Purchaser or its affiliates or, the transfer of any or all of the Assets or any of the Subsidiaries to Purchaser or its affiliates will not, with or without the giving of notice or the passage of time or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any Encumbrance, under any provision of any mortgage, deed of trust, lease, license, material agreement (including any debt instrument) to which Seller, any of its subsidiaries is a party or by which any of them may be bound or affected that would have a materially adverse effect on the business, financial condition, results of operations or properties of Purchaser or of the Business taken as a whole. Seller has the full power and authority to enter into this Agreement and the full power and authority to carry out the transactions contemplated hereby. The Board of Directors of Seller has, subject to approval by Seller's shareholders, approved the entering into by Seller of this Agreement, and there are no other corporate proceedings required to be taken by Seller, except for such shareholders' approval, to authorize the execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby. This Agreement constitutes a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally and subject to usual equity principles. (d) Ownership and Capitalization. (i) Seller is the lawful record and beneficial owner of all of the issued and outstanding shares of capital stock of the Subsidiaries, free and clear of all Encumbrances, except those created pursuant to the Credit Agreement. Upon completion of the transactions contemplated by this Agreement, Purchaser will acquire as of the Closing Date good and valid title to the Acquired Shares, free and clear of all Encumbrances. (ii) The capitalization of the Subsidiaries consists of the number of authorized shares of capital stock at the stated par values, the number of issued and outstanding shares and the number of treasury shares, if any, set forth on Schedule 6(d)(ii). All of the Acquired Shares have been validly issued and are fully paid and non-assessable. Except for the rights created pursuant to this Agreement and the Option Agreement, there are no outstanding options, warrants or other rights of any kind to acquire any additional shares of capital stock of the Subsidiaries or securities convertible or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares, nor is Seller or any of the Subsidiaries committed to issue any such option, warrant, right or security. (e) Financial Statements. (i) Seller has delivered to Purchaser copies (initialed by the chief financial officer of Seller and identified with a reference to this section of this Agreement) of the following financial statements (the financial statements set forth in clauses (A), (B) and (C) are hereinafter collectively called the "Financial Statements"): (A) audited consolidated balance sheets of Seller as of December 31, 1997, December 31, 1996 and December 31, 1995 and the related statements of income, shareholders' equity and cash flows for the years then ended, and the unaudited consolidated balance sheet of Seller as of June 30, 1998 and the related statement of income, shareholders' equity and cash flows for the period then ended; (B) unaudited combined balance sheets of the Business as of December 31, 1997, December 31, 1996 and December 31, 1995 and the related statements of income for the years then ended, including Milgray Electronics, Inc. ("Milgray") from the date of Seller's acquisition thereof, and the unaudited combined balance sheet of the Business as of June 30, 1998 ("June Balance Sheet") and the related statement of income for the period then ended; and (C) the management accounts for the period ending August 31, 1998 for the Business (the "Management Accounts"). (ii) The Financial Statements set forth in clause (A) of Section 6(e)(i) and, except as set forth on Schedule 6(e)(ii), the Financial Statements set forth in clauses (B) and (C) of Section 6(e)(i) have been prepared from the Books and Records of Seller and its subsidiaries in accordance with generally accepted accounting principles, consistently applied and maintained throughout the periods indicated (except as disclosed therein), and present fairly the consolidated financial condition of Seller (with respect to the Financial Statements set forth in clause (A) of Section 6(e)(i)) and the Business (with respect to the Financial Statements set forth in clauses (B) and (C) of Section 6(e)(i) as at their respective dates and the results of their operations for the periods covered thereby in accordance with generally accepted accounting principles. With respect to the statements of income contained in the Financial Statements set forth in clauses (B) and (C) of Section 6(e)(i), such statements of earnings do not contain any items of extraordinary or non-recurring income or any other income not earned in the ordinary course of business which in the aggregate for any period presented do not exceed $100,000, except as set forth therein. (iii) The Management Accounts are the only management accounts relating to the Business prepared by Seller with respect to the period covered thereby and have been prepared in the ordinary course of business. (iv) Seller has delivered to Purchaser copies (initialed by the chief financial officer of Seller and identified with a reference to this section of this Agreement) of the following financial statements of Milgray (collectively, the "Milgray Financial Statements"): audited consolidated balance sheets of Milgray as of September 30, 1996 and September 30, 1995, and the related statements of income, shareholders' equity and cash flows for the years then ended. The Milgray Financial Statements have been prepared from the Books and Records of Milgray and its subsidiaries in accordance with generally accepted accounting principles, consistently applied and maintained throughout the periods indicated (except as disclosed therein), and present fairly the consolidated financial condition of Milgray as at their respective dates and the results of their operations for the periods covered thereby in accordance with generally accepted accounting principles. f) Absence of Undisclosed Liabilities. (i) All of the liabilities reflected or reserved against on the June Balance Sheet were incurred in bona fide transactions incurred in the ordinary course of business, except for any such liabilities that were incurred outside the ordinary course of business and would not result in Losses in excess of $25,000 individually or $100,000 in the aggregate. There are no liabilities, contingent or otherwise, of Seller or any of the Subsidiaries which are, in accordance with generally accepted accounting principles, required to be reserved against or disclosed on the June Balance Sheet which are not so reserved or disclosed. (ii) Except as set forth on Schedule 6(f), neither Seller nor any of the Subsidiaries has any liabilities (contingent or otherwise) with respect to the Business under any guarantee, indemnity, bond, reimbursement agreement or pledge agreement with respect to any obligation of third parties or under any joint or joint and several contractual obligation of Seller or any of the Subsidiaries with any other person that are not reflected in or reserved against on the June Balance Sheet or the notes thereto. (g) Absence of Changes or Events. Except as set forth on Schedule 6(g) or otherwise contemplated under this Agreement, since the date of the June Balance Sheet, each of Seller and its subsidiaries has conducted the Business only in the ordinary course and consistent with its prior practice and, with respect to the Business each of Seller and its subsidiaries has not: (i) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except liabilities or obligations incurred in the ordinary course of business and consistent with its prior practice; (ii) mortgaged, pledged or subjected to any other Encumbrance, or restriction any of its property, business or assets, tangible or intangible except pursuant to the Credit Agreement or in the ordinary course of business, consistent with past practice; (iii) sold, transferred, leased to others or otherwise disposed of any of its assets, except for inventory sold to customers or returned to vendors in the ordinary course of business and consistent with its prior practice; or canceled or compromised any debt or claim, or waived or released any right of substantial value, except (y) in the ordinary course of business and consistent with its prior practice and (z) outside the ordinary course of business debts, claims or rights having a value less than $25,000 individually or $100,000 in the aggregate; (iv) suffered any damage, destruction or casualty or theft loss of assets that is not covered by insurance, except for damage, destruction or loss that is less than $25,000 individually or $100,000 in the aggregate; (v) encountered any labor union organizing activity or had any actual or threatened employee strikes, work stoppages, slow-downs or lock-outs; (vi) made any change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or paid or agreed or orally promised to pay, conditionally or otherwise, any bonus, extra compensation, pension or severance or vacation pay, to any employee, except (A) in the ordinary course of business and consistent with its practice prior to the date hereof, (B) with respect to any payments of pension, severance or vacation after the date hereof, in accordance with the existing policies of Seller or the relevant subsidiary, as the case may be, (C) promises and commitments made jointly with, or with the consent of Purchaser to secure the services of Seller's employees pending and following the Closing or (D) as to which there is a contractual commitment entered into before the signing of this Agreement; provided, however that any such prior contractual commitment to any employee having total compensation in excess of $100,000 or to a category of employees having more than five persons shall be set forth on Schedule 6(g)(vi); (vii) made any capital expenditures or capital additions or betterments in excess of $250,000; (viii) suffered any change, event or condition which has materially and adversely affected the business, financial condition, results of operations or properties of the Business taken as a whole, except for such as may result from the announcement or disclosure of the transactions contemplated hereby or actions by Purchaser; (ix) issued or sold any shares of capital stock, or issued or sold any options, warrants to purchase or rights to subscribe for, or issued any debt instrument or security convertible into, or entered into any arrangement or contract with respect to, any shares of capital stock or any of the Subsidiaries or made any other changes in its capital structure; (x) made any material change in (A) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or tax practice or policy of the Business or (B) any method of calculating any bad debt, contingency or other reserve of the Business for accounting, financial reporting or tax purposes; (xi) entered into any amendment, modification, termination (partial or complete) or granted a waiver under or given any consent with respect to (A) any contract which is required (or had it been in effect on the date hereof would have been required) to be set forth on Schedule 6(k) pursuant to Section 6(k) or (B) any Business License; (xii) entered into any transaction with any officer, director or affiliate or Seller or any of its subsidiaries; or (xiii) entered into a contract to do or engage in any of the foregoing after the date hereof. (h) Litigation. Except as set forth on Schedule 6(h), no action, suit, litigation, arbitration, dispute, proceeding, governmental investigation or governmental audit is pending against, or to the knowledge (as defined at the end of this Section 6) of Seller threatened against, the Business or the Assets. None of such action, suit, litigation, arbitration, dispute, proceeding, governmental investigation or governmental audit is reasonably likely to have a material adverse effect on Seller's ability to consummate the transactions contemplated by this Agreement. To Seller's knowledge, there is no set of facts or circumstances which could result in any action, suit, litigation, arbitration, dispute, proceeding, governmental investigation or governmental audit which could reasonably be expected to result in Losses in excess of $25,000 individually or $100,000 in the aggregate. Except as set forth on Schedule 6(h), there are no orders, judgments or decrees of any court or governmental agency in which Seller or any of its subsidiaries is named and which apply specifically to the Business or the Assets and which involve Losses in excess of $25,000 individually or $100,000 in the aggregate. (i) Compliance with Laws and Other Instruments. Except with respect to environmental matters (which are covered by Section 6(t)), Seller and each of its subsidiaries has complied in all material respects with all laws, rules, regulations, ordinances, orders, judgments and decrees applicable to the Business or the Assets. Except with respect to environmental matters (which are covered by Section 6(t)), neither the ownership by Seller or any of its subsidiaries, nor the use by Seller or any of its subsidiaries, of the Assets nor the conduct of the Business by Seller or any of its subsidiaries conflicts with the rights of any other Person or violates, in any material respect, any law, ordinance, rule or regulation, or any order, judgment or decree to which Seller or any of its subsidiaries is a party or by which it may be bound or affected. Except with respect to environmental matters (which are covered by Section 6(t)), neither Seller nor any of its subsidiaries has violated or defaulted under any terms or provisions of its articles of incorporation or by- laws, as presently in effect, or any lien, mortgage, lease, agreement or instrument relating to the Business, except for (i) defaults under leases set forth on Schedule 6(c)(i) as requiring consent to this transaction by the landlord thereunder where such consent is not obtained; or (ii) violations or defaults which will not hereafter result in Losses in excess of $25,000 individually or $100,000 in the aggregate. Except with respect to environmental matters (which are covered by Section 6(t)), Seller and each of its subsidiaries has all approvals, authorizations, consents, licenses, orders, and other permits from all governmental agencies, whether federal or local ("Approvals"), required to permit the operation of the Business as presently conducted other than any Approvals the absence of which will not result in Losses in excess of $25,000 individually or $100,000 in the aggregate. (j) Title to Properties. (i) Except as set forth on Schedule 6(j)(i), (A) Seller and its subsidiaries have good title to all of the Tangible Personal Property and (B) none of the Tangible Personal Property is subject to any Encumbrance of any nature whatsoever, direct or indirect, whether accrued, absolute, contingent or otherwise, except such as are created pursuant to the Credit Agreement. (ii) (A) Other than the Real Property set forth on Schedule 1(b)(viii), Schedule 1(a)(i) contains a true and correct list of each parcel of real property owned by Seller or its subsidiaries and used or held for use in connection with the Business, and Schedules 1(a)(ii)(A) and 1(a)(ii)(B) contain true and correct lists of each parcel of real property leased by Seller or its subsidiaries (as lessor and lessee, respectively) and used or held for use in connection with the Business. (B) Seller or its subsidiaries has good and marketable fee simple title to the Real Property, free and clear of all Encumbrances other than: (1) the exceptions to title, if any, set forth on Schedule 6(j)(ii)(B) or as set forth in any applicable title policies or reports attached to such Schedule, (2) Encumbrances for real estate taxes and assessments not yet delinquent, and (3) zoning ordinances and governmental regulations (which have not been violated by the existing improvements or the use thereof), covenants, conditions, limitations, declarations, easements, restrictions, matters of record (other than mortgages and other Encumbrances) and minor irregularities of title, which do not individually or in the aggregate materially detract from the value or materially interfere with the use of any of the Real Property or Real Property Leases (the items set forth in clauses (1), (2) and (3) above are collectively called the "Real Estate Encumbrances"). Either Seller or one of its subsidiaries is in possession of the Real Property. Either Seller or one of its subsidiaries has adequate rights of ingress and egress with respect to the Real Property and the Improvements. None of the Real Property or the Improvements, or the use thereof, contravenes or violates any building, zoning, administrative, occupational safety and health or other applicable law in any material respect (whether or not permitted on the basis of prior nonconforming use, waiver or variance). (C) Either Seller or one of its subsidiaries has a valid and subsisting leasehold estate in and the right to quiet enjoyment of the real properties subject to the Real Property Leases set forth on Schedule 1(a)(ii)(B) for the full term thereof. Each Real Property Lease is a legal, valid and binding agreement, enforceable in accordance with its terms, of Seller or its subsidiaries and of each other Person that is a party thereto, and except as set forth on Schedule 6(j)(ii)(C), there is no, nor has Seller or its subsidiaries received any notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. Neither Seller nor any of its subsidiaries owes any brokerage commissions with respect to any such leased space. (D) Seller has delivered to Purchaser prior to the execution of this Agreement true and complete copies of (i) all deeds, leases, mortgages, deeds of trust, certificates of occupancy, title insurance policies, title reports, surveys and similar documents, and all amendments thereof, with respect to the Real Property, and (ii) all Real Property Leases (including any amendments and renewal letters) and, to the extent reasonably available, all other documents referred to in clause (i) of this paragraph (D) with respect to the real property subject to the Real Property Leases set forth on Schedule 1(a)(ii)(B). (E) Except as set forth on Schedule 6(j)(ii)(E), no tenant or other party in possession of any of the real properties subject to the Real Property Leases set forth on Schedule 1(a)(ii)(A) has any right to purchase, or holds any right of first refusal to purchase, such properties. (F) Except as set forth on Schedule 6(j)(ii)(F), the Improvements are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purposes for which they are presently being used and, to the knowledge of Seller, there are no condemnation or appropriation proceedings pending or threatened against any of the Real Property or the Improvements. (k) Contracts. All of the contracts, leases and other agreements of Seller and its subsidiaries and relating to the Business were entered into in bona fide transactions in the ordinary course of business. Schedule 6(k) sets forth a complete and correct list of all contracts and other agreements to which Seller or any of its subsidiaries is a party and relating to the Business. Notwithstanding the foregoing, Schedule 6(k) need not disclose (i) contracts involving obligations not exceeding $250,000 individually or $1,000,000 for any one kind of related contract in the aggregate, (ii) the leases set forth on Schedules 1(a)(ii)(A) and 1(a)(ii)(B), (iii) purchase orders with Seller's customers or suppliers in the ordinary course of business consistent with past practice, (iv) value-added contracts in the ordinary course of business consistent with past practice and (v) contracts that are no longer in effect. Except as set forth on Schedule 6(k), to the knowledge of Seller, there is not under any such contract any existing default by Seller or any of its subsidiaries, or any event or circumstance which, after notice or lapse of time or both, would constitute a default by Seller or any of its subsidiaries, or to the knowledge of Seller, by the other party, or result in a right to accelerate or loss of rights as against Seller or any of its subsidiaries which would in each such case result in Losses in excess of $25,000 individually or $100,000 in the aggregate for all kinds of contracts. There are no contracts, leases or agreements which are required under generally accepted accounting principles to be disclosed in the Financial Statements which have not been so disclosed. (l) Patents, etc. Except as set forth on Schedule 6(l), each of Seller and each of the Subsidiaries owns, or has the right to use or possess, all Intellectual Property used in the Business as it is presently operated, including, without limitation, the names Bell, Bell Industries, Bell Electronics, Milgray and Milgray Electronics and variants thereof. Except to the extent that no Losses in excess of $25,000 individually or $100,000 in the aggregate would result, neither Seller nor any of the Subsidiaries is infringing upon or otherwise acting adversely to any copyrights, trademarks, trademark rights, service marks, service names, trade names, patents, patent rights, licenses or trade secrets owned by any person or persons, and there is no claim or action pending, or to the knowledge of Seller threatened, with respect thereto. (m) Employee Benefit Plans. There are no Encumbrances against the Assets under Section 412(n) of the Internal Revenue Code of 1986, as amended (the "Code"), or Sections 302(f) or 4068 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Neither Seller nor any corporation, trade, business or other entity under common control with Seller, within the meaning of Sections 414(b), (c), (m) or (o) of the Code, or under Section 4001 of ERISA (an "ERISA Affiliate") is or was obligated to contribute to any multiemployer plan within the meaning of Section 3(37) of ERISA or any plan subject to Title IV of ERISA. As of and after the Closing Date, Purchaser will have no obligation to contribute to, or any liability in respect of, (i) any employee benefit plan within the meaning of Section 3(3) of ERISA, or (ii) any employment, severance or other agreement, arrangement, policy or plan (whether written or oral) providing for insurance coverage (including without limitation self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits or retirement benefits, or for profit sharing, deferred compensation, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, or any other forms of compensation or benefits (an "Employee Benefit Plan"), sponsored or maintained by Seller or any ERISA Affiliate, or to which Seller or any ERISA Affiliate is or was obligated to contribute, except for the agreements set forth on Schedule 1(c)(xii). Each Employee Benefit Plan of Seller which has been required to comply with the provisions of Section 4980B of the Code and Sections 601 through 608 of ERISA has complied in all material respects. Seller does not maintain any plans, arrangements, contracts or other programs outside the United States for the purpose of providing or otherwise making available retirement or other benefits to employees of the Business. The Bell Industries Savings and Profit Sharing Plan has received a favorable determination letter regarding its qualification under Section 401(a) of the Code, and nothing has occurred, to the knowledge of Seller, since the date of such determination which would cause the loss of such qualification. Neither Seller nor any ERISA Affiliate maintains or participates in any voluntary employees' beneficiary association governed by Section 501(c)(9) of the Code. There are no actions, suits or claims (other than routine claims for benefits in the ordinary course) rising in connection with the Employee Benefit Plans of Seller pending or, to the knowledge of Seller, threatened, and to the knowledge of Seller, there are no facts which could give rise to any such actions, suits or claims (other than routine claims for benefits in the ordinary course) for which Purchaser could be liable. Neither Seller nor any ERISA Affiliate nor any other "disqualified person" or "party-in-interest" (as defined in Section 3 of ERISA and Section 4975 of the Code, respectively) has, with respect to any such plan, engaged in a prohibited transaction, as such term is defined in Section 4975 of the Code or Section 406 of ERISA, which would subject Purchaser to any Taxes, penalties or other liabilities resulting from prohibited transactions under Section 4975 of the Code or under Sections 409 or 502(i) or ERISA. (n) Taxes. (i) For purposes of this Agreement, (A) "Tax" or "Taxes" shall mean any federal, state, local, foreign or other taxes (including, without limitation, income (net or gross), gross receipts, profits, alternative or add- on minimum, franchise, license, capital, capital stock, intangible, services, premium, mining, transfer, gains, sales, use, ad valorem, payroll, wage, severance, employment, occupation, property (real or personal), windfall profits, import, excise, custom, stamp, withholding or estimated taxes), fees, duties, assessments, withholdings or governmental charges of any kind whatsoever (including interest, penalties, additions to tax or additional amounts with respect to such items) and (B) "Returns" shall mean all returns, declarations, reports, estimates, information returns and statements of any nature regarding Taxes required to be filed by Seller, any of its subsidiaries, or any affiliate of Seller or any of its subsidiaries. (ii) Except as set forth on Schedule 6(n), (A) all Returns have been or will be timely filed when due in accordance with all applicable laws; (B) all Taxes shown on such Returns have been or will be timely paid when due; (C) such Returns completely, accurately and correctly in all material respects reflected or will reflect the facts regarding the income, properties, operations and status of any entity required to be shown thereon; (D) the charges, accruals, and reserves for Taxes due, or accrued but not yet due, relating to the income, properties or operations of Seller or any of its subsidiaries as reflected on their books are and will be adequate to cover such Taxes; (E) there are no agreements or consents currently in effect for the extension or waiver of the time (1) to file any Return or (2) for assessment or collection of any Taxes relating to the income, properties or operations of Seller or any of its subsidiaries, and none of Seller, its subsidiaries, or any affiliate of Seller or any of its subsidiaries, has been requested in writing to enter into any such agreement or consent; (F) all federal income tax Returns with respect to taxable years ended on or prior to June 30, 1994 have been examined and closed, or are Returns with respect to which the applicable statute of limitations, after giving effect to any extensions and waivers, has expired; (G) all Taxes which Seller or any of its subsidiaries is required by law to withhold or collect have been duly withheld or collected, and have been timely paid over to the appropriate governmental authorities to the extent due and payable; (H) there is no action, suit, proceeding, investigation, audit or claim currently pending, or to the knowledge of Seller, threatened, regarding any Taxes relating to the income, properties or operations of Seller or any of its subsidiaries or any group of which any of the Subsidiaries is now or was formerly a member; (I) all Tax deficiencies which have been claimed, proposed or asserted in writing against Seller or any of its subsidiaries or any group of which any of the Subsidiaries is now or was formerly a member, have been fully paid, finally settled or are being contested in good faith by appropriate proceedings; (J) none of Seller, its subsidiaries, or any affiliate of Seller or its subsidiaries has executed or entered into a closing agreement pursuant to Code Section 7121 (or any comparable provision of state, local or foreign law) that is currently in force and determines the Tax liabilities of any of the Subsidiaries; (K) there is no, and will not be any, agreement or consent made under Code Section 341(f) (or any comparable provision of state, local or foreign law) affecting either of the Subsidiaries; (L) none of the Subsidiaries (1) is required to treat any asset as owned by another person pursuant to the "safe harbor" leasing provisions of the Code or as "tax-exempt use property" within the meaning of Code Section 168(h) or (2) is required to apply any of the foregoing rules under any comparable foreign, state or local Tax provision; (M) none of the Subsidiaries is a party to any agreement, contract, arrangement or plan that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Code Section 280G (or any comparable provision of state, local or foreign law); (N) none of the Subsidiaries has agreed, or is required, to make any adjustment under Code Section 481(a) (or any comparable provision of state, local or foreign law) by reason of a change in accounting method or otherwise; (O) none of the Subsidiaries has been or is included in any consolidated, affiliated, combined, unitary or other similar Returns that include Seller or any affiliate of Seller; (P) no power of attorney is currently in effect, and no Tax ruling has been requested of any governmental authority, with respect to any Tax matter relating to the income, properties or operations of any of the Subsidiaries; (Q) there are no liens for Taxes upon any of the Assets and, to the knowledge of Seller, no event has occurred which with the passage of time or the giving of notice, or both, could reasonably be expected to result in a lien for Taxes on any of the Assets; and (R) Seller is not a United States real property holding corporation (as defined in Code 897(c)(2)) and has not been a United States real property holding corporation during any period specified in Code 897(c)(1)(A)(ii). (o) Proxy Statement. The proxy statement relating to the Seller's Shareholders Meeting (as defined in Section 8(c)), as amended or supplemented from time to time (as so amended and supplemented, the "Proxy Statement"), and any other documents to be filed by Seller with the Securities and Exchange Commission (the "SEC") or any other Governmental Entity in connection with the transactions contemplated hereby will not, on the date of its filing or, in the case of the Proxy Statement, at the date it is mailed to shareholders of Seller and at the date of Seller's Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation is made by Seller with respect to information supplied in writing by or on behalf of Purchaser expressly for inclusion therein. The Proxy Statement and any such other documents filed by Seller with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), will comply as to form in all material respects with the requirements of the Exchange Act. (p) Affiliate Transactions. Each contract, agreement or arrangement between any of Seller or any affiliate of Seller, existing as of the date of this Agreement and relating to the Business ("Affiliate Agreements") is described as set forth on Schedule 6(p) annexed hereto, and all such Affiliate Agreements will be terminated effective as of the close of business on the Closing Date except as set forth on Schedule 6(p). (q) Inventory; Accounts Receivable. (i) Except (A) as set forth on Schedule 6(q)(i), (B) for inventory having an aggregate book value not greater than $500,000 and (C) for inventory purchased for use in kitting, none of the items of the Business' inventory was purchased from a source other than the manufacturer thereof or a distributor duly licensed or franchised to distribute such items by such manufacturer and, except for inventory purchased for customer specific requirements (so long as subject to a contract for the purchase thereof by such customer), all such items of inventory meet the requirements for return to the manufacturer under the applicable Franchise Agreement other than as a result of quantity limitations with respect to such return rights. Except as set forth on Schedule 6(q)(i), to the extent that any items of inventory intended to be sold to the military are, in order to meet military or similar specifications, required to be accompanied by (or the seller thereof is required to maintain) traceability, testing or other documentation, all such documentation has been so maintained and is in the possession of Seller or its subsidiaries at one of their respective offices. (ii) Except as set forth on Schedule 6(q)(ii), the Accounts Receivable (A) arose from bona fide sales transactions in the ordinary course of business of the Business and are payable consistent with past practice, (B) are legal, valid and binding obligations of the respective debtors enforceable in accordance with their terms, (C) are not subject to any valid set-off or counterclaim except as may be required by law, (D) do not represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement, (E) are collectible in the ordinary course of business consistent with past practice of the Business in the aggregate recorded amounts thereof, net of any applicable reserve reflected in the balance sheet included in the Financial Statements, and (F) are not the subject of any action, suit or proceeding brought by or on behalf of Seller. Schedule (6)(q)(ii) sets forth a description of any security arrangements and collateral securing the repayment or other satisfaction of the Accounts Receivable. All steps necessary to render all such security arrangements set forth on Schedule 6(q)(ii) legal, valid, binding and enforceable, and to give and maintain for Seller a perfected security interest in the related collateral, have been taken. (r) Rights of Return. Except as set forth on Schedule 6(r), none of Seller and its subsidiaries has sold any inventory of the Business which the purchaser thereof has the right to return to Seller or any subsidiary or cause the seller thereof to repurchase for any reason except (i) pursuant to the customary express warranties of Seller or the relevant subsidiary, as the case may be, for product quality or mistake in shipment or implied warranties at law for title and against infringement, (ii) to the extent the same will be reflected in reserves on the Audited Balance Sheet or (iii) for inventory having a value not exceeding $50,000 individually or $250,000 in the aggregate. (s) Insurance. Schedule 6(s) sets forth a complete and accurate list of all of Seller's Insurance Policies (as defined in Section 8(d)). Each of Seller's Insurance Policies is in full force and effect, and, to the knowledge of Seller, there is not under any of Seller's Insurance Policies, any existing default by Seller or any of the Subsidiaries, or any event which, after notice or lapse of time or both, would constitute a default by Seller or any of the Subsidiaries. (t) Environmental Matters. Except as set forth on Schedule 6(t) hereto: (i) The operations of the Business and, to the knowledge of Seller, the respective tenants of Seller and its subsidiaries are in compliance with all Environmental Laws, except for noncompliance which may result in Environmental Liabilities and Costs which individually or in the aggregate could not have a material adverse effect on the Business; (ii) With respect to any currently or previously owned or leased property of Seller and its subsidiaries utilized in the current or previous operation of the Business, none of Seller, its subsidiaries, and (to the knowledge of Seller) their respective tenants is or are subject to any outstanding or threatened order or notice from or agreement with any Governmental Entity or other Person or is subject to any judicial or docketed administrative proceeding with respect to (A) failure to comply with Environmental Laws, (B) Remedial Action under Environmental Laws, (C) any Environmental Liabilities and Costs, or (D) any Release or threatened Release of Contaminants, except (I) as set forth on Schedule 6(h) or (II) for orders, notices, agreements, or proceedings which may result in Environmental Liabilities and Costs which individually or in the aggregate could not have a material adverse effect on the Business; (iii) There are no conditions or events associated with the currently or previously owned or leased properties of Seller or any of its subsidiaries or current or previous operations of the Seller and its subsidiaries or, to the knowledge of Seller, their respective tenants, that may result in any Environmental Liabilities and Costs which individually or in the aggregate could have a material adverse effect on the Business; (iv) Neither the facilities utilized in the current or previous operations of the Business of Seller or any of its subsidiaries nor, to the knowledge of Seller, such facilities of their respective tenants, is a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"), the regulations promulgated thereunder, or any analogous provision of state law; (v) None of Seller, its subsidiaries and to the knowledge of Seller, their respective tenants, has caused or allowed any Release of Contaminants, relating to any property owned or leased or previously owned or leased by the Seller or any of its subsidiaries that may result in Environmental Liabilities and Costs which individually or in the aggregate could have a material adverse effect on the Business; (vi) With respect to any currently or previously owned or leased property of Seller and its subsidiaries utilized in the current or previous operation of the Business, none of Seller and any of its subsidiaries has entered into any agreement that may require any of them to pay to, reimburse, guarantee, pledge to, defend, indemnify, or hold harmless any Person for or against Environmental Liabilities and Costs; (vii) With respect to any currently or previously owned or leased property of Seller and its subsidiaries utilized in the current or previous operation of the Business, none of Seller and its subsidiaries has ever directly or indirectly disposed of any Hazardous Material (as defined below) at any site or location that is listed on any estate or federal list of sites requiring Remedial Action. For the purposes of this Agreement: "Contaminant" means any substance regulated or forming the basis of liability under any Environmental Law, including, without limitation, any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, or any material of which such substance or waste is a constituent. "Environmental Laws" means all federal, state, and local laws, statutes, ordinances and regulations in effect as of the date hereof, and any judicial or administrative interpretation thereof, including, without limitation, any judicial or administrative order, consent decree or judgment relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C. 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. 136 et. seq.); RCRA; the Toxic Substances Control Act, as amended (15 U.S.C. 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. 1251 et seq.); and the Safe Drinking Water Act, as amended (42 U.S.C. 300f and their foreign, state and local counterparts or equivalents, and any transfer or ownership notification or approval statutes such as the New Jersey Industrial Site Recovery Act (N.J. Stat. Ann. 13:1K-6 et seq.). "Environmental Liabilities and Costs" means as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, experts and consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person, whether based on contract, tort, implied or express warranty, strict liability, criminal or civil statute, including, without limitation, any thereof arising under any Environmental Law, license, permit, order or agreement with any Governmental Entity or other Person, and which relate to any environmental, health or safety condition, or a Release or threatened Release. "Release" means, as to any Person, any release, spill, emission, leading, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of Contaminants into the indoor or outdoor environment or into, onto or from any property owned or leased by such Person, including, without limitation, the movement of Contaminants through or in the air, soil, surface water, groundwater or property. "Remedial Action" means all actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment, (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (iii) perform preremedial studies and investigations and post-remedial monitoring and care. (u) Determination of Taxability. No event or circumstance exists which could reasonably be expected to have an adverse effect on the exemption of interest on the Ontario Industrial Development Authority, Adjustable Tender Industrial Development Revenue Bonds (L.D. Brinkman & Co. - West Coast Project) Series 1985 from federal income taxation. (v) Vote Required. Assuming the accuracy of the representation and warranty contained in Section 7(e), the approval by the affirmative vote of a majority of the outstanding shares of the common stock of Seller ("Seller Common Stock") entitled to vote is the only vote of the holders of any class or series of the capital stock of Seller required to approve the transactions contemplated by this Agreement and the Option Agreement. (w) Article SEVEN of Seller's Articles of Incorporation Not Applicable. Seller has taken all necessary actions so that the provisions of Article SEVEN of Seller's Articles of Incorporation will not, before the termination of this Agreement, apply to this Agreement or the transactions contemplated by this Agreement and the Option Agreement. (x) Subsidiary Ownership of Real Property. None of the Subsidiaries has now, or has had at any time, any rights arising out of or appurtenant to the ownership or leasing of real property. (y) Proxies. Each of the directors and officers of Seller named on Schedule 6(y) has on the date hereof granted to Purchaser an irrevocable proxy to vote the shares of Seller Common Stock beneficially owned by such person to approve this Agreement and the transactions contemplated by this Agreement. (z) Labor Matters. Except as set forth on Schedule 6(z), neither Seller nor any of its subsidiaries is a party to any collective bargaining agreement with any labor union, confederation or association and there are no discussions, negotiations, demands or proposals that are pending or have been conducted or made with or by any labor union, confederation or association. To Seller's knowledge, there are not pending or threatened against Seller or any of its subsidiaries any general labor disputes, strikes or work stoppages. There is no present or former employee, manager or director of Seller or any of its subsidiary who has made any claim since January 1, 1998 against Seller or any of its subsidiaries (whether under law, any employment agreement or otherwise) on account of or for: (i) overtime pay, other than overtime pay for the current payroll period; (ii) wages or salaries, other than wages or salaries for the current payroll period; (iii) vacations, sick leave, time off or pay in lieu of vacation, sick leave or time off, other than vacation, sick leave or time off (or pay in lieu thereof) earned in the twelve-month period immediately preceding the date of this Agreement; or (iv) termination of employment, and to Seller's knowledge, there is no basis for any such claim. (aa) Supplier Audits. Schedule 6(aa) sets forth the dates of each audit conducted since January 1, 1995 by each material supplier to the Business and its subsidiaries. (bb) Trading Practices; Ethical Standards. The directors, employees and independent commission agents of Seller and its subsidiaries are in compliance with ethical standards and other trading practices mandated by applicable laws and contractual arrangements and have not made payments to any third parties other than in the ordinary course of business or pursuant to contracts. (cc) Value-Added Business. The products assembled and sold by or on behalf of Seller under Seller's value-added business (i) are first quality merchandise, useable and saleable in the ordinary course of business within a period of not more than twelve (12) months, (ii) were assembled in conformity in all material respects with applicable specifications and quality control standards and in conformity with all applicable laws, rules and regulations and (iii) are not obsolete, damaged, defective or shopworn. For purposes of this Agreement, "knowledge" of Seller shall mean and be limited to the actual knowledge of any director of Seller or Tracy Edwards, Russell Doll, Steven Weeks, D.J. Hough or Peter Resnick, in each case, at the date hereof. 7. Purchaser's Representations and Warranties. Purchaser represents and warrants to Seller, as of the date of this Agreement, as follows: (a) Organization and Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. (b) Execution, Delivery and Performance of Agreement. The execution, delivery and performance of this Agreement by Purchaser will not, with or without the giving of notice or the passage of time, or both, conflict with, result in violation of, result in a default, right to accelerate or loss of rights under, or result in the creation of any Encumbrance pursuant to, any provision of Purchaser's certificate of incorporation or bylaws or any mortgage, deed of trust, lease, license, material agreement (including any debt instrument), law, rule, regulation, order or judgment or decree to which Purchaser is a party or by which it may be bound or affected, except as set forth on Schedule 7(b) or as could not be reasonably expected to have a material adverse effect on Purchaser's ability to consummate the transactions contemplated by this Agreement. Purchaser has the full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors of Purchaser has approved the entering into by Purchaser of this Agreement. There are no other corporate proceedings required to be taken by Purchaser to authorize the execution, delivery and performance by Purchaser of this Agreement and the consummation of the transactions contemplated hereby. This Agreement constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditor's rights generally and subject to usual equity principles. (c) Information to be Included in the Definitive Proxy Statement. Neither the information supplied or to be supplied in writing by or on behalf of Purchaser for inclusion in the Proxy Statement in connection with the transactions contemplated hereby will, at the date it is mailed to shareholders of Seller and at the date of the Seller's Shareholders Meeting, contain any untrue statement of a material fact or omit to state any, material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (d) Litigation. No action, suit, litigation, arbitration, dispute, proceeding or governmental investigation or governmental audit is pending against, or to the knowledge (as defined at the end of this Section 7) of Purchaser, threatened against, Purchaser or any of its properties, assets or businesses, or any direct or indirect shareholder of Purchaser in its or his capacity as such, which individually or in the aggregate is reasonably likely to have a material adverse effect on Purchaser's ability to consummate the transactions contemplated by this Agreement. There are no orders, judgments or decrees of any court or governmental agency in which the Purchaser is named and which apply specifically to the Purchaser or any of its properties, assets or businesses and which individually or in the aggregate is reasonably likely to have a material adverse effect on Purchaser's ability to consummate the transactions contemplated by this Agreement. (e) Ownership of Seller Common Stock. Neither Purchaser nor any of its subsidiaries beneficially owns more than 100 shares of Seller Common Stock. 8. Certain Agreements. (a) Observance of Operations of the Business. From the date hereof until the Closing Date, Purchaser may, at its election, have a reasonable number of representatives (which shall be employees of Purchaser or existing consultants of Purchaser who are acting as such in connection with this Agreement) at the facilities of Seller and its subsidiaries to observe and consult with representatives of Seller and its subsidiaries with respect to the management of the operations of the Business, except as otherwise provided in Section 8(b). Notwithstanding anything in this Agreement to the contrary, all rights of Purchaser or its representatives to access to or inspection of the Business or to obtain information with respect to the Business pursuant to Sections 8(a), 8(b), 9(c) and 9(e) shall be effected solely through Gordon Graham, Tracy Edwards or such other persons as may be mutually agreed by the parties hereto and shall be subject to the right of a representative of Seller to accompany Purchaser or its representative in connection therewith. (b) Maintain Business. From the date hereof to the Closing, except as otherwise provided in this Section 8(b), Seller shall, and shall cause each of its subsidiaries to, conduct the Business only in the ordinary course and consistent with its prior practice (including with respect to the collections of Accounts Receivable and replenishment of Inventory), maintain, keep and preserve the Assets and the assets and properties of the Subsidiaries in good condition and repair and shall use its best efforts to maintain insurance thereon in accordance with present practices, and Seller shall, except as provided in this Section 8(b), use its best efforts to act in such manner to preserve the business and organization of the Business intact, to use its best efforts, at current compensation levels, to keep available to Purchaser the services of present employees of the Business and to use its best efforts to preserve for the benefit of Purchaser the goodwill of suppliers and customers and others having business relations with the Business. Without limiting the generality of the foregoing, unless Purchaser shall have otherwise consented in writing, Seller shall: (i) permit Purchaser's representatives to communicate, orally, in writing or by other media, with the employees of Seller and of the Subsidiaries in connection with matters other than integration planning, due diligence and purchase price determination, as long as such communications are made jointly with designated representatives of Seller and are reviewed and approved in advance by Seller; (ii) not, and cause each of the Subsidiaries not to, conduct the Business in a manner such that the provisions of Section 6(g) will not remain true and correct in all material respects without the consent of Purchaser; (iii) not cause any of the Subsidiaries to change its charter or by-laws in any manner or merge or consolidate or obligate themselves to do so with or into any other entity; (iv) cause those employees of Seller as shall be designated by Gordon Graham and Tracy Edwards and as may be mutually agreed by the parties hereto to assist Purchaser in the human resource planning and the planning of the integration of the Business with and into the businesses of Purchaser (it being agreed that such plans shall not be implemented prior to the Closing without the consent of Seller); (v) not modify or change any existing Franchise Agreement or contract required to be set forth on Schedule 6(k) or renew or extend any existing Real Property Lease (unless such renewal or extension is for no more than six (6) months and is otherwise on terms substantially similar to such renewed or extended lease); (vi) not open any new facility in respect of the Business; (vii) not fail to pay all Taxes as they become due and payable, except in cases where the payment of such Taxes is being disputed in good faith by Seller with appropriate reserves reflected or to be reflected in the Audited Balance Sheet; (viii) with respect to any employee of the Business having total compensation in excess of $100,000 annually, not hire, promote or fire any such employee other than for cause; (ix) not make any capital expenditures or capital additions or betterment in excess of $250,000 in the aggregate in respect of the Business; (x) not make any payment, loan, or other transfer of any assets to, or assume any obligations or liabilities of, Seller or any affiliates of Seller except in the ordinary course of business consistent with past practice of the Business; and (xi) consult with and advise Purchaser with respect to (A) any inventory purchases out of the ordinary course of business or inconsistent with past practice and (B) inventory management. (c) Approval of Shareholders; Proxy Statement. (i) Seller shall cause a meeting of its shareholders (the "Seller's Shareholders Meeting") to be duly called and held as soon as reasonably practicable for the purpose of voting to approve the transactions contemplated by this Agreement (the "Seller Shareholders' Approval"). The Board of Directors of Seller shall recommend to its shareholders the approval of all such matters and shall use all reasonable efforts to obtain the approval of such shareholders; provided, however, that nothing herein shall require the Board of Directors of Seller to act, or refrain from acting, in any manner that it may determine, after consultation with its outside counsel, to be necessary to the proper discharge of the directors' fiduciary duties to its shareholders. In the event that the Seller Shareholders' Approval is not obtained on the date on which the Seller's Shareholders Meeting is initially convened, the Board of Directors of Seller agrees to adjourn such Seller's Shareholders Meeting at least twice for the purpose of obtaining the Seller Shareholders' Approval and to use its best efforts during any such adjournments to obtain the Seller Shareholders' Approval, unless failure to obtain the Shareholders' Approval is caused by the holders of a majority of outstanding shares of Seller Common Stock voting against the approval of the transactions contemplated by this Agreement. (ii) In connection with Seller's Shareholders Meeting, Seller shall prepare and file a preliminary proxy statement relating to the transactions contemplated hereby (the "Preliminary Proxy Statement") with the SEC, and Seller shall use its best efforts to respond to the comments of the SEC and to cause a definitive proxy statement (the "Definitive Proxy Statement") to be mailed to its shareholders, all as soon as reasonably practicable. Seller shall notify Purchaser as soon as reasonably practicable of the receipt of any comments from the SEC and of any requests by the SEC for amendments or supplements to the Preliminary Proxy Statement or the Definitive Proxy Statement or for additional information, and shall as soon as reasonably practicable supply to Purchaser copies of all correspondence between it or its representatives and the SEC or members of its staff with respect to the Preliminary Proxy Statement or the Definitive Proxy Statement. If at any time prior to Seller's Shareholders Meeting, any event should occur relating to Seller, any of the Subsidiaries, Purchaser, their respective officers or directors or otherwise, which should be set forth in an amendment of, or a supplement to, the Definitive Proxy Statement, the first party learning of such event shall promptly notify the other, and Seller, with Purchaser's reasonable cooperation, shall thereupon promptly prepare and mail such amendment or supplement. Anything to the contrary contained herein notwithstanding, Seller shall not (except to the extent required by law) include in its Preliminary Proxy Statement or Definitive Proxy Statement any information with respect to Purchaser, or any of its officers, directors, affiliates or associates, or Purchaser's plans or intentions, the form and content of which shall not have been approved by Purchaser prior to such inclusion, such approval not to be unreasonably withheld. (d) Insurance. (i) To the extent that (A) there are third-party insurance policies maintained by Seller and its affiliates covering any loss, liability, damage or expense relating to the Assets, operations, conduct, products and employees (including former employees) of the Business ("Seller's Insurance Policies") (all such losses, liabilities, claims, damages or expenses regardless of the availability of insurance coverage, are herein referred to collectively as the "Business Liabilities") and relating to or arising out of occurrences prior to the Closing, and (B) Seller's Insurance Policies continue after the Closing to permit claims ("Claims") to be made with respect to such Business Liabilities relating to or arising out of occurrences prior to the Closing, Seller agrees to cooperate and cause its affiliates to cooperate with Purchaser in submitting Claims on behalf of Purchaser or the Subsidiaries under Seller's Insurance Policies with respect to such Business Liabilities relating to occurrences prior to the Closing, except for Claims relating to Retained Liabilities. (ii) Seller shall maintain each of Seller's Insurance Policies in full force and effect until the Closing. (e) Hiring of Employees. Seller and Purchaser agree that pending the Closing, and in the event of termination of this Agreement, until six months after such termination, (i) Purchaser will not hire, employ, solicit, or offer employment to any present employee of Seller or any of its subsidiaries, whether or not such employee remains in the employ of Seller or any of its subsidiaries, after the date hereof, without Seller's written consent, except for discussions prior to the termination of this Agreement in accordance with Section 8(b)(i) with employees relating to their employment by Purchaser after the consummation of the transactions contemplated herein, and (ii) Seller will not, and will cause each of its subsidiaries not to, hire, employ, solicit or offer employment to any present employee of Purchaser, whether or not such employee remains in the employ of Purchaser after the date hereof, without Purchaser's written consent. The foregoing mutual covenants shall survive any breach or alleged breach of this Agreement or the termination of this Agreement for any reason. (f) Tax Matters. (i) Any and all existing Tax sharing, allocation, compensation or like agreements or arrangements, whether or not written, that include any of the Subsidiaries, including without limitation any arrangement by which any of the Subsidiaries makes compensating payments to each other or any other member of any affiliated, consolidated, combined, unitary or other similar Tax group for the use of certain tax attributes, shall be terminated as to the Subsidiaries on or prior to the Closing Date (pursuant to a writing executed on or before the Closing Date by all parties concerned) and shall have no further force or effect as to the Subsidiaries. Any and all powers of attorney relating to Tax matters concerning any of the Subsidiaries shall be terminated as to that Subsidiary on or prior to the Closing Date and shall have no further force or effect. (ii) After the Closing Date, Purchaser and Seller shall provide each other, and Purchaser shall cause the Subsidiaries to provide Seller, with such cooperation and information relating to the Subsidiaries as either party reasonably may request in (A) filing any Tax return, amended return or claim for refund, (B) determining any Tax liability or a right to refund of Taxes, (C) conducting or defending any audit or other proceeding in respect of Taxes or (D) effectuating the terms of this Agreement. The parties shall retain, and Purchaser shall cause the Subsidiaries to retain, all returns, schedules and work papers, and all material records (including accounting records) and other documents relating thereto, until the expiration of the statute of limitation (and, to the extent notified by any party, any extensions thereof) of the taxable years to which such returns and other documents relate and, unless such returns and other documents are offered and delivered to Seller or Purchaser, as applicable, until the final determination of any Tax in respect of such years. Any information obtained under this Section 8(f)(ii) shall be kept confidential, except as may be otherwise necessary in connection with filing any Tax return, amended return, or claim for refund, determining any Tax liability or right to refund of Taxes, or in conducting or defending any audit or other proceeding in respect of Taxes. Notwithstanding the foregoing, neither Seller nor Purchaser, nor any of their affiliates, shall be required unreasonably to prepare any document, or determine any information not then in its possession, in response to a request under this Section 8(f)(ii). (iii) Purchaser shall have received, on or before the Closing Date, an affidavit in the form of Exhibit E that Bell Ontario Holding, Inc. is not a "foreign person" within the meaning of Code Section 1445. If, on or before the Closing Date, Purchaser shall not have received such affidavit, Purchaser may withhold from the Purchase Price payable at Closing to the Seller pursuant hereto such sums as are required to be withheld therefrom under Code Section 1445. (iv) Seller shall pay when due, any transfer, gains, documentary, sales, use, registration, stamp, value added or other similar Taxes payable by reason of the transactions contemplated by this Agreement or attributable to the sale, transfer or delivery of the Acquired Shares hereunder, and Purchaser shall reimburse Seller one-half of any such payment, provided that the amount of reimbursement by Purchaser shall not exceed $500,000. Seller shall, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes. (g) Option Agreement. Seller and Purchaser will perform fully their respective obligations under the Option Agreement. (h) Transition Services. At Purchaser's request, Seller agrees to provide to Purchaser and the Business data processing and other computer services, data- induced communications, accounting services, human resources and other administrative support to the extent used by the Business prior to the Closing Date, and the facilities and services set forth on Schedule 6(b) and the facility set forth on Schedule 1(b)(viii) (collectively, the "Transition Services") for up to twelve (12) months from the Closing Date. Purchaser shall reimburse Seller for all out-of-pocket costs incurred in providing the Transition Services, including any reasonable payments deemed necessary by Seller (and consented to in advance by Purchaser, which consent shall not be unreasonably withheld) to ensure continuing services of the personnel performing such services during such period. 9. Certain Covenants of Seller. (a) Obtain Consents. Seller will, and will cause each of its subsidiaries to, upon the request of Purchaser, use its reasonable efforts to obtain the consents necessary in connection with the transactions contemplated hereby with respect to each (i) of the items set forth on Schedule 6(c)(i), (ii) lease set forth on Schedules 1(a)(ii)(A) and 1(a)(ii)(B) and (iii) Franchise Agreement, and deliver to Purchaser evidence thereof, it being understood however that (A) neither Seller nor any of its subsidiaries shall be required to pay any consideration or relinquish valuable rights to obtain such consents and (B) Purchaser shall cooperate with Seller in obtaining such consents. (b) Accomplish Sale. Seller will, and will cause each of its subsidiaries to, enter into no transaction and make no agreement or commitment which would prevent or unreasonably delay the Closing, and will, and will cause each of its subsidiaries to, act in such manner to consummate the transactions contemplated by this Agreement and will, and will cause each of its subsidiaries to, use its reasonable efforts not to permit any event to occur which would result in any of its representations, warranties or covenants contained in this Agreement or delivered in connection herewith not being true and correct at and as of the time immediately after the occurrence of such transaction or event except to the extent Purchaser has (y) consented thereto or (z) requested Seller to take or omit to take an action (and Seller has complied with such request), in each case where such consent or request has resulted in such representation and warranty not being true and correct, it being agreed that Purchaser shall notify Seller of any breach of this provision of which it has actual knowledge and provide Seller with a reasonable opportunity to cure such breach. (c) Cooperate with Purchaser. Subject to Section 8(b), Seller shall, and shall cause each of its subsidiaries and shall direct each of their respective officers and employees to, reasonably cooperate and assist Purchaser and Purchaser's accountants, attorneys, employees, lenders and other representatives in consummating the transactions contemplated under this Agreement. (d) No Solicitation. Seller shall not, and shall direct each of its subsidiaries and their respective officers, employees, representatives and agents not to, directly or indirectly, induce, solicit or initiate discussions or negotiations with, or provide any non-public information to, any corporation, partnership, person or other entity or group concerning any merger, sales of substantial assets, sales of shares of capital stock or similar transactions involving Seller or any subsidiary or division of Seller if such transaction involves the Business or any of the Assets ("Alternative Proposal") or enter into any agreement with respect thereto; provided that, prior to the receipt of the Seller Shareholders' Approval and upon receipt of advice of Seller's legal counsel that such provision, discussion or negotiation is required pursuant to fiduciary obligations under applicable law, Seller may provide information (including non-public information, but only pursuant to a confidentiality agreement in customary form, including customary standstill provisions), and enter into (or induce) discussions or negotiations with, any person who has made a bona fide unsolicited Alternative Proposal in respect of such a transaction which the Board of Directors of Seller in good faith determines is a better offer than the transactions contemplated by this Agreement. Seller will promptly communicate to Purchaser the terms of any Alternative Proposal (including the maker thereof) which it may receive in respect of all such transactions prohibited by the foregoing and keep Purchaser informed of the status and material information with respect to such discussions or negotiations. Nothing in this Section 9(d) shall (x) permit Seller to terminate this Agreement (except as specifically provided in Section 17, (y) permit Seller to enter into any agreement with respect to an Alternative Proposal for so long as this Agreement remains in effect (it being agreed that for so long as this Agreement remains in effect, Seller shall not enter into any agreement with any person or group that provides for, or in any way facilitates, an Alternative Proposal (other than a confidentiality agreement under the circumstances described above)), or (z) affect any other obligation of Seller under this Agreement. (e) Access to Information. Prior to the Closing or termination of this Agreement in accordance with its terms, Seller will, and will cause each of its subsidiaries to, (i) give Purchaser and its authorized representatives reasonable access during normal business hours to all offices and other facilities relating to the Business and to all its books and records relating to the Business and will request that its independent accountants allow Purchaser's independent accountants access to all of their work papers, including, but not limited to, all plan documents, audit programs, lists of proposed adjustments and conclusion memoranda, (ii) permit Purchaser to make such inspections as it may reasonably require, and (iii) subject to Section 8(b), cause its officers to furnish Purchaser with such financial and operating data and other information with respect to the Business and their properties as Purchaser may from time to time reasonably request, in each case to the extent that the same does not unreasonably interfere with the operations of the Business (it being understood that Seller shall, and shall cause its subsidiaries to, develop (with the cooperation of Purchaser) such information as may be reasonably required in connection with Purchaser's integration planning, provided that such development does not unreasonably interfere with the operations of the Business or conflict with applicable law or the provisions of any existing confidentiality agreement and there exists sufficient underlying data to develop such information). Purchaser will, and will direct each of its representatives to, hold all such information and documents confidential in accordance with and subject to the terms of the Confidentiality Agreement dated April 8, 1998 executed by Purchaser and Seller (the "Confidentiality Agreement"); provided, however, that the terms of the Confidentiality Agreement relating to the Assets and the Business shall not apply to Purchaser after the Closing Date. Seller shall hold all information relating to the Assets or the Business confidential in accordance with and subject to the terms of the Confidentiality Agreement as if Seller were the recipient of such information. (f) Employee Benefits Plan. As of the Closing Date, each employee of the Business shall become 100% vested in his or her interest in or his or her accrued benefits under all Employee Benefit Plans. (g) Hart-Scott Compliance. Seller shall promptly prepare and file all reports and provide all additional information required under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended ("Hart-Scott"), and use its best efforts to obtain all approvals required thereunder. (h) Elimination of Intercompany Indebtedness. Other than intercompany indebtedness and receivables between the Subsidiaries, prior to the Closing Date, Seller shall cause all intercompany indebtedness involving the Business to be canceled or eliminated or contributed to the Subsidiaries and all intercompany receivables involving the Business to be canceled or eliminated or distributed to Seller. (i) Delivery of Documents. Seller shall cause to be delivered to Purchaser all documents required to be delivered to Purchaser at or prior to the Closing. (j) Resignations of Directors. Seller shall cause to be delivered to Purchaser at or prior to the Closing the resignations of the boards of directors of each of the Subsidiaries as Purchaser shall have requested. (k) Real Property. At or prior to the Closing, the following shall occur: (i) Subject to Section 8(f)(iv), all real estate transfer and gains Taxes payable by reason of the transaction contemplated hereunder shall be paid and borne by Seller. Seller and Purchaser shall cooperate to prepare and file all required documents and filings with applicable authorities. (ii) Seller shall deliver to Purchaser and its title insurer such evidence as may be reasonably required by Purchaser or its title insurer of the due authorization, execution and delivery of this Agreement. (iii) In connection with Purchaser's efforts to obtain an owner's title insurance policy or policies (the "Policies") for any of the Real Property, Seller shall provide for the delivery of such executed and acknowledged affidavits and/or agreements as Purchaser's title insurer shall reasonably require in order to omit from each of the Policies all exceptions (other than Real Estate Encumbrances) for (A) judgments, bankruptcies or other returns against persons or entities whose names are the same as or similar to name of Seller or any of the Subsidiaries, (B) rights of tenants, (C) mechanics' and materialmen's Encumbrances not reflected on the June Balance Sheet and (D) unrecorded documents to which any of the Subsidiaries or Seller is a party or of which any of the Subsidiaries or Seller has knowledge. (iv) Seller shall cause its subsidiary Bell Ontario Holding, Inc. to deliver to Purchaser the general warranty deed for the Real Property located in the City of Ontario, County of San Bernardino, State of California, sometimes commonly referred to as 1251 South Rockefeller Avenue, Ontario, California. (l) Canadian Antitrust Compliance. Seller shall promptly file any notice and provide any information required under Investment Canada and the Competition Act of Canada. (m) Security Deposits. Seller will take all actions necessary to transfer to Purchaser on the Closing Date all of Seller's or its applicable subsidiaries' right, title and interest in and to the Tenant Security Deposits and the Landlord Security Deposits. (n) Delivery of Books and Records, etc.; Removal of Property. (i) On the Closing Date, Seller will deliver or make available to Purchaser at the locations at which the Business is conducted all of the Business Books and Records and such other Assets as are in Seller's or its applicable subsidiaries' possession at other locations, and if at any time after the Closing Seller discovers in its possession or under its control any other Business Books and Records or other Assets, it will forthwith deliver such Business Books and Records or other Assets to Purchaser. (ii) Within sixty (60) days after the Closing Date, Seller shall remove all Assets and Properties not being sold to Purchaser hereunder from the Real Property and Improvements. Such removal shall be at the sole cost and risk of Seller, including risk of loss and damage to such Assets and Properties. Purchaser shall have no liability to Seller with respect to such removal and transportation. Seller shall be responsible for all repairs to the Real Property and Improvements due to damage caused by Seller and its employees and agents in connection with the removal of Seller's Assets and Properties. (o) Noncompetition. (i) Seller will, for a period of five (5) years from the Closing Date, refrain from, either alone or in conjunction with any other Person, or directly or indirectly through its present or future affiliates; (A) causing or attempting to cause (A) any client, customer or supplier of the Business to terminate or materially reduce its business with Purchaser or any of its affiliates or (B) any officer, employee or consultant of Purchaser or any of its affiliates engaged in the Business to resign or sever a relationship with Purchaser or any of its affiliates; (B) disclosing (unless compelled by judicial or administrative process) or using any confidential or secret information relating to the Business or any client, customer or supplier of the Business; or (C) participating or engaging in, or otherwise lending assistance (financial or otherwise) to any Person participating or engaged in, any of the lines of business which comprised the Business on the Closing Date; provided, however, that nothing in this clause (C) will be deemed to prohibit Seller from continuing the business conducted by its Computer Division (as set forth on Schedule (1)(b)(ix)), namely selling computer systems and related items and value-added services to businesses, governmental agencies and academic institutions. (ii) The parties hereto recognize that the laws, rules, regulations and public policies of the various states of the United States may differ as to the validity and enforceability of covenants similar to those set forth in this Section 9(o). It is the intention of the parties that the provisions of this Section 9(o) be enforced to the fullest extent permissible under the laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to such laws, rules, regulations or policies) of any provisions of this Section 9(o) shall not render unenforceable, or impair, the remainder of the provisions of this Section 9(o). Accordingly, if any provision of this Section 9(o) shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall be deemed to apply only with respect to the operation of such provision in the particular jurisdiction in which such determination is made and not with respect to any other provision or jurisdiction. (iii) The parties hereto acknowledge and agree that any remedy at law for any breach of the provisions of this Section 9(o) would be inadequate, and Seller hereby consents to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained. (p) Takeover Statutes. If any "fair price", "moratorium", "control share acquisition" or other form of antitakeover statute or regulation shall become applicable to the transactions contemplated hereby, Seller and the members of the Board of Directors of Seller shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby and thereby. (q) Declaration of Distribution. Seller shall not take any action to declare a dividend or to make any distribution of the Purchase Price to the holders of Seller Common Stock (including the adoption by its Board of Directors of a resolution declaring such distribution and establishing a record date and such distribution date), unless (i) such action occurs after the Audited Balance Sheet Date, (ii) such distribution would not constitute a fraudulent conveyance under applicable bankruptcy laws and (iii) such distribution would not violate Section 500 et seq. of the CCC. (r) Use of Name. Following the Closing and continuing thereafter indefinitely, Seller shall not, and shall cause its subsidiaries not to, directly or indirectly, use or otherwise exploit the name "Milgray Electronics" or any derivatives thereof or any other trade name, domain name, trademark or service mark similar or confusingly similar thereto or used or held for use in the Business. Within one (1) week after the Closing Date, Seller shall cause each of its subsidiaries to change its name to no longer contain the name "Milgray" or any derivatives thereof. 10. Certain Covenants of Purchaser. (a) Obtain Consents. Purchaser will use its best efforts to obtain and deliver to Seller all consents necessary to the transactions contemplated hereunder. (b) Accomplish Sale. Purchaser will enter into no transaction and make no agreement or commitment which would prevent or unreasonably delay the Closing and will act in such manner, and cause its officers to act in such manner, to consummate the transactions contemplated by this Agreement and will use its reasonable efforts not to permit any event to occur which would result in any of its representations, warranties or covenants contained in this Agreement or delivered in connection herewith not being true and correct at and as of the time immediately after the occurrence of such transaction event. (c) Cooperate with Seller. Purchaser shall, and shall direct each of its officers and employees to, cooperate fully and assist Seller and Seller's accountants, attorneys, employees and other representatives in completing the transactions contemplated under this Agreement. (d) Hart-Scott Compliance. Purchaser shall promptly prepare and file all reports and provide all additional information required under Hart-Scott, and use its best efforts to obtain all approvals required thereunder. (e) Employee Benefits and Employee Benefit Plans. (i) Purchaser shall offer employment to all persons who were employed by Seller or its subsidiaries primarily in connection with the Business on the date immediately preceding the Closing Date, including those on disability and vacation ("Employees"), except those Employees set forth on Schedule 10(e)(i). Each such Employee shall be eligible to participate in all Employee Benefit Plans maintained or sponsored by Purchaser, or to which Purchaser contributes, and in which comparable employees of Purchaser are entitled to participate. Each such Employee's period of service with Seller or its subsidiaries shall be counted in determining eligibility for participation under each Employee Benefit Plan of Purchaser, including, without limitation, Purchaser's ESOP and Capital Accumulation Plan, and such service shall be counted in determining vesting of benefits under each Employee Benefit Plan of Purchaser other than Purchaser's ESOP; provided, however, that such service shall not be counted for benefit contribution or accrual purposes under any Employee Benefit Plans of Purchaser. Each such Employee shall be eligible to be covered as of his date of hire under any Employee Benefit Plan of Purchaser providing health care benefits (whether or not through insurance) without regard to any waiting period or any condition or exclusion based on any pre-existing conditions, and shall receive full credit for any copayments or deductible payments made before the Closing Date. Purchaser shall use its reasonable best efforts to cause its Capital Accumulation Plan to accept direct rollovers of eligible rollover distributions (within the meaning of Section 402(f)(2)(A) of the Code) received by Employees under the Bell Industries Savings and Profit Sharing Plan. (ii) Purchaser shall be responsible for any legally mandated continuation of health care coverage with respect to any "group health plan" (as such term is defined in Section 607(l) of ERISA and Section 5000(b)(1) of the Code) as may be required under Section 4980B of the Code ("COBRA Liability"), for Employees and/or their dependents who have a loss of health care coverage under Section 4980B of the Code due to a qualifying event (within the meaning of Section 4980B(f)(iii) of the Code) which occurs after the Closing Date ("Post- Closing COBRA Liability"). (iii) Purchaser agrees that it shall not, at any time prior to sixty days after the Closing Date, effectuate a "plant closing" or "mass layoff'" as those terms are defined in the Worker Adjustment and Retraining Notification Act of 1988 ("WARN") affecting in whole or in part any facility, site of employment, operating unit or Employee of Seller or any of the Subsidiaries to the extent that the requirements of WARN are applicable under the circumstances without complying fully with the applicable requirements of WARN. (f) Required Documents. Purchaser shall cause to be delivered to Seller all documents required to be delivered to Seller at or prior to the Closing. (g) Canadian Antitrust Compliance Purchaser shall promptly file any notice and provide any information required under Investment Canada and the Competition Act of Canada. (h) License of Bell Name. At the Closing, Purchaser shall grant to Seller a royalty-free, paid up, transferable, non-exclusive license, in the form attached hereto as Exhibit D, to use the name "Bell Industries", "Bell" or any derivatives thereof. 11. Conditions Precedent to Purchaser's Obligations All obligations of Purchaser hereunder are subject to the fulfillment or waiver of each of the following conditions at or prior to the Closing: (a) All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects when made and shall be deemed to have been made again at and as of the date of the Closing, and shall then be true and correct in all material respects. (b) There shall not have been any breach in any material respect by Seller of any of its covenants, agreements and obligations required by the terms of this Agreement to be performed by Seller at or before the Closing. (c) Since the date of this Agreement, none of the following shall have occurred: (i) improper conduct by Seller or any of its subsidiaries constituting fraud in connection with transactions with a significant supplier of inventory to Seller or any of its subsidiaries and (ii) violations of government contract laws, rules and practices committed by Seller or any of its subsidiaries that both (A) result in a termination or suspension of performance under a government prime or subcontract or debarment and (B) significantly impair the ability of Seller or any of its subsidiaries to conduct business as a government prime contractor or subcontractor. (d) There shall have been no material adverse change since June 30, 1998 in the Assets or the financial condition, results of operations, prospects or business of the Business taken as a whole; provided that the foregoing shall not include the termination of any Franchise Agreements due to the public announcement of this Agreement or the transactions contemplated hereby. (e) There shall be delivered to Purchaser a certificate executed by the chief executive officer and chief financial officer of Seller, dated the Closing Date, certifying, in their capacities as such officers, that the conditions set forth in paragraphs (a), (b), (c) and (d) of this Section 11 have been fulfilled. (f) Seller shall have obtained evidence in form reasonably satisfactory to Purchaser that any Encumbrances on the Assets pursuant to the Credit Agreement have been or will, immediately following the Closing, be released by the lenders thereunder. (g) The consummation of the transactions contemplated hereby shall not have been enjoined by any court or federal, state or foreign governmental agency, including, without limitation, the Department of Justice, the Federal Trade Commission or the SEC. (h) Seller shall have filed all reports and satisfied all requests for additional information pursuant to Hart-Scott, and all applicable waiting periods shall have expired. (i) The consents set forth on Schedule 11(i) shall have been obtained and shall be in full force and effect and not subject to any condition that has not been satisfied or waived. (j) Purchaser shall have received the opinion of Irell & Manella LLP, counsel to Seller, substantially in the form of Exhibit F. (k) There shall not be a moratorium on commercial bank lending declared by a federal or New York State regulatory authority or other circumstances or state of facts constituting a disruption in the financial markets causing banks and other financial institutions not to extend credit. 12. Conditions Precedent to Seller's Obligations. All obligations of Seller hereunder are subject to the fulfillment or waiver of each of the following conditions at or prior to the Closing: (a) All representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects when made and shall be deemed to have been made again at and as of the Closing, and shall then be true and correct in all material respects. (b) There shall not have been any breach in any material respect by Purchaser of any of its covenants, agreements and obligations required by the terms of this Agreement to be performed by Purchaser at or before the Closing. (c) There shall be delivered to Seller a certificate executed by the chief executive officer and chief financial officer of Purchaser, dated the Closing Date, certifying that the conditions set forth in paragraphs (a) and (b) of this Section 12 have been fulfilled. (d) The consummation of the transactions contemplated hereby shall not have been enjoined by any court or federal, state or governmental agency, including, without limitation, the Department of Justice, the Federal Trade Commission or the SEC. (e) Purchaser shall have filed all reports and satisfied all requests for additional information pursuant to Hart-Scott and all applicable waiting periods shall have expired. (f) The shareholders of Seller shall have approved the transactions contemplated hereby in accordance with applicable law and with the articles of incorporation and by-laws of Seller. (g) The banks under the Credit Agreement shall have consented to the transactions contemplated hereby. (h) Seller shall have received the opinion of Milbank, Tweed, Hadley & McCloy, special counsel to Purchaser, substantially in the form of Exhibit G. 13. Indemnification. (a) Indemnification and Reimbursement of Purchaser. Seller agrees to defend, indemnify and hold harmless Purchaser and its successors and assigns, against and in respect of any and all loss, liability, cost, expense, damage, or decline in value, including all costs and expenses incurred in enforcing rights under this Section 13, but after deducting the benefits actually or reasonably expected to be received (offset by any costs related to such benefits) with respect to Taxes or insurance (collectively, "Indemnification Losses"), resulting from, arising out of or relating to (A) (i) any misrepresentation or breach of warranty by Seller made as a part of or contained in this Agreement or in any certificate or document executed and delivered in connection with this Agreement or the transactions contemplated herein and (ii) any failure of the representations and warranties of Seller contained in Section 6 of this Agreement to be true and correct as if made again at and as of the Closing Date, (B) any failure by Seller to perform or otherwise fulfill any covenant or agreement made herein or contemplated hereby and (C) Retained Liabilities. (b) Indemnification and Reimbursement of Seller. Purchaser agrees to defend, indemnify and hold harmless Seller, and its successors and assigns, against and in respect of any and all Indemnification Losses resulting from, arising out of or relating to (A) (i) any misrepresentation or breach of warranty by Purchaser made as a part of or contained in this Agreement or in any certificate or document executed and delivered in connection with this Agreement or the transactions contemplated herein and (ii) any failure of the representations and warranties of Purchaser contained in Section 7 of this Agreement to be true and correct as if made again at and as of the Closing Date, (B) any failure by Purchaser to perform or otherwise fulfill any covenant or agreement made herein or contemplated hereby, (C) the conduct of the Business by Purchaser after the Closing Date and (D) any Assumed Liabilities. (c) Defense of Claims by Third Parties. Whenever a claim shall arise for indemnification under this Section 13 (except in respect of Taxes which shall be governed by the provisions of Section 8(g)), the party entitled to indemnification (the "Indemnified Party") shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of such claim and, when known, the facts constituting the basis for such claim; provided, however, that in the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the Indemnified Party shall give such notice thereof to the Indemnifying Party no later than ten (10) days prior to the time any response to the asserted claim is required, if possible. In the event of any such claim for indemnification resulting from or in connection with a claim or legal proceeding by a third party, the Indemnifying Party may, at its sole cost and expense, assume the defense thereof. If an Indemnifying Party assumes the defense of any such claim or legal proceeding, the Indemnifying Party shall be entitled to select counsel and take all steps necessary in the defense thereof; provided, however, that, no settlement shall be made without the prior written consent of the Indemnified Party (except that if the Indemnified Party shall withhold its consent to any settlement proposed by the Indemnifying Party, the Indemnifying Party shall in no event be deemed for purposes of this Section 13 to have suffered losses, liabilities or damages in connection with such claim or proceeding in excess of the proposed amount of such settlement); and provided further, however, that the Indemnified Party may, at its own expense, participate in any such proceeding with the counsel of its choice. So long as the Indemnifying Party is in good faith defending such claim or proceeding, the Indemnified Party shall not compromise or settle such claim without the prior written consent of the Indemnifying Party. If the Indemnifying Party does not assume the defense of any such claim or litigation in accordance with the terms hereof, the Indemnified Party may defend against such claim or litigation in such manner as it may deem appropriate, including , but not limited to, settling such claim or litigation (after giving notice of the same to the Indemnifying Party) on such terms as the Indemnified Party may deem appropriate, and the Indemnifying Party will promptly indemnify the Indemnified Party in accordance with the provisions of this Section 13. (d) Notice of Other Claims; Non-Waiver. Any party claiming indemnification hereunder shall give reasonably prompt written notice to the other as soon as practicable after it becomes aware of any condition or event that gives rise to Indemnification Losses for which indemnification is sought under this Section 13, except as otherwise provided in Section 13(c). Failure of an Indemnified Party to give reasonably prompt notice of any claim or claims shall not release, waive or otherwise affect an Indemnifying Party's obligations with respect thereto except to the extent of actual loss or prejudice as a result of such failure. (e) Threshold. No Indemnified Party shall be entitled to indemnification pursuant to this Section 13 for any Indemnification Losses incurred unless the aggregate amount for which indemnification is sought with respect to the aggregate of all Indemnification Losses is in excess of $1,000,000 (the "Threshold"). If the amount of claims for Indemnification Losses exceeds the Threshold, then the Indemnified Party entitled to indemnification pursuant to this Section 13 shall be entitled to indemnification for all Indemnification Losses, including the first $1,000,000 of such losses incurred. (f) Exclusive Remedy. The provisions of this Section 13 shall constitute the sole and exclusive remedy of and means by which any Indemnified Party after the Closing may obtain recompense for any damages, including Indemnification Losses, arising out of, resulting from or incurred in connection with this Agreement, including, without limitation, any inaccuracy and/or breach of any representation or warranty contained in this Agreement or any other agreement under this Agreement or any other agreement or instrument, or any other act or omission by any party hereto. 14. Commission and Finder's Fees. Each of the parties hereto represents and warrants to the other that no individual, firm or corporation, as a result of any action of such party, has any right, interest or valid claim against or upon the other party for any commission, fee or other compensation as broker or finder or for acting in any similar capacity. The parties acknowledge that Seller is obligated to pay a fee to Lincoln Partners LLC for rendering a fairness opinion in connection with the transactions contemplated by this Agreement. 15. Survival of Representations and Warranties. The representations and warranties made by the parties hereto under this Agreement or in connection with the transactions contemplated hereby or in any certificate, list or other instrument delivered pursuant hereto shall survive the Closing until after the Audited Balance Sheet Date and thereafter until the earlier of (a) the second anniversary of the Closing Date and (b)(i) the liquidation of Seller or (ii) the merger of Seller with, or the sale of all of Seller's equity to, an acquiring Person and thereafter no claim for indemnification under Section 13 may be made based upon a breach of any representation or warranty. 16. Expenses. Whether or not the transactions contemplated herein shall be consummated, each of the parties hereto shall bear and pay all costs and expenses incurred by it under or in connection with such transactions, and shall not be liable to any other party for any damages suffered due to the failure to consummate such transactions; provided, however, that (a) if this Agreement shall be terminated by Seller pursuant to Section 17(a)(ii) or by Purchaser pursuant to Section 17(a)(iii), Seller shall promptly thereafter pay to Purchaser an expenses reimbursement of $5,000,000; (b) if this Agreement shall be terminated pursuant to Section 17(a)(i)(C), Seller shall promptly thereafter pay to Purchaser an expenses reimbursement of $750,000, provided, however, that if the Proxy Statement (or any amendment, supplement or supplemental mailing by Seller to such shareholders with respect thereto) shall disclose any Alternative Proposal and the Seller's shareholders shall fail to approve the transactions hereunder, Seller shall pay $5,000,000 to Purchaser under this clause (b); and (c) if the Closing shall not occur in accordance with the terms of this Agreement and the failure to occur is based solely upon the non-satisfaction of a condition of Closing under Section 11(b) due to a willful breach by Seller or the non-satisfaction of a condition of Closing under Section 12(b) due to a willful breach by Purchaser, then the party in willful breach shall promptly pay to the other party, as an expenses reimbursement and not as a penalty, an amount equal to $5,000,000. The parties hereto acknowledge and agree that the amount of liquidated damages provided hereby is reasonable in the light of the anticipated harm caused by the breach, the difficulties of proof of loss, and the inconvenience and infeasibility of otherwise obtaining an adequate remedy. Neither Seller nor Purchaser shall be obligated to pay more than $5,000,000 pursuant to this Section 16. 17. Termination. (a) Anything herein to the contrary notwithstanding, at any time before the Closing this Agreement (i) may be terminated by either party; (A) if the Closing has not occurred on or before March 31, 1999; (B) if Hart-Scott clearance is not obtained; or (C) if approval of Seller's shareholders is not obtained; (ii) may be terminated by Seller if it receives an Alternative Proposal providing for terms better, in the good faith determination of Seller's Board of Directors, than those provided by the transactions contemplated hereunder provided that Seller shall have complied with the provisions of Section 8(d) and shall notify Purchaser promptly of its intention to terminate this Agreement or enter into a definitive agreement with respect to such Alternative Proposal, but in no event shall such notice be given less than forty-eight (48) hours prior to the public announcement of Seller's termination of this Agreement; provided that Seller's ability to terminate this Agreement pursuant is conditioned upon the prior payment by Seller to Purchaser of any amounts owed by it pursuant to Section 16; (iii) may be terminated by Purchaser if the Board of Directors of Seller (or any committee thereof) shall have withdrawn or modified in a manner materially adverse to Purchaser its approval or recommendation of this Agreement or shall have recommended an Alternative Proposal to the shareholders of Seller; (iv) may be terminated by Purchaser if the net investment shown on the Estimated Balance Sheet is less than $135 million; or (v) may be terminated by the mutual consent of Seller and Purchaser. (b) In the event of the termination of this Agreement pursuant to this Section 17, all further obligations of the parties under this Agreement shall terminate without further liability of any party to any other party or to the shareholders, directors or officers of any party (except as set forth in Section 17(a)(ii)), provided that the obligations of the parties contained in Section 8(e) and in the Confidentiality Agreement shall survive any such termination. 18. Notices. Any notice, request, instruction or other document to be given hereunder shall be in writing and delivered personally or sent by certified or registered mail, postage prepaid, as follows: If to Seller, addressed to it at 2201 E. El Segundo Blvd., El Segundo, California 90245, Attention: Gordon Graham, with concurrent copies to Irell & Manella LLP, 333 South Hope Street, Suite 3300, Los Angeles, California 90071, Attention: John Cost, Esq. and Ben Orlanski, Esq., and if to Purchaser addressed to it at 25 Hub Drive, Melville, New York 11747, Attention: President, with concurrent copies to Purchaser's General Counsel at the same address and Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York 10005, Attention: Howard S. Kelberg, Esq. Any party may change the address to which notices are to be sent by giving written notice of such change of address to the other party. 19. Entire Agreement, Amendments and Certain Other Matters. This Agreement, including the lists, exhibits, schedules, the Confidentiality Agreement, the Option Agreement and other agreements and attachments referred to herein, which are a part hereof, or agreements signed and delivered contemporaneously herewith, contains the entire understanding of the parties hereto, and supersedes all prior agreements of the parties, with respect to the acquisition of all or any part of the Business, the Assets or the Subsidiaries and may be amended only by a written instrument executed by the parties hereto or their respective successors or assigns, although any condition to a party's obligation hereunder may be waived in writing by such party. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. A failure or delay of either party to this Agreement to enforce at any time any of the provisions of this Agreement, or to exercise any option which is herein provided, or to require at any time performance of any of the provisions hereof, shall in no way be construed to be a waiver of such provisions of this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any person other than the parties any rights or remedies under or by reason of this Agreement. 20. Assignment. This Agreement is not assignable by Seller. Purchaser may assign all or a portion of its rights in this Agreement to a wholly-owned subsidiary of Purchaser provided that Purchaser and assignee jointly and severally remain fully liable for payment of all monies and performance of all obligations of Purchaser described in this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 22. Effectiveness. This Agreement will not become effective until executed by each of the parties hereto. 23. Consent to Jurisdiction and Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws and not the choice of law rules of the State of New York. Any judicial proceeding brought with respect to this Agreement must be brought in any federal or state court of competent jurisdiction in any state of the United States, and, by the execution and delivery of this Agreement, each party (i) accepts, generally and unconditionally, the non-exclusive jurisdiction of any courts and any related appellate court in the State of New York, and irrevocably agrees to be bound by any judgment rendered by such courts in connection with this Agreement and (ii) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum. In furtherance of the preceding clause, so long as this Agreement is in effect, Purchaser and Seller (if it is not a New York corporation and is not qualified to do business in New York as a foreign corporation) will at all times have an authorized agent in the City of New York, upon whom process may be served in any legal action or proceeding in any court of competent jurisdiction in the State of New York arising out of or in connection with this Agreement. Seller hereby irrevocably appoints CT Corporation System, as its agent for service of process in New York with respect to all disputes arising out of or in connection with this Agreement. 24. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. [Next Page Is Signature Page] IN WITNESS WHEREOF, the parties hereto have duly executed and agreed to all the terms of this Agreement including the exhibits hereto, as of the date first above written. BELL INDUSTRIES, INC. By: /s/ Gordon Graham ---------------------- Name: Gordon Graham Title: President & CEO ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell ------------------------------- Name: Robert E. Klatell Title: Executive Vice President EX-4 5 CERTIFICATE 6-7/8 SENIOR DEBENTURES ARROW ELECTRONICS, INC. OFFICERS' CERTIFICATE Reference is made to the Indenture dated as of January 15, 1997 (the "Indenture") from Arrow Electronics, Inc. (the "Company") to Bank of Montreal Trust Company (the "Trustee"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture. Pursuant to (i) authority granted under those certain resolutions of the Board of Directors of the Company adopted on May 14, 1998, and (ii) Section 2.3 of the Indenture, Gerald Luterman, Senior Vice President and Chief Financial Officer, and Paul Reilly, Vice President and Controller, of the Company, respectively, do hereby certify as follows: 1. The Securities of the third series to be issued under the Indenture shall be designated "6 7/8% Senior Debentures due 2018" (the "Offered Securities"); 2. Except as provided in Section 2.8 of the Indenture, the Offered Securities shall be limited in aggregate principal amount to $200,000,000 at any time Outstanding; 3. The Offered Securities shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on June 1, 2018; 4. The Offered Securities shall bear interest from June 3, 1998, at the rate of 6 7/8% per annum payable semiannually on June 1 and December 1 of each year (each, an "Interest Payment Date") commencing December 1, 1998. Interest on the Offered Securities will accrue from June 3, 1998 to the first Interest Payment Date, and thereafter will accrue from the last Interest Payment Date to which interest has been paid or duly provided for. No interest will accrue on the Offered Securities with respect to the day on which the Offered Securities mature. In the event that any Interest Payment Date is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of such delay) with the same force and effect as if made on the Interest Payment Date. Interest on any overdue principal will accrue at the same rate as the interest rate on the Offered Securities set forth above, and interest will not accrue on overdue installments of interest on the Offered Securities; 5. Each installment of interest on the Offered Securities shall be payable to the Person in whose name such Offered Securities are registered at the close of business on the May 15 or November 15 next preceding the corresponding Interest Payment Date for the Offered Securities; 6. The Offered Securities will be redeemable, in whole or from time to time in part, at the option of the Company on any date (a "Redemption Date"), at a redemption price equal to the greater of (i) 100 percent of the principle amount of the Offered Securities to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of the interest accrued to such Redemption Date) discounted to such Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to such Redemption Date; provided that installments of interest on the Offered Securities which are due and payable on an Interest Payment Date falling on or prior to the relevant Redemption Date shall be payable to the holders of such Offered Securities, registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture; 7. The Offered Securities will be originally issued in global registered form payable to Cede & Co., as the nominee of the Depositary, and will, unless and until the Offered Securities are exchanged in whole or in part for certificated Offered Securities registered in the names of the various beneficial holders thereof (in accordance with the conditions set forth in the legend appearing in the form of the Offered Securities attached hereto as Exhibit A), contain restrictions on transfer, substantially described in such form. For so long as the Offered Securities are registered in the name of Cede & Co., the principal and each installment of interest due on the Offered Securities will be payable by the Paying Agent to the Depositary for payment to its participants for subsequent disbursement to the beneficial holders thereof; 8. The Offered Securities will have such other terms and provisions as are provided in the form set forth in Exhibit A attached hereto and shall be issued in substantially such form; 9. The form and terms of the Offered Securities have been established in compliance with the Indenture; 10. The undersigned have read all of the covenants or conditions contained in the Indenture relating to the authentication and delivery of the Offered Securities and the definitions in the Indenture relating thereto; 11. The statements contained in this certificate are based upon the familiarity of the undersigned with the Indenture, the documents accompanying this certificate and upon discussions by the undersigned with officers and employees of the Company familiar with the matters set forth herein; 12. In the opinion of the undersigned, they have made such examination or investigation as is necessary to express an informed opinion as to whether or not such covenants or conditions have been complied with; and 13. In the opinion of the undersigned, such covenants or conditions have been complied with. IN WITNESS WHEREOF, the undersigned have executed this Officers' Certificate this 3rd day of June, 1998. By: /s/ Sam R. Leno -------------------------- Name: Sam R. Leno Title:Senior Vice President and Chief Financial Officer By: /s/ Paul J. Reilly ------------------------- Name: Paul J. Reilly Title: Vice President and Controller EX-4 6 CERTIFICATE 6.45 SENIOR NOTES ARROW ELECTRONICS, INC. OFFICERS' CERTIFICATE Reference is made to the Indenture dated as of January 15, 1997, (the "Indenture") from Arrow Electronics, Inc. (the "Company") to Bank of Montreal Trust Company (the "Trustee"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture. Pursuant to (i) authority granted under those certain resolutions of the Board of Directors of the Company adopted on October 21, 1998 and (ii) Section 2.3 of the Indenture, Robert E. Klatell, Executive Vice President, and Ira Birns, Assistant Treasurer, of the Company, respectively, do hereby certify as follows: 1. The Securities of the fourth series to be issued under the Indenture shall be designated "6.45% Senior Notes due 2003" (the "Notes"); 2. Except as provided in Section 2.8 of the Indenture, the Notes shall be limited in aggregate principal amount to $250,000,000 at any time Outstanding; 3. The Notes shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on November 1, 2003; 4. The Notes shall bear interest from October 28, 1998, at the rate of 6.45% per annum payable semiannually on May 1, and November 1 of each year (each, an "Interest Payment Date") commencing May 1, 1999. Interest on the Notes will accrue from October 28, 1998 to the first Interest Payment Date, and thereafter will accrue from the last Interest Payment Date to which interest has been paid or duly provided for. No interest will accrue on the Notes with respect to the day on which the Notes mature. In the event that any Interest Payment Date is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of such delay) with the same force and effect as if made on the Interest Payment Date. Interest on any overdue principal will accrue at the same rate as the interest rate on the Notes set forth above, and interest will not accrue on overdue installments of interest on the Notes; 5. Each installment of interest on the Notes shall be payable to the Person in whose name such Notes are registered at the close of business on April 15 or October 15 next preceding the corresponding Interest Payment Date for the Notes; 6. The Notes shall be redeemable, in whole or in part, at the option of the Company at such time and under such conditions as set forth in the form set forth in Exhibit A; 7. The Notes will be originally issued in global registered form payable to Cede & Co., as the nominee of the Depositary, and will, unless and until the Notes are exchanged in whole or in part for certificated Notes registered in the names of the various beneficial holders thereof (in accordance with the conditions set forth in the legend appearing in the form of the Notes attached hereto as Exhibit A), contain restrictions on transfer, substantially described in such form. For so long as the Notes are registered in the name of Cede & Co., the principal and each installment of interest due on the Notes will be payable by the Paying Agent to the Depositary for payment to its participants for subsequent disbursement to the beneficial holders thereof. 8. (a) The Notes will not be registered under the Securities Act. The Notes may not be offered or sold within the United States or to, or for the account or benefit of U.S. persons except (i) in compliance with the registration requirements of the Securities Act and all other applicable securities laws, or (ii) pursuant to an exemption from, or in a transaction not subject to the registration requirements of the Securities Act and any other applicable securities laws. Accordingly, the Notes are being offered and sold only inside the United States to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) ("QIBs") in compliance with Rule 144A. Except as otherwise provided in this Paragraph 8, the Notes shall bear the following legend: "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENT OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S. PERSONS" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.". (b) The Notes authenticated and issued hereunder shall not be required to bear the legend set forth in Paragraph 8(a) above, if such Note shall be issued upon: (1) the transfer or exchange of a Note and contemporaneously therewith the Company shall have received an opinion of counsel of the Holder, at its expense, in form and substance reasonably satisfactory to the Company, to the effect that such Note to be issued upon such transfer or exchange may be so issued without such legend because (A) such Note shall have been registered under the Securities Act, the registration statement in connection therewith shall have been declared effective and such Note shall have been disposed of pursuant to such effective registration statement, or (B) such Note shall have been sold in compliance with Rule 144 (or any similar provision then in force) under the Securities Act in such a manner that resale of such Note will not require registration under the Securities Act, and the Company shall have delivered to the Trustee a copy of such opinion of counsel of the Holder together with an Officers' Certificate directing the Trustee to issue an unlegended Note in connection with such transfer or exchange; such Officers' Certificate and opinion of counsel shall be delivered by the Company as soon as practicable after its receipt of a written request by a Holder for such a transfer or exchange; or (2) the transfer or exchange of a Note not bearing such legend. (c) Prior to any transfer or exchange of a legended Note for another legended Note, the Company shall have received an opinion of counsel of the Holder (which may include in-house counsel of such Holder experienced in matters of federal securities law), at its expense, in form and substance reasonably satisfactory to the Company to the effect that such transfer does not require registration under the Securities Act and the Company shall have delivered to the Trustee a copy of such opinion of counsel of the Holder together with an Officers' Certificate directing the Trustee to transfer or exchange the legended Note for another legended Note. 9. The Company shall not permit Consolidated Total Debt at any time to exceed an amount equal to, prior to December 1, 2000, 60%, and thereafter 55%, of Consolidated Total Capitalization. 10. The acceleration of Indebtedness of the Company or any Restricted Subsidiaries in a principal amount in excess of $25 million, provided that such acceleration has not been rescinded and such Indebtedness has not been discharged within 10 days, shall be deemed an Event of Default for the holders of the Notes only. 11. The Notes will have such other terms and provisions as are provided in the form set forth in Exhibit A attached hereto and shall be issued in substantially such form; 12. The form and terms of the Notes have been established in compliance with the Indenture; 13. The undersigned have read all of the covenants or conditions contained in the Indenture relating to the authentication and delivery of the Notes and the definitions in the Indenture relating thereto; 14. The statements contained in this certificate are based upon the familiarity of the undersigned with the Indenture, the documents accompanying this certificate and upon discussions by the undersigned with officers and employees of the Company familiar with the matters set forth herein; 15. In the opinion of the undersigned, they have made such examination or investigation as is necessary to express an informed opinion as to whether or not such covenants or conditions have been complied with; and 16. In the opinion of the undersigned, such covenants or conditions have been complied with. For purposes of this Officer's Certificate, the following terms have the following meanings: The term "Consolidated Net Worth" means, at a particular date, all amounts which would be included under shareholders' equity on a consolidated balance sheet of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. The term "Consolidated Total Capitalization" means, at a particular date, the sum of (a) Consolidated Net Worth plus (b) Consolidated Total Debt as at such date. The term "Consolidated Total Debt" means all Indebtedness of the Company and its Subsidiaries (excluding Indebtedness of the Company owing to any of its Subsidiaries or Indebtedness of any Subsidiary of the Company owing to the Company or any other Subsidiary of the Company), as determined on a consolidated basis in accordance with GAAP. The term "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. The term "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. The term "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, counter indemnity 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; however, the term Guarantee Obligation does not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee of any guaranteeing person is 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 will be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. The term "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. The term "Indebtedness" means the indebtedness of any Person at any date, including without duplication (a) the principal amount of all indebtedness of such Person for borrowed money or for the deferred purchase price of property or service (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 the Company or any Subsidiary in respect of current trade liabilities of the Company 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. The term "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 the Company is a party or beneficiary. The term "Person" means an individual, partnership, corporation, business, trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. IN WITNESS WHEREOF, the undersigned have executed this Officers' Certificate this 28th day of October, 1998. /s/ Robert E. Klatell ---------------------- Name: Robert E. Klatell Title: Executive Vice President /s/ Ira Birns ----------------------- Name: Ira Birns Title: Assistant Treasurer EX-10 7 AMENDMENT NO.1 - ARROW SAVINGS PLAN AMENDMENT NO. 1 TO THE ARROW ELECTRONICS SAVINGS PLAN The Arrow Electronics Savings Plan as restated to reflect amendments adopted through December 28, 1994 is hereby amended in the following respects: 1. Effective September 1, 1995, Section 1.21 is restated in its entirety to read as follows: 1.21 Entry Date. The first day of each January, April, July and October. 2. Effective September 1, 1995, Section 2.1 is restated in its entirety to read as follows: 2.1 In General. An Eligible Employee who has not previously become a member shall become a Member on the Entry Date coincident with or next following the later of his twenty-first (21st) birthday or the ninetieth (90th) day following his Date of Hire. 3. Effective September 1, 1995, the following sentence is added immediately before the final sentence of Section 7.3: No more than two loans may be outstanding at any time. 4. Effective as though included in the Plan as restated to reflect amendments adopted through December 28, 1994, Supplements 4 and 5 are restated in their entirety to read as follows: SUPPLEMENT NO. 4 In connection with the acquisition by Arrow Electronics, Inc. of all of the issued and outstanding shares of common stock of Gates/FA Distributing, Inc. (the "Gates Acquisition"), the Plan is amended as follows: S4.1 In the case of an individual who becomes an employee of an Employer or Affiliate on or about September 23, 1994 in connection with the Gates Acquisition, service with Gates/FA Distributing, Inc. shall be treated, for purposes of Section 2.1 and for purposes of determining such individual's Years of Service under the Plan, as though it were service with an Employer or Affiliate. For this purpose, any service measured in terms of elapsed time shall be converted to Hours of Service on the basis that one month equals 190 Hours of Service, one week equals 45 Hours of Service and one day equals 10 Hours of Service. An individual described in this Section S4.1 shall become a Member on the first Entry Date on or after January 1, 1995 on which he has satisfied the requirements of Section 2.1. S4.2 On or about March 1, 1996, participant accounts in the Gates/FA Distributing, Inc. 401(k) Plan (the "Gates Plan") shall, to the extent attributable to employee salary deferrals, be transferred to Elective Accounts under the Plan. Other amounts in participant accounts under the Gates Plan shall, to the extent not distributed to participants, be transferred to Rollover Accounts under the Plan. SUPPLEMENT NO. 5 In connection with the acquisition by Arrow Electronics, Inc. of all of the issued and outstanding shares of common stock of Anthem Electronics, Inc. (the "Anthem Acquisition"), the Plan is amended as follows: S5.1 In the case of an individual who becomes an employee of an Employer or Affiliate on or about November 20, 1994 in connection with the Anthem Acquisition, service with Anthem Electronics, Inc. shall be treated, for purposes of Section 2.1 and for purposes of determining such individual's Years of Service under the Plan, as though it were service with an Employer or Affiliate. For this purpose, any service measured in terms of elapsed time shall be converted to Hours of Service on the basis that one month equals 190 Hours of Service, one week equals 45 Hours of Service and one day equals 10 Hours of Service. An individual described in this Section S5.1 shall become a Member on September 1, 1995 if he has then satisfied the requirements of Section 2.1, and otherwise on the first Entry Date thereafter on which he has satisfied such requirements. S5.2 On or about October 1, 1995, participant accounts in the Anthem Electronics, Inc. Salary Savings Plan (the "Anthem Plan") shall, to the extent attributable to employee salary deferrals, be transferred to Elective Accounts under the Plan. Other amounts in participant accounts in the Anthem Plan shall, to the extent not distributed to participants, be transferred to Rollover Accounts under the Plan. Amounts required to be distributed in order to satisfy nondiscrimination testing of the Anthem Plan for 1995 may be paid from the Plan. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell ---------------------- ATTEST: Executive Vice President By: /s/ Wayne Brody --------------- EX-10 8 AMENDMENT NO.3 - ARROW SAVINGS PLAN AMENDMENT NO. 3 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 effective December 31, 1996 by the addition of the attached Supplement No. 6. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell ------------------------ Executive Vice President ATTEST: By: /s/ Wayne Brody --------------- CAPSTONE ELECTRONICS CORP. By: /s/ Robert E. Klatell ------------------------ Executive Vice President ATTEST: By: /s/ Wayne Brody --------------- SUPPLEMENT NO. 6 TO THE ARROW ELECTRONICS SAVINGS PLAN Special Provisions Applicable to Former Members of the Capstone Electronics Profit-Sharing Plan Effective as of December 31, 1996, the Capstone Electronics Profit- Sharing Plan (the "Capstone Plan") merged into this Plan, and the terms of this Plan superseded in all respects the terms of the Capstone Plan. This Supplement No. 6 provides for such merger (the "Merger") and sets forth special provisions of the Plan that apply to former members of the Capstone Plan. S6.1 Special Definitions. For purposes of this Supplement 6: S6.1.1 "Capstone" means Capstone Electronics Corp., a Delaware corporation. S6.1.2 "Capstone Account" means the account maintained under the Capstone Plan for each Capstone Member immediately prior to the Merger. S6.1.3 "Capstone Member" means a member of the Capstone Plan who had an undistributed Capstone Account immediately prior to the Merger or who was eligible under section 4.2 of the Capstone Plan to share in the Capstone Plan contribution (if any) made with respect to the 1996 Year. S6.1.4 "Capstone Plan" means the Capstone Electronics Profit- Sharing Plan, as in effect prior to the Merger. S6.1.5 "Capstone Trust Fund" means the trust fund maintained under the Capstone Plan immediately prior to the Merger. S6.2 Membership in Plan Effective December 31, 1996. Capstone Members will become Members of the Plan effective on December 31, 1996. S6.3 Merger. Effective as of December 31, 1996, the Capstone Plan and Capstone Trust Fund are merged into this Plan and the trust thereunder, respectively, and the terms of this Plan supersede in all respects the terms of the Capstone Plan with respect to the Capstone Accounts. All persons (including current and former employees and their beneficiaries) having an interest under the Capstone Plan prior to December 31, 1996 shall, on and after December 31, 1996, be entitled to benefits provided solely from this Plan (including this Supplement No. 6), in lieu of any and all interest which they had or may have had under the Capstone Plan. S6.4 Transfer of Capstone Trust Fund. The assets held by the trustees of the Capstone Trust Fund shall be transferred to the Trustee on December 31, 1996 or as soon as practicable thereafter. If and to the extent that such transfer is not completed on December 31, 1996, such trustees shall hold such assets, as adjusted for investment gain or loss thereon and expenses attributable thereto, as an additional trustee under this Plan, until such transfer is completed. S6.5 Allocation to Accounts. Funds transferred to the Trustee in respect of a Member's Capstone Account shall be allocated under the Plan to such Member's existing Matching Account (if any) and otherwise to a Matching Account of such Member established to receive the transferred funds. S6.6 Investment of Transferred Accounts. Funds transferred to the Trustee in respect of a Member's Capstone Account pursuant to Section S6.4 shall be invested in the same Investment Funds in the same proportions as the Member's Capstone Account was invested immediately prior to such transfer. Thereafter, the Member may change the percent-age of his Matching Account that is invested in each Investment Fund in accordance with Article V of the Plan. S6.7 Credit Under the Plan for Years of Service with Capstone. A Capstone Member's Years of Service under the Plan shall be the service credited to such Member for vesting purposes under the Capstone Plan as of December 31, 1996 plus any additional service credited under the rules of this Plan for periods before or after January 1, 1997 but without duplication. S6.8 Pre-Merger Elections and Designations. Notwithstanding any other provision of this Plan, (a) elections as to timing or form of benefit made, (b) designations of beneficiaries made, and (c) provisions that became applicable based on a failure to make an available election or designation, under the Capstone Plan on or before December 31, 1996, shall be given effect with respect to Capstone Members who retired or terminated employment under the terms of the Capstone Plan, or died, on or before December 31, 1996, and distribution shall be made in respect of such Members in accordance with the applicable provisions of the Capstone Plan as in effect at the relevant time or times prior to such date. S6.9 Beneficiary Designation. Beneficiary designations made under the Capstone Plan on or before December 31, 1996 by Capstone Members shall be given effect as if made under the Plan, unless and until superseded by a different actual or deemed designation (such as may occur on marriage of a single Member) under this Plan. S6.10 Contributions. Prior to the filing deadline for its 1996 federal income tax return, Capstone may, in its sole discretion, make a contribution to the Capstone Plan with respect to each Capstone Member who was eligible to share in such a contribution under section 4.2 of the Capstone Plan, by paying such contribution into the Plan as the continuation of the Capstone Plan by reason of the Merger. Such contribution shall be allocated among such Capstone Members in accordance with the provisions of the Capstone Plan governing contributions for the 1996 Year and accounted for under the Plan in the Member's Matching Account. S6.11 Capstone Plan Amended. The provisions of this Supplement 6 shall be treated as an amendment to and part of the Capstone Plan, effective December 31, 1996, to the extent necessary to give full effect to this Supplement. EX-10 9 AMENDMENT NO.4 - ARROW SAVINGS PLAN AMENDMENT NO. 4 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 in the following respects: 1. Section 1.4 is amended to read as follows: 1.4 Appropriate Form. The form or other method of communication prescribed by the Administrator for a particular purpose specified in the Plan, when filed or otherwise effected at the time and in the manner prescribed by the Administrator. 2. Section 1.26.2 is amended to read as follows: 1.26.2 Paid Or Other Approved Absence. Each regularly scheduled working hour during a period for which an employee is paid, or entitled to payment, by an Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability or pregnancy), layoff, jury duty, military duty or leave of absence, or during any other period of authorized leave if employee returns to employment with the Employer on the expiration of such leave. 3. Section 1.38 is amended to read as follows: 1.38 Rollover Account. A separate Account maintained for an individual attributable to his Rollover Contributions and balances formerly credited to his Prior Plan Accounts, together with applicable Investment Adjustments. 4. Section 1.39 is amended to read as follows: 1.39 Rollover Contribution. An Eligible Employee's rollover contribution made pursuant to Section 3.6, including the amount of any transfer to this Plan pursuant to the in-service withdrawal provision of the Arrow Electronics Stock Ownership Plan. 5. Section 2.1 is amended to read as follows: 2.1 In General. An Eligible Employee who has not previously become a Member shall become a Member on the Entry Date coincident with or next following the later of his twenty-first (21st) birthday or the ninetieth (90th) day following his Date of Hire, if he customarily works for an Employer for twenty (20) or more hours per week throughout each year (except for holidays and vacations). In any other case, an Eligible Employee shall become a Member on the Entry Date coincident with or next following the later of (a) his completion of a 12-consecutive month period starting on his Date of Hire, or on any January 1 thereafter, in which he has 1,000 Hours of Service, or (b) his twenty-first (21st) birthday. 6. Section 3.1.3 is amended by revising the first sentence thereof to read as follows: 3.1.3 Voluntary Suspension. A Member may voluntarily suspend his Contribution Agreement effective as soon as practicable by giving notice to the Administrator on the Appropriate Form. 7. Section 3.6 is amended to read as follows: 3.6 Rollovers. Effective February 21, 1992, notwithstanding any other provision of the Plan, the Administrator may, in his sole discretion, authorize an Eligible Employee to make a contribution under the Plan ("Rollover Contribution") which qualifies as an "eligible rollover distribution" under section 402(c)(4), a "rollover amount" under section 403(a)(4) or a "rollover contribution" under section 408(d)(3) of the Code. The Administrator shall exercise such discretion in a manner that does not discriminate in favor of Highly Compensated Employees. All Rollover Contributions shall be received and held in the Fund, and shall be credited to the Eligible Employee's Rollover Account as of such date as the Administrator shall specify. At the time a Rollover Contribution is made, the Eligible Employee shall designate (in a manner consistent with Section 5.3) how that Rollover Contribution is to be allocated among the Investment Funds, without regard to the manner in which his other Accounts (if any) are invested; thereafter, reallocation of Account balances (including the Rollover Account) may be made only in accordance with the provisions of Section 5.3. An Eligible Employee who makes a Rollover Contribution shall be deemed a Member solely with respect to his Rollover Account until he otherwise becomes a Member in accordance with Section 2.1. 8. Section 3.12 is amended so that the first sentence now reads: Other than as provided in Section 3.6, Members shall not be eligible to make contributions under the Plan. 9. A new Section 7.2.6 is added to read as follows: 7.2.6 Home Purchases with Mortgage. A Participant shall be entitled to a hardship withdrawal under this Section 7.2 if (a) he meets all requirements therefor other than the receipt of all amounts available to him as a loan, (b) the need is for funds to purchase a principal residence of the Participant, (c) the obtaining of loans other than the mortgage loan in connection with such purchase would disqualify the Participant from obtaining the necessary amount of mortgage loan, and (d) the Participant demonstrates to the satisfaction of the Committee that the amount to be withdrawn for the purpose of such purchase cannot be obtained from other resources that are reasonably available to the Participant (including assets of the Participant's spouse that are reasonably available to the Participant). 10. Section 7.11 is amended to read as follows: 7.11 Withdrawals from Plan While Loan is Outstanding. The amount otherwise available for withdrawal from the Plan under Section 7.2 shall be reduced by the amount of any loan outstanding at the time a withdrawal request is made. 11. Section 8.1.1 is amended to read as follows: 8.1.1 In General. All amounts distributable pursuant to Section 7.1 with respect to a Member whose employment terminates for any reason shall be paid in cash in a single sum. If (a) such a Member's Normal Retirement Date precedes his Termination of Employment, or (b) the amount distributable does not exceed $5,000 at his Termination of Employment (and the vested amount of his Accounts did not exceed $5,000 at the time of any prior distribution), distribution shall be made as soon as administratively practicable after the date on which the Member's Termination of Employment is reported to the Administrator. Otherwise, except as provided in Section 8.2, distribution shall be made in cash in a single sum as soon as administratively practicable after the Member's Normal Retirement Date; provided, however, that such a Member may elect on the Appropriate Form at the time of his Termination of Employment to receive distribution as soon as practicable thereafter. Distribution shall in all events commence no later than 60 days after the close of the Year in which the Member attains age 65, except to the extent a contribution pursuant to Article III of the Plan which the Member is entitled to share in has not yet been acquired by the Fund. Each Member's Accounts shall be credited or charged with applicable Investment Adjustments through the date the distribution is processed. 12. Section 8.15.3 is amended to read as follows: 8.15.3 Default Procedure. If, upon Termination of Employment, the value of a Member's Accounts does not exceed $5,000 (and did not exceed $5,000 at the time of any prior distribution under the Plan), and such Member does not make a timely election under this Section 8.15 to make a Direct Rollover, the Member's Accounts shall be distributed directly to the Member in accordance with Section 8.1. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell ------------------------ Date: March 30, 1999 -------------- ATTEST: By: /s/ Wayne Brody --------------- Date:_______________________ KL3:212986.3 KL3:212986.3 KL3:212986.3 EX-10 10 AMENDMENT NO.2 - ARROW STOCK OWNERSHIP PLAN AMENDMENT NO. 1 TO THE ARROW ELECTRONICS STOCK OWNERSHIP PLAN The Arrow Electronics Stock Ownership Plan as restated to reflect amendments adopted through December 28, 1994 is hereby amended to restate Supplements 4 and 5 to read as follows, effective as though included in the Plan as thus previously restated: SUPPLEMENT NO. 4 In connection with the acquisition by Arrow Electronics, Inc. of all of the issued and outstanding shares of common stock of Gates/FA Distributing, Inc. (the "Gates Acquisition"), the Plan is amended as follows: S4.1 In the case of an individual who becomes an employee of an Employer or Affiliate on or about September 23, 1994 in connection with the Gates Acquisition, service with Gates/FA Distributing, Inc. shall be treated, for purposes of Section 2.1 and for purposes of determining such individual's Years of Service under the Plan, as though it were service with an Employer or Affiliate. For this purpose, any service measured in terms of elapsed time shall be converted to Hours of Service on the basis that one month equals 190 Hours of Service, one week equals 45 Hours of Service and one day equals 10 Hours of Service. An individual described in this Section S4.1 shall become a Member on the first Entry Date on or after January 1, 1995 on which he has satisfied the requirements of Section 2.1. SUPPLEMENT NO. 5 In connection with the acquisition by Arrow Electronics, Inc. of all of the issued and outstanding shares of common stock of Anthem Electronics, Inc. (the "Anthem Acquisition"), the Plan is amended as follows: S5.1 In the case of an individual who becomes an employee of an Employer or Affiliate on or about November 20, 1994 in connection with the Anthem Acquisition, service with Anthem Electronics, Inc. shall be treated, for purposes of Section 2.1 and for purposes of determining such individual's Years of Service under the Plan, as though it were service with an Employer or Affiliate. For this purpose, any service measured in terms of elapsed time shall be converted to Hours of Service on the basis that one month equals 190 Hours of Service, one week equals 45 Hours of Service and one day equals 10 Hours of Service. An individual described in this Section S5.1 shall become a Member on the first Entry Date on or after January 1, 1995 on which he has satisfied the requirements of Section 2.1. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell ----------------------- Executive Vice President ATTEST: By: /s/ Wayne Brody ---------------- EX-10 11 AMENDMENT NO.3 - ARROW STOCK OWNERSHIP PLAN AMENDMENT NO. 3 TO THE ARROW ELECTRONICS STOCK OWNERSHIP PLAN (as amended December 28, 1994) The Arrow Electronics Stock Ownership Plan as restated December 28, 1994 and as subsequently amended, is hereby further amended effective January 1, 1997 by the addition of the attached Supplement No. 6. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell ------------------------ Executive Vice President ATTEST: By: /s/ Wayne Brody --------------- SUPPLEMENT NO. 6 TO THE ARROW ELECTRONICS STOCK OWNERSHIP PLAN Special Provisions Applicable to Employees of Capstone Electronics Corp. Effective as of January 1, 1997 Capstone Electronics Corp. adopted this Plan with the approval of the Company. This Supplement No. 6 provides for such adoption and sets forth special provisions of the Plan that apply to certain individuals who were employed by Capstone prior to January 1, 1997. S6.1 Special Definitions. For purposes of this Supplement 6: S6.1.1 "Capstone" means Capstone Electronics Corp., a Delaware corporation. S6.1.2 "Capstone Account" means the account maintained under the Capstone Plan for each Capstone Member immediately prior to December 31, 1996. S6.1.3 "Capstone Member" means a member of the Capstone Plan who had an undistributed Capstone Account immediately prior to December 31, 1996 or who was eligible under section 4.2 of the Capstone Plan to share in the Capstone Plan contribution (if any) made with respect to the 1996 Year. S6.1.4 "Capstone Plan" means the Capstone Electronics Profit- Sharing Plan, as in effect prior to December 31, 1996. S6.2 Membership in Plan Effective January 1, 1997. Capstone shall be an Employer under the Plan effective on and after January 1, 1997, which shall be the first Entry Date under the Plan applicable to Employees of Capstone. Employees then employed by Capstone shall become Members on such Entry Date if they were members of the Capstone Plan on December 31, 1996, or if they otherwise satisfy the requirements of Article II to become a Member of the Plan on January 1, 1997. S6.3 Credit Under the Plan for Years of Service with Capstone. A Capstone Member's Years of Service under the Plan shall be the service credited to such Member for vesting purposes under the Capstone Plan as of December 31, 1996 plus any additional service credited under the rules of this Plan for periods before or after January 1, 1997 but without duplication. EX-10 12 AMENDMENT NO.4 - ARROW STOCK OWNERSHIP PLAN AMENDMENT NO. 4 TO THE ARROW ELECTRONICS STOCK OWNERSHIP PLAN (as amended December 28, 1994) The Arrow Electronics Stock Ownership Plan as restated December 28, 1994 and as subsequently amended, is hereby further amended in the following respects: 1. Section 1.20.2 is amended to read as follows: 1.20.2 Paid Or Other Approved Absence. Each regularly scheduled working hour during a period for which an employee is paid, or entitled to payment, by an Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability or pregnancy), layoff, jury duty, military duty or leave of absence, or during any other period of authorized leave if employee returns to employment with the Employer on the expiration of such leave. 2. Section 6.2.1 is amended so that the first sentence now reads: Subject to the provisions of Section 9.5, the benefits distributable to a Member pursuant to this Article VI on Termination of Employment on or after January 1, 1986 but prior to the Member's Normal Retirement Date shall be distributed in a single distribution no later than December 31 of the Year following the Year in which he terminates employment; provided, that if the total amount distributable from the Member's Accounts exceeds $5,000 (or exceeded $5,000 at the time of any prior distribution), (a) such Member's benefits shall not be so distributed prior to his Normal Retirement Date without the Member's written consent, and (b) if such consent is not given within such time as the Administrator shall prescribe, such benefits shall instead be distri-buted after the Member's Normal Retirement Date. 3. Section 7.1 is amended to read as follows: 7.1 Withdrawal Rights. If a Member's General Account has a Vested Percentage of 100%, he may withdraw, at such time and in such manner as the Administrator shall prescribe, not more than one-half of the balance of such Account. No more than one such withdrawal may be made in any l2-month period, and no more than two such withdrawals may be made in any 60-month period. Notwithstanding the foregoing, shares of Common Stock acquired with the proceeds of an Exempt Loan may not be withdrawn prior to the close of the Year in which the Exempt Loan is repaid in full. The restriction imposed by the immediately preceding sentence and the restriction to no more than two withdrawals in any 60-month period do not apply to "Qualified Members" during their "Qualified Election Periods" (as such terms are defined in Section 4.11.1). 4. Section 7.2 is amended to read as follows: 7.2 Distribution. Distribution upon a withdrawal pursuant to Section 7.1 made directly to the Member shall be made solely in shares of Common Stock, and there shall be no distribution of any fractional share or cash in lieu thereof. 5. Section 9.4.1 is amended to read as follows: 9.4.1 Distribution at Normal Retirement Date. Subject to Sections 9.4.2 and 9.4.3, payment to a Member under this Article IX shall be made or commenced not later than the 60th day after the close of the Year in which occurs the later of his most recent Termination of Employment or his Normal Retirement Date, except to the extent that the common stock to be so distributed has not yet been acquired by the Fund. 6. Section 9.4.3 is amended to read as follows: 9.4.3 Subsequent Distributions. If a Member receives a single sumdistribution pursuant to Section 9.4.1 or 9.4.2, any shares of Common Stock subsequently allocated to the Member's Accounts shall be distributed to the Member as soon as practicable after the end of the Year for which such allocation is made. 7. Section 9.7.3 is amended to read as follows: 9.7.3 Default Procedure. If, upon Termination of Employment, the value of a Member's Accounts does not exceed $5,000 (and did not exceed $5,000 at the time of any prior distribution under the Plan), and such Member does not make a timely election under this Section 9.7 to make a Direct Rollover, the Member's Accounts shall be distributed to the Member in accordance with Section 6.2. ARROW ELECTRONICS, INC. By: /s/ Robert E. Klatell --------------------- Title: Executive Vice President Date: March 30, 1999 ATTEST: By: /s/ Wayne Brody --------------- Date: March 30, 1999 EX-10 13 EMPLOYMENT AGREEMENT - SAM LENO EMPLOYMENT AGREEMENT made as of the 1st day of March, 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 SAM R. LENO, residing at 1774 Foothills Drive South, Golden, Colorado 80401 (the "Executive"). WHEREAS, the Company wishes to employ the Executive as Senior Vice President and Chief Financial Officer, 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 Chief Financial 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 Senior Vice President and Chief Financial Officer). If the Board of Directors does not either continue the Executive in the office of Senior Vice President and Chief Financial Officer 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 substantially 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. 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 $400,000 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 principal operating 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. The foregoing notwithstanding, it is specifically agreed that the Executive's incentive for the portion of the Employment Period ending December 31, 1999 shall be not less than $60,000. 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 $90,000 per year upon retirement at age 63 and $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, 2000; 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 6th 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. If the Company does not give the Executive at least twelve months notice of its intention to permit this Agreement to expire on the then scheduled expiration date thereof (unless sooner terminated as otherwise provided herein), the Employment Period shall automatically be extended for one or more months beyond the scheduled expiration date thereof to give the Executive the benefit of twelve months notice of termination (provided, however, that, if so extended, the Employment Period shall terminate upon the Executive's acceptance of employment with another entity). 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 Paragraph 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 Paragraph 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 Paragraph 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: Sam R. Leno 1774 Foothills Drive South Golden, Colorado 80401 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. /s/ Wayne Brody By: /s/ Robert E. Klatell - ------------------- ----------------------- Assistant Secretary Executive Vice President THE EXECUTIVE /s/ Sam R. Leno ---------------- EX-10 14 AMENDMENT TO ARROW SERP Arrow Electronics, Inc. Supplemental Executive Retirement Plan General Information May 1998 This document provides general information about the Arrow Supplemental Executive Retirement Plan ("SERP"). It is intended only for employees who have been designated as SERP participants by Arrow's Board of Directors. The SERP is an unfunded retirement plan under the direction and control of Arrow's Board of Directors and the Committee the Board may appoint to administer it. The Board determines which employees will participate in the SERP and the terms of each employee's participation. The letter advising you of your participation will set forth the dates on which you are eligible to retire and the benefits available on those dates if you continue as a SERP participant. Retirement Benefits When the Board admits you to participation in the SERP, it will determine the date on which you may qualify for the maximum pension available, the amount of that pension, the earliest date on which you are eligible to retire with benefits under the Plan (your "earliest retirement date"), and the amount of pension you may receive on retirement at your earliest retirement date. You will also receive a schedule showing the amount of early retirement pension you may receive if you retire at any time between your earliest retirement date and the date you qualify for the maximum pension available. Retirement You may begin your retirement on or after your earliest retirement date. You retire from Arrow by advising Arrow in writing, with as much notice as possible (and not less than four months), that you wish to terminate your employment to begin retirement on a particular date. Your retirement date will then be the first day of the month following your termination, and your monthly SERP pension payment will begin on that date. Effect of Disability You are considered to be "disabled" if you meet the total disability requirements of the long term disability insurance offered to you by Arrow. If you become disabled while you are participating in the SERP, but before you receive any SERP pension payments, the following provisions apply: 1. While you are disabled, you continue to accrue pension benefits to the same extent as if you were active. 2. If your employment terminates because of disability and the disability continues to your normal retirement date, your termination date for SERP purposes will be the day before your normal retirement date ("normal retirement date" means the normal retirement date under the Arrow Savings Plan and ESOP). 3. If you are eligible for a retirement pension while you are receiving disability benefits, no retirement pension will begin without your written consent. 4. Any SERP pension payments will be reduced by the full amount of any disability benefits you receive for the same period. Effect of a Change in Control Termination If you have an employment or other agreement which gives you additional benefits in the event of the termination of your employment for certain reasons following a change in the ownership or control of Arrow, and within 24 months after such change your employment ends either (a) involuntarily other than for Cause or Disability or (b) voluntarily by you for Good Reason (as each of those capitalized terms is defined in such agreement), then your termination is considered to be a "Change in Control Termination". If you incur a "Change in Control Termination" after attaining age 50 and completing 15 years of SERP participation, you will receive SERP pension payments beginning on the first day of the month following the termination, in an amount equal to your normal retirement pension. Without your written consent, no action by Arrow during the period of time during which such employment agreement is in effect may adversely affect your rights under this section. Normal Form of Pension Under the normal form of pension, SERP pension payments are payable for your life only. However, if you die after your pension payments begin but before you have received 60 monthly payments, then monthly payments will continue to your beneficiary in the same amount you received prior to your death, until a total of 60 payments have been made. No benefits are payable under the SERP if you die before your pension payments begin. Optional Surviving Spouse Pension Under this optional form of pension, your monthly pension will still be payable for your lifetime, but in a reduced amount, and without the guarantee of 60 monthly payments. The reduction will be in the amount that the Committee determines, based on the advice of its actuarial consultant, is necessary to provide a monthly survivorship pension to your spouse for his or her lifetime, in an amount equal to two-thirds of the reduced monthly benefit you were receiving. Your election to take a surviving spouse pension must be made before your pension begins and cannot be changed after the pension begins. If you elect this benefit form, no benefits will be payable after the death of both you and your spouse. If you start to receive a reduced monthly pension under this form and your spouse then dies before you, the reduced benefit will continue to be paid for the remainder of your life. If you start to receive a reduced monthly pension under this form and you then die before your spouse, two-thirds of the reduced benefit will continue to be paid for the remainder of his or her life. Participation Conditions Your participation in the SERP begins on the date designated by the Board. The Board may act at any time to end your participation or to suspend your accrual of additional benefits. However, the Board may not adversely change any benefit after you retire or any accrued benefit before you retire, except with your consent. For this purpose, if you have reached your earliest retirement date, your accrued benefit is the amount you would be eligible to receive upon retirement as of the first day of the month next following the effective date of such change. If you are not then eligible to retire, your accrued benefit will be equal to the amount you would be entitled to receive on your earliest retirement date under the pre-change terms of the SERP, multiplied by the ratio of your completed months of participation in the SERP at the effective date of the change to your projected completed months of participation at such earliest retirement date under the pre-change terms of the SERP. The only way you will benefit from the SERP is to fulfill all of its requirements and retire from Arrow employment on or after your earliest retirement date. Except as noted for disability or change in control, if your employment ends for any reason before you retire under the SERP, the SERP provides no benefit to you or your beneficiary. Accrued SERP benefits are binding obligations of Arrow Electronics, Inc. They are not protected by ERISA or other government regulations. Termination of SERP Benefits When you become eligible for SERP payments, your annual SERP pension will be paid to you in monthly installments. Payments will end with the payment for the month in which you die, except for any benefits payable to your beneficiary on your death before receiving at least 60 monthly payments, if your pension was payable in the normal form described above (or for any surviving pension to your spouse, if your pension was paid as a surviving spouse pension as described above), or earlier if you compete with Arrow, as defined below. You compete with Arrow if, directly or indirectly, alone, as an employee, agent, independent contractor, lender, consultant, owner, partner or joint venturer, or as an officer, director, or stockholder of any corporation, or otherwise, are employed by, participate in, are engaged in, or are connected with any person or entity which is engaged in a business of the type and character engaged in, and competitive with that conducted by Arrow. Ownership of 3% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on the NASDAQ National Market, will not constitute a violation of this provision, so long as you do not in fact have the power to control, or direct the management of, or are not otherwise associated with, such corporation. Medical Benefits Arrow offers a group health care plan (the "SERP Health Plan") to participants who have retired under the SERP, which provides benefits that are identical to those provided under the group health plan offered by Arrow to its active employees (the "Active Health Plan"). The SERP Health Plan does not offer HMO options, dental coverage options, or any medical care spending account. Dependent eligibility rules for the SERP Health Plan are the same as for the Active Health Plan. If you retire with a benefit under the SERP and were covered under the Active Health Plan at the time of your retirement, you may elect for yourself and your eligible dependents, within 30 days after your retirement, to participate in the SERP Health Plan. SERP Health Plan coverage for each covered person will end when that person first becomes eligible for Medicare (whether or not they actually enroll at that time). For you and each eligible dependent who was covered by the Active Health Plan on your termination date and begins coverage under the SERP Health Plan immediately upon your retirement under the SERP, the exclusion for pre-existing conditions under the SERP Health Plan will not apply, and annual deductible and out-of- pocket balances and/or other plan maximums will be transferred to the SERP Health Plan. Your election and continued coverage is conditioned on your timely payment of the full cost of the coverage elected, which shall be the same amount that would be payable from time to time for that coverage if it were provided under Part 6 (Section 601 and following) of Subtitle B of Title I of ERISA (commonly known as "COBRA"). Payment of these amounts will be made by deduction from any monthly SERP pension payments. If your right to this coverage ends because you become eligible for Medicare or die, your covered spouse may elect, within 30 days of such event, to continue such coverage for himself or herself and any of your other covered dependents until your spouse dies or becomes eligible for Medicare, conditioned on timely payment of the full COBRA cost of such coverage as set forth above. If your spouse is receiving a survivorship pension under the SERP, the required cost will be deducted monthly from those pension payments. If payment of the full COBRA cost of the coverage elected is not made by deduction from the monthly SERP pension benefit, an arrangement for timely payment of those amounts that is satisfactory to Arrow must be made. If timely payments of those amounts are not received by Arrow, the coverage will be canceled and may not thereafter be reinstated. The period for which coverage is available to your covered spouse and/or dependent children as set forth above may in part be concurrent with a period for which COBRA continuation coverage is available, and to that extent shall offset the period for which coverage under COBRA is required to be provided. The right to coverage under the SERP Health Plan may not be changed after you retire or are eligible to retire, except pursuant to amendments that apply on a substantially equivalent basis to the rights of similarly situated active employees of Arrow (including, if applicable, amendments that terminate coverage for similarly situated active employees of Arrow). Additional Terms & Conditions The following terms and conditions govern the SERP. If there is any conflict between the preceding description of the SERP and its benefits and the following terms and conditions, the following terms and conditions will prevail. 1. Definitions: "Arrow": Arrow Electronics, Inc., or any successor thereof by merger, consolidation, purchase of substantially all of its business and assets, or otherwise. "The Board": The Board of Directors of Arrow or any duly constituted committee thereof. 2. Committee: The Board may appoint a Committee with power and discretion to make all determinations required of it by the terms of the SERP, and its constructions and interpretations of the SERP, as well as its determinations as to rights and obligations under the SERP. The Committee's determinations shall be final and binding on all persons; provided that no member of the Committee shall be entitled to act on or decide any matter relating specifically to such member. If the Board fails to appoint a Committee, references herein to the "Committee" shall mean the Board. 3. Powers of Committee: The Committee shall have all powers necessary or helpful for purposes of administration of the SERP. 4. Determinations by Committee: In addition to the specific responsibilities stated elsewhere in the SERP, the Committee, acting directly or through its agent, shall be responsible for determination of the benefits to which any participant, beneficiary, or spouse is or may become entitled to under the SERP. 5. Direction to pay benefits: All benefit payments under the SERP shall be upon and in accordance with the written directions of the Committee or its agent. 6. Beneficiary: A participant's "beneficiary" is the person (including a trust, estate, foundation, or other entity) designated by the participant (at such time and in such manner as the Committee shall authorize) to receive the death benefit (if any) payable upon death after commencing to receive benefits, and before receiving at least 60 payments. If an individual is designated as beneficiary and dies prior to becoming entitled to benefits hereunder (or if no valid designation of beneficiary is in effect for any other reason), the beneficiary shall be the participant's estate unless otherwise provided in the beneficiary designation. 7. Liability limited; indemnification: The members of the Committee and each of them shall be free from all liability, joint and several, for their acts and conduct, and for the acts and conduct of any duly constituted agents. Arrow shall indemnify and save them harmless from the effects and consequences of their acts and conduct in such official capacity except to the extent that such effects and consequences flow from their own willful misconduct. Under no circumstances will members of the Committee be personally liable for the payment of SERP benefits. 8. Payment to incompetent: If any participant, beneficiary, or spouse entitled to benefits under the SERP shall be legally incompetent (or shall be a minor), such benefits may be paid in one or more of the following ways, as the Committee in its sole discretion shall determine a. To the legal representatives of the participant, beneficiary, or spouse; b. Directly to such participant, beneficiary, or spouse; c. To the spouse or guardian of such participant, beneficiary, or spouse or to the person with whom such participant, beneficiary, or spouse resides. Payment to any person in accordance with these provisions will, to the extent of the payment, discharge Arrow, and none of the foregoing or the Committee will be required to see to the proper application of any such payment. Without in any manner limiting these provisions, in the event that any amount is payable hereunder to any legally incompetent participant, beneficiary, or spouse, the Committee may in its discretion utilize the procedures described in the following section. 9. Doubt as to right to payment: If any doubt exists as to the right of any person to any benefits hereunder or the amount of time of payment of such benefits (including, without limitation, any case of doubt as to identity, or any case in which notice has been received from any person claiming any interest in amounts payable hereunder, or any case in which a claim from other persons may exist by reason of community property or similar laws), the Committee will be entitled, in its discretion, to direct that payment of such benefits be deferred until order of a court of competent jurisdiction, or to pay such sum into court in accordance with appropriate rules of law in such case then provided, or to make payment only upon receipt of a bond or similar indemnification (in such amount and in such form as is satisfactory to the Committee). 10. Withholding. All payments under the SERP shall be subject to any applicable withholding requirements imposed by any tax or other law. 11. Source of payment: All benefits under the SERP shall be paid by Arrow out of general assets, and any rights of a participant, beneficiary, or spouse under the SERP shall be mere unsecured contractual rights. Arrow and the participants intend that any arrangements made to assist Arrow to meet obligations under the SERP shall be unfunded for tax purposes and for purposes of Title I of ERISA, and no trust, security, escrow, or similar account shall be established in connection with the SERP. Arrow may, however, in its discretion, establish a "rabbi trust" to assist in meeting its obligation to pay benefits under the SERP, and amounts paid from any such rabbi trust shall discharge the obligations of Arrow hereunder to the extent of the payments. No participant, beneficiary, or spouse shall have a preferred claim on or beneficial ownership interest in the assets of such rabbi trust. 12. Spendthrift clause: Except as otherwise provided by law, no benefit, distribution, or payment under the SERP may be anticipated, assigned (either at law or in equity), alienated, or subject to attachment, garnishment, levy, execution, or other legal or equitable process. 13. Reimbursement of legal expenses: In the event that any dispute shall arise between a participant and Arrow relating to rights under the SERP, and it is determined by agreement between the parties, or by a final judgment of a court of competent jurisdiction that is no longer subject to appeal, that the participant has been substantially successful in such dispute, reasonable legal fees and disbursements of the participant in connection with such dispute shall be paid by Arrow. 14. Usage: Whenever applicable, the singular, when used in the SERP, will include the plural. 15. Data: Any participant, beneficiary, or spouse entitled to benefits under the SERP must furnish to the Committee such documents, evidence, or information as the Committee considers necessary or desirable for the purpose of administering the SERP, or to protect the Committee; and it is a condition of the SERP that each such participant, beneficiary, or spouse must furnish promptly true and complete data, evidence, or information and sign such documents as the Committee may require before any benefits become payable under the SERP. 16. Separability: If any provision of the SERP is held invalid or unenforceable, its invalidity or unenforceability will not affect other provisions of the SERP, and the SERP will be construed and enforced as if such provision had not been included therein. 17. Captions: The captions contained herein are inserted only as a matter of convenience and for reference and in no way define, limit, enlarge, or describe the scope or intent of the SERP; nor shall they, in any way, affect the SERP or the construction of any provision thereof. 18. Name: The SERP may be known as the Unfunded Pension Plan for Selected Executives of Arrow Electronics, Inc. 19. Governing law: The SERP shall be construed and governed in all respects according to the laws of the State of New York, where it is adopted, without regard to principles of conflict of laws, except to the extent preempted by federal law. 20. Right of discharge reserved: The establishment of the SERP shall not be construed to confer upon an employee or participant any legal right to be retained in the employ of Arrow or give any employee or any other person any right to benefits, except to the extent expressly provided hereunder. All employees will remain subject to discharge to the same extent as if the SERP had never been adopted, and may be treated without regard to the effect such treatment might have upon them under the SERP. 21. Amendment and termination: Arrow, by action of the Board, may at any time amend the SERP in any respect or terminate the SERP, provided that no retirement pension of a participant who has already retired as of the date of amendment or SERP termination shall be reduced thereby. However, without the express written consent of the participant (or the participant's beneficiary or spouse, if applicable), no action taken by the Board shall (a) reduce a participant's benefits below the amount of his or her accrued benefit (as described above under "Participation Conditions") prior to such action nor (b) adversely affect the right of the participant (and the participant's beneficiary or surviving spouse, if applicable) to receive payment in respect of such amount upon completion by the participant of the conditions precedent to entitlement to a retirement pension as they exist under the terms of the SERP in effect immediately prior to such action, and at the time and on the terms then in effect. 22. Grantor trust agreement/change of control: The powers, rights and duties of the Trustee under any rabbi trust created for the purpose of assisting Arrow in meeting its obligations under the SERP shall, following a "Change of Control" as defined in the trust agreement for such Trust, govern and prevail to the extent inconsistent with any of the provisions of the SERP, including without limitation provisions making the Committee's determinations final and binding, and provisions giving the Committee the right to invoke the procedures described in Sections 8 and 9 hereof, to determine the data to be required to be furnished prior to the commencement of benefits as provided in Section 15 hereof, and to make the determinations and give directions with respect to the payment of benefits as provided in Sections 4 and 5 hereof. TFH 5/19/98 SERP General Information Page 1 EX-10 15 GRANTOR TRUST AGREEMENT - SERP ARROW ELECTRONICS, INC. GRANTOR TRUST AGREEMENT This Grantor Trust Agreement (the "Trust Agreement") is made this 25th day of June, 1998 by and between ARROW ELECTRONICS, INC. ("the Company") and WACHOVIA BANK, N.A. ("the Trustee"). Recitals (a) WHEREAS, the Company has adopted the nonqualified deferred compensation Plans and Agreements (the "Arrangements") as listed in Attachment I; (b) WHEREAS, the Company has incurred or expects to incur liability under the terms of such Arrangements with respect to the individuals participating in such Arrangements (the "Participants and Beneficiaries"); (c) WHEREAS, the Company hereby establishes a Trust (the "Trust") and shall contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Participants and their Beneficiaries in such manner and at such times as specified in the Arrangements and in this Trust Agreement; (d) WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Arrangements as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and (e) WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds (the "Fund") to assist it in satisfying its liabilities under the Arrangements. NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of The Trust (a) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (b) The Company shall be considered a grantor for the purposes of the Trust. (c) The Trust hereby established is revocable by the Company; it shall become irrevocable upon a Change of Control, as defined herein. (d) The Company hereby deposits with the Trustee in the Trust one-thousand dollars and zero cents ($1,000.00), which shall become the initial principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (e) The principal of the Trust and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Participants and general creditors as herein set forth. Participants and their Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Arrangements and this Trust Agreement shall be unsecured contractual rights of Participants and their Beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the general creditors of the Company under federal and state law in the event the Company is Insolvent, as defined in Section 3(a) herein. (f) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property acceptable to the Trustee in the Trust to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Prior to a Change of Control, neither the Trustee nor any Participant or Beneficiary shall have any right to compel additional deposits. (g) Upon a Potential Change of Control, as defined herein, the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of a Potential Change of Control nor later than the date of an actual Change of Control, make a contribution to the Trust in an amount that is sufficient to fund the Trust in an amount equal to no less than 100% but no more than 120% of the actuarial present value of the benefits to which Participants or their Beneficiaries would be entitled pursuant to the terms of the Arrangements as of the date on which the Potential Change of Control occurred, determined based on the actuarial assumptions set forth in Attachment II. (h) In the event a Change of Control does not occur within one year of a Potential Change of Control, the Company shall have the right to recover any amounts contributed to and remaining on hand in the Trust pursuant to Section 1(g). (i) Upon a Change of Control, the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of a Change of Control, as defined herein, make an irrevocable contribution to the Trust in an amount that is sufficient to fund the Trust in an amount equal to no less than 100% but no more than 120% of the actuarial present value of the benefits to which Participants or their Beneficiaries would be entitled pursuant to the terms of the Arrangements as of the date on which the Change of Control occurred. The Company shall also fund an expense reserve for the Trustee in an amount equal to $125,000.00, multiplied by the sum of 100% plus the aggregate percentage increase, if any, in the Consumer Price Index for All Urban Consumers, [NY, NY - Northeastern, NJ] (or any comparable successor index), published by the Bureau of Labor Statistics of the United States Department of Labor for the period. from January 1, 1998 through the December 31 immediately preceding the Change of Control. (j) In the event that, subsequent to a Change of Control, a Participant shall suffer a "Change in Control Termination" as defined in the Arrangements applicable to such Participant (after taking into account his or her employment agreement with the Company), the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of such Change in Control Termination, make an irrevocable contribution to the Trust in an amount that is sufficient to fund the Trust in an amount equal to no less than 100% but no more than 120% of the actuarial present value of the excess, if any, of the value of the benefits to which such Participant is entitled by reason of such Change in Control Termination over the value of the benefits of such Participant previously taken into account pursuant to Section 1(i). (k) For purposes of determining the amount required to be contributed to the Trust under Section 1(g), (i) or (j), the benefit to which a Participant is entitled on any date (the "Determination Date") shall be determined by reference to: (a) if such benefit is then in pay status under the Arrangements, the benefit then in pay status; (b) if such benefit is not then in pay status under the Arrangements, but would be immediately payable in the event of the Participant's termination of employment with the Company on the Determination Date, the benefit that would be immediately payable on such termination; and (c) if the Participant would not be entitled to immediate payment under the Arrangements in the event of his or her termination of employment with the Company on the Determination Date, the benefit to which the Participant would become entitled on termination of employment at the earliest date on which benefits could become payable to him or her under the Arrangements ("Earliest Retirement Date") multiplied by a fraction, the numerator of which is the number of completed months of his or her participation in the Arrangements as of the Determination Date, and the denominator of which is the total completed months of such participation the Participant would have if he or she retired at his or her Earliest Retirement Date. In each case, the benefit so taken into account shall include any amounts currently or potentially payable to the affected Participant's spouse or other Beneficiary pursuant to the Arrangements. Section 2. Payments to Participants and Their Beneficiaries (a) Prior to a Change of Control, distributions from the Trust shall be made by the Trustee to Participants and Beneficiaries at the direction of the Company. The entitlement of a Participant or his or her Beneficiaries to benefits under the Arrangements shall be determined by the Company or such party or professional administrator as it shall designate under the Arrangements as the Company's agent, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Arrangements. (b) The Company may make payment of benefits directly to Participants or their Beneficiaries as they become due under the terms of the Arrangements. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Participants or their Beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Arrangements, the Company shall make the balance of each such payment as it falls due in accordance with the Arrangements. The Trustee shall notify the Company where principal and earnings are not sufficient. Nothing in this Agreement shall relieve the Company of its liabilities to pay benefits due under the Arrangements except to the extent such liabilities are met by application of assets of the Trust. (c) After a Potential Change of Control and before a Change of Control, the Company shall deliver to the Trustee a schedule of benefits due under the Arrangements. Subsequent to a Change of Control, the Trustee shall pay benefits due in accordance with such schedule. After a Change of Control, the Company shall continue to make the determination of benefits due to Participants or their Beneficiaries and shall provide the Trustee with an updated schedule of benefits due as of the commencement of each calendar year, and as of each date on which benefits first become payable to a Participant or Beneficiary under the Arrangements; provided however, a Participant or their Beneficiaries may make application to the Trustee for an independent decision by the Trustee as to the amount or form of their benefits due under the Arrangements. In making any determination required or permitted to be made by the Trustee under this Section, the Trustee shall, in each such case, reach its own independent determination, in its absolute and sole discretion, as to the Participant's or Beneficiary's entitlement to a payment hereunder. In making its determination, the Trustee may consult with and make such inquiries of such persons, including the Participant or Beneficiary, the Company, legal counsel, actuaries or other persons, as the Trustee may reasonably deem necessary. In making such determination, the Trustee shall be governed solely by the terms of the applicable Arrangements and such facts as may be pertinent to the application of such terms and conditions as shall be found to exist by the Trustee, on the basis that such terms have been validly adopted by the Company (and, without limiting the generality of the foregoing, that all things necessary to render the arrangements valid and binding obligations of the Company in accordance with their terms have been properly done in full compliance with the Company's certificate of incorporation, by laws, and applicable law). Any reasonable costs incurred by the Trustee in arriving at its determination shall be reimbursed by the Company. To the extent not paid by the Company within a reasonable time, such costs shall be advanced to the Trustee by the Trust, and the Company shall promptly reimburse the Trustee for such advance with interest from the date of advance to the date of reimbursement at such rate as the Trustee reasonably determines reflects money market rates for the period involved. The Company waives any right to contest any amount paid over by the Trustee hereunder pursuant to a good faith determination made by the Trustee notwithstanding any claim by or on behalf of the Company (absent a manifest abuse of discretion by the Trustee) that such payments should not be made. (d) The Trustee agrees that it will not itself institute any action at law or at equity, whether in the nature of an accounting, interpleading action, request for a declaratory judgment or otherwise, or any arbitration proceeding or other alternative dispute resolution procedure, requesting a court, an administrative or quasi-judicial body, or arbitrator or person acting in a similar capacity to make the determination required to be made by the Trustee under this Section 2 in the place and stead of the Trustee. The Trustee may institute an action against the Company to collect a contribution due the Trust following a Change of Control, or in the event that the Trust should ever experience a short-fall in the amount of assets necessary to make payments pursuant to the terms of the Arrangements, or for payment or reimbursement of fees, expenses and any amounts payable by the Company pursuant to Section 10(b). (e) The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Arrangements and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. (f) In the event any Participant or his or her Beneficiary is determined to be subject to federal income tax on any amount to the credit of his or her account or due to him or her under any Arrangement prior to the time of payment hereunder, whether or not attributable to the establishment of or contributions to this Trust, a portion of such taxable amount equal to the federal, state and local taxes (excluding any interest or penalties) owed on such taxable amount as increased by payments under this Section 2(f), shall be distributed by the Trustee as soon thereafter as practicable to such Participant or Beneficiary. The Company shall promptly reimburse the Trust for any such distribution in an amount certified by the Trustee to be needed for the Participant's benefits. For these purposes, a Participant or Beneficiary shall be deemed to pay state and local taxes at the highest marginal rate of taxation in the state in which the Participant resides or is employed (or both) where a tax is imposed and federal income taxes at the highest marginal rate of taxation, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Such distributions shall be at the direction of the Company or the Trustee, or upon proper application of the Participant or Beneficiary; provided that the actual amount of the distribution shall be determined by the Company prior to a Change of Control and the Trustee following a Change of Control. An amount to the credit of a Participant's account or otherwise due to the Participant shall be determined to be subject to federal income tax upon the earliest of: (a) a final determination by the United States Internal Revenue Service addressed to the Participant or his Beneficiary which is not appealed to the courts; (b) a final determination by the United States Tax Court or any other federal court affirming any such determination by the Internal Revenue Service, which is no longer subject to appeal; or (c) an opinion by the Company's tax counsel, addressed to the Company and the Trustee, to the effect that by reason of Treasury Regulations, amendments to the Internal Revenue Code, published Internal Revenue Service rulings, court decisions or other substantial precedent, such amount is subject to federal income tax prior to payment. The Company shall undertake at its sole expense to defend any tax claims described herein which are asserted by the Internal Revenue Service against any Participant or Beneficiary, including attorney fees and cost of appeal, and shall have the sole authority to determine whether or not to appeal any determination made by the Service or by a lower court. The Company also agrees to reimburse any Participant or Beneficiary for any interest or penalties in respect of tax claims hereunder upon receipt of documentation of same. Any distributions from the Fund to a Participant or Beneficiary under this Section 2(e) shall be applied in a manner consistent with the provisions of the Arrangement to reduce the Company liabilities to such Participant and/or Beneficiary under the Arrangement with such reductions to be made on a pro-rata basis over the term of benefit payments under the Arrangement; provided, however, that in no event shall any Participant, Beneficiary or estate of any Participant or Beneficiary have any obligation to return all or any part of such distribution to the Company if such distribution exceeds benefits payable under an Arrangement. Any reduction in accordance with the foregoing sentence and the Arrangements shall be determined by the Company prior to a Change of Control . Following a Change of Control, the Company shall continue to make such determination subject to the right of a Participant to petition the Trustee under Section 2(c). (g) Notwithstanding any other provision of this Trust Agreement, no benefits shall be payable from the Trust following a Change of Control, other than benefits accrued or otherwise taken into account in determining the contribution required upon a Change of Control pursuant to Section 1(i) and benefits that become due as a result of a Change in Control Termination for which additional funding is required by Section 1(j). Section 3. Trustee Responsibility Regarding Payments To The Trust Beneficiary When The Company Is Insolvent (a) The Trustee shall cease payment of benefits to Participants and their Beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing that the Company is Insolvent. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Participants or their Beneficiaries. (2) Unless the Trustee has actual knowledge that the Company is Insolvent, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Participants or their Beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Arrangements or otherwise. (4) The Trustee shall resume the payment of benefits to Participants or their Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Arrangements for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. Payments When a Short-Fall of The Trust Assets Occurs (a) If there are not sufficient assets for the payment of benefits pursuant to Section 2 or Section 3(c) hereof and the Company does not otherwise make such payments within a reasonable time after demand from the Trustee, the Trustee shall make partial pro rata payment of the benefits then due from the Trust to the Participants or their Beneficiaries. (b) Upon receipt of a contribution from the Company necessary to make up for a short-fall in the payments due, the Trustee shall resume payments to all the Participants and Beneficiaries under the Arrangements. Following a Change of Control, the Trustee shall have the right to compel a contribution to the Trust from the Company to make-up for any short-fall. Section 5. Payments to the Company Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payments of benefits have been made to Participants and their Beneficiaries pursuant to the terms of the Arrangements. Section 6. Investment Authority (a) The Trustee shall not be liable in discharging its duties hereunder, including without limitation its duty to invest and reinvest the Fund, if it acts for the exclusive benefit of the Participants and their Beneficiaries, in good faith and as a prudent person familiar with such matters would act in accomplishing a similar task and in accordance with the terms of this Trust Agreement (including without limitation Section 10 hereof) and any applicable federal or state laws, rules or regulations. (b) The Trustee shall invest and reinvest the Trust Fund in its discretion solely in high quality fixed income instruments, which may include, in the discretion of the Trustee, annuity contracts. Subject to this basic investment policy and subject to any additional investment guidelines agreed to in writing from time to time by the Company and the Trustee, prior to a Change of Control the Trustee shall have the power in investing and reinvesting the Fund in its sole discretion: (1) To invest and reinvest in bonds, notes, debentures, and similar fixed income obligations (but not including any security of the Company or any of its subsidiaries other than a de minimis amount held in a collective or mutual fund), certificates of deposit or demand or time deposits (including any such deposits with the Trustee) and shares of investment companies, mutual funds, insurance company general or separate accounts, and other pooled investment vehicles whose underlying investments are consistent with the investment objective above-described, without being limited to the classes or property in which the Trustees are authorized to invest by any law or any rule of court of any state and without regard to the proportion any such property may bear to the entire amount of the Fund; (2) To commingle for investment purposes all or any portion of the Fund with assets of any other similar trust or trusts established by the Company with the Trustee for the purpose of safeguarding deferred compensation or retirement income benefits of its employees and/or directors; (3) To retain any property at any time received by the Trustee; (4) To sell or exchange any property held by it at public or private sale, for cash or on credit, to grant and exercise options for the purchase or exchange thereof, to exercise all conversion or subscription rights pertaining to any such property and to enter into any covenant or agreement to purchase any property in the future; (5) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to property held by it and to consent to or oppose any such plan or any action thereunder or any contract, lease, mortgage, purchase, sale or other action by any person; (6) To deposit any property held by it with any protective, reorganization or similar committee, to delegate discretionary power thereto, and to pay part of the expenses and compensation thereof any assessments levied with respect to any such property to deposited; (7) To extend the time of payment of any obligation held by it; (8) To hold uninvested any moneys received by it, without liability for interest thereon, but only in anticipation of payments due for investments, reinvestments, expenses or disbursements; (9) To exercise all voting or other rights with respect to any property held by it and to grant proxies, discretionary or otherwise; (10) For the purposes of the Trust, to borrow money from others, to issue its promissory note or notes therefor, and to secure the repayment thereof by pledging any property held by it; (11) To employ suitable contractors and counsel, who may be counsel to the Company prior to a Change of Control but not thereafter, or to the Trustee, and to pay their reasonable expenses and compensation from the Fund to the extent not paid by the Company; (12) To register investments in its own name or in the name of a nominee; to hold any investment in bearer form; and to combine certificates representing securities with certificates of the same issue held by it in other fiduciary capacities or to deposit or to arrange for the deposit of such securities with any depository, even though, when so deposited, such securities may be held in the name of the nominee of such depository with other securities deposited therewith by other persons, or to deposit or to arrange for the deposit of any securities issued or guaranteed by the United States government, or any agency or instrumentality thereof, including securities evidenced by book entries rather than by certificates, with the United States Department of the Treasury or a Federal Reserve Bank, even though, when so deposited, such securities may not be held separate from securities deposited therein by other persons; provided, however, that no securities held in the Fund shall be deposited with the United States Department of the Treasury or a Federal Reserve Bank or other depository in the same account as any individual property of the Trustee, and provided, further, that the books and records of the Trustee shall at all times show that all such securities are part of the Trust Fund; (13) Subject to Section 2(d), to settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust (other than amounts owed to Participants or Beneficiaries, provided that a dispute regarding any such amounts may be submitted to arbitration with the written consent of the Participant or Beneficiary involved), respectively, to commence or defend suits or legal proceedings to protect any interest of the Trust, and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; provided, however, that the Trustee shall not be required to take any such action unless it shall have been indemnified by the Company to its reasonable satisfaction against liability or expenses it might incur therefrom; (14) To acquire, hold and retain annuity contracts; (15) To hold any other class of assets which may be contributed by the Company and that is deemed reasonable by the Trustee, unless expressly prohibited herein; (16) To loan any securities at any time held by it to brokers or dealers upon such security as may be deemed advisable, and during the terms of any such loan to permit the loaned securities to be transferred into the name of and voted by the borrower or others; and (17) Generally, to do all acts, whether or not expressly authorized, that the Trustee may deem necessary or desirable for the protection of the Fund. In the event that any investment shall cease to meet the "high quality" standard set forth above, the Trustee shall be entitled nevertheless to retain such investment if such retention is deemed prudent and more consistent with the purposes of this Trust Agreement than a disposition of such investment. (c) Prior to a Change of Control, the Company shall have the right, subject to this Section (including the restrictions on permissible investments set forth in Section 6(b)) to direct the Trustee with respect to investments, including investments in annuity contracts. (1) The Company may at any time direct the Trustee to segregate all or a portion of the Fund in a separate investment account or accounts and may appoint one or more investment managers and/or an investment committee established by the Company to direct the investment and reinvestment of each such investment account or accounts. In such event, the Company shall notify the Trustee of the appointment of each such investment manager and/or investment committee. No such investment manager shall be related, directly or indirectly, to the Company, but members of the investment committee may be employees of the Company. (2) Thereafter, the Trustee shall make every sale or investment with respect to such investment account as directed in writing by the investment manager or investment committee. It shall be the duty of the Trustee to act strictly in accordance with each direction. The Trustee shall be under no duty to question any such direction of the investment manager or investment committee, to review any securities or other property held in such investment account or accounts acquired by it pursuant to such directions or to make any recommendations to the investment managers or investment committee with respect to such securities or other property. (3) Notwithstanding the foregoing, the Trustee, without obtaining prior approval or direction from an investment manager or investment committee, shall invest cash balances held by it from time to time in short term cash equivalents including, but not limited to, through the medium of any short term common, collective or commingled trust fund established and maintained by the Trustee subject to the instrument establishing such trust fund, U.S. Treasury Bills, commercial paper (including such forms of commercial paper as may be available through the Trustee's Trust Department), certificates of deposit (including certificates issued by the Trustee in its separate corporate capacity), and similar type securities, with a maturity not to exceed one year; and, furthermore, sell such short term investments as may be necessary to carry out the instructions of an investment manager or investment committee regarding more permanent type investment and directed distributions. (4) The Trustee shall neither be liable nor responsible for any loss resulting to the Fund by reason of any sale or purchase of an investment directed by an investment manager or investment committee nor by reason of the failure to take any action with respect to any investment which was acquired pursuant to any such direction in the absence of further directions of such investment manager or investment committee. (5) Notwithstanding anything in this Agreement to the contrary, the Trustee shall be indemnified and saved harmless by the Company from and against any and all personal liability to which the Trustee may be subjected by carrying out any directions of an investment manager or investment committee issued pursuant hereto or for failure to act in the absence of directions of the investment manager or investment committee including all expenses reasonably incurred in its defense in the event the Company fails to provide such defense; provided, however, the Trustee shall not be so indemnified if it participates knowingly in, or knowingly undertakes to conceal, an act or omission of an investment manager or investment committee, having actual knowledge that such act or omission is a breach of a fiduciary duty; provided further, however, that the Trustee shall not be deemed to have knowingly participated in or knowingly undertaken to conceal an act or omission of an investment manager or investment committee with knowledge that such act or omission was a breach of fiduciary duty by merely complying with directions of an investment manager or investment committee or for failure to act in the absence of directions of an investment manager or investment committee. The Trustee may rely upon any order, certificate, notice, direction or other documentary confirmation purporting to have been issued by the investment manager or investment committee which the Trustee reasonably believes to be genuine and to have been issued by the investment manager or investment committee. The Trustee shall not be charged with knowledge of the termination of the appointment of any investment manager or investment committee until it receives written notice thereof from the Company. (d) Following a Change of Control, the Trustee shall have the sole and absolute discretion in the management of the Trust assets and shall have all the powers set forth under Section 6(b). In investing the Trust assets, the Trustee shall consider: (1) the needs of the Arrangements; (2) the need for matching of the Trust assets with the liabilities of the Arrangements; and (3) the duty of the Trustee to act solely in the best interests of the Participants and their Beneficiaries. (e) The Trustee shall have the right, in its sole discretion, to delegate its investment responsibility to an investment manager who may be an affiliate of the Trustee. In the event the Trustee shall exercise this right, the Trustee shall remain, at all times responsible for the acts of an investment manager. The Trustee shall have the right to purchase an insurance policy or an annuity to fund the benefits of the Arrangements. (f) In no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants. Section 7. Annuity Contracts (a) To the extent that the Trustee is directed by the Company prior to a Change of Control to invest part or all of the Trust Fund in annuity contracts, the terms thereof shall be specified by the Company. The Trustee shall be under no duty to make inquiry as to the propriety of the terms so specified. (b) Each annuity contract issued shall provide that the Trustee shall be the owner thereof with the power to exercise all rights, privileges, options and elections granted by or permitted under such contract or under the rules of the issuer. The exercise by the Trustee of any incidents of ownership under any contract shall, prior to a Change of Control, be subject to the direction of the Company. After a Change of Control, the Trustee shall have all such rights. (c) The Trustee shall have no power to name a beneficiary of the contract other than the Trust, to assign the contract (as distinct from conversion of the contract to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against a contract held in the Trust Fund. (d) No issuer of such a contract shall be deemed to be a party to the Trust and such issuer's obligations shall be measured and determined solely by the terms of contracts and other agreements executed by the issuer. (e) The Trustee shall in no event invest in insurance policies or endowment contracts, or any other contract providing death benefits other than benefits payable under the terms of the Arrangements. Section 8. Disposition of Income (a) Prior to a Change of Control, all income received by the Trust, net of expenses and taxes, may be returned to the Company or accumulated and reinvested within the Trust at the direction of the Company. (b) Following a Change of Control, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested within the Trust. Section 9. Accounting by The Trustee The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within forty-five (45) days following the close of each calendar year and within forty-five (45) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. The Company may approve such account by an instrument in writing delivered to the Trustee. The foregoing, however, shall not preclude the Trustee from having its accounting settled by a court of competent jurisdiction. The Trustee shall be entitled to hold and to commingle the assets of the Trust in one Fund for investment purposes but at the direction of the Company prior to a Change of Control, the Trustee shall create one or more sub-accounts. Section 10. Responsibility of The Trustee (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that prior to a Change in Control the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Arrangements or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute, subject, however to Section 2(d) hereof. (b) The Company hereby indemnifies the Trustee against losses, liabilities, claims, costs and expenses in connection with the administration of the Trust, unless resulting from the negligence or misconduct of Trustee, including a failure to act in accord with the standard set forth in Section 10(a). To the extent the Company fails to make any payment on account of an indemnity provided in this Section 10(b), in a reasonably timely manner, the Trustee may obtain payment from the Trust. If the Trustee undertakes or defends any litigation arising in connection with this Trust or to protect a Participant's or Beneficiary's rights under the Arrangements, the Company agrees to indemnify the Trustee against the Trustee's costs, reasonable expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) Prior to a Change of Control, the Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. Following a Change of Control the Trustee shall select independent legal counsel and may consult with counsel or other persons with respect to its duties and with respect to the rights of Participants or their Beneficiaries under the Arrangements. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder and may rely on any determinations made by such agents and, except in cases where a Participant or Beneficiary has applied for an independent determination by the Trustee after a Change of Control pursuant to Section 2(c), information provided to it by the Company. (e) The Trustee shall have, without exclusion, all powers conferred on the Trustee by applicable law, unless expressly provided otherwise herein. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have or assume any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 11. Compensation and Expenses of The Trustee (a) The Trustee's compensation shall be as agreed in writing from time to time by the Company and the Trustee. The Company shall pay all administrative expenses and the Trustee's fees and shall promptly reimburse the Trustee for any fees and expenses of its agents. If not so paid, the fees and expenses shall be paid from the Trust. Without limiting the generality of the foregoing, the administrative expenses payable by the Company shall include the expense of making any determination in a dispute between a Participant or Beneficiary and the Company (including expenses of attorneys and consultants retained by the Trustee for such purposes); and, if the Company shall challenge a Trustee decision in favor of a Participant or Beneficiary, prompt reimbursement to the Trustee of the reasonable retainer of any law firm, consultant or expert used by the Trustee to defend such action and prompt reimbursement of the monthly bills of such law firm, consultant or expert. (b) In the event that the Trustee shall obtain payment from the Trust of amounts payable by the Company under this Agreement because the Company has not paid such amounts within the time required by this Agreement, the Company shall promptly reimburse the Trust for such payment with interest from the date of payment to the date of reimbursement at such rate as the Trustee reasonably determines reflects money market rates for the period involved. Section 12. Resignation and Removal of The Trustee (a) The Trustee may resign at any time by written notice to the Company, which shall be effective one hundred and eighty (180) days after receipt of such notice unless the Company and the Trustee agree otherwise, but in no event prior to the appointment of a successor Trustee. If the Company fails to make such appointment within a reasonable period of time following receipt of such notice, the Trustee shall apply to a court of competent jurisdiction for the appointment of a successor Trustee or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. (b) The Trustee may be removed by the Company on sixty days (60) days notice or upon shorter notice accepted by the Trustee prior to a Change of Control, but in no event prior to the appointment by the Company of a successor Trustee. Subsequent to a Change of Control, the Trustee may only be removed by the Company with the consent of (i) a majority of Participants (or their Beneficiaries) receiving or currently entitled to receive benefits under the Arrangements and (ii) a majority of all Participants (or their Beneficiaries), including both those employed by the Company and those described in clause (i). (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within one hundred and eighty (180) days after receipt of notice of resignation pursuant to Section 12(a), or sixty (60) days after receipt of notice of removal pursuant to Section 12(b), whichever is applicable, unless the Company extends the time limit, or the successor Trustee has not yet been approved. (d) Notwithstanding the foregoing, during the period following a Potential Change of Control which continues to exist, or after a Change in Control, the Trustee may resign only under one of the following circumstances: (i) The Trustee is no longer in the business, or is actively in the process of removing itself from the business, of acting as trustee for employee benefit plans. (ii) The Trustee determines that a conflict of interest exists which would prohibit it from fulfilling its duties under this Agreement in an ethically proper manner. The Trustee shall use its best efforts to avoid the creation of such a conflict. (iii) The assets of the Trust have been exhausted or are insufficient to pay accrued and reasonably anticipated fees and expenses of the Trustee, the Company has refused voluntarily to pay the Trustee's accrued fees and expenses as required pursuant to Section 11, and the Trustee has been unsuccessful in obtaining a court order requiring the Company to make such payments or has been unable to collect on a judgment for such fees and expenses. (iv) Both (A) a majority of Participants (or their Beneficiaries) receiving or currently entitled to receive benefits under the Arrangements and (B) a majority of all Participants (or their Beneficiaries), including both those employed by the Company and those described in clause (A), consent in writing to such resignation. Section 13. Appointment of Successor (a) If the Trustee resigns or is removed in accordance with Section 12 hereof, the Company shall, subject to Section 12, appoint any third party national banking association with a market capitalization exceeding $100,000,000 to replace the Trustee upon resignation or removal. The successor Trustee shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Section 8 and 9 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 14. Amendment or Termination (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Arrangements or shall make the Trust revocable after it has become irrevocable in accordance with Section 1 hereof. (b) The Trust shall not terminate until the date on which Participants and their Beneficiaries have received all of the benefits due to them under the terms and conditions of the Arrangements. (c) Upon written approval of all Participants or Beneficiaries entitled to payment of benefits pursuant to the terms of the Arrangements, the Company may terminate this Trust prior to the time all benefit payments under the Arrangements have been made. (d) All assets in the Trust at termination shall be returned to the Company. (e) This Trust Agreement may not be amended or terminated by the Company for thirty months following a Change of Control without the written consent of a (i) majority of Participants (or their Beneficiaries) receiving or currently entitled to receive benefits under the Arrangements and (ii) a majority of all Participants (or their Beneficiaries), including both those employed by the Company and those described in clause (i). Section 15. Change of Control (a) For purposes of this Trust, the following terms shall be defined as set forth below: (1) Potential Change of Control shall mean: (i) the issuance of a proxy statement by the Company with respect to an election of directors for which there is proposed one or more directors who are not recommended by the Board of Directors of the Company or its nominating committee, where the election of such proposed director or directors would result in a Change of Control as defined in Section 15(a)(2)(ii); or (ii) the announcement by any person of an intention to take actions which might reasonably result in a Change of Control as defined in Section 15(a)(2); (2) Change of Control shall mean: (i) A change in control of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred at such time as any individual, corporation, partnership, group, association or other "person", as such term is used in Section 14(d) of the Exchange Act, other than the Company, a wholly owned subsidiary of the Company or any employee benefit plan(s) sponsored by the Company ("Person") is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors ("Voting Securities"); or (ii) individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board. For purposes of this Section 15(a), the Incumbent Board, by a majority vote, shall have the power to determine on the basis of information known to them (a) the number of shares beneficially owned by any person, entity or group; (b) whether there exists an agreement, arrangement or understanding with another as to matters referred to in this Section 15(a); and (c) such other matters with respect to which a determination is necessary under this Section 15(a). (b) (1) Except as provided in paragraph (2) of this Section 15(b), notwithstanding anything in the foregoing to the contrary, no Change of Control shall be deemed to have occurred for purposes of this Trust Agreement by virtue of any transaction which results in one or more executive officers of the Company (as defined in Rule 3b-7 under the Exchange Act), or a group of Persons which includes one or more executive officers of the Company, acquiring, directly or indirectly, 30% or more of the combined voting power of the Company's Voting Securities. (2) In the event that an executive officer of the Company (a "Nonparticipating Officer") is a Participant but not a member of the group of Persons making an acquisition described in paragraph (1) of this Section 15(b) (an "Executive Officer Acquisition"), such Executive Officer Acquisition shall be treated as a Change of Control solely with respect to such Nonparticipating Officer (or Nonparticipating Officers, if more than one executive officer is not a member of such group of Persons). In the event that an Executive Officer Acquisition is treated as a Change of Control pursuant to the preceding sentence for one or more Nonparticipating Officers, a separate subtrust shall be created under this Trust Agreement solely for the benefit of such Nonparticipating Officers and their Beneficiaries. The benefits of such Nonparticipating Officers and their Beneficiaries pursuant to the terms of the Arrangements shall be separately funded in such subtrust in accordance with the provisions of Section 1 of this Trust Agreement as applied separately to such Nonparticipating Officers and their Beneficiaries, and the principal of such subtrust, and any earnings thereon, shall be held and administered by the Trustee exclusively for the uses and purposes of such Nonparticipating Officers and their Beneficiaries (and general creditors of the Company) as set forth herein, as if such Nonparticipating Officers and their Beneficiaries were the sole Participants and Beneficiaries of the Trust. (c) The General Counsel of the Company shall have the specific authority to determine whether a Potential Change of Control or Change of Control has transpired under the guidance of Section 15(a) and shall be required to give the Trustee notice of a Change of Control or a Potential Change of Control. The Trustee shall be entitled to rely upon such notice, but if the Trustee receives notice of a Change of Control from another source, the Trustee shall make its own independent determination. Section 16. Miscellaneous (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) The Company hereby represents and warrants that all of the Arrangements have been established, maintained and administered in accordance with all applicable laws, including without limitation, ERISA. The Company hereby indemnifies and agrees to hold the Trustee harmless from all liabilities, including attorney's fees, relating to or arising out of the establishment, maintenance and administration of the Arrangements. To the extent the Company does not pay any of such liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) Benefits payable to Participants and their Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (d) This Trust Agreement shall be governed by and construed in accordance with the laws of North Carolina. (e) This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively. Without limiting the generality of the foregoing, the term "successor" when used in this Section 16(e) with reference to the Company shall include the surviving corporation in any merger or consolidation to which the Company (or any successor thereof) is a party, any corporation, person or entity (or any group of corporations, group of persons or entities acting in concert) which receives a distribution of assets of the Company in redemption of a substantial portion of the stock of the Company, or in connection with the liquidation or dissolution of the Company, any direct or indirect stockholder of the Company to the extent of the amount or value of extraordinary dividends (but not dividends paid in the ordinary course of business) or other distributions received by it directly or indirectly from the Company, any recipient of assets of the Company that are transferred without adequate consideration, and except as otherwise provided by law, any transferee of assets of the Company in connection with any transaction in which such transferee knows or has reason to know that any consideration paid by the transferee in connection with such transfer will be distributed by such Company to its stockholders. IN WITNESS WHEREOF, this Grantor Trust Agreement has been executed on behalf of the parties hereto on the day and year first above written. ARROW ELECTRONICS, INC. WACHOVIA BANK, N.A. By: /s/ Robert E. Klatell By: /s/Beverley H. Wood ------------------------- ------------------------ Its: Executive Vice President Its: Senior Vice President ATTEST: ATTEST: By: /s/Paul J. Reilly By: /s/Donna Stern ----------------- ------------------- Its: Vice President Its: Assistant Secretary ATTACHMENT I Arrow Electronics, Inc. Supplemental Executive Retirement Plan, as amended May 1998, consisting of a document bearing the heading "General Information" applicable to all Participants and, with respect to each individual Participant, (1) a letter advising of his or her Participant status and the date it commenced, the date the Participant is first eligible to retire, his or her annual pension available at such retirement, the maximum pension to which the Participant may become entitled, and the date when he or she is first eligible for that maximum pension, and (2) a "Retirement Pension Schedule" showing the amount of pension available at any intervening date. ATTACHMENT II The actuarial assumptions to be used to determine any amount required to be contributed in accordance with Section 1 of the Arrow Electronics, Inc. Grantor Trust Agreement shall be: 1. The interest rate assumption provided in Section 417(e) of the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequent law ("Section 417(e)"). The determination of such rate under current law shall be based on the annual rate of interest on thirty-year (30-year) Treasury securities for the most recent month prior to the date of contribution for which such rate has been published by the Secretary of the Treasury or his delegate. 2. The mortality table shall be the mortality table prescribed by the Secretary of the Treasury or his delegate for purposes of Section 417(e) as of the date of contribution. 3. The annuity commencement date shall be the earliest date on which the Participant or Beneficiary could receive benefits under the Arrangements. Notwithstanding the foregoing, the amount to be so contributed shall not be less than the premium necessary to purchase annuity contracts for the benefits required to be funded as of the date of contribution. Such premium shall be in the amount that would be charged by a legal reserve life insurance company whose selection would be consistent with the provisions of Part 4 of Subtitle B of Title I of ERISA, setting forth the fiduciary requirements for the selection of issuers of annuity contracts, if those provisions applied to such purchase. In the event that the amount of such premium has not been determined at the date that funding is otherwise required, the contribution shall initially be made in accordance with paragraphs 1 through 3 above, and any additional contributions required by reason of this paragraph shall be paid to the Trustee as soon as the relevant premium has been determined. EX-10 16 AMENDMENT NO.4 - 8.29 SENIOR NOTES FOURTH AMENDMENT TO SENIOR NOTE PURCHASE AGREEMENT Arrow Electronics, Inc. $75,000,000 8.29% Senior Secured Notes Due 2000 THIS FOURTH AMENDMENT (the "Amendment") to those several Senior Note Purchase Agreements each dated as of December 29, 1992, as amended by the First Amendment to the Senior Note Purchase Agreements dated as of December 22, 1993, the Second Amendment to Senior Note Purchase Agreements dated as of April 24, 1995 and the Third Amendment to Senior Note Purchase Agreements dated as of December 23, 1996 (collectively referred to herein as the "Purchase Agreements" and individually as a "Purchase Agreement"), is made as of October 28, 1998, by and among ARROW ELECTRONICS, INC., a New York corporation (the "Company"), and the several Holders of the Senior Notes (hereinafter, together with their respective successors and assigns, collectively called the "Holders" and individually a "Holder"). Capitalized terms used herein without definition shall have the respective meanings ascribed to such terms in the Purchase Agreements, as hereby amended. WHEREAS, the Holders and the Company are parties to the Purchase Agreements, pursuant to which the Purchasers were issued, in the respective amounts set forth opposite their names on Annex A thereto, $75,000,000 aggregate principal amount of the Company's 8.29% Senior Secured Notes Due 2000 (the "Senior Notes"); and WHEREAS, the Company and the undersigned Holders, constituting the Required Holders, desire to amend the Purchase Agreements as provided herein, upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the terms and conditions contained herein and of other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendments to the Purchase Agreements. Subject to the satisfaction of the conditions set forth in Section 2 hereof, for all periods on and after October 28, 1998, Section 8.12 of the Purchase Agreements is hereby amended by deleting such Section in its entirety and by substituting therefor the following: Section 8.12 Consolidated Total Debt. As of the last day of any quarterly or annual fiscal period, the Company will not permit Consolidated Total Debt to exceed 60% of Total Consolidated Capitalization. 2. Conditions Precedent. As provided in Section 1 above, the amendment set forth in Section 1 shall become and be effective upon the satisfaction of the following conditions: (a) All corporate and other proceedings taken or to be taken in connection with this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Required Holders, and the Required Holders shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (b) The Company and the Required Holders shall have duly executed counterparts of this Amendment and delivered the same to the other parties hereto or their representatives. 3. Effect of Amendment. (a) It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms, conditions and other provisions of the Purchase Agreements or the obligations of the Company thereunder, and all terms, conditions and other provisions of the Purchase Agreements shall remain in full force and effect except to the extent specifically amended or modified pursuant to the provisions of this Amendment. (b) Reference in the Purchase Agreements to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Purchase Agreements as amended hereby. 4. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, and all of which taken together shall be deemed to constitute one and same instrument. 5. Costs and Expenses. As provided in Section 10.02 of the Purchase Agreements, the Company agrees to pay on demand all fees, costs and expenses incurred by the Holders in connection with the negotiation, preparation, execution and delivery of this Amendment and all other documents executed pursuant to or in connection herewith. 6. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE). 7. Headings. Section headings are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purposes. 8. Representation and Warranty. Immediately prior to and immediately subsequent to the effective date of this Amendment, the Company hereby represents and warrants that there has not been any Default or Event of Default under the Purchase Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers on the date first above written. ARROW ELECTRONICS, INC. By _________________________ Name: Title: CONNECTICUT GENERAL LIFE INSURANCE CO. By Cigna Investments, Inc. By _________________________ Name: Title: LIFE INSURANCE COMPANY OF NORTH AMERICA By Cigna Investments, Inc. By _________________________ Name: Title: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By _________________________ Name: Title: By___________________________ Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By _________________________ Name: Title: LIFE INSURANCE COMPANY OF GEORGIA SOUTHLAND LIFE INSURANCE COMPANY LION II CUSTOM INVESTMENTS LLC By: ING Investment Management LLC, its Agent By _________________________ Name: Title: THE LINCOLN NATIONAL LIFE INSURANCE COMPANY By: Lincoln Investment Management, Inc., its Attorney-In-Fact By _________________________ Name: Title: NY1:#3190391v1 4 NY1:#3190391v1 EX-10 17 COMPUTATION OF EARNINGS PER SHARE PATH\FILE\:L:\REPORTS\ANNUAL\98_YE\SUPPORT\98EX11.W ARROW ELECTRONICS, INC. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS EXCEPT PER SHARE DATA) Year Ended December 31, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Net income for basic EPS $145,828 $163,656 $202,709 $202,544 $111,889 Add: interest on 5 3/4% convertible subordinated debentures, net of income taxes - - - 3,471 4,313 ------- -------- -------- -------- -------- Net income for diluted EPS $145,828 $163,656 $202,709 $206,015 $116,202 ======== ======== ======== ======== ======== Weighted average common shares outstanding for basic 95,397 98,006 100,972 94,174 91,653 Net effect of dilutive stock options and restricted stock awards 1,716 1,763 1,408 1,504 1,203 Assumed conversion of 5 3/4% convertible subordinated debentures - - - 6,058 7,547 ------- ------- ------- ------- ------- Weighted average common shares outstanding for diluted EPS (A) 97,113 99,769 102,380 101,736 100,404 ======= ======= ======== ======== ======== Basic EPS (A) 1.53 1.67 2.01 2.15 1.22 ======= ======= ======= ======= ======= Diluted EPS (A) 1.50 1.64 1.98 2.03 1.16 ======= ======= ======= ======= ======= (A) All share and per amounts have been restated to reflect the two- for-one stock split effective October 15, 1997. EX-10 18 LIST OF SUBSIDIARIES ARROW ELECTRONICS, INC. SUBSIDIARY LISTING As of 12/31/98 1. Arrow Electronics, Inc. a New York corporation 2. Arrow Electronics Canada Ltd., a Canadian corporation 3. Schuylkill Metals of Plant City, Inc., a Delaware corporation 4. Arrow Altech Holdings (Pty) Ltd., a South African company and subsidiary: A.Arrow Altech Distribution (Pty) Ltd., a South African company 5. Gates/Arrow Distributing, Inc., a Delaware corporation 6. Consan Incorporated., a Minnesota corporation (75% owned) 7. SN Holding, Inc. a Delaware corporation (50.12% owned) and subsidiary: A .Support Net, Inc., an Indiana corporation 8. SBM Holding, Inc., a Delaware Corporation (80% owned) and subsidiary: A. Scientific & Business Minicomputers, Inc., a Georgia corporation 9. Arrow Electronics Distribution Group - Europe B.V., a Dutch company, and subsidiaries which include: A. Arrow Electronics (UK) Holding Ltd., a British company and subsidiaries: i. Electronic Services Distribution Ltd., a British company ii Arrow Electronics (UK) Ltd. a British company iii. Multichip Information Technology Ltd., a British company B. Arrow Electronics (Espana) SL and subsidiaries which include i. ATD Electronica S.A., a Spanish company ii. Arrow Iberia S.A., a Spanish company C. EDI Electronics Distribution International (France) S.A., a French company and subsidiaries: 1. Arrow Electronique S.A., a French company, and subsidiaries: a. CCI Electronique S.A., a French company b. Arrow Computer Products S.N.C. a French company and subsidiary: i.Multichip GmbH, a German company. D. Arrow Electronics GmbH, a German company, which owns a 90% interest in Spoerle Electronic Handelsgesellschaft mbH, a German company E. Silverstar Ltd. S.p.A. (98% owned) and subsidiaries: 1. Claitron S.p.A., an Italian company 2. Peter Caritato S.A. (60%), a Greek company F. Arrow Components Sweden AB, a Swedish Company and subsidiaries which include: 1. Arrow Nordic Components AB, a Swedish company 2 . Arrow Norway A/S, a Norwegian company 3. Microtronica A/S, a Norwegian company 4. Microtronica AB, a Swedish company G. Arrow Denmark A/S, a Danish company H. Arrow Finland Oy, a Finnish company and subsidiaries: 1. Microtronica Oy, a Finnish company 2.Arrow-Field EESTI AS, an Estonian company 10. Arrow Electronics Australia Pty Ltd., an Australian company and subsidiaries: A. Veltek Australia Pty Ltd., an Australian company B. Zatek Australia Pty Ltd., an Australian company C. Gates/Arrow Distributing Pty. Ltd., an Australian company 11. Components Agent Limited, a British Virgin Islands company (90% owned) and subsidiaries which include: A. Components Agent Limited, a Hong Kong company B. Arrow Korea (HK) Limited, a Hong Kong company and subsidiary 1. Arrow Electronics Korea Limited, a South Korean company C. Components Agent(s) Pte Ltd., a Singaporean company and subsidiary: 1. Components Agent. (M) Sdn. Berhad, a Malaysian company D. Microtronica (HK) Limited, a Hong Kong company E. Microtronica (S) Pte. Limited, a Singaporean company F. Microtronica (M) Sdn. Bhd., a Malayasian company G. Arrow Asia Pac Ltd., a Hong Kong company 12. Texny (Holdings) Limited, a British Virgin Islands company and subsidiary: A. Texny (H.K.) Limited, a Hong Kong company 13. Strong Electronics Co., Ltd., a Taiwanese company 14. Arrow/Ally, Inc. a Taiwanese company (75% owned) and subsidiary: A. Creative Model Limited, a Hong Kong company 15. Arrow Components (NZ) Limited, a New Zealand company (75% owned) Revised as of 3/25/99 EX-10 19 FINANCIAL DATA SCHEDULE [TYPE] EX - 27 0 [PREFERRED] 0 [COMMON] 102,950 [OTHER-SE] 1,384,369 [TOTAL-LIABILITY-AND-EQUITY] 3,839,871 [SALES] 8,344,659 [TOTAL-REVENUES] 8,344,659 [CGS] 7,183,413 [TOTAL-COSTS] 7,992,155 [OTHER-EXPENSES] 0 [LOSS-PROVISION] 32,185 [INTEREST-EXPENSE] 81,126 [INCOME-PRETAX] 272,315 [INCOME-TAX] 115,018 [INCOME-CONTINUING] 145,828 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 145,828 [EPS-PRIMARY] 1.53 [EPS-DILUTED] 1.50 -----END PRIVACY-ENHANCED MESSAGE-----