Employee Stock Plans

12 Months Ended

Dec. 31, 2025

Employee Stock Plans

Employee Stock Plans

12. Employee Stock Plans

Omnibus Plan

The company maintains the Omnibus Plan, which provides an array of equity alternatives available to the company when designing compensation incentives. The Omnibus Plan permits the grant of cash-based awards, non-qualified stock options, ISOs, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, covered employee annual incentive awards, and other stock-based awards. The Compensation Committee determines the vesting requirements, termination provision, and the terms of the award for any awards under the Omnibus Plan when such awards are issued.

Under the terms of the Omnibus Plan, a maximum of 24.0 million shares of common stock may be awarded. There were 4.1 million shares and 4.4 million shares available for grant under the Omnibus Plan as of December 31, 2025, and 2024 respectively. Generally, shares are counted against the authorization only to the extent that they are issued. Restricted

stock, restricted stock units, performance shares, and performance units count against the authorization at a rate of 1.69 to 1.

The company records share-based payment awards exchanged for employee services at fair value on the date of grant and the awards in the consolidated statements of operations on a straight-line basis over the requisite employee service period. Stock-based compensation expense includes an estimate for forfeitures. The company recorded, as a component of “Selling, general, and administrative” amortization of stock-based compensation of $27.9 million, $34.6 million, and $41.6 million in 2025, 2024, and 2023, respectively. The actual tax benefit realized from share-based payment awards during 2025, 2024, and 2023 was $2.8 million, $5.6 million, and $8.9 million, respectively.

In September 2025, Sean Kerins, separated from his roles as President, CEO and Director of the company and forfeited restricted stock units, performance stock units, and special grants, which resulted in a reversal of $13.4 million of stock-based compensation expense previously recognized.

Stock Options

Under the Omnibus Plan, the company may grant both ISOs and non-qualified stock options. ISOs may only be granted to employees of the company, its subsidiaries, and its affiliates. The exercise price for options cannot be less than the fair market value of Arrow’s common stock on the date of grant. Options generally vest in equal installments over a four-year period. Options currently outstanding generally have contractual terms of ten years. The company has not granted non-qualified stock options or ISOs since 2020 and does not intend to grant them in the future.

The following information relates to the stock option activity for the year ended December 31, 2025:

				Weighted-
		Weighted-		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise		Contractual	Value
	Shares	Price		Life	(thousands)
Outstanding at December 31, 2024	249,545	$	76.75
Exercised	(47,394)		72.85
Outstanding at December 31, 2025	202,151		77.66	29 months	$	6,573
Exercisable at December 31, 2025	201,696	$	77.66	29 months	$	6,559

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the company’s closing stock price on the last trading day of 2025 and the exercise price, multiplied by the number of in-the-money options) received by the option holders had all option holders exercised their options on December 31, 2025. This amount changes based on the market value of the company’s stock.

The total intrinsic value of options exercised during 2025, 2024, and 2023 was $2.0 million, $3.3 million, and $12.5 million, respectively.

Cash received from option exercises during 2025, 2024, and 2023 was $3.5 million, $5.4 million, and $17.0 million, respectively, and is included within the financing activities section in the company’s consolidated statements of cash flows.

Performance Awards

The Compensation Committee, subject to the terms and conditions of the Omnibus Plan, may grant performance share and/or performance unit awards (collectively “performance awards”).  The performance goals and performance periods may vary from participant-to-participant, group-to-group, and time-to-time and are earned only if the target metrics over the performance periods established by or under the direction of the Compensation Committee are met. The company grants the following performance awards:

● financial performance awards which are based on financial goals

● relative total shareholder return performance stock units (“rTSR-PSUs”) which are based on market performance, financial and non-financial goals

The grant date fair value of the financial performance awards is the fair market value of the company’s common stock on the date of grant and will be delivered in common stock at the end of the service period based on the company’s actual performance compared to the target metrics and may be from 0% to 185% of the initial award.  Compensation expense is recognized using the graded vesting method over the three-year service period and is adjusted each period based on the current estimate of performance compared to the target metric.

Beginning in 2025, the Company granted rTSR-PSUs which have a market condition related to the ranking of the company’s total shareholder return (“TSR”) during a three-year period relative to the TSR of the S&P 400 MidCap Stock Index. These awards will be delivered in common stock at the end of the service period based on the company’s achievement of the market condition, certain financial and non-financial goals and may be 0% to 200% of the initial award.  Compensation expense is recognized on a straight-line basis over the vesting period and is not adjusted regardless of the current estimate or actual achievement of the market condition.

The company estimates the grant date fair value of the rTSR-PSUs using a Monte-Carlo simulation model which includes the following weighted-average assumptions for the year ended December 31:

	2025
Expected term (in years)	2.88
Risk-free interest rate (percent) (a)	4.2
Historical volatility (percent) (b)	28.0
Fair value per rTSR-PSUs granted	131.5

(a) Based on zero-coupon U.S. treasury constant maturity yield curve, continuously compounded over the expected term of the awards.

(b) Based on the company’s historical volatility over a 2.88 year lookback period from the valuation date.

Restricted Stock

Subject to the terms and conditions of the Omnibus Plan, the Compensation Committee may grant shares of restricted stock and/or restricted stock units. The grant date fair value of a restricted stock unit is the fair market value of the company’s common stock on the date of grant. Restricted stock units are similar to restricted stock except that no shares are actually awarded to the participant on the date of grant. Shares of restricted stock and/or restricted stock units awarded under the Omnibus Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction established by the Compensation Committee and specified in the award agreement (and in the case of restricted stock units until the date of delivery or other payment). Compensation expense is recognized on a straight-line basis as shares become free of forfeiture restrictions (i.e. vest) generally over a four-year period.

Non-Employee Director Awards

The company’s Board sets the amounts and types of equity awards that are granted to all non-employee directors on a periodic, nondiscriminatory basis pursuant to the Omnibus Plan, as well as any additional amounts, if any, to be awarded, also on a periodic, nondiscriminatory basis, based on each of the following: the number of committees of the Board on which a non-employee director serves, service of a non-employee director as the chair of a committee of the Board, service of a non-employee director as Board Chair or Lead Independent Director, or the first selection or appointment of an individual to the Board as a non-employee director. Currently, non-employee directors receive annual awards of restricted stock units valued at $0.2 million with an additional amount for the non-employee director serving as Board Chair. The restricted stock units have a vesting period of around one-year and non-employee directors may elect to settle such awards (i) on the first anniversary of the grant date or (ii) following such director’s separation from service provided that they continuously served on the Board from the grant date through the vesting date. All restricted stock units are settled in common stock one to one.

Unless a non-employee director gives notice setting forth a different percentage, 50% of each director’s annual retainer fee is deferred and converted into units based on the fair market value of the company’s stock as of the date it was payable and paid upon separation of service from the Board.

Summary of Non-Vested Shares

The following information summarizes the changes in non-vested performance shares, performance units, restricted stock, and restricted stock units for 2025:

		Weighted-
		Average Grant
	Shares	Date Fair Value
Non-vested shares at December 31, 2024	840,699	$	119.83
Granted	410,843		108.61
Vested	(275,360)		121.02
Forfeited	(188,025)		118.74
Non-vested shares at December 31, 2025	788,157	$	113.82

The total fair value of shares vested during 2025, 2024, and 2023 was $28.3 million, $39.5 million, and $57.0 million, respectively.

As of December 31, 2025, there was $28.3 million of total unrecognized compensation cost related to non-vested shares which is expected to be recognized over a weighted-average period of 2 years.