• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
SYNNEX CORP10K_021307
 

SYNNEX CORP10K_021307

on

  • 2,361 views

 

Statistics

Views

Total Views
2,361
Views on SlideShare
2,361
Embed Views
0

Actions

Likes
0
Downloads
2
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    SYNNEX CORP10K_021307 SYNNEX CORP10K_021307 Document Transcript

    • FORM 10-K SYNNEX CORP - SNX Exhibit: � Filed: February 13, 2007 (period: November 30, 2006) Annual report which provides a comprehensive overview of the company for the past year
    • Table of Contents PART I Items 10 (as to directors and Section 16(a) Beneficial Ownership Reporting Compliance), 11, 12 (as t PART II 26 Item 5. Market for Registrant s Common Equity and Related Stockholder Matters 26 PART I Item 1. Business Overview Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments. Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant s Common Equity and Related Stockholder Matters Item 6. Selected Consolidated Financial Data Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matt Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services PART IV
    • Item 15. Exhibits and Financial Statement Schedules SIGNATURES EXHIBIT INDEX EX-10.1 (AMENDED AND RESTATED 2003 STOCK INCENTIVE PLAN) EX-10.14 (EMPLOYMENT AGREEMENT) EX-10.15 (SECOND AMENDED AND RESTATED CREDIT AGREEMENT) EX-10.16 (SECOND AMENDED AND RESTATED RECEIVABLES SALE AND SERVICING AGREEMENT) EX-10.17 (SECOND AMENDED AND RESTATED RECEIVABLES FUNDING AND ADMINISTRATION AGREEMENT) EX-23.1 (CONSENT OF PRICEWATERHOUSECOOPERS LLP) EX-31.1 (RULE 13A-14(A) CERTIFICATION OF CEO) EX-31.2 (RULE 13A-14(A) CERTIFICATION OF CFO) EX-32.1 (STATEMENT OF CEO AND CFO UNDER SECTION 906)
    • Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 2006 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: 001-31892 SYNNEX CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2703333 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 44201 Nobel Drive 94538 (Zip Code) Fremont, California (Address of principal executive offices) (510) 656-3333 (Registrant’s telephone number, including area code) Securities registered to Section 12(b) of the Act: Common Stock, par value $0.001 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x 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 ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one). Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x The aggregate market value of Common Stock held by non-affiliates of the registrant (based upon the closing sale price on the New York Stock Exchange on February 1, 2007) was approximately $316,192,235. Shares held by each executive officer, director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 1, 2007, there were 30,894,096 shares of Common Stock, $0.001 per share par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Items 10 (as to directors and Section 16(a) Beneficial Ownership Reporting Compliance), 11, 12 (as to Beneficial Ownership) and 13 of Part III incorporate by reference information from the registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2007 Annual Meeting of Stockholders to be held on March 20, 2007. Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION TABLE OF CONTENTS 2006 FORM 10-K Page 1 PART I Item 1. Business Overview 1 Item 1A. Risk Factors 9 Item 1B. Unresolved Staff Comments 23 Item 2. Properties 23 Item 3. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 24 26 PART II Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 26 Item 6. Selected Consolidated Financial Data 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 29 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 47 Item 8. Financial Statements and Supplementary Data 49 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 90 Item 9A. Controls and Procedures 90 Item 9B. Other Information 91 92 PART III Item 10. Directors and Executive Officers of the Registrant 92 Item 11. Executive Compensation 92 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 92 Item 13. Certain Relationships and Related Transactions 93 Item 14. Principal Accountant Fees and Services 93 94 PART IV Item 15. Exhibits and Financial Statement Schedules 94 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents PART I When used in this Annual Report on Form 10-K (the “Report”), the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “will,” “provides” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements relating to our services, our relationships with and the value we provide to our OEM suppliers and reseller customers, our relationship with MiTAC International, our regional strategy for our distribution operations, our distribution and contract assembly services, our strategy with respect to international operations, the effect of current and future legal proceedings, our IT infrastructure, our plan to continue our investment in IT services, our continued business expansion, our dependency on our relationships with our OEMs, adequacy of our facilities, expansion of our operations through investments or acquisitions, gross margin, selling, general and administrative expenses, fluctuations in future revenue and operating results and future expenses, fluctuations in inventory, our estimates regarding our capital requirements and our needs for additional financing, our infrastructure needs and growth, use of our working capital, thefts at our warehouses, market consolidation, expansion of our operations, competition, impact of new rules and regulations affecting public companies, expectations regarding dividends, our disclosure controls and procedures, statements regarding our securitization program and sources of revenue. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed below and under Item 1A, “Risk Factors,” as well as the seasonality of the buying patterns of our customers, the concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT industry, fluctuations in general economic conditions, increased competition and costs related to expansion of our operations. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In the sections of this Report entitled “Business Overview” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” all references to “SYNNEX,” “we,” “us,” “our” or the “Company” mean SYNNEX Corporation and our subsidiaries, except where it is made clear that the term means only the parent company. SYNNEX, the SYNNEX Logo, and all other SYNNEX company, product and services names and slogans are trademarks or registered trademarks of SYNNEX Corporation. SYNNEX and the SYNNEX Logo Reg. U.S. Pat. & Tm. Off. Other names and marks are the property of their respective owners. Item 1. Business Overview We are a global information technology, or IT, supply chain services company. We offer a comprehensive range of services to IT original equipment manufacturers and software publishers, collectively OEMs, and reseller customers worldwide. The supply chain services that we offer include product distribution, related logistics, contract assembly and demand generation marketing. We have been in the IT distribution business since 1980 and are one of the largest IT product distributors based on 2006 reported revenue. We focus our core wholesale distribution business on a limited number of leading IT OEMs, which allows us to enhance and increase the value we provide to our OEM suppliers and reseller customers. In our distribution operations, we purchase IT systems, peripherals, system components, packaged software and networking equipment from OEM suppliers such as HP, IBM, Intel, Lenovo and Microsoft and sell them to our reseller customers. We perform the same function for our purchases of licensed software products. Our reseller customers include value-added resellers, or VARs, corporate resellers, government resellers, system integrators, direct marketers and retailers. We currently distribute and market approximately 15,000 products (as measured by active SKUs) from over 100 OEM suppliers to more than 15,000 resellers. 1 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Our contract assembly operations are generally related to building IT systems such as network security appliances, servers and workstations. By leveraging the inventory management capabilities and system component supplier relationships of our distribution business, we provide cost-effective IT system assembly. Because we offer distribution, contract assembly, demand generation marketing, IT solutions and complementary supply chain services, OEM suppliers and resellers can outsource to us multiple areas of their business outside of their core competencies. This model allows us to provide services at several points along the IT product supply chain. We believe that the combination of our broad range of supply chain capabilities, our focus on serving the leading IT OEMs and our efficient operations enables us to realize strong and expanding relationships with these OEMs and reseller customers. We are headquartered in Fremont, California and have distribution, sales and assembly facilities in the United States, Canada, China, Mexico and the United Kingdom. We were originally incorporated in the State of California as COMPAC Microelectronics, Inc. in November 1980, and we changed our name to SYNNEX Information Technologies, Inc. in February 1994. We later reincorporated in the State of Delaware under the name of SYNNEX Corporation in October 2003. Our Products and Suppliers We distribute a full range of IT products, including IT systems, peripherals, system components, software and networking equipment for more than 100 OEM suppliers, enabling us to offer comprehensive solutions to our reseller customers. Our primary OEM suppliers for the fiscal year ended November 30, 2006 and representative products we currently distribute for them include the following: Supplier Representative Products Acer Mobile PCs, Displays and Monitors HP Desktop and Mobile PCs, Printers, Imaging Products, Supplies, Servers, Storage Products IBM Servers, Storage Systems, Software Intel CPUs, Motherboards, Networking Products Lenovo Desktop and Mobile PCs Lexmark Printers and Supplies Microsoft Operating Systems, Application Software Panasonic Mobile PCs Symantec Security Software Xerox Printers and Supplies During fiscal 2006, our distribution product mix by category was in the following ranges: Product Category: Peripherals 31%-35% IT Systems 29%-33% System Components 16%-20% Software 10%-14% Networking Equipment 4%-8% Our largest OEM supplier is HP. Revenue from the sale of HP products represented approximately 25% and 28% of our revenue for fiscal 2006 and 2005, respectively. We entered into a U.S. Business Development Partner Agreement with HP on November 6, 2003, which governs our relationship with HP in the United States. The agreement remains in effect until May 31, 2007 unless terminated earlier in accordance with its terms. As is typical with our OEM supplier agreements, either party may terminate the agreement upon 30 days written 2 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents notice. In addition, either party may terminate the agreement with cause upon 15 days written notice. “Cause” is not defined in the agreement. In the event the agreement is terminated for cause or if we in any way fail to perform any of our obligations under the agreement, any and all agreements between HP and us for the resale of any and all products, support and services will automatically terminate upon such default or termination. In the event of any breach of the agreement by us, HP may terminate the agreement and we may be required to refund HP any discounts or program payments paid during the period we were in breach of the agreement and reimburse HP for reasonable attorneys’ fees. If either party becomes insolvent or bankrupt, the other party may terminate the agreement without notice and cancel any unfulfilled obligations, except for payment obligations. Our subsidiaries in Canada and Mexico have territorial supplier agreements with subsidiaries of HP located in the same countries. In addition to HP, we have distribution agreements with most of our suppliers. These agreements usually provide for nonexclusive distribution rights and pertain to specific geographic territories. The agreements are also generally short-term, subject to periodic renewal, and often contain provisions permitting termination by either our supplier or us without cause upon relatively short notice. An OEM supplier that elects to terminate a distribution agreement will generally repurchase its products carried in our inventory. Our IT distribution and assembly business subjects us to the risk that the value of our inventory will be affected adversely by suppliers’ price reductions or by technological changes affecting the usefulness or desirability of the products comprising our inventory. Many of our OEM suppliers offer us limited protection from the loss in value of our inventory due to technological change or a supplier’s price reductions. Under many of these agreements, we have a limited period of time to return or exchange products or claim price protection credits. We monitor our inventory levels and attempt to time our purchases to maximize our protection under supplier programs. Our OEM suppliers generally warrant the products we distribute and allow returns of defective products, including those returned to us by our reseller customers. We generally do not independently warrant the products we distribute; however, we warrant our services with regard to products that we configure for our reseller customers, and the products that we assemble from components purchased from other sources. Historically, our warranty expense has not been material. Our Customers Distribution We currently distribute IT products to more than 15,000 resellers. Resellers are classified primarily by the end-users to which they sell as well as the services they provide. End-users include large corporations, governments, small-to medium-sized businesses, or SMBs, and personal users. In addition, resellers vary greatly in size and geographic reach. No reseller accounted for more than 10% of our total revenue in fiscal 2006 or 2005. Our reseller customers buy from us and other distributors and our larger reseller customers also buy certain products directly from OEM suppliers. Some of our largest reseller customers include Apptis, Business Depot, CDW and Insight. Contract Assembly The customers of our contract assembly business are IT product OEMs seeking to outsource product assembly and production logistics. Currently, our primary contract assembly customer is Sun Microsystems. No contract assembly customer accounted for more than 10% of our total revenue in fiscal 2006 or 2005. Sun Microsystems accounted for approximately 91% and 93% of our contract assembly revenue in fiscal 2006 and 2005, respectively. 3 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Our Services We offer a variety of services to our distribution and contract assembly customers, including the following: Distribution Distribution Services. We have sophisticated pick, pack and ship operations, which allows us to efficiently receive shipments from our OEM suppliers and fill orders for our reseller customers. We generally stock or otherwise have access to the inventory of our OEM suppliers to satisfy the demands of our reseller customers. Logistics Services. We provide logistics support to our reseller customers such as outsourced fulfillment, virtual distribution and direct ship to end-users. Other logistics support activities we provide include generation of customized shipping documents, multi-level serial number tracking for customized, configured products and online order and shipment tracking. We also provide logistics support both individually and in bulk directly to resellers, other distributors and end-users. Online Services. We maintain electronic data interchange and web-based communication links with many of our reseller customers. These links improve the speed and efficiency of our transactions with our reseller customers by enabling them to search for products, check inventory availability and prices, configure systems, place and track orders, receive invoices, review account status and process returns. We also have web-application software that allows our resellers or their end-user customers to order software and take delivery online. Financing Services. We offer our reseller customers a wide range of financing options, including net terms, third party leasing and floor plan financing, letters of credit and arrangements where we collect payments directly from the end-user. The availability and terms of our financing services are subject to our credit policies or those of third party financing providers to our reseller customers. Marketing Services. We offer our OEM suppliers a full range of marketing activities targeting specific resellers, including direct mail, external media advertising, reseller product training, targeted telemarketing campaigns, national and regional trade shows, database analysis, print on demand services and web-based marketing. Demand Generation Marketing. We offer a system that generates awareness and demand for products and services, including business and channel development, integrated sales and marketing campaigns, lead development and product marketing strategic planning and consulting. Technical Support Services. We provide our reseller customers technical support services, including pre- and post-sale support. Contract Assembly Materials Procurement and Management. We provide our contract assembly customers with materials procurement and management activities including planning, purchasing, expediting and warehousing system components and materials used in the assembly process. Because we distribute many of the system components used in the assembly of our contract assembly customers’ products, our assembly customers are able to minimize their inventory risk by taking advantage of the terms and conditions of our distribution relationships. In addition, we also offer increased inventory availability to our contract assembly customers because we stock items for both distribution and assembly. Assembly Services. We provide our OEM assembly customers with systems design and build-to-order, or BTO, and configure-to-order, or CTO, assembly capabilities. BTO assembly consists of building a group of 4 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents systems with the same pre-defined specifications, generally for our OEM customers’ inventory. CTO assembly consists of building a customized system for an OEM customer’s individual order specifications. We possess adequate systems and assembly flexibility to produce both large and small volumes of products that include numerous configurations. We also offer production value-added services such as kitting, reconfiguration, asset tagging and hard drive imaging. Joint Design and Manufacturing Services. We offer contract design and manufacturing services to OEMs through our relationship with our largest indirect stockholder, MiTAC International. MiTAC International’s design capabilities complement our system assembly capabilities and allow us to deliver a complete design-to-delivery solution for our OEM customers. Sales and Marketing As of November 30, 2006, we employed 1,015 sales, marketing and demand generation services professionals. We serve our large commercial and government reseller customers through dedicated sales professionals. We market to smaller resellers through dedicated regional sales teams. In addition, we have dedicated product marketing and sales specialists that focus on the sale and promotion of the products of selected suppliers. These specialists are also directly involved in establishing new relationships with leading OEMs to create demand for their products and services and with resellers for their customers’ needs. Our sales and marketing professionals are complemented by members of our executive management team who are integral in identifying potential new customer opportunities, promoting sales growth and ensuring customer satisfaction. We have sales offices in North America, Latin America and Asia and attempt to locate our sales and marketing professionals in close proximity to our reseller customers. We also have a sales team dedicated to cultivating new contract assembly opportunities with IT product OEMs. On selected opportunities, this team works with MiTAC International representatives to offer OEMs comprehensive outsourced supply chain solutions. This joint sales effort enables us to deliver complete design-to-delivery solutions for our OEM customers. Our Operations Distribution We operate 20 distribution facilities in the United States, Canada, China and Mexico. Our distribution processes are highly automated to reduce errors, ensure timely order fulfillment and enhance the efficiency of our warehouse operations and back office administration. In North America, our distribution facilities are geographically dispersed to be near end-users and reseller customers. This regional strategy enables us to benefit from lower shipping costs and shorter delivery lead times to our customers. Furthermore, we track several performance measurements to continuously improve the efficiency and accuracy of our distribution operations. Our regional locations also enable us to make local deliveries and provide will-call fulfillment to more customers than if our distribution operations were centralized, resulting in better service to our customers. Our workforce is comprised of permanent and temporary employees, enabling us to respond to short-term changes in order activity. Our proprietary IT systems and processes enable us to automate many of our distribution operations. For example, we use radio frequency and bar code scanning technologies in all of our warehouse operations to maintain real time inventory records, facilitate frequent cycle counts and improve the accuracy of order fulfillment. We use palm readers to capture real time labor cost data enabling efficient management of our daily labor costs. We also scan and archive receiving documents and generate electronic freight out vouchers to streamline our accounts payable administration. 5 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents To enhance the accuracy of our order fulfillment and protect our inventory from shrinkage, our systems also incorporate numerous controls. These controls include order weight checks, bar code scanning, and serial number profile verification to verify that the product shipped matches the customer order. We also use digital video imaging to record our small package shipping activities by order. These images and other warehouse and shipping data are available online to our customer service representatives enabling us to quickly respond to order inquiries by our customers. Contract Assembly We operate our principal assembly facilities in the United States and the United Kingdom. In our contract assembly business, we source materials, assemble IT systems, and ship completed products on behalf of our OEM customers. We generally assemble IT systems, including workstations and servers, by incorporating system components from our distribution inventory and other sources. Additionally, we perform production value-added services, including kitting, asset tagging, hard drive imaging and reconfiguration. Our contract assembly facilities are ISO 9001:2000 certified. We focus on system level contract assembly rather than full service manufacturing in order to minimize our capital investments in our assembly business. Because of the variability of our assembly orders, our assembly workforce is predominantly comprised of temporary workers. We also partner with MiTAC International to provide certain manufacturing capabilities, including design and printed circuit board assembly as these activities require extensive capital investments and labor. International Operations Approximately 21% and 20% of our total revenue for fiscal 2006 and 2005, respectively, originated outside of the United States. A key element in our business strategy has been to expand our global presence in order to provide our distribution and contract assembly capabilities to OEMs in locations that meet their regional requirements. Consistent with this strategy, we have established international operations in Canada, China, Mexico and the United Kingdom. Purchasing Product costs represent our single largest expense and IT product inventory is one of our largest working capital investments. Furthermore, product procurement from our OEM suppliers is a highly complex process that involves marketing incentive programs, rebate programs, price protection, volume and early payment discounts and other arrangements. Consequently, efficient and effective purchasing operations are critical to our success. Our purchasing group works closely with many areas of our organization, especially our product managers who work closely with our OEM suppliers and our sales force, to understand the volume and mix of IT products that should be purchased. In addition, the purchasing group utilizes an internally developed, proprietary information systems application tool, which further aids the purchasing group in forecasting future product demand based on several factors, including past sales levels, expected product life cycle and current and projected economic conditions. Our information system tools also track warehouse and channel inventory levels and open purchase orders on a real time basis enabling us to stock inventory at a regional level closer to the customer as well as to actively manage our working capital resources. This level of automation allows for greater efficiencies of inventory management by replenishing and turning inventory, as well as placing purchase orders, on a more frequent basis. Furthermore, our system tools also allow for automated checks and controls to prevent the generation of inaccurate orders. The purchasing group is supported by employees based in China, who handle daily back office routine functions such as purchase order issuance, changes to purchase orders and returns. Having a purchasing support team in China allows us to benefit from highly skilled and lower cost labor. 6 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Managing our OEM supplier incentive programs is another critical function of our purchasing group. We attempt to maximize the benefits of incentives, rebates and volume and early payment discounts that our OEM suppliers offer us from time to time. We carefully evaluate these purchasing benefits relative to our product handling and carrying costs so that we do not overly invest in our inventory. We also closely monitor inventory levels on a product-by-product basis and plan purchases to take advantage of OEM supplier provided price protection. By managing inventory levels at each of our regional distribution facilities, we can minimize our shipping costs by stocking products near to our resellers and their end-user customers. Financial Services We offer various credit terms to our customers as well as prepayment, credit card and cash on delivery terms. We also collect outstanding accounts receivable on behalf of our reseller customers in certain markets. In issuing credit to our reseller customers, we closely and continually monitor their creditworthiness through our information systems, which contain detailed information on each customer’s payment history, as well as through periodic detailed credit file reviews by our financial services staff. In addition, we participate in a North American credit association whose members exchange customer credit rating information. We have also purchased credit insurance in some geographies to further control credit risks. Finally, we establish reserves for estimated credit losses in the normal course of business. We also sell to certain reseller customers where the transactions are financed by a third party floor plan financing company. The expenses charged by these financing companies will be subsidized either by our OEM suppliers or paid by us. We generally receive payment from these financing institutions within 15 to 30 days from the date of sale, depending on the specific arrangement. Information Technology Our IT systems manage the entire order cycle, including processing customer orders, production planning, customer billing and payment tracking. These internally developed IT systems make our distribution and contract assembly operations more efficient and provide visibility into all aspects of our operations. We believe our IT infrastructure is scalable to support further growth. The continuing enhancement of our IT systems facilitates improved product and inventory management, streamlines order and delivery processes, and increases operational flexibility. To allow our customers and suppliers to communicate and transact business with us in an efficient and consistent manner, we have implemented a mix of proprietary and off-the-shelf software programs, which integrate our IT systems with those of our customers and suppliers. In particular, we maintain EDI and web-based communication links with many of our reseller customers to enable them to search for products, check real time price, inventory availability and specifications, place and track orders, receive invoices and process returns. We plan to continue making significant investments in our IT systems to facilitate the flow of information, increase our efficiency and lower transaction costs. Competition We operate in a highly competitive environment, both in the United States and internationally. The IT product distribution and contract assembly industries are characterized by intense competition, based primarily on product availability, credit terms and availability, price, speed and accuracy of delivery, effectiveness of sales and marketing programs, ability to tailor specific solutions to customer needs, quality and depth of product lines, pre-sale and post-sale technical support, flexibility and timely response to design changes, technological capabilities, product quality, service and support. We compete with a variety of regional, national and international IT product distributors and contract manufacturers. 7 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Our current major competitors in IT product distribution include Bell Microproducts, Ingram Micro, ScanSource and Tech Data and, to a lesser extent, regional distributors. We also face competition from our OEM suppliers, which also sell directly to resellers and end-users. The distribution industry has recently undergone, and continues to undergo, major consolidation. During this period, a number of significant players within the IT distribution industry exited or merged with other players within the distribution market. We have participated in this consolidation through our acquisitions of Merisel Canada, Gates/Arrow, EMJ Data Systems Limited and Azerty United Canada, and we are continuing to evaluate other opportunities. We constantly seek to expand our business into areas primarily related to our core distribution business as well as other support, logistic and value-added services. As we enter new business areas, we may encounter increased competition from our current competitors and/or new competitors. Our current competitors in contract assembly include Benchmark Electronics, Sanmina, SCI and Solectron, as well as other electronic manufacturing service providers and original design manufacturers. We also face competition from the manufacturing and assembly operations of our current and potential customers, who continually evaluate the relative benefits of internal manufacturing and assembly compared to outsourcing. Many of our competitors are substantially larger and have greater financial, operating, manufacturing and marketing resources than us. Some of our competitors may have broader geographic breadth and range of services than us and may have more developed relationships with their existing customers. We attempt to offset our scale disadvantage by focusing on a limited number of leading OEMs to represent, running the most efficient and low cost operation possible and offering a high level of customer service. Employees As of November 30, 2006, we had 2,647 full-time employees, including 1,015 in sales, marketing and demand generation services professionals, 1,261 in distribution and assembly operations, and 371 in executive, finance, IT and administration. Given the variability in our business and the quick response time required by customers, it is critical that we are able to rapidly ramp-up and ramp-down our production capabilities to maximize efficiency. As a result, we frequently use a significant number of temporary or contract workers, which totaled approximately 738, on a full-time equivalent basis, at November 30, 2006. Our employees are not represented by a labor union, nor are they covered by a collective bargaining agreement. We consider our employee relations to be good. Available Information Our website is http://www.synnex.com. We make available free of charge, on or through our website, our annual, quarterly and current reports, as well as any amendments to these reports, as soon as reasonably practicable after electronically filing these reports with the Securities and Exchange Commission (“SEC”). Information contained on our website is not a part of this report. We have adopted a code of ethics applicable to our principal executive, financial and accounting officers. We make available free of charge, on or through our website’s investor relations page, our code of ethics. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements of the Company. All reports that the Company files with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC, 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-202-551-8090. 8 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Item 1A. Risk Factors. The following are certain risk factors that could affect our business, financial results and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in the forward-looking statements. Before you buy our common stock, you should know that making such an investment involves some risks, including the risks described below. The risks that have been highlighted here are not the only ones that we face. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business We anticipate that our revenue and operating results will fluctuate, which could adversely affect the price of our common stock. Our operating results have fluctuated and will fluctuate in the future as a result of many factors, including: • general economic conditions and level of IT spending; • the loss or consolidation of one or more of our significant OEM suppliers or customers; • market acceptance, product mix and life of the products we assemble and distribute; • competitive conditions in our industry that impact our margins; • pricing, margin and other terms with our OEM suppliers; • variations in our levels of excess inventory and doubtful accounts, and changes in the terms of OEM supplier-sponsored programs, such as price protection and return rights; and • the impact of acquisitions we make. Although we attempt to control our expense levels, these levels are based, in part, on anticipated revenue. Therefore, we may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. Our operating results also are affected by the seasonality of the IT products industry. We have historically experienced higher sales in our fourth fiscal quarter due to patterns in the capital budgeting, federal government spending and purchasing cycles of end-users. These patterns may not be repeated in subsequent periods. You should not rely on period-to-period comparisons of our operating results as an indication of future performance. The results of any quarterly period are not indicative of results to be expected for a full fiscal year. In future quarters, our operating results may be below our expectations or those of our public market analysts or investors, which would likely cause our share price to decline. For example, in March 2005, we announced that our revenue and net income for the three months ended February 28, 2005 would be lower than our previously released guidance and, as a result, our share price subsequently declined substantially. We depend on a small number of OEMs to supply the IT products that we sell and the loss of, or a material change in, our business relationship with a major OEM supplier could adversely affect our business, financial position and operating results. Our future success is highly dependent on our relationships with a small number of OEM suppliers. Sales of HP products represented approximately 25% of our total revenue in fiscal 2006 and approximately 28% of our total revenue in fiscal 2005. Our OEM supplier agreements typically are short-term and may be terminated without cause upon short notice. For example, our agreement with HP will expire on May 31, 2007. The loss or 9 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents deterioration of our relationship with a major OEM supplier, the authorization by OEM suppliers of additional distributors, the sale of products by OEM suppliers directly to our reseller customers and end-users, or our failure to establish relationships with new OEM suppliers or to expand the distribution and supply chain services that we provide OEM suppliers could adversely affect our business, financial position and operating results. In addition, OEM suppliers may face liquidity or solvency issues that in turn could negatively affect our business and operating results. Our business is also highly dependent on the terms provided by our OEM suppliers. Generally, each OEM supplier has the ability to change the terms and conditions of its sales agreements, such as reducing the amount of price protection and return rights or reducing the level of purchase discounts, rebates and marketing programs available to us. From time to time, we may conduct business with a supplier without a formal agreement because the agreement has expired or otherwise. In such case, we are subject to additional risk with respect to products, warranties and returns, and other terms and conditions. If we are unable to pass the impact of these changes through to our reseller customers, our business, financial position and operating results could be adversely affected. Our gross margins are low, which magnifies the impact of variations in revenue, operating costs and bad debt on our operating results. As a result of significant price competition in the IT products industry, our gross margins are low, and we expect them to continue to be low in the future. Increased competition arising from industry consolidation and low demand for certain IT products may hinder our ability to maintain or improve our gross margins. These low gross margins magnify the impact of variations in revenue, operating costs and bad debt on our operating results. A portion of our operating expenses is relatively fixed, and planned expenditures are based in part on anticipated orders that are forecasted with limited visibility of future demand. As a result, we may not be able to reduce our operating expenses as a percentage of revenue to mitigate any further reductions in gross margins in the future. If we cannot proportionately decrease our cost structure in response to competitive price pressures, our business and operating results could suffer. We also receive purchase discounts and rebates from OEM suppliers based on various factors, including sales or purchase volume and breadth of customers. A decrease in net sales could negatively affect the level of volume rebates received from our OEM suppliers and thus, our gross margins. Because some rebates from OEM suppliers are based on percentage increases in sales of products, it may become more difficult for us to achieve the percentage growth in sales required for larger discounts due to the current size of our revenue base. A decrease or elimination of purchase discounts and rebates from our OEM suppliers would adversely affect our business and operating results. Because we sell on a purchase order basis, we are subject to uncertainties and variability in demand by our reseller and contract assembly customers, which could decrease revenue and adversely affect our operating results. We sell to our reseller and contract assembly customers on a purchase order basis rather than pursuant to long-term contracts or contracts with minimum purchase requirements. Consequently, our sales are subject to demand variability by our reseller and contract assembly customers. The level and timing of orders placed by our reseller and contract assembly customers vary for a variety of reasons, including seasonal buying by end-users, the introduction of new hardware and software technologies and general economic conditions. Customers submitting a purchase order may cancel, reduce or delay their orders. If we are unable to anticipate and respond to the demands of our reseller and contract assembly customers, we may lose customers because we have an inadequate supply of products, or we may have excess inventory, either of which may harm our business, financial position and operating results. 10 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents We are subject to the risk that our inventory value may decline, and protective terms under our OEM supplier agreements may not adequately cover the decline in value, which in turn may harm our business, financial position and operating results. The IT products industry is subject to rapid technological change, new and enhanced product specification requirements, and evolving industry standards. These changes may cause inventory on hand to decline substantially in value or to rapidly become obsolete. Most of our OEM suppliers offer limited protection from the loss in value of inventory. For example, we can receive credit from many OEM suppliers for products held in inventory in the event of a supplier price reduction. In addition, we have a limited right to return a certain percentage of purchases to most OEM suppliers. These policies are subject to time restrictions and do not protect us in all cases from declines in inventory value. In addition, our OEM suppliers may become unable or unwilling to fulfill their protection obligations to us. The decrease or elimination of price protection or the inability of our OEM suppliers to fulfill their protection obligations could lower our gross margins and cause us to record inventory write-downs. If we are unable to manage our inventory with our OEM suppliers with a high degree of precision, we may have insufficient product supplies or we may have excess inventory, resulting in inventory write-downs, either of which may harm our business, financial position and operating results. We depend on OEM suppliers to maintain an adequate supply of products to fulfill customer orders on a timely basis, and any supply shortages or delays could cause us to be unable to timely fulfill orders, which in turn could harm our business, financial position and operating results. Our ability to obtain particular products in the required quantities and to fulfill reseller customer orders on a timely basis is critical to our success. In most cases, we have no guaranteed price or delivery agreements with our OEM suppliers. We occasionally experience a supply shortage of certain products as a result of strong demand or problems experienced by our OEM suppliers. If shortages or delays persist, the price of those products may increase, or the products may not be available at all. In addition, our OEM suppliers may decide to distribute, or to substantially increase their existing distribution business, through other distributors, their own dealer networks, or directly to resellers. Accordingly, if we are not able to secure and maintain an adequate supply of products to fulfill our reseller customer orders on a timely basis, our business, financial position and operating results may be adversely affected. We may suffer adverse consequences from changing interest rates. Our total borrowings and off balance sheet arrangements are variable rate obligations that could expose us to interest rate risks. At November 30, 2006, we had approximately $442.6 million in such variable rate obligations. If interest rates increase, our interest expense would increase, which would negatively affect our net income. Additionally, increasing interest rates may increase our future borrowing costs and restrict our access to capital. A portion of our revenue is financed by floor plan financing companies and any termination or reduction in these financing arrangements could increase our financing costs and harm our business and operating results. A portion of our distribution revenue is financed by floor plan financing companies. Floor plan financing companies are engaged by our customers to finance, or “floor,” the purchase of products from us. In exchange for a fee, we transfer the credit risk on the sale of our products to the floor plan companies. We currently receive payment from these financing companies within approximately 15 to 30 days from the date of the sale, which allows our business to operate at much lower relative working capital levels than if such programs were not available. If these floor plan arrangements are terminated or substantially reduced, the need for more working capital and the increased financing cost could harm our business and operating results. We have not experienced any termination or significant reduction in floor plan arrangements in the past. 11 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents We have significant credit exposure to our reseller customers, and negative trends in their businesses could cause us significant credit loss and negatively impact our cash flow and liquidity position. We extend credit to our reseller customers for a significant portion of our sales to them. Resellers have a period of time, generally 30 days after the date of invoice, to make payment. As a result, we are subject to the risk that our reseller customers will not pay for the products they purchase. For example, our Mexico subsidiary has entered into a contract with a Mexico reseller customer, which involves extended payment terms and could expose us to additional collection risks. In addition, in the three months ended May 31, 2006, we recorded a bad debt provision of approximately $1.5 million due to an increase in collection risk of one of our customers. Our credit exposure risk may increase due to liquidity or solvency issues experienced by our resellers as a result of an economic downturn or a decrease in IT spending by end-users. If we are unable to collect payment for products we ship to our reseller customers or if our reseller customers are unable to timely pay for the products we ship to them, it will be more difficult or costly to utilize receivable-based financing, which could negatively impact our cash flow and liquidity position. We experienced theft of product from our warehouses and future thefts could harm our operating results. From time to time, we have experienced incidents of theft at various facilities. In fiscal 2003 and fiscal 2005 we experienced theft as a result of break-ins at four of our warehouses in which approximately $12.9 million of inventory was stolen. Based on our investigation, discussions with local law enforcement and meetings with federal authorities, we believe the thefts at our warehouses were part of an organized crime effort that targeted a number of technology equipment warehouses throughout the United States. In March 2005, approximately $4.0 million of inventory was stolen from our facility in the City of Industry, California. We subsequently recovered approximately $0.5 million through law enforcement and federal authorities. We filed a claim with our insurance provider for the amount of the loss, less a small deductible. We have received substantially all of the claimed amount. These types of incidents may make it more difficult or expensive for us to obtain theft coverage in the future. In the future, incidents of theft may recur for which we may not be fully insured. A significant portion of our contract assembly revenue comes from a single customer, and any decrease in sales from this customer could adversely affect our revenue. Sales to our primary contract assembly customer, Sun Microsystems were approximately $494.0 million or 91% of our contract assembly revenue in fiscal 2006 and approximately $486.0 million or 93% in fiscal 2005. Our contract assembly business will remain dependent on our relationship with Sun Microsystems in the foreseeable future, subjecting us to risks with respect to the success and life cycle of Sun Microsystems products we assemble and the pricing terms we negotiate with Sun Microsystems and our suppliers. Accordingly, if we are unable to assemble new and successful products for Sun Microsystems on appropriate pricing terms, our business and operating results would be adversely affected. The future success of our relationship with Sun Microsystems also depends on MiTAC International continuing to work with us to service Sun Microsystems’ requirements at an appropriate cost. We rely on MiTAC International to manufacture and supply subassemblies and components for the computer systems we assemble for Sun Microsystems. As MiTAC International’s ownership interest in us decreases, MiTAC International’s interest in the success of our business and operations may decrease as well. If we are unable to maintain our relationship and appropriate pricing terms with MiTAC International, our relationship with Sun Microsystems could suffer, which in turn could harm our business, financial position and operating results. In addition, if we were unable to obtain assembly contracts for new and successful products our business and operating results would suffer. 12 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents We have pursued and intend to continue to pursue strategic acquisitions or investments in new markets and may encounter risks associated with these activities, which could harm our business and operating results. We have in the past pursued and in the future expect to pursue acquisitions of, or investments in, businesses and assets in new markets, either within or outside the IT products industry, that complement or expand our existing business. Our acquisition strategy involves a number of risks, including: • difficulty in successfully integrating acquired operations, IT systems, customers, OEM supplier and partner relationships, products and businesses with our operations; • loss of key employees of acquired operations or inability to hire key employees necessary for our expansion; • diversion of our capital and management attention away from other business issues; • an increase in our expenses and working capital requirements; • in the case of acquisitions that we may make outside of the United States, difficulty in operating in foreign countries and over significant geographical distances; and • other financial risks, such as potential liabilities of the businesses we acquire. Our growth may be limited and our competitive position may be harmed if we are unable to identify, finance and complete future acquisitions. We believe that further expansion may be a prerequisite to our long-term success as some of our competitors in the IT product distribution industry have larger international operations, higher revenues and greater financial resources than us. We have incurred costs and encountered difficulties in the past in connection with our acquisitions and investments. For example, our operating margins were initially adversely affected as a result of our acquisition of Merisel Canada Inc. and we have written off substantial investments in the past, one of which was eManage.com, Inc. Also, our acquisition of EMJ Data Systems, Ltd., or EMJ, caused an initial negative effect on our operating margins as we integrated EMJ’s systems, operations and personnel. Future acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, large write-offs, a decrease in future profitability, or future losses. The incurrence of debt in connection with any future acquisitions could restrict our ability to obtain working capital or other financing necessary to operate our business. Our recent and future acquisitions or investments may not be successful, and if we fail to realize the anticipated benefits of these acquisitions or investments, our business and operating results could be harmed. We are dependent on a variety of IT and telecommunications systems, and any failure of these systems could adversely impact our business and operating results. We depend on IT and telecommunications systems for our operations. These systems support a variety of functions, including inventory management, order processing, shipping, shipment tracking and billing. Failures or significant downtime of our IT or telecommunications systems could prevent us from taking customer orders, printing product pick-lists, shipping products or billing customers. Sales also may be affected if our reseller customers are unable to access our price and product availability information. We also rely on the Internet, and in particular electronic data interchange, or EDI, for a large portion of our orders and information exchanges with our OEM suppliers and reseller customers. The Internet and individual websites have experienced a number of disruptions and slowdowns, some of which were caused by organized attacks. In addition, some websites have experienced security breakdowns. If we were to experience a security breakdown, disruption or breach that compromised sensitive information, it could harm our relationship with our OEM suppliers or reseller customers. Disruption of our website or the Internet in general could impair our order processing or more generally prevent our OEM suppliers or reseller customers from accessing information. The occurrence of any of these events could have an adverse effect on our business and operating results. 13 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents We rely on independent shipping companies for delivery of products, and price increases or service interruptions from these carriers could adversely affect our business and operating results. We rely almost entirely on arrangements with independent shipping companies, such as FedEx and UPS, for the delivery of our products from OEM suppliers and delivery of products to reseller customers. Freight and shipping charges can have a significant impact on our gross margin. As a result, an increase in freight surcharges due to rising fuel cost or general price increases will have an immediate adverse effect on our margins, unless we are able to pass the increased charges to our reseller customers or renegotiate more favorable terms with our OEM suppliers. In addition, in the past, UPS has experienced work stoppages due to labor negotiations with management. The termination of our arrangements with one or more of these independent shipping companies, the failure or inability of one or more of these independent shipping companies to deliver products, or the unavailability of their shipping services, even temporarily, could have an adverse effect on our business and operating results. Because we conduct substantial operations in China, risks associated with economic, political and social events in China could negatively affect our business and operating results. A substantial portion of our IT systems operations, including our IT systems support and software development operations, is located in China. In addition, we also conduct general and administrative activities from our facility in China. As of November 30, 2006, we had 624 personnel located in China. We expect to increase our operations in China in the future. Our operations in China are subject to a number of risks relating to China’s economic and political systems, including: • a government controlled foreign exchange rate and limitations on the convertibility of the Chinese renminbi; • extensive government regulation; • changing governmental policies relating to tax benefits available to foreign-owned businesses; • the telecommunications infrastructure; • a relatively uncertain legal system; and • uncertainties related to continued economic and social reform. Our IT systems are an important part of our global operations. Any significant interruption in service, whether resulting from any of the above uncertainties, natural disasters or otherwise, could result in delays in our inventory purchasing, errors in order fulfillment, reduced levels of customer service and other disruptions in operations, any of which could cause our business and operating results to suffer. Changes in foreign exchange rates and limitations on the convertibility of foreign currencies could adversely affect our business and operating results. In fiscal 2006 and 2005, approximately 21% and 20%, respectively, of our total revenue was generated outside the United States. Most of our international revenue, cost of revenue and operating expenses are denominated in foreign currencies. We presently have currency exposure arising from both sales and purchases denominated in foreign currencies. Changes in exchange rates between foreign currencies and the U.S. dollar may adversely affect our operating margins. For example, if these foreign currencies appreciate against the U.S. dollar, it will make it more expensive in terms of U.S. dollars to purchase inventory or pay expenses with foreign currencies. This could have a negative impact to us if revenue related to these purchases is transacted in U.S. dollars. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency as well as make our products, which are usually purchased by us with U.S. dollars, relatively more expensive than products manufactured locally. We currently conduct only limited hedging activities, which involve the use of currency forward contracts. Hedging foreign currencies can be risky. There is also additional risk if the currency is not freely or actively traded. Some currencies, such as the Chinese renminbi, are subject to limitations on conversion 14 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents into other currencies, which can limit our ability to hedge or to otherwise react to rapid foreign currency devaluations. We cannot predict the impact of future exchange rate fluctuations on our business and operating results. Because of the experience of our key personnel in the IT products industry and their technological expertise, if we were to lose any of our key personnel, it could inhibit our ability to operate and grow our business successfully. We operate in the highly competitive IT products industry. We are dependent in large part on our ability to retain the services of our key senior executives and other technical experts and personnel. Except for Robert Huang, our President and Chief Executive Officer and Jim Estill, the President and Chief Executive Officer of SYNNEX Canada Limited, all other employees and executives, generally do not have employment agreements. Furthermore, we do not carry “key person” insurance coverage for any of our key executives. We compete for qualified senior management and technical personnel. The loss of, or inability to hire, key executives or qualified employees could inhibit our ability to operate and grow our business successfully. We may become involved in intellectual property or other disputes that could cause us to incur substantial costs, divert the efforts of our management, and require us to pay substantial damages or require us to obtain a license, which may not be available on commercially reasonable terms, if at all. We may from time to time receive notifications alleging infringements of intellectual property rights allegedly held by others relating to our business or the products we sell or assemble for our OEM suppliers and others. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have an adverse effect on our business. Although we generally have various levels of indemnification protection from our OEM suppliers and contract assembly customers, in many cases any indemnification to which we may be entitled is subject to maximum limits or other restrictions. In addition, we have developed proprietary IT systems that play an important role in our business. If any infringement claim is successful against us and if indemnification is not available or sufficient, we may be required to pay substantial damages or we may need to seek and obtain a license of the other party’s intellectual property rights. We may be unable to obtain such a license on commercially reasonable terms, if at all. We are from time to time, involved in other litigation in the ordinary course of business. For example, we are currently defending a trademark infringement action and a civil matter involving third party investors in eManage.com, we may not be successful in defending these or other claims. Regardless of the outcome, litigation could result in substantial expense and could divert the efforts of our management. Because of the capital intensive nature of our business, we need continued access to capital, which, if not available to us or if not available on favorable terms, could harm our ability to operate or expand our business. Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. If cash from available sources is insufficient, proceeds from our accounts receivable securitization program are limited or cash is used for unanticipated needs, we may require additional capital sooner than anticipated. In the event we are required, or elect, to raise additional funds, we may be unable to do so on favorable terms, or at all. Our current and future indebtedness could adversely affect our operating results and severely limit our ability to plan for, or react to, changes in our business or industry. We could also be limited by financial and other restrictive covenants in any credit arrangements, including limitations on our borrowing of additional funds and issuing dividends. Furthermore, the cost of debt financing has increased recently and could significantly increase in the future, making it cost prohibitive to borrow, which could force us to issue new equity securities. If we issue new equity securities, existing stockholders may experience additional dilution, or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. 15 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents If we cannot raise funds on acceptable terms, we may not be able to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Any inability to raise additional capital when required could have an adverse effect on our business and operating results. The terms of our indebtedness agreements impose significant restrictions on our ability to operate which in turn may negatively affect our ability to respond to business and market conditions and therefore have an adverse effect on our business and operating results. As of November 30, 2006, we had approximately $98.8 million in outstanding short and long-term borrowings under term loans and lines of credit, excluding trade payables. As of November 30, 2006, approximately $343.8 million of our accounts receivable were sold to and held by three financial institutions under our accounts receivable securitization programs. The terms of our current indebtedness agreements restrict, among other things, our ability to: • incur additional indebtedness; • pay dividends or make certain other restricted payments; • consummate certain asset sales or acquisitions; • enter into certain transactions with affiliates; and • merge, consolidate or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. We are also required to maintain specified financial ratios and satisfy certain financial condition tests, including minimum net worth and fixed charge coverage ratio as outlined in our senior secured revolving line of credit arrangement. We may be unable to meet these ratios and tests, which could result in the acceleration of the repayment of the related debt, the termination of the facility or the increase in our effective cost of funds. As a result, our ability to operate may be restricted and our ability to respond to business and market conditions limited, which could have an adverse effect on our business and operating results. We have significant operations concentrated in Northern California, South Carolina, Toronto and Beijing and any disruption in the operations of our facilities could harm our business and operating results. Our worldwide operations could be subject to natural disasters and other business disruptions, which could seriously harm our revenue and financial condition and increase our costs and expenses. We have significant operations in our facilities located in Fremont, California, Greenville, South Carolina, Toronto, Canada and Beijing, China. As a result, any prolonged disruption in the operations of our facilities, whether due to technical difficulties, power failures, break-ins, destruction or damage to the facilities as a result of a natural disaster, fire or any other reason, could harm our operating results. We currently do not have a formal disaster recovery plan and may not have sufficient business interruption insurance to compensate for losses that could occur. Global health, economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price. External factors such as potential terrorist attacks, acts of war, geopolitical and social turmoil or epidemics in many parts of the world could prevent or hinder our ability to do business, increase our costs and negatively affect our stock price. For example, increased instability may adversely impact the desire of employees and customers to travel, the reliability and cost of transportation, our ability to obtain adequate insurance at reasonable rates or require us to incur increased costs for security measures for our domestic and international operations. These uncertainties make it difficult for us and our customers to accurately plan future business activities. More generally, these geopolitical social and economic conditions could result in increased volatility in the United States and worldwide financial markets and economy. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war. 16 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Part of our business is conducted outside of the United States, exposing us to additional risks that may not exist in the United States, which in turn could cause our business and operating results to suffer. We have international operations in Canada, China, Mexico and the United Kingdom. In fiscal 2006 and 2005, approximately 21% and 20%, respectively, of our total revenue was generated outside the United States. In fiscal 2006 and 2005, approximately 17% and 16%, respectively, of our total revenue was generated in Canada. No other country or region accounted for more than 10% of our total revenue. Our international operations are subject to risks, including: • political or economic instability; • changes in governmental regulation; • changes in import/export duties; • trade restrictions; • difficulties and costs of staffing and managing operations in certain foreign countries; • work stoppages or other changes in labor conditions; • difficulties in collecting of accounts receivable on a timely basis or at all; • taxes; and • seasonal reductions in business activity in some parts of the world. We may continue to expand internationally to respond to competitive pressure and customer and market requirements. Establishing operations in any other foreign country or region presents risks such as those described above as well as risks specific to the particular country or region. In addition, until a payment history is established over time with customers in a new geography or region, the likelihood of collecting receivables generated by such operations could be less than our expectations. As a result, there is a greater risk that reserves set with respect to the collection of such receivables may be inadequate. In addition, our Mexico subsidiary has entered into a contract with a Mexico reseller customer which involves extended payment terms and could expose us to additional collection risks. Further, if our international expansion efforts in any foreign country are unsuccessful, we may decide to cease operations, which would likely cause us to incur similar additional expenses and loss. In addition, changes in policies or laws of the United States or foreign governments resulting in, among other things, higher taxation, currency conversion limitations, restrictions on fund transfers or the expropriation of private enterprises, could reduce the anticipated benefits of our international expansion. Furthermore, any actions by countries in which we conduct business to reverse policies that encourage foreign trade or investment could adversely affect our business. If we fail to realize the anticipated revenue growth of our future international operations, our business and operating results could suffer. Risks Related to Our Relationship with MiTAC International We rely on MiTAC International for certain manufacturing and assembly services and the loss of these services would require us to seek alternate providers that may charge us more for their services. We rely on MiTAC International to manufacture and supply subassemblies and components for some of our contract assembly customers, including Sun Microsystems, our primary contract assembly customer, and our reliance on MiTAC International may increase in the future. Our relationship with MiTAC International has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. Accordingly, we negotiate manufacturing and pricing terms on a project-by-project basis, based on manufacturing services rendered by MiTAC International or us. As MiTAC’s ownership interest in us decreases, MiTAC’s interest in the success of our business and operations may decrease as well. In the 17 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents event MiTAC International were to no longer provide such services and components to us, we would need to find an alternative source for these services and components. We may be unable to obtain alternative services and components on similar terms, which may in turn increase our manufacturing costs. In addition, we may not find manufacturers with sufficient capacity, which may in turn lead to shortages in our product supplies. Increased costs and products shortages could harm our business and operating results. Our business relationship with MiTAC International has been and will continue to be negotiated as related parties and therefore may not be the result of arms’-length negotiations between independent parties. Our relationship, including pricing and other material terms with our shared customers or with MiTAC International, may or may not be as advantageous to us as the terms we could have negotiated with unaffiliated third parties. We have a joint sales and marketing agreement with MiTAC International, pursuant to which both parties agree to use their commercially reasonable efforts to promote the other party’s service offerings to their respective customers who are interested in such product offerings. To date, there has not been a significant amount of sales attributable to the joint marketing agreement. This agreement does not provide for the terms upon which we negotiate manufacturing and pricing terms. These negotiations have been on a case-by-case basis. The agreement has an initial term of one year and automatically renews for subsequent one-year terms unless either party provides written notice of non-renewal within 90 days of the end of any renewal term. The agreement may also be terminated without cause either by the mutual written agreement of both parties or by either party without cause upon 90 days prior written notice of termination to the other party. Either party may immediately terminate the agreement by providing written notice (a) of the other party’s material breach of any provision of the agreement and failure to cure within 30 days, or (b) if the other party becomes bankrupt or insolvent. In addition, we are party to a general agreement with MiTAC International and Sun Microsystems under which we work with MiTAC International to provide contract assembly services to Sun Microsystems. Some of our customer relationships evolved from relationships between such customers and MiTAC International and the loss of such relationships could harm our business and operating results. Our relationship with Sun Microsystems and some of our other customers evolved from customer relationships that were initiated by MiTAC International. Our relationship with Sun Microsystems is a joint relationship with MiTAC International and us, and the future success of our relationship with Sun Microsystems depends on MiTAC International continuing to work with us to service Sun Microsystems’ requirements. The original agreement between Sun Microsystems and MiTAC International was signed on August 28, 1999 and we became a party to the agreement on February 12, 2002. Substantially all of our contract assembly services to Sun Microsystems are covered by the general agreement. The agreement continues indefinitely until terminated in accordance with its terms. Sun Microsystems may terminate this agreement for any reason on 60 days written notice. Any party may terminate the agreement with written notice if one of the other parties materially breaches any provision of the agreement and the breach is incapable of being cured or is not cured within 30 days. The agreement may also be terminated on written notice if one of the other parties becomes bankrupt or insolvent. If we are unable to maintain our relationship with MiTAC International, our relationship with Sun Microsystems could suffer and we could lose other customer relationships or referrals, which in turn could harm our business, financial position and operating results. There could be potential conflicts of interest between us and affiliates of MiTAC International, which could impact our business and operating results. MiTAC International’s and its affiliates’ continuing beneficial ownership of our common stock could create conflicts of interest with respect to a variety of matters, such as potential acquisitions, competition, issuance or disposition of securities, election of directors, payment of dividends and other business matters. Similar risks could exist as a result of Matthew Miau’s positions as our Chairman, the Chairman of MiTAC International and as a director or officer of MiTAC International’s affiliated companies. For fiscal 2006, Mr. Miau received a retainer of $225,000 from us. Compensation payable to Mr. Miau is based upon the approval of the 18 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Compensation Committee. We also have adopted a policy requiring material transactions in which any of our directors has a potential conflict of interest to be approved by our Audit Committee. Both our Audit Committee and Compensation Committee are composed of disinterested members of the Board. Synnex Technology International Corp., or Synnex Technology International, a publicly traded company based in Taiwan and affiliated with MiTAC International, currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also a potential competitor of ours. Mitac Incorporated, a privately held company based in Taiwan and a separate entity from MiTAC International, directly and indirectly owns approximately 15.2% of Synnex Technology International and approximately 8.5% of MiTAC International. MiTAC International directly and indirectly owns 0.3% of Synnex Technology International and Synnex Technology International directly and indirectly owns approximately 0.4% of MiTAC International. In addition, MiTAC International directly and indirectly owns approximately 8.8% of Mitac Incorporated and Synnex Technology International directly and indirectly owns approximately 14.2% of Mitac Incorporated. Synnex Technology International indirectly through its ownership of Peer Developments Limited owns approximately 17.4% of our outstanding common stock. Neither MiTAC International nor Synnex Technology International is restricted from competing with us. In the future, we may increasingly compete with Synnex Technology International, particularly if our business in Asia expands or Synnex Technology International expands its business into geographies or customers we serve. Although Synnex Technology International is a separate entity from us, it is possible that there will be confusion as a result of the similarity of our names. Moreover, we cannot limit or control the use of the Synnex name by Synnex Technology International or MiTAC International, and our use of the Synnex name may be restricted as a result of registration of the name by Synnex Technology International or the prior use in jurisdictions where they currently operate. As of November 30, 2006, our executive officers, directors and principal stockholders owned approximately 48% of our common stock and this concentration of ownership could allow them to control all matters requiring stockholder approval and could delay or prevent a change in control of SYNNEX. As of November 30, 2006, our executive officers, directors and principal stockholders owned approximately 48% of our outstanding common stock. In particular, MiTAC International and its affiliates, owned approximately 47% of our common stock. In addition, MiTAC International’s interests and ours may increasingly conflict. For example, we rely on MiTAC International for certain manufacturing and supply services and for relationships with certain key customers. As a result of a decrease in their ownership in us, we may lose these services and relationships, which may lead to increased costs to replace the lost services and the loss of certain key customers. We cannot predict the likelihood that we may incur increased costs or lose customers if MiTAC International’s ownership percentage of us decreases in the future. Risks Related to Our Industry Volatility in the IT industry could have a material adverse effect on our business and operating results. The IT industry in which we operate has experienced decreases in demand. Softening demand for our products and services may be caused by an economic downturn and over-capacity, as well as problems with the salability of inventory and collection of reseller customer receivables. While in the past we may have benefited from consolidation in our industry resulting from delays or reductions in IT spending in particular, and economic weakness in general, any such volatility in the IT industry could have an adverse effect on our business and operating results. 19 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Our distribution business may be adversely affected by some OEM suppliers’ strategies to increase their direct sales, which in turn could cause our business and operating results to suffer. Consolidation of OEM suppliers has resulted in fewer sources for some of the products that we distribute. This consolidation has also resulted in larger OEM suppliers that have significant operating and financial resources. Some OEM suppliers, including some of the leading OEM suppliers that we service, have been selling a greater volume of products directly to end-users, thereby limiting our business opportunities. If large OEM suppliers continue the trend to sell directly to our resellers, rather than use us as the distributor of their products, our business and operating results will suffer. OEMs are limiting the number of supply chain service providers with which they do business, which in turn could negatively impact our business and operating results. Currently, there is a trend towards reducing the number of authorized distributors used by OEM suppliers. As a smaller market participant in the IT product distribution and contract assembly industries, than some of our competitors, we may be more susceptible to loss of business from further reductions of authorized distributors or contract assemblers by IT product OEMs. For example, the termination of Sun Microsystems’ contract assembly business with us would have a significant negative effect on our revenue and operating results. A determination by any of our primary OEMs to consolidate their business with other distributors or contract assemblers would negatively affect our business and operating results. The IT industry is subject to rapidly changing technologies and process developments, and we may not be able to adequately adjust our business to these changes, which in turn would harm our business and operating results. Dynamic changes in the IT industry, including the consolidation of OEM suppliers and reductions in the number of authorized distributors used by OEM suppliers, have resulted in new and increased responsibilities for management personnel and have placed, and continue to place, a significant strain upon our management, operating and financial systems and other resources. We may be unable to successfully respond to and manage our business in light of industry developments and trends. Also crucial to our success in managing our operations will be our ability to achieve additional economies of scale. Our failure to achieve these additional economies of scale or to respond to changes in the IT industry could adversely affect our business and operating results. We are subject to intense competition in the IT industry, both in the United States and internationally, and if we fail to compete successfully, we will be unable to gain or retain market share. We operate in a highly competitive environment, both in the United States and internationally. The IT product distribution and contract assembly industries are characterized by intense competition, based primarily on product availability, credit availability, price, speed of delivery, ability to tailor specific solutions to customer needs, quality and depth of product lines, pre-sale and post-sale technical support, flexibility and timely response to design changes, technological capabilities, service and support. We compete with a variety of regional, national and international IT product distributors and contract manufacturers and assemblers. In some instances, we also compete with our own customers, our own OEM suppliers and MiTAC International. Our primary competitors are substantially larger and have greater financial, operating, manufacturing and marketing resources than us. Some of our competitors may have broader geographic breadth and range of services than us and may have more developed relationships with their existing customers. We may lose market share in the United States or in international markets, or may be forced in the future to reduce our prices in response to the actions of our competitors and thereby experience a reduction in our gross margins. We may initiate other business activities, including the broadening of our supply chain capabilities, and may face competition from companies with more experience in those new areas. In addition, as we enter new areas of 20 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents business, we may also encounter increased competition from current competitors or from new competitors, including some who may once have been our OEM suppliers or reseller customers. Increased competition and negative reaction from our OEM suppliers or reseller customers resulting from our expansion into new business areas may harm our business and operating results. Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new Securities and Exchange Commission, or SEC, regulations and New York Stock Exchange rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and corporate governance practices. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our ongoing efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our management’s required assessment of our internal control over financial reporting and our independent registered public accounting firm’s attestation of that assessment have required the commitment of significant financial and managerial resources. We expect these efforts to require the continued commitment of significant resources. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed. While we believe that we currently have adequate internal control over financial reporting, we are exposed to risks from legislation requiring companies to evaluate those internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We completed an evaluation of the effectiveness of our internal control over financial reporting for the fiscal year ended November 30, 2006, and we have an ongoing program to perform the system and process evaluation and testing necessary to continue to comply with these requirements. We expect to continue to incur increased expense and to devote additional management resources to Section 404 compliance. In the event that our chief executive officer, chief financial officer or independent registered public accounting firm determines that our internal control over financial reporting is not effective as defined under Section 404, investor perceptions and our reputation may be adversely affected and the market price of our stock could decline. Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. We prepare our financial statements to conform to generally accepted accounting principles, or GAAP. These accounting principles are subject to interpretation by the Financial Accounting Standards Board or FASB, American Institute of Certified Public Accountants, the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. We will have significant and ongoing accounting charges resulting from option grant and other equity incentive expensing due to adoption of SFAS 123(R) – “Share-Based Payment” that will reduce our overall net income. In addition, since we historically have used equity-related compensation as a component of our total employee compensation program, the accounting change could make the use of equity-related compensation less attractive to us and therefore make it more difficult to attract and retain employees. 21 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Risks Related to Our Common Stock Our common stock has been subject to substantial price and volume fluctuations due to a number of factors, some of which are beyond our control. Share prices and trading volumes for many distribution and contract assembly service related companies fluctuate widely for a number of reasons, including some reasons which may be unrelated to their businesses or results of operations. This market volatility, as well as general domestic or international economic, market and political conditions, could materially adversely affect the price of our common stock without regard to our operating performance. In addition, our operating results may be below the expectations of public market analysts and investors. If this were to occur, the market price of our common stock would likely decrease. Significant fluctuations in the market price of our common stock could result in securities class action claims against us, which could seriously harm our operating results. Securities class action claims have been brought against companies in the past where volatility in the market price of that company’s securities has taken place. This kind of litigation could be very costly and divert our management’s attention and resources, and any adverse determination in this litigation could also subject us to significant liabilities, any or all of which could adversely affect our business and operating results. Anti-takeover provisions in our restated certificate of incorporation may make it more difficult for someone to acquire us in a hostile takeover. Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that we may issue in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting shares. In addition, our restated certificate of incorporation contains certain provisions that, together with the ownership position of our officers, directors and their affiliates, could discourage potential takeover attempts and make attempts by stockholders to change management more difficult, which could adversely affect the market price of our common stock. If securities or industry analysts do not publish research or reports about our business, our stock price and trading volume could decline. The trading market for our common stock will depend on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who covers us were to downgrade our stock, our stock price would likely decline. If one or more of these analysts ceases coverage of our Company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. We are subject to additional rules and regulations as a public company, which will increase our administration costs which in turn could harm our operating results. As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, has required changes in corporate governance practices of public companies. In addition to final rules and rule proposals already made by the SEC, the New York Stock Exchange, or NYSE, has adopted revisions to its requirements for companies that are 22 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents NYSE-listed. These rules and regulations have increased our legal and financial compliance costs, and made some activities more time consuming or costly. We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our Audit Committee, and qualified executive officers. Item 1B. Unresolved Staff Comments. None. Item 2. Properties Our principal executive offices are located in Fremont, California. We operate more than 40 distribution, assembly and administrative facilities in five different countries encompassing a total of approximately 2.5 million square feet. We lease each of these facilities, except a 62,500 square foot sales and marketing facility in Greenville, South Carolina, a 100,000 square foot distribution center in Markham, Ontario, Canada a 41,000 square foot administrative facility in Beijing, China and a 124,400 square foot administrative and assembly facility in Telford, United Kingdom, which we own. In the United States, we operate 20 principal facilities with a total area of approximately 1.7 million square feet of space. Leases for our current facilities expire between December 2006 and February 2014. Our principal assembly facility is located in Fremont, California and our principal distribution facilities are located in Edison, New Jersey, Memphis, Tennessee, Los Angeles, California and Toronto, Ontario. We have sublet unused portions of some of our facilities. We believe our facilities are well maintained and adequate for current operating needs. Item 3. Legal Proceedings We are from time to time involved in legal proceedings, including the following: In May 2002, Seanix Technology Inc. filed a trademark infringement action in the Federal Court of Canada against us and our Canadian subsidiary, SYNNEX Canada Limited. The suit claims that we have infringed on Seanix’s exclusive rights to its Canadian trademark registration and caused confusion between the two companies resulting from, among other things, our use of trademarks confusingly similar to the Seanix trademarks. The complaint seeks injunctive relief and monetary damages in an amount to be determined. Substantial discovery has taken place; however, no trial date has been set. In May 2002, Acropolis Systems, Inc. and Tony Yeh filed a civil suit in Santa Clara County California Superior Court against us, Robert Huang, C. Kevin Chuang and Stephen R. Bowling. The suit alleges violation of California securities laws, fraud and concealment and breach of contract resulting from, among other things, failure to disclose the existence of a lien in favor of us on the assets of eManage.com Inc. prior to entering into stock purchase agreements for shares of eManage.com stock. At the time of this stock purchase, we were the majority stockholders of eManage.com. The complaint seeks monetary damages in the amount of approximately $2.0 million. Substantial discovery has taken place and a trial date has been set for June 2007. In September 2004, the United States Bankruptcy Court for the Northern District of Texas entered judgment in favor of DSLangdale Two, LLC and DSLangdale Three, LLC, Inc. in the amount of $4.2 million against Daisytek (Canada), Inc., a former wholly owned subsidiary of EMJ Data Systems Limited, a company that we acquired in September 2004. This lawsuit was subsequently settled for $4.6 million in May 2006. This settlement did not result in any additional liability in fiscal 2006. In addition, we have been involved in various bankruptcy preference actions where we were a supplier to the companies now in bankruptcy. These preference actions are filed by the bankruptcy trustee on behalf of the 23 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents bankrupt estate and generally seek to have payments made by the debtor within 90 days prior to the bankruptcy returned to the bankruptcy estate for allocation among all of the bankruptcy estate’s creditors. We are not aware of any currently pending preference actions. From time to time, we are also involved in legal proceedings in the ordinary course of business. We do not believe that these proceedings will have a material adverse effect on our results of operations, financial position or cash flows of our business. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant The following table sets forth information regarding our executive officers as of November 30, 2006: Name Position Age Robert Huang 61 President, Chief Executive Officer and Director Peter Larocque 45 President, US Distribution Jim Estill 49 President and Chief Executive Officer, SYNNEX Canada Limited John Paget 57 President, Technology Solutions Division Dennis Polk 40 Chief Operating Officer and Chief Financial Officer Simon Leung 41 General Counsel and Corporate Secretary Robert Huang founded our Company in 1980 and serves as President, Chief Executive Officer and Director. Prior to founding our Company, Mr. Huang served as the Headquarters Sales Manager of Advanced Micro Devices, a semiconductor company. Mr. Huang received his Bachelor of Science degree in Electrical Engineering from Kyushyu University, Japan, Master of Science degrees in Electrical Engineering and Statistics from the University of Rochester and a Master of Science degree in Management Science from the Sloan School of Management at the Massachusetts Institute of Technology. Peter Larocque is our President, U.S. Distribution since July 2006 and previously served as Executive Vice President of Distribution since June 2001, Senior Vice President of Sales and Marketing from September 1997 until June 2001. Mr. Larocque is responsible for our U.S. distribution business. Mr. Larocque received a Bachelor of Science degree in Economics from the University of Western Ontario, Canada. Jim Estill joined SYNNEX Canada Limited in September 2004 as President and Chief Executive Officer after the acquisition of EMJ Data Systems Limited by SYNNEX Canada. Mr. Estill founded EMJ in 1979 and was President and Chief Executive Officer of EMJ. Mr. Estill received a Bachelor of Science degree in Systems Design Engineering and a Professional Engineering degree from the University of Waterloo, Ontario. John Paget was our President, Technology Solutions Division and previously served as our President of North America and Chief Operating officer from May 2004 to July 2006. He previously held the position of Senior Vice President and General Manager of GE Technology Financial Services, a part of GE Commercial Finance, a General Electric company since January 2003. Prior to GE Technology Financial Services, Mr. Paget served as President and Chief Executive Officer of GE Access, a worldwide distributor of Unix Products. Throughout his tenure at GE Access, Mr. Paget held a variety of executive management positions in sales and operations and was with the company since 1997. Mr. Paget received a B.S. in Administrative Services from Pepperdine University. Effective February 2007, Mr. Paget has resigned from our Company. Dennis Polk is our Chief Operating Officer and Chief Financial Officer and served in this capacity since July 2006 and previously served as Chief Financial Officer and Senior Vice President of Corporate Finance since 24 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents joining us in February 2002. Mr. Polk received a Bachelor of Science degree in Accounting from Santa Clara University and is a Certified Public Accountant. Simon Leung is our General Counsel and Corporate Secretary and has served in this capacity since May 2001. Mr. Leung joined us in November 2000 as Corporate Counsel. From December 1999 to November 2000, Mr. Leung was an attorney at the law firm of Paul, Hastings, Janofsky & Walker LLP. From May 1995 to December 1999, Mr. Leung was an attorney at the former law firm of Fotenos & Suttle, P.C. Mr. Leung received a Bachelor of Arts degree from the University of California, Davis and his Juris Doctor degree from the University of Minnesota Law School. 25 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents PART II Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters Our common stock, par value $0.001, is traded on the New York Stock Exchange (“NYSE”) under the symbol “SNX.” The following table sets forth the range of high and low sales prices for our common stock for each of the periods listed, as reported by the NYSE. Price Range of Common Stock Low High Fiscal 2005 First Quarter $ 20.65 $ 24.63 Second Quarter $ 13.45 $ 23.17 Third Quarter $ 15.20 $ 18.95 Fourth Quarter $ 15.32 $ 18.08 Fiscal 2006 First Quarter $ 15.11 $ 19.09 Second Quarter $ 16.90 $ 19.76 Third Quarter $ 16.20 $ 23.00 Fourth Quarter $ 20.94 $ 23.87 As of February 1, 2007, our common stock was held by 539 stockholders of record. Because many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these stockholders of record. We have not declared or paid any cash dividends since our inception. We currently intend to retain future earnings, if any, for use in our operations and the expansion of our business. If we elect to pay cash dividends in the future, payment will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our Board of Directors. In addition, our credit facilities place restrictions on our ability to pay dividends. 26 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Stock Price Performance Graph The stock price performance graph below, which assumes a $100 investment on November 25, 2003 and reinvestment of any dividends, compares our cumulative total shareowner return (assuming reinvestment of dividends), the NYSE Composite Index and the Standard Industrial Classification (“SIC”) Code Index (SIC Code 5045—Computer and Computer Peripheral Equipment and Software) for the period beginning November 25, 2003 through November 30, 2006. The closing price per share of our common stock was $22.71 on November 30, 2006. No cash dividends have been declared on our common stock since the initial public offering. The comparisons in the table are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of our common stock. Total Return Analysis 11/30/2003 11/25/2003 11/30/2004 11/30/2005 11/30/2006 SYNNEX Corporation 100.00 100.35 150.70 110.21 159.93 SIC Code Index 100.00 100.00 121.62 112.58 129.92 NYSE Market Index 100.00 100.00 114.68 127.65 148.46 Securities Authorized for Issuance under Equity Compensation Plans Information regarding the Securities Authorized for Issuance under Equity Compensation Plans can be found under Item 12 of this Report. 27 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Item 6. Selected Consolidated Financial Data The following selected consolidated financial data are qualified by reference to, and should be read together with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related Notes included in Item 7 of this Report. The selected consolidated statement of operations and cash flow data presented below for the fiscal years ended November 30, 2006, 2005 and 2004 and the consolidated balance sheet data as of November 30, 2006 and 2005 have been derived from our audited consolidated financial statements included elsewhere in this Report. The consolidated statements of operations and other data for the fiscal years ended November 30, 2003 and 2002 and the consolidated balance sheet data as of November 30, 2004, 2003 and 2002 have been derived from our consolidated financial statements that are not included in this Report. The consolidated statements of operations data generally include the operating results from our acquisitions from the closing date of each acquisition. Historical operating results are not necessarily indicative of the results that may be expected for any future period. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 and Note 4 to our consolidated financial statements included elsewhere in this Report for a discussion of factors, such as business combinations, that affect the comparability of the following selected consolidated financial data. Fiscal Years Ended November 30, 2006 2005 2004 2003 2002 (in thousands, except per share data) Statements of Operations Data: Revenue $ 6,343,514 $ 5,640,769 $ 5,150,447 $ 3,944,886 $ 3,596,265 Cost of revenue (6,058,155) (5,402,211) (4,935,075) (3,766,518) (3,432,089) Gross profit 285,359 238,558 215,372 178,368 164,176 Selling, general and administrative expenses (189,117) (159,621) (137,712) (121,352) (114,657) Income from continuing operations before non-operating items, income taxes and minority interest 96,242 78,937 77,660 57,016 49,519 Interest expense and finance charges, net (16,659) (17,036) (7,959) (7,007) (6,182) Other income (expense), net 570 1,559 (900) (3,478) 1,169 Income from continuing operations before income taxes and minority interest 80,153 63,460 68,801 46,531 44,506 Provision for income taxes (28,320) (23,912) (23,091) (17,090) (16,680) Minority interest in subsidiary (448) 58 376 267 49 Income from continuing operations 51,385 39,606 46,086 29,708 27,875 Income from discontinued operations, net of tax — 511 479 288 157 Gain on sale of discontinued operations, net of tax — 12,708 — — — Net income $ 51,385 $ 52,825 $ 46,565 $ 29,996 $ 28,032 Net income per common share, basic: Income from continuing operations $ 1.73 $ 1.39 $ 1.73 $ 1.34 $ 1.26 Discontinued operations — 0.46 0.01 0.02 0.01 Net income per common share, basic $ 1.73 $ 1.85 $ 1.74 $ 1.36 $ 1.27 Net income per common share, diluted: Income from continuing operations $ 1.61 $ 1.27 $ 1.53 $ 1.21 $ 1.15 Discontinued operations — 0.43 0.02 0.01 0.01 Net income per common share, diluted $ 1.61 $ 1.70 $ 1.55 $ 1.22 $ 1.16 November 30, 2006 2005 2004 2003 2002 (in thousands) Balance Sheet Data: Cash and cash equivalents $ 27,881 $ 13,636 $ 28,726 $ 22,079 $ 15,503 Working capital 416,865 350,529 316,935 217,397 200,021 Total assets 1,382,734 1,082,488 999,697 789,928 629,075 Current borrowings under term loans and lines of credit 50,834 28,548 74,996 69,464 19,685 Long-term borrowings 47,967 1,153 13,074 8,134 38,714 Total stockholders’ equity 511,546 437,225 369,656 252,814 213,218 Fiscal Years Ended November 30, 2006 2005 2004 2003 2002 (in thousands) Other Data: Depreciation and Amortization $ 9,781 $ 8,778 $ 7,845 $ 7,412 $ 8,337 28 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” and the Consolidated Financial Statements and related Notes included elsewhere in this Report. When used in this Annual Report on Form 10-K (the “Report”), the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our services, economic and industry trends, thefts at our warehouses, gross margin, selling, general and administrative expense, our estimates regarding our capital requirements and our needs for additional financing, expenses related to the expansion of our operations, effect of future expansion on our operations, critical accounting policy effects, impact of new accounting pronouncements, use of our working capital, and statements regarding our securitization program and sources of revenue. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as the seasonality of the buying patterns of our customers, the concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT industry and fluctuations in general economic condition and the risks set forth above under Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Overview We are a global information technology, or IT, supply chain services company. We offer a comprehensive range of services to IT original equipment manufacturers and software publishers, collectively OEMs, and reseller customers worldwide. The supply chain services that we offer include product distribution, related logistics and support services, contract assembly and demand generation marketing. We have been in the IT distribution business since 1980 and are one of the largest IT product distributors based on 2006 reported revenue. We focus our core wholesale distribution business on a limited number of leading IT OEMs, which allows us to enhance and increase the value we provide to our OEM suppliers and reseller customers. Because we offer distribution, contract assembly and demand generation marketing, OEM suppliers and resellers can outsource to us multiple areas of their business outside of their core competencies. This model allows us to provide services at several points along the IT product supply chain. We believe that the combination of our broad range of supply chain capabilities, our focus on serving the leading IT OEMs and our efficient operations enables us to realize strong relationships with our OEM suppliers and reseller customers. We are headquartered in Fremont, California and have distribution, sales and assembly facilities in the United States, Canada, China, Mexico and the United Kingdom. Revenue and Cost of Revenue We derive our revenue primarily through the distribution of IT systems, peripherals, system components, software and networking equipment, and, to a lesser extent, from contract assembly. We recognize revenue in both our distribution and contract assembly operations generally as products are shipped, if a purchase order exists, the sales price is fixed or determinable, collection of the resulting receivable is reasonably assured, risk of loss and title have transferred and product returns are reasonably estimable. Shipping terms are typically F.O.B. our warehouse. Provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue. Our distribution sales are made to reseller customers on a purchase order basis 29 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents and generally relate to a specific order from a reseller’s end-user customer. Our contract assembly sales are generated from specific purchase orders received from our OEM customers for a specified unit quantity. We generally do not have long-term sales agreements with our reseller or contract assembly customers. Revenue from our distribution business represented approximately 91%, 91% and 89% of our total revenue in fiscal 2006, 2005 and 2004, respectively. In our distribution business, our primary customers are resellers. None of our reseller customers accounted for more than 10% of our total revenue in fiscal 2006, 2005 or 2004. Approximately 25%, 28% and 28% of our total revenue in fiscal 2006, 2005 and 2004, respectively, was derived from the sale of HP products. Most of our remaining distribution revenue is derived from the distribution of IT products of a relatively small number of other suppliers. Approximately 9%, 9% and 11% of our total revenue in fiscal 2006, 2005 and 2004, respectively, was derived from our contract assembly business. We provide contract assembly services primarily to IT product OEMs. Our contract assembly revenue is dependent on a small number of customers. Revenue from contract assembly provided to Sun Microsystems accounted for less than 10% of our total revenue in fiscal 2006 and 2005 and approximately 10% of our total revenue in 2004. Sun Microsystems accounted for approximately 91%, 93% and 93% of our contract assembly revenue in fiscal 2006, 2005 and 2004, respectively. The market for IT products is generally characterized by declining unit prices and short product life cycles. Our distribution business is also highly competitive on the basis of price. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute. From time to time, we also participate in the incentive and rebate programs of our OEM suppliers. These programs are important determinants of the final sales price we charge to our reseller customers. To mitigate the risk of declining prices and obsolescence of our distribution inventory, our OEM suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them. We carefully manage our inventory to maximize the benefit to us of these supplier provided protections. A significant portion of our cost of distribution revenue is the purchase price we pay our OEM suppliers for the products we sell, net of any rebates and purchase discounts received from our OEM suppliers. Cost of distribution revenue also consists of provisions for inventory losses and write-downs, and freight expenses associated with the receipt in and shipment out of our inventory. Our contract assembly cost of revenue consists primarily of cost of materials, labor and overhead. Margins The IT product distribution and contract assembly industries in which we operate are characterized by low gross profit as a percentage of revenue, or gross margin, and low income from operations as a percentage of revenue, or operating margin. Our gross margin has fluctuated between 4.2% and 4.5% annually over the past three years due to changes in the mix of products we sell, customers we sell to, competition, seasonality and the general economic environment. Increased competition arising from industry consolidation and low demand for IT products may hinder our ability to maintain or improve our gross margin. Generally, when our revenue becomes more concentrated on limited products or customers, our gross margin tends to decrease due to increased pricing pressure from OEM suppliers or reseller customers. Our operating margin has also fluctuated between 1.40% and 1.52% annually over the past three years, based primarily on our ability to achieve economies of scale, the management of our operating expenses, changes in the relative mix of our distribution and contract assembly revenue and the timing of our acquisitions and investments. Recent Acquisitions and Divestitures We seek to augment our organic growth with strategic acquisitions of businesses and assets that complement and expand our supply chain service capabilities. We also divest businesses that we deem not strategic to our ongoing operations. Our historical acquisitions have brought us new reseller customers and OEM 30 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents suppliers, extended the geographic reach of our operations, particularly in international markets, and expanded the services we provide to our OEM suppliers and customers. We account for acquisitions using the purchase method of accounting and include acquired entities within our consolidated financial statements from the closing date of the acquisition. During the fiscal year ended November 30, 2006, we completed the following acquisitions: On April 28, 2006, we acquired the assets of the Telpar distribution segment of Peak Technologies, Inc., or Telpar, for approximately $3.3 million. Telpar sold auto-ID, data capture and point of sales products and services. The Telpar business has been fully integrated within our distribution segment. The aggregate purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on estimates of fair value. The excess of the purchase price over the fair value of identifiable net assets acquired of $429,000 has been recognized as intangible assets. On June 9, 2006, we acquired substantially all of the assets of the Azerty United Canada ink and toner distribution business of United Stationers Supply Company, or Azerty, for approximately $14.3 million. The Azerty acquisition strengthens our position in printer supplies distribution in Canada. The Azerty business has been fully integrated within our distribution segment. The aggregate purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on estimates of fair value. The excess of the purchase price over the fair value of identifiable net assets acquired of $1.3 million has been recognized as goodwill and $114,000 has been recognized as intangible assets. On September 14, 2006, our wholly owned subsidiary, BSA Sales, LLC, or BSA Sales, acquired all of the outstanding capital stock of Concentrix Corporation or Concentrix based in Rochester, New York for approximately $8.0 million. Concentrix is an integrated marketing company that provides call center, database analysis, and print on demand services to customers in the transportation, publishing, banking, healthcare and high technology industries. Concentrix’s business strategy complements and expands our resources and capabilities of our demand generation business. The acquisition agreement allowed for an earnout payment of $2.5 million to be paid if certain milestones were met in the first 120 days after the acquisition. The defined milestones were not achieved and no earnout payment will be paid on this transaction. We have accounted for the acquisition of capital stock as a purchase and accordingly the excess of the purchase price over the fair value of identifiable net assets acquired of $4.2 million has been recognized as goodwill and $3.8 million has been recognized as intangible assets. The valuation of the identifiable intangible assets acquired was based on management’s estimates using a valuation report prepared by an independent third party. The Concentrix and BSA Sales operations have been merged under the name of Concentrix Corporation effective December 1, 2006. The above acquisitions, individually and in the aggregate, did not meet the conditions of a material business combination as defined by the Securities and Exchange Commission. As such, they were not subject to the disclosure requirements of SFAS No. 141. However, we believe that disclosures provided herein are useful to the understanding of the goodwill and intangible assets activities through November 30, 2006. During the fiscal year ended November 30, 2005, we did not acquire any businesses and divested two of our subsidiaries, SYNNEX K.K. and EMJ America, Inc. In May 2005, we sold approximately 93% of the equity in SYNNEX K.K., our Japan subsidiary, to MCJ Company Limited, or MCJ, a Japan based public company. We sold our Japan distribution business, as it was not strategic to our current North American focused distribution and assembly business model. We received shares of MCJ stock as consideration for SYNNEX K.K. We were restricted from selling the MCJ stock until one year after the sale date. As a result of this equity investment, we recorded the gains or losses on our investment in each period, based on the closing price of MCJ stock. These non-operating gains or losses are reported in “Other income (expense), net.” In order to reduce the risk of holding the MCJ shares, we entered into several forward contracts to sell MCJ shares for a fixed price in April 2006. All the contracts were settled in April, 2006 and 31 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents there were no contracts outstanding as of November 30, 2006. As of November 30, 2005, such contracts covered 100% of the MCJ shares held by the Company. In June 2005, we sold the operations of our EMJ America, Inc. subsidiary to the management team of EMJ America. EMJ America was a subsidiary of our Canadian-based subsidiary EMJ Data Systems Limited, or EMJ, and was not in the same business as EMJ. The operations of our EMJ America subsidiary were not material to us. Economic and Industry Trends Our revenue is highly dependent on the end-market demand for the IT products that we distribute and assemble. This end-market demand is influenced by many factors including the introduction of new IT products and software by OEMs, replacement cycles for existing IT products and overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT distribution industry and increased price based competition. Seasonality Our operating results are affected by the seasonality of the IT products industry. We have historically experienced higher sales in our fourth fiscal quarter due to patterns in the capital budgeting, federal government spending and purchasing cycles of our customers and end-users. These patterns may not be repeated in subsequent periods. Deferred Compensation Plan We have a deferred compensation plan for a limited number of our directors and employees. We maintain a liability on our balance sheet for salary and bonus amounts deferred by participants and we accrue interest expense on unpaid amounts. Interest expense on the deferred amounts is classified in “Interest expense and finance charges, net” on our consolidated statement of operations. The plan allows for the participants to direct investments of deferred amounts in equity securities. These equity investments are classified as trading securities. GAAP requires that gains (losses) on the deferred compensation equity securities be recorded in “Other income (expense), net” and that an equal amount be charged (or credited if losses) to “Selling, general and administrative expenses” relating to compensation amounts which are payable to the plan participants. Deferred compensation expense was $1.1 million, $1.6 million, and $243,000 in fiscal 2006, 2005 and 2004, respectively. Unearned Share-Based Compensation In prior years, in connection with the granting of restricted stock and employee stock options that had exercise prices determined to be below fair market value on the date of grant, we recorded unearned share-based compensation. Unearned share-based compensation represents the difference between the fair market value of our common stock on the date of grant and either the exercise price of stock options or the fair market value of restricted stock awards, as the case may be. Unearned share-based compensation is included as a reduction of stockholders’ equity and is amortized over the vesting period of the applicable stock options or restricted stock awards, generally five years, using the straight-line method. Our share-based compensation expense relates to stock options granted to individuals and is reflected in selling, general and administrative expenses. The balance of the unearned share-based compensation was $1.6 million as of November 30, 2005, due to the issuance of restricted stock and stock options. The balance of unearned share-based compensation was reclassified to additional paid-in capital upon adoption of SFAS No. 123(R), effective December 1, 2005. Share-based compensation expense was $3.7 million, $28,000 and $202,000 in fiscal 2006, 2005 and 2004, respectively. Insurance Coverage From time to time, we have experienced incidents of theft at various facilities. In fiscal 2003 and fiscal 2005 we experienced theft as a result of break-ins at four of our warehouses in which approximately $12.9 million of 32 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents inventory was stolen. Based on our investigation, discussions with local law enforcement and meetings with federal authorities, we believe the thefts at our warehouses were part of an organized crime effort that targeted a number of technology equipment warehouses throughout the United States. As a result of the losses in 2003, we reduced our inventory value by $9.4 million, and recorded estimated proceeds, net of deductibles as a receivable from our insurance company, included within “Other current assets” on our balance sheet as of November 30, 2003. In January 2004 we received a final settlement from our insurance company that amounted to substantially all of the receivable recorded as of November 30, 2003. In March 2005, approximately $4.0 million of inventory was stolen from our facility in the City of Industry, California. We subsequently recovered approximately $0.5 million through law enforcement and federal authorities. We filed a claim with our insurance provider for the amount of the loss, less a small deductible. We have received substantially all of the claimed amount. These types of incidents may make it more difficult or expensive for us to obtain theft coverage in the future. There is no assurance that future incidents of theft will not recur. Critical Accounting Policies and Estimates The discussions and analyses of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions, including those that relate to accounts receivable, vendor programs, inventories, intangible assets and other long-lived assets, share-based compensation, income taxes, and contingencies and litigation. Our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies are affected by our judgment, estimates and/or assumptions used in the preparation of our consolidated financial statements. Revenue Recognition. We recognize revenue generally as products are shipped, if a purchase order exists, the sale price is fixed or determinable, collection of resulting receivables is reasonably assured, risk of loss and title have transferred and product returns are reasonably estimable. Shipping terms are typically F.O.B. our warehouse. Provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue. These provisions are reviewed and adjusted periodically by us. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers. We purchase licensed software products from original equipment manufacturer or OEM vendors and distribute them to customers. Revenue is recognized upon shipment of software products when a purchase order exists, the sales price is fixed or determinable and collection is determined to be probable. Subsequent to the sale of software products, we generally have no obligation to provide any modification, customization, upgrades, enhancements, or any other post-contract customer support. Our Mexico operation entered into a multi-year contract to sell equipment to a contractor that provides equipment and services to the Mexican government. Under the agreement, the Mexican government makes payments into our account. The payments on this contract by the Mexican government are generally due on a 33 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents monthly basis and are contingent upon the contractor continuing to provide services to the government. We recognize product revenue and cost of revenue on a straight-line basis over the term of the contract. Share-Based Compensation. Effective December 1, 2005, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment” or SFAS No. 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases, based on estimated fair values. We previously applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation” or SFAS No. 123, which was superseded by SFAS No. 123(R). We applied the provisions of Staff Accounting Bulletin No. 107 relating to SFAS No. 123(R). Accounts Receivable. We provide allowances for doubtful accounts on our accounts receivable for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, which may result in the impairment of their ability to make payments, additional allowances may be required. In estimating our allowance, we take into consideration the overall quality and aging of our receivable portfolio, our continuing credit evaluation of our customers’ financial condition, current economic trends, historical experience with collections and collateral obtained from our customers in certain circumstances. OEM Supplier Programs. We receive funds from OEM suppliers for inventory price protection, product rebates, marketing and infrastructure reimbursement, and promotion programs. Product rebates are recorded as a reduction of cost of revenue. Marketing, infrastructure and promotion programs are recorded, net of direct costs, in selling, general and administrative expense. Any excess funds associated with these programs are recorded in cost of revenue. We accrue rebates based on the terms of the program and sales of qualifying products. Some of these programs may extend over one or more quarterly reporting periods. Amounts received or receivable from OEM suppliers that are not yet earned are deferred on our balance sheet. Actual rebates may vary based on volume or other sales achievement levels, which could result in an increase or reduction in the estimated amounts previously accrued. In addition, if market conditions were to deteriorate due to an economic downturn, OEM suppliers may change the terms of some or all of these programs or cease them altogether. Any such change could lower our gross margins on products we sell or revenue earned. We also provide reserves for receivables on OEM supplier programs for estimated losses resulting from OEM suppliers’ inability to pay, or rejections of such claims by OEM suppliers. Inventories. Our inventory levels are based on our projections of future demand and market conditions. Any sudden decline in demand and/or rapid product improvements and technological changes can cause us to have excess and/or obsolete inventories. On an ongoing basis, we review for estimated obsolete or unmarketable inventories and write-down our inventories to their estimated net realizable value based upon our forecasts of future demand and market conditions. These write-downs are reflected in our cost of revenue. If actual market conditions are less favorable than our forecasts, additional inventory reserves may be required. Our estimates are influenced by the following considerations: sudden decline in demand due to economic downturns, rapid product improvements and technological changes, our ability to return to OEM suppliers a certain percentage of our purchases, and protection from loss in value of inventory under our OEM supplier agreements. Goodwill, Intangible Assets and Other Long-Lived Assets. We assess potential impairment of our goodwill, intangible assets and other long-lived assets when there is evidence that recent events or changes in circumstances have made recovery of an asset’s carrying value unlikely. We also assess potential impairment of our goodwill, intangible assets and other long-lived assets on an annual basis. If indicators of impairment were present in intangible assets used in operations and future cash flows were not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss would be recognized as the excess of the asset’s carrying value over its fair value. 34 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Factors we consider important, which may cause an impairment include: significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. Income Taxes. As part of the process of preparing our consolidated financial statements, we have to estimate our income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our current tax expense together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing revenue and expenses, for tax and accounting purposes. These differences may result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carry forwards and temporary differences that are expected to be deductible in future years, will be recoverable from future taxable income or other tax planning strategies. If recovery is not likely, we have to provide a valuation allowance based on our estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable. The provision for current and deferred taxes involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. Actual results could differ from our estimates. Contingencies and Litigation. There are various claims, lawsuits and pending actions against us incident to our operations. If a loss arising from these actions is probable and can be reasonably estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range within which no point is more probable than another. Based on current available information, we believe that the ultimate resolution of these actions will not have a material adverse effect on our financial position, results of operations or cash flows. As additional information becomes available, we assess any potential liability related to these actions and may need to revise our estimates. Future revisions of our estimates could materially impact the results of our operations, financial position or cash flows. Results of Operations The following table sets forth, for the indicated periods, data as percentages of revenue: Fiscal Years Ended November 30, 2006 2005 2004 Statements of Operations Data: Revenue 100.00% 100.00% 100.00% Cost of revenue (95.50) (95.77) (95.82) Gross profit 4.50 4.23 4.18 Selling, general and administrative expenses (2.98) (2.83) (2.67) Income from continuing operations before non-operating items, income taxes and minority interest 1.52 1.40 1.51 Interest expense and finance charges, net (0.26) (0.30) (0.15) Other income (expense), net 0.01 0.03 (0.02) Income from continuing operations before income taxes and minority interest 1.27 1.13 1.34 Provision for income taxes (0.45) (0.43) (0.45) Minority interest in subsidiaries (0.01) — — Income from continuing operations 0.81 0.70 0.89 Income from discontinued operations, net of tax — 0.01 0.01 Gain on sale of discontinued operations, net of tax — 0.23 — Net income 0.81% 0.94% 0.90% 35 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Fiscal Years Ended November 30, 2006 and 2005 Revenue. Year Ended Year Ended November 30, 2006 November 30, 2005 % Change (in thousands) (in thousands) Revenue $ 6,343,514 $ 5,640,769 12.5% Distribution revenue $ 5,800,293 $ 5,120,824 13.3% Contract assembly revenue $ 543,221 $ 519,945 4.5% The increase in our distribution revenue was primarily attributable to continued growth in our business in the United States and Canada, including obtaining additional market share, overall increased demand for products through the IT distribution channel and increased selling and marketing efforts. Our distribution revenue also increased due to our focus on our new enterprise and consumer electronics distribution divisions and contribution from our Azerty, Telpar and Concentrix acquisitions. The increase in contract assembly revenue was the result of increased demand from our primary contract assembly customer, Sun Microsystems, as well as increase in demand and customer count in our non-Sun assembly business. The increase in our revenue was somewhat mitigated by continued significant competition in the IT distribution marketplace, vendor direct sales models, our desire to focus on operating income growth before revenue growth and gradual declines in the average selling price of the products we sell. Gross Profit. Year Ended Year Ended November 30, 2006 November 30, 2005 % Change (in thousands) (in thousands) Gross profit $ 285,359 $ 238,558 19.6% Percentage of revenue 4.50% 4.23% 6.4% Our gross profit is affected by a variety of factors, including competition, the mix and average selling prices of products we sell and the mix of customers to whom we sell, rebate and discount programs from our suppliers, freight costs and reserves for inventory losses. The increase in gross margin percentage was a result of higher margins in our distribution segment, mainly due to our focused efforts on all aspects of our gross margin, including ongoing improvements in our pricing initiatives and increased value-added service offerings, as well as customer and product mix. Our contract assembly gross margin percentage decreased due to changes in pricing and product mix with our largest contract assembly customer, Sun Microsystems, partially offset by an improvement in margin in our non-Sun assembly business. While we currently do not expect any significant change in our total gross margin, it may decrease in future periods as a result of the relative mix of our distribution and contract assembly revenue, distribution customer mix, potential increased competition, softness in the overall economy or changes to the terms and conditions in which we do business with our OEMs. Selling, General and Administrative Expenses. Year Ended Year Ended November 30, 2006 November 30, 2005 % Change (in thousands) (in thousands) Selling, general and administrative expenses $ 189,117 $ 159,621 18.5% Percentage of revenue 2.98% 2.83% 5.3% 36 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Our selling, general and administrative expenses consist primarily of salaries, commissions, bonuses, and related expenses for personnel engaged in sales, product marketing, distribution and contract assembly operations and administration. Selling, general and administrative expenses also include share-based compensation expense, deferred compensation expense or income, temporary personnel fees, costs of our facilities, utility expense, professional fees, depreciation expense on our capital equipment and amortization expense on our intangible assets, offset by reimbursements from OEM suppliers. Selling, general and administrative expenses increased in fiscal 2006 from the prior year, primarily as a result of incremental expenses associated with our increased revenue, an increase in headcount for new and existing business initiatives, continued investments in all aspects of our business, additional expenses associated with our acquisition and integration of Telpar, Azerty and Concentrix and share-based compensation expense of $3.7 million, as a result of the adoption of SFAS No.123(R), on December 1, 2005. These increases were partially offset by a $2.5 million restructuring charge that was incurred in fiscal 2005. Netted against selling, general and administrative expenses are reimbursements from OEM suppliers of $25.7 million for fiscal 2006, compared to $20.0 million in the prior year. The reimbursements relate to marketing, infrastructure and promotion programs such as advertisements in trade publications, direct marketing campaigns through mail and e-mail and product demonstrations at trade shows. We make the arrangements and pay for the advertising, facility fees and other costs of the programs, which feature the OEM suppliers’ products. The restructuring charge in fiscal 2005 was primarily incurred to eliminate duplicate personnel and excess facilities that occurred as a result of our acquisition of EMJ. The restructuring resulted in employee termination benefits of $0.7 million, estimated facilities exit expenses of $1.7 million and other costs of $0.1 million. Income from Continuing Operations before Non-Operating Items, Income Taxes and Minority Interest. Year Ended Year Ended November 30, 2006 November 30, 2005 % Change (in thousands) (in thousands) Income from continuing operations before non-operating items, income taxes and minority interest $ 96,242 $ 78,937 21.9% Distribution income from continuing operations before non-operating items, income taxes and minority interest $ 88,458 $ 65,912 34.2% Contract assembly income from continuing operations before non-operating items, income taxes and minority interest $ 7,784 $ 13,025 (40.2)% Income from continuing operations before non-operating items, income taxes and minority interest as a percentage of revenue was 1.52% for fiscal 2006, compared to 1.40% in the prior year. Our distribution operating income percentage increased to 1.53% in fiscal 2006 from 1.29% in the prior year, primarily due to an increase in our distribution gross margin and improved operating results from our Mexico operation. Our contract assembly operating income percentage decreased to 1.43% in fiscal 2006 from 2.51% in the prior year, primarily due to a decrease in gross margin due to changes in pricing and product mix with our largest contract assembly customer, Sun Microsystems, partially offset by improvement in gross margin in our non-Sun assembly business. Interest Expense and Finance Charges, Net. Year Ended Year Ended November 30, 2006 November 30, 2005 % Change (in thousands) (in thousands) Interest expense and finance charges, net $ 16,659 $ 17,036 (2.2)% 37 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Amounts recorded in interest expense and finance charges, net, are primarily due to interest expense paid on our lines of credit, long-term debt and deferred compensation liability, fees associated with third party accounts receivable flooring arrangements and the sale of accounts receivable through our securitization facility, offset by income earned on our excess cash investments and financing income from our Mexico operation. The decrease in interest expense and finance charges, net, was due to long-term project business we engaged in with one of our customers in Mexico. The primary return from this business is interest income resulting from long-term financing of computer hardware sold to our customer and is reflected in our net financing cost for the year. This income amount was partially offset by an increase in finance charges and interest expenses due to an overall higher interest rate environment, higher borrowings due to increased business and increased long-term debt due to the long-term project in Mexico. Other Income, Net. Year Ended Year Ended November 30, 2006 November 30, 2005 % Change (in thousands) (in thousands) Other income, net $ 570 $ 1,559 (63.4)% Amounts recorded in other income, net, include foreign currency transaction gains and losses, investment gains and losses, including those in our deferred compensation plan and other non-operating gains and losses. The decrease in other income, net, in fiscal 2006 as compared with the prior year, was primarily due to a decrease in deferred compensation income of $0.5 million and a decrease in foreign exchange gain of $0.4 million. Provision for Income Taxes. Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. Our effective tax rate was 35.3% in fiscal 2006 as compared with an effective tax rate of 37.7% in fiscal 2005. The effective tax rate in fiscal 2006 was lower than fiscal 2005, primarily due to higher profit in lower tax jurisdictions and the utilization of previously unrecognized net operating loss carry forwards at our Mexico operation due to its profitability in fiscal 2006. Minority Interest. Minority interest is the portion of earnings from operations from our subsidiary in Mexico attributable to others. Minority interest expense was $448,000 in fiscal 2006 compared to a benefit of $58,000 in fiscal 2005 due to the profitability at our Mexico subsidiary in fiscal 2006. In November 2006, we repurchased the remaining interest in our Mexico operation from our minority shareholders. Discontinued Operations. During the second quarter of fiscal 2005, we sold approximately 93% of SYNNEX K.K. to MCJ, in exchange for 25,809 shares of MCJ. We have reported the results of operations and financial position of this business in discontinued operations within the consolidated statements of operations for all periods presented. Fiscal Years Ended November 30, 2005 and 2004 Revenue. Year Ended Year Ended November 30, 2005 November 30, 2004 % Change (in thousands) (in thousands) Revenue $ 5,640,769 $ 5,150,447 9.5% Distribution revenue $ 5,120,824 $ 4,573,438 12.0% Contract assembly revenue $ 519,945 $ 577,009 (9.9)% 38 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents The increase in our distribution revenue was mostly attributable to increased demand for products through the IT distribution channel, primarily in the United States, and the acquisition of EMJ in September 2004. Our revenue increase was also a result of our increased selling and marketing efforts and increased sales to direct marketers, government VARs and retail customers. The increase in our distribution revenue was somewhat mitigated by continued significant competition in the IT distribution marketplace, our desire to focus on operating income growth before revenue growth and gradual declines in the average selling price of the products we sell. The decrease in contract assembly revenue was primarily the result of a decrease in demand from our largest contract assembly customer, Sun Microsystems as well as a decrease in the average selling prices for the products we assemble. This decrease in demand was primarily due to product life cycles and product transitions currently ongoing for the products we assemble for Sun Microsystems. Gross Profit. Year Ended Year Ended November 30, 2005 November 30, 2004 % Change (in thousands) (in thousands) Gross profit $ 238,558 $ 215,372 10.8% Percentage of revenue 4.23% 4.18% 1.2% The increase in gross profit percentage was a result of higher margins in our distribution segment, mainly due to improvements in our North American pricing initiatives as well as customer and product mix and the EMJ acquisition. Our contract assembly gross profit percentage increased slightly due to changes in product and customer mix. Selling, General and Administrative Expenses. Year Ended Year Ended November 30, 2005 November 30, 2004 % Change (in thousands) (in thousands) Selling, general and administrative expenses $ 159,621 $ 137,712 15.9% Percentage of revenue 2.83% 2.67% 6.0% Selling, general and administrative expenses increased in fiscal 2005 from the prior year, and, as a percentage of revenue, selling, general and administrative expenses increased in fiscal 2005 to 2.8% from 2.7% in the prior year. The increase, on a dollar basis, was primarily the result of incremental expenses associated with our increased revenue in the United States, the EMJ acquisition in September 2004, a $1.4 million increase in deferred compensation expense and continued investments in new business initiatives. In addition, our selling, general and administrative expenses increased due to a $2.5 million restructuring charge incurred in the year ended November 30, 2005 in our Canadian distribution segment. The restructuring charge was primarily incurred to eliminate duplicate personnel and excess facilities that occurred as a result of our acquisition of EMJ. The restructuring resulted in employee termination benefits of $0.7 million, estimated facilities exit expenses of $1.7 million and other costs of $0.1 million. Selling, general and administrative expenses, on a percentage of revenue basis, remained constant from the prior year after adjusting for the additional costs related to the EMJ acquisition, deferred compensation expense, restructuring charges and investments in new business initiatives. Netted against selling, general and administrative expenses are reimbursements from OEM suppliers of $20.0 million for fiscal 2005, compared to $16.3 million in the prior year. The reimbursements relate to 39 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents marketing, infrastructure and promotion programs such as advertisements in trade publications, direct marketing campaigns through mail and e-mail and product demonstrations at trade shows. We make the arrangements and pay for the advertising, facility fees and other costs of the programs, which feature the OEM suppliers’ products. Income from Continuing Operations before Non-Operating Items, Income Taxes and Minority Interest. Year Ended Year Ended November 30, 2005 November 30, 2004 % Change (in thousands) (in thousands) Income from continuing operations before non-operating items, income taxes and minority interest $ 78,937 $ 77,660 1.6% Distribution income from continuing operations before non-operating items, income taxes and minority interest $ 65,912 $ 63,255 4.2% Contract assembly income from continuing operations before non-operating items, income taxes and minority interest $ 13,025 $ 14,405 (9.6)% Income from continuing operations before non-operating items, income taxes and minority interest as a percentage of revenue was 1.4% for fiscal 2005, decreased slightly from 1.5% in the prior year due to the increase in selling, general and administrative expenses. Our distribution operating income percentage decreased to 1.3% in fiscal 2005 from 1.4% in the prior year primarily due to our restructuring charges in the first and third quarters of fiscal 2005 and a $1.4 million increase in deferred compensation expense. This was partially offset by a $0.8 million decrease in the operating loss of our Mexico operation. While the increase in deferred compensation expense had an effect on operating income, there was no effect on net income as the increase in deferred compensation expense was offset by an investment gain, which is recorded in other income (expense), net. The decrease in the operating loss in Mexico was a result of focused efforts to reduce costs and improve operating effectiveness. Our contract assembly operating income percentage did not significantly change from fiscal 2005 to the prior year. Interest Expense and Finance Charges, Net. Year Ended Year Ended November 30, 2005 November 30, 2004 % Change (in thousands) (in thousands) Interest expense and finance charges, net $ 17,036 $ 7,959 114.0% The increase in interest expense and finance charges, net, was a result of higher finance charges due to higher interest rates as compared to those in 2004 and higher debt levels due to the EMJ acquisition as well as to finance increased revenue, $0.8 million associated with our new securitization borrowing facility in Canada and $0.5 million related to the repayment of debt resulting from the acquisition of EMJ. Other Income (Expense), Net. Year Ended Year Ended November 30, 2005 November 30, 2004 % Change (in thousands) (in thousands) Other income (expense), net $ 1,559 ($ 900) 273.2% The increase in other income (expense), net, in fiscal 2005 as compared with the same period in the prior year, was primarily due to a decrease of $2.4 million in foreign exchange losses, a $1.4 million increase in investment gains related to deferred compensation and $0.3 million gain associated with our investment in MCJ. 40 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents These amounts were offset by a one-time receipt of $1.2 million from the settlement of the final purchase price related to the acquisition of our subsidiary in the United Kingdom, which was recorded in the third quarter of 2004. Provision for Income Taxes. Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. Our effective tax rate was 37.7% in fiscal 2005 as compared with an effective tax rate of 33.6% in fiscal 2004. The effective tax rate in 2005 was higher than that in 2004 due to a non-recurring $2.0 million income tax benefit reflected in the 2004 effective tax rate. Minority Interest. Minority interest is the portion of earnings from operations from our subsidiary in Mexico attributable to others. Minority interest benefit decreased to $58,000 in fiscal 2005 from a benefit of $376,000 in fiscal 2004 due to the losses at our Mexico subsidiary exceeding the minority investment amount. Discontinued Operations. During the second quarter of fiscal 2005, we sold approximately 93% of SYNNEX K.K. to MCJ, in exchange for 25,809 shares of MCJ. We have reported the results of operations and financial position of this business in discontinued operations within the consolidated statements of operations for all periods presented. The results from the operations of SYNNEX K.K., prior to the sale, were as follows (in thousands): Fiscal Year Ended November 30, 2005 2004 Revenue $ 64,477 $ 163,544 Cost of revenue (59,916) (153,938) Gross profit 4,561 9,606 Selling, general and administrative expenses (3,170) (8,286) Income from operations before non-operating items, income taxes and minority interest 1,391 1,320 Interest expense and finance charges, net (140) (464) Other income (expense), net (245) 158 Income before income taxes and minority interest 1,006 1,014 Provision for income taxes (434) (459) Minority interest (61) (76) Net income $ 511 $ 479 Liquidity and Capital Resources Cash Flows Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on debt, accounts receivable flooring programs and the sale of our accounts receivable under our securitization programs for our working capital needs. We have financed our growth and cash needs to date primarily through working capital financing facilities, bank credit lines and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales, and for acquisitions. To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that this expansion would require an initial investment in personnel, 41 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents facilities and operations, which may be more costly than similar investments in current operations. As a result of these investments, we may experience an increase in cost of sales and operating expenses that is disproportionate to revenue from those operations. These investments or acquisitions would likely be funded primarily by incurring additional debt or issuing common stock. Net cash used in operating activities was $18.9 million in fiscal 2006. Cash used in operating activities in fiscal 2006 was primarily attributable to a net use of cash for working capital and decrease in net deferred assets of $95.9 million, offset by net income of $51.4 million, depreciation and amortization of $9.8 million, share-based compensation of $3.7 million and excess tax benefits from stock options of $0.9 million. The cash used for working capital in fiscal 2006 was due to an increase in inventory, net deferred assets, as a result of our multi-year contract from our Mexico operation, and accounts receivable, partially offset by an increase in accounts payable. The fluctuations in these working capital balances were primarily related to overall higher revenue levels and a net increase in sales of accounts receivable under our securitization program of $69.0 million. Prior to adopting SFAS No. 123(R), we presented all tax benefits resulting from the exercise of stock options as cash flows from operating activities in the consolidated statement of cash flows. SFAS No. 123(R), requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities. As a resulting of adopting SFAS No. 123(R), $6.0 million of excess of tax benefits for the twelve months ended November 30, 2006 have been reported as a cash inflow from financing activities. Net cash provided by operating activities was $7.3 million in fiscal 2005. Cash provided by operating activities in fiscal 2005 was primarily attributable to net income of $52.8 million and depreciation and amortization of $8.8 million offset by the use of cash for working capital of $42.4 million. The cash used for working capital in fiscal 2005 was primarily due to increases in inventory and vendor receivables, partially offset by increases in accounts payable and payables to affiliates. The fluctuations in these working capital balances were primarily related to overall higher revenue levels and a net increase in sales of accounts receivable under our securitization program of $78.5 million. Net cash provided by operating activities was $0.2 million in fiscal 2004. Cash provided by operating activities in fiscal 2004 was primarily attributable to net income of $46.6 million and depreciation and amortization of $7.8 million offset by the use of cash for working capital of $63.6 million. The cash used for working capital in fiscal 2004 was primarily due to increases in accounts receivable, receivables from vendors and inventory, partially offset by increases in accounts payable and payables to affiliates. The fluctuations in these working capital balances were primarily due to a net decrease in sales of our accounts receivable under our securitization program of $13.7 million. Net cash used in investing activities was $24.3 million in fiscal 2006, $7.7 million in fiscal 2005 and $49.6 million in fiscal 2004. Cash used in investing activities in fiscal 2006 was primarily the result of the purchase of short-term investments of $15.3 million, the acquisition of Azerty, Telpar and Concentrix for $12.7 million, $2.9 million, and $6.4 million, respectively, capital expenditures of $7.9 million and increase in restricted cash of $8.1 million offset by proceeds from sale of investments of $28.4 million. The use of cash in fiscal 2005 was primarily the result of a $3.0 million investment in Microland, the final payments for the acquisitions of EMJ and BSA Sales, Inc. of $4.8 million and capital expenditures of $6.4 million, partially offset by a decrease in restricted cash of $2.0 million. The use of cash in fiscal 2004 was primarily the result of the acquisition of EMJ for $42.2 million and capital expenditures of $6.4 million. Net cash provided by financing activities was $58.6 million in fiscal 2006 and was a result of net proceeds from bank loans and lines of credit of $61.7 million, primarily associated with borrowings for our Mexico operation, proceeds from issuances of common stock of $11.2 million and a tax benefit of $6.0 million due to the adoption of SFAS No. 123(R), offset by cash overdraft of $20.3 million. Net cash used in financing activities of 42 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents $13.6 million in fiscal 2005 was primarily due to the net repayment of borrowings under our credit facilities of $43.6 million, offset by cash overdraft of $22.1 million and proceeds from issuance of common stock of $9.0 million. Net cash provided by financing activities was $56.8 million in fiscal 2004 and was primarily related to proceeds from our initial public offering and stock option exercises of $61.0 million and our cash overdraft of $2.9 million, offset by net debt payments of $7.0 million. We believe that cash flows from operations, our current cash balance and funds available under our working capital and credit facilities will be sufficient to meet our working capital needs and planned capital expenditures for the next 12 months. Capital Resources Our cash and cash equivalents totaled $27.9 million and $13.6 million at November 30, 2006 and 2005, respectively. Off Balance Sheet Arrangements We have a six-year revolving accounts receivable securitization program in the United States, or U.S. Arrangement, which provides for the sale of up to $275.0 million of U.S. trade accounts receivable, or U.S. Receivables, to two financial institutions. The program expires in August 2008. In connection with this program substantially all of our U.S. trade accounts receivable are transferred without recourse to our wholly owned subsidiary, which, in turn, sells an undivided interest in the U.S. Receivables to the financial institutions. Sales of the U.S. Receivables to the financial institutions under this program result in a reduction of total accounts receivable in our consolidated balance sheet. The remaining accounts receivable not sold to the financial institutions are carried at their net realizable value, including an allowance for doubtful accounts. Our effective borrowing cost under the program is the prevailing dealer commercial paper rate of return plus 0.75% per annum. At November 30, 2006 and 2005, the amount of U.S. Receivables sold to and held by the financial institutions under U.S. Arrangement totaled $273.0 million and $229.2 million, respectively. The U.S. Arrangement contains customary financial covenants, including, but not limited to, requiring us to maintain on a consolidated basis: • a minimum net worth at the end of each fiscal quarter in each fiscal year ending on or after November 30, 2003 of not less than (i) the minimum net worth required under the U.S. Arrangement for the immediately preceding fiscal year plus (ii) an amount equal to 50% of the positive net income of us and our subsidiaries on a consolidated basis for the immediately preceding fiscal year plus (iii) an amount equal to 100% of the amount of any equity raised by or capital contributed to us during the immediately preceding fiscal year; • a fixed charge ratio for each rolling period from and after the closing of the U.S. Arrangement of not less than 1.70 to 1.00. The fixed charge ratio is the ratio of EBITDA for the rolling period ending on such date to “fixed charges” for such period. Fixed charges means, with respect to any of our fiscal periods (a) cash interest expense during such period, plus (b) regularly scheduled payments of principal on our debt (other than debt owing under the amended U.S. Arrangement, as defined) paid during such period, plus (c) the aggregate amount of all capital expenditures made by us during such period, plus (d) income tax expense during such period, plus (e) any dividend, return of capital or any other distribution in connection with our capital stock. Rolling period means as of the end of any or our fiscal quarters, the immediately preceding four fiscal quarters (including the fiscal quarter then ending); and • with respect to our wholly owned subsidiary, a net worth percentage of not less than 5.0%. In February 2007, we amended our U.S. Arrangement to increase our securitization program to $350.0 million of U.S. Receivables, with a group of financial institutions. We extended the maturity date of our U.S. Arrangement, as amended, from August 2008 to February 2011. Our effective borrowing cost under our U.S. 43 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Arrangement, as amended, is the prevailing dealer commercial paper rate or London Inter Bank Offered Rate, or LIBOR, plus 0.55% per annum. Our amended U.S. Arrangement contains similar financial covenants as the former program except that the fixed charge ratio was reduced to 1.60 to 1.00. We have a one-year revolving accounts receivable securitization program in Canada through SYNNEX Canada Limited, or Canadian Arrangement, which provides for the sale of up to C$100.0 million of U.S. and Canadian trade accounts receivable to a financial institution. We renewed our Canadian Arrangement for an additional year until November 2007 with similar terms and conditions. In connection with this program, substantially all of SYNNEX Canada’s U.S. and Canadian trade accounts receivable are sold to the financial institution on a fully serviced basis. Sales of the accounts receivable to the financial institution under the Canadian Arrangement result in a reduction of total accounts receivable in our consolidated balance sheet. Our effective discount rate under the Canadian Arrangement is the prevailing Bankers’ Acceptance rate of return or prime rate in Canada plus 0.45% per annum. At November 30, 2006 and 2005, the amount of our accounts receivable sold to and held by the financial institution under the Canadian Arrangement totaled $70.8 and $45.6 million, respectively. The Canadian Arrangement contains customary financial covenants, including, but not limited to, requiring us to maintain on a consolidated basis: • a minimum net worth at the end of each fiscal quarter in each fiscal year ending on or after November 30, 2005 of not less than (i) the minimum net worth required under the arrangement for the immediately preceding fiscal year plus (ii) an amount equal to 50% of the positive net income of us and our subsidiaries on a consolidated basis for the immediately preceding fiscal year plus (iii) an amount equal to 100% of the amount of any equity raised by or capital contributed to us during the immediately preceding fiscal year. We believe that available funding under our accounts receivable securitization programs provides us increased flexibility to make incremental investments in strategic growth initiatives and to manage working capital requirements, and that there are sufficient trade accounts receivable to support the U.S. and Canadian Arrangements. As we have in prior periods, we expect we will increase these programs if our revenue levels continue to increase. Under these programs, we continue to service the accounts receivable, and receive a service fee from the financial institutions for the U.S. Arrangement. In connection with this Canadian Arrangement, we issued a guarantee of SYNNEX Canada’s performance under the Canadian Arrangement. We are also obligated to provide periodic financial statements and investment reports, notices of material litigation and any other information relating to our U.S. Arrangement as requested by the financial institutions. As is customary in trade accounts receivable securitization arrangements, a credit rating agency’s downgrade of the third party issuer of commercial paper or of a back-up liquidity provider (which provides a source of funding if the commercial paper market cannot be accessed) could result in an adverse change or loss of our financing capacity under these programs if the commercial paper issuer or liquidity back-up provider is not replaced. Loss of such financing capacity could have a material adverse effect on our financial condition and results of operations. We have also issued guarantees to certain vendors and lenders of our subsidiaries for the total amount of $148.1 million as of November 30, 2006 and $76.4 million as of November 30, 2005. We are obligated under these guarantees to pay amounts due should our subsidiaries not pay valid amounts owed to their vendors or lenders. The vendor guarantees are typically less than one-year arrangements, with 30-day cancellation clauses and the lender guarantees are typically for the term of the loan agreement. On Balance Sheet Arrangements We have a senior secured revolving line of credit arrangement, or the Revolver, with a group of financial institutions, which is secured by our inventory and other assets and expires in 2008. The Revolver’s maximum 44 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents commitment is $45.0 million. Interest on borrowings under the Revolver is based on the financial institution’s prime rate or LIBOR plus 1.75% at our option. The borrowings outstanding under the Revolver at November 30, 2006 was $27.1 million and there were no borrowings outstanding at November 30, 2005. In February 2007 we amended the Revolver, to increase the commitment up to a maximum of $100.0 million. The agreement was extended to February 2011. Interest on the borrowing under the Revolver is based on LIBOR plus 1.50%. In December 2006, SYNNEX Canada established a revolving line of credit arrangement with a credit limit of C$20.0 million. The revolving credit facility expires in January 2010. Interest on this facility is based on the Canadian adjusted prime rate. In connection with this revolving credit facility, we issued a guarantee of SYNNEX Canada’s obligations. SYNNEX Canada had a revolving loan agreement with a financial institution with a credit limit of C$125.0 million. Borrowings under this former loan agreement were collateralized by substantially all of SYNNEX Canada’s assets, including inventories and accounts receivable. This agreement was terminated in fiscal 2005. In May 2006, SYNNEX Mexico S.A. de C.V. established a secured term loan agreement, or Term Loan, with a group of financial institutions. The interest rate for any unpaid principal amount is the Equilibrium Interbank Interest Rate, plus 2.00% per annum. The final maturity date for repayment of all unpaid principal is November 24, 2009. The amount outstanding, under the Term Loan as of November 30, 2006 was $70.4 million. The Term Loan contains customary financial covenants. In connection with this Term Loan, we issued a guarantee of SYNNEX Mexico’s obligations. We have other lines of credit and revolving facilities with financial institutions, which provide for borrowing capacity aggregating approximately $10.8 million and $9.5 million at November 30, 2006 and 2005, respectively. At November 30, 2006 and 2005, we had borrowings of $0.1 million and $1.8 million, respectively, outstanding under these facilities. We also have various term loans, bonds, short-term borrowings and mortgages with financial institutions totaling approximately $1.2 million and $1.5 million at November 30, 2006 and 2005, respectively. The expiration dates of these facilities range from 2007 to 2013. Future principal payments due under these term loans, bonds and mortgages and payments due under our operating lease arrangements after November 30, 2006 are as follows (in thousands): Payments Due By Period Less than 1-3 3-5 >5 Total 1 Year Years Years Years Contractual Obligations Principal debt payments $ 98,801 $ 50,834 $ 47,892 $ 75 $ — Interest on debt 10,242 5,271 4,965 6 — Non-cancelable operating leases 73,382 12,758 25,902 21,873 12,849 Total $ 182,425 $ 68,863 $ 78,759 $ 21,954 $ 12,849 We are in compliance with all material covenants or other requirements set forth in our accounts receivable financing programs and credit agreements discussed above. Recent Accounting Pronouncements In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for the financial statement recognition and measurement of a tax position 45 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the fiscal years beginning after December 15, 2006 and will be applicable to us in the first quarter of fiscal 2008. We are currently evaluating the effect of FIN 48 on our consolidated financial position and results of operations. In June 2006, Emerging Issues Task Force or EITF issued consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” or EITF No. 06-03. We are required to adopt the provisions of EITF No. 06-03 in the first quarter of fiscal 2007. We do not expect the provisions of EITF No. 06-03 to have a material impact on the our consolidated financial position, results of operations or cash flows. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” or SFAS No. 157. SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be adopted by us in the first quarter of fiscal 2008. We are currently evaluating the effect that the adoption of SFAS No. 157 will have on our consolidated financial position and consolidated results of operations. In September 2006, the SEC issued Staff Accounting Bulletin, or SAB, No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” or SAB No. 108. SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that requires quantification of financial statement errors based on the effects of each of the company’s balance sheet and statement of operations and the related financial statement disclosures. Early application of the guidance in SAB 108 is encouraged in any report for an interim period of the first fiscal year ending after November 15, 2006, and we adopted SAB No. 108 in fiscal 2006. The adoption did not have material impact on our consolidated financial condition and results of operations. 46 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Item 7A. Quantitative and Qualitative Disclosures about Market Risk Foreign Currency Risk We are exposed to foreign currency risk in the ordinary course of business. We hedge cash flow exposures for our major countries using a combination of forward contracts. Principal currencies hedged are the British pound, Canadian dollar and Mexican peso. These instruments are generally short-term in nature, with typical maturities of less than one year. We do not hold or issue derivative financial instruments for trading purposes. The following table presents the hypothetical changes in fair values in our outstanding derivative instruments at November 30, 2006 and 2005 that are sensitive to the changes in foreign currency exchange rates. The modeling technique used measures the change in fair values arising from an instantaneous strengthening or weakening of the U.S. dollar by 5%, 10% and 15% (in thousands). Although we do not apply hedge accounting to our forward contracts, our foreign exchange contracts are marked-to-market and any material gains and losses on our hedge contracts resulting from a hypothetical, instantaneous change in the strength of the U.S. dollar would be significantly offset by mark-to-market gains and losses on the corresponding assets and liabilities being hedged. Loss on Derivative Gain on Derivative Instruments Given a Instruments Given a Gain (Loss) Weakening of U.S. dollar Strengthening of U.S. dollar Assuming No by X Percent by X Percent Change in Exchange Rate 15% 10% 5% 5% 10% 15% Forward contracts at November 30, 2006 $ (6,369) $ (4,003) $ (1,892) $ 363 $ 1,706 $ 3,250 $ 4,654 Forward contracts at November 30, 2005 $ (7,184) $ (4,516) $ (2,136) $ (320) $ 1,926 $ 3,672 $ 5,259 Interest Rate Risk During the last two years, the majority of our debt obligations have been short-term in nature and the associated interest obligations have floated relative to major interest rate benchmarks. While we have not used derivative financial instruments to alter the interest rate characteristics of our investment holdings or debt instruments in the past, we may do so in the future. A 150 basis point increase or decrease in rates at November 30, 2006 would not result in any material change in the fair value of our obligation. The following tables presents the hypothetical interest expense related to our outstanding borrowings for the years ended November 30, 2006 and 2005 that are sensitive to changes in interest rates. The modeling technique used measures the interest expense arising from hypothetical parallel shifts in the respective countries’ yield curves, of plus or minus 5%, 10% and 15% for the years ended November 30, 2006 and 2005 (in thousands). Interest Expense Given an Actual Interest Interest Expense Given an Interest Rate Decrease Expense Interest Rate Increase by X Percent Assuming No by X Percent Change in 15% 10% 5% 5% 10% 15% Interest Rate SYNNEX US $3,554 $3,763 $ 3,972 $ 4,181 $ 4,390 $ 4,599 $ 4,808 SYNNEX Mexico $5,588 $5,917 $ 6,245 $ 6,574 $ 6,903 $ 7,231 $ 7,560 SYNNEX Canada 75 79 84 88 93 97 101 SYNNEX UK 5 5 5 5 6 6 6 Total for the year ended November 30, 2006 $9,222 $9,764 $10,306 $ 10,848 $11,392 $11,933 $12,475 47 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Interest Expense Given an Actual Interest Interest Expense Given an Interest Rate Decrease Expense Interest Rate Increase by X Percent Assuming No by X Percent Change in 15% 10% 5% 5% 10% 15% Interest Rate SYNNEX US $ 686 $ 727 $ 767 $ 807 $ 848 $ 888 $ 928 SYNNEX Mexico — — — — — — — SYNNEX Canada 1,340 1,419 1,498 1,577 1,655 1,734 1,813 SYNNEX UK 59 63 66 70 73 77 80 Total for the year ended November 30, 2005 $ 2,085 $ 2,209 $ 2,331 $ 2,454 $ 2,576 $ 2,699 $ 2,821 Equity Price Risk The equity price risk associated with our marketable equity securities at November 30, 2006 and 2005 is not material in relation to our consolidated financial position, results of operations or cash flow. Marketable equity securities include shares of common stock. The investments are classified as either trading or available-for-sale securities. Securities classified as trading are recorded at fair market value, based on quoted market prices and unrealized gains and losses are included in results of operations. Securities classified as available-for-sale are recorded at fair market value, based on quoted market prices and unrealized gains and losses are included in other comprehensive income. Realized gains and losses, which are calculated based on the specific identification method, are recorded in operations as incurred. During the second quarter of fiscal 2005, we sold approximately 93% of the equity we held in our subsidiary, SYNNEX K.K. to MCJ, in exchange for 25,809 shares of MCJ. Our remaining equity interest in SYNNEX K.K. is accounted for under the cost method, as we do not have significant influence over either MCJ or SYNNEX K.K. In order to reduce the risk of holding the MCJ shares, we entered into forward contracts to sell MCJ shares for fixed prices in April 2006. As of November 30, 2005, such contracts covered 100% of the MCJ shares held by us and these contracts had a value of $22,609. As of November 30, 2006, there were no outstanding forward contracts. 48 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Item 8. Financial Statements and Supplementary Data INDEX Page Consolidated Financial Statements of SYNNEX Corporation Report of Independent Registered Public Accounting Firm 50 Consolidated Balance Sheets as of November 30, 2006 and 2005 52 Consolidated Statements of Operations for the years ended November 30, 2006, 2005 and 2004 53 Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended November 30, 2006, 2005 and 2004 54 Consolidated Statements of Cash Flows for the years ended November 30, 2006, 2005 and 2004 55 Notes to Condensed Consolidated Financial Statements 56 Selected Quarterly Consolidated Financial Data (Unaudited) 89 Financial Statement Schedule Schedule II: Valuation and Qualifying Accounts for the years ended November 30, 2006, 2005 and 2004 90 Financial statement schedules not listed above are either omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or in the Notes thereto. 49 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of SYNNEX Corporation: We have completed integrated audits of SYNNEX Corporation’s 2006, 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of November 30, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of SYNNEX Corporation and its subsidiaries at November 30, 2006 and November 30, 2005, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 14 to the consolidated financial statements, effective December 1, 2005 the Company changed its method of accounting for share-based payments. Internal control over financial reporting Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of November 30, 2006 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 50 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP San Jose, California February 13, 2007 51 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except for par value) November 30, November 30, 2006 2005 ASSETS Current assets: Cash and cash equivalents $ 27,881 $ 13,636 Short-term investments 13,271 27,985 Accounts receivable, net 363,437 342,322 Receivable from vendors, net 95,080 82,721 Receivable from affiliates 1,855 5,177 Inventories 594,642 494,617 Deferred income taxes 17,994 15,445 Current deferred assets 13,990 — Other current assets 9,887 10,908 Total current assets 1,138,037 992,811 Property and equipment, net 36,698 33,713 Goodwill and intangible assets, net 48,588 43,004 Deferred income taxes 6,716 4,781 Long-term deferred assets 139,111 — Other assets 13,584 8,179 Total assets $ 1,382,734 $ 1,082,488 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Borrowings under term loans and lines of credit $ 50,834 $ 28,548 Accounts payable 462,480 448,339 Payable to affiliates 89,831 85,871 Accrued liabilities 81,818 68,619 Other current liabilities — 6,085 Current deferred liabilities 29,516 — Income taxes payable 6,693 4,820 Total current liabilities 721,172 642,282 Long-term borrowings 47,967 1,153 Long-term liabilities 10,131 840 Long-term deferred liabilities 90,686 — Deferred income taxes 1,232 988 Total liabilities 871,188 645,263 Commitments and contingencies (Note 19) — — Stockholders’ equity: Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or outstanding — — Common stock, $0.001 par value, 100,000 shares authorized, 30,477 and 28,948 shares issued and outstanding 30 29 Additional paid-in capital 181,188 161,195 Unearned share-based compensation — (1,644) Accumulated other comprehensive income 13,999 12,701 Retained earnings 316,329 264,944 Total stockholders’ equity 511,546 437,225 Total liabilities and stockholders’ equity $ 1,382,734 $ 1,082,488 The accompanying Notes are an integral part of these consolidated financial statements. 52 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts) Fiscal Year Ended November 30, 2006 2005 2004 Revenue $ 6,343,514 $ 5,640,769 $ 5,150,447 Cost of revenue (6,058,155) (5,402,211) (4,935,075) Gross profit 285,359 238,558 215,372 Selling, general and administrative expenses (189,117) (159,621) (137,712) Income from continuing operations before non-operating items, income taxes and minority interest 96,242 78,937 77,660 Interest expense and finance charges, net (16,659) (17,036) (7,959) Other income (expense), net 570 1,559 (900) Income from continuing operations before income taxes and minority interest 80,153 63,460 68,801 Provision for income taxes (28,320) (23,912) (23,091) Minority interest in subsidiary (448) 58 376 Income from continuing operations 51,385 39,606 46,086 Income from discontinued operations, net of tax — 511 479 Gain on sale of discontinued operations, net of tax — 12,708 — Net income $ 51,385 $ 52,825 $ 46,565 Earnings per share: Basic Income from continuing operations $ 1.73 $ 1.39 $ 1.73 Discontinued operations — 0.46 0.01 Net income per common share—basic $ 1.73 $ 1.85 $ 1.74 Diluted Income from continuing operations $ 1.61 $ 1.27 $ 1.53 Discontinued operations — 0.43 0.02 Net income per common share—diluted $ 1.61 $ 1.70 $ 1.55 Weighted average common shares outstanding—basic 29,700 28,555 26,691 Weighted average common shares outstanding—diluted 32,014 31,131 30,111 The accompanying Notes are an integral part of these consolidated financial statements. 53 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (in thousands) Common Stock Unearned Accumulated Share- Other Shares Amount Additional based Comprehensive Total Paid-in Com- Income Retained Stockholders’ Comprehensive Capital pensation (Loss) Earnings Equity Income Balances, November 30, 2003 22,118 $ 22 $ 80,067 $ (202) $ 7,373 $165,554 $ 252,814 Amortization of unearned share-based compensation — — — 202 — — 202 Tax benefits from exercise of non-qualified employee stock options — — 4,431 — — — 4,431 Issuance of common stock for cash on exercise of options 1,670 2 9,703 — — — 9,705 Issuance of common stock for cash on initial public offering 3,739 4 48,796 — — — 48,800 Issuance of common stock for employee stock purchase plan 200 — 2,426 — — — 2,426 Change in unrealized gains on available-for-sale securities — — — — (23) — (23) $ (23) Foreign currency translation adjustment — — — — 4,736 — 4,736 4,736 Net income — — — — — 46,565 46,565 46,565 Balances, November 30, 2004 27,727 28 145,423 — 12,086 212,119 369,656 $ 51,278 Amortization of unearned share-based compensation — — — 28 — — 28 Tax benefits from exercise of non-qualified employee stock options — — 5,090 — — — 5,090 Issuance of common stock for cash on exercise of options 1,066 1 6,969 — — — 6,970 Issuance of restricted stock — — 1,672 (1,672) — — — Issuance of common stock for employee stock purchase plan 155 — 2,041 — — — 2,041 Change in unrealized gains on available-for-sale securities — — — — 135 — 135 $ 135 Foreign currency translation adjustment — — — — 480 — 480 480 Net income — — — — — 52,825 52,825 52,825 Balances, November 30, 2005 28,948 29 161,195 (1,644) 12,701 264,944 437,225 $ 53,440 Share-based compensation — — 3,710 — — — 3,710 Tax benefits from exercise of non-qualified employee stock options — — 6,932 — — — 6,932 Issuance of common stock on exercise of options and restricted stock 1,475 1 10,121 — — — 10,122 Issuance of common stock for employee stock purchase plan 54 — 874 — — — 874 Reclassification upon adoption of SFAS No. 123(R) — — (1,644) 1,644 — — — Foreign currency translation adjustment — — — — 1,298 — 1,298 $ 1,298 Net income — — — — — 51,385 51,385 51,385 Balances, November 30, 2006 30,477 $ 30 $181,188 $— $ 13,999 $316,329 $ 511,546 $ 52,683 The accompanying Notes are an integral part of these consolidated financial statements. 54 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Year Ended November 30, 2006 2005 2004 Cash flows from operating activities: Net income $ 51,385 $ 52,825 $ 46,565 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense 5,462 4,809 4,296 Amortization of intangible assets 4,319 3,941 3,347 Share-based compensation 3,710 28 202 Provision for doubtful accounts 9,081 7,083 5,506 Tax benefits from employee stock plans 6,932 5,090 4,431 Excess tax benefit from share-based compensation (6,016) — — Unrealized (gain) on trading securities (672) (1,333) (247) Realized (gain) loss on investments 2,329 (265) 23 (Gain) loss on disposal of fixed assets 36 947 (12) Stock received from sale of business — (20,406) — Unrealized gain on short-term investments — (3,037) — Minority interest in subsidiary 448 (58) (300) Changes in assets and liabilities, net of acquisition of businesses: Accounts receivable (14,979) (1,645) (67,356) Receivable from vendors (12,348) (13,903) (14,383) Receivable from affiliates 3,323 (3,209) (1,300) Inventories (92,403) (101,973) (23,953) Other assets (1,656) (3,370) 9,386 Deferred assets (149,268) — — Payable to affiliates 3,966 16,894 13,902 Accounts payable 35,281 51,899 20,177 Accrued liabilities 13,260 12,957 (110) Deferred liabilities 118,871 — — Net cash provided by (used in) operating activities (18,939) 7,274 174 Cash flows from investing activities: Purchases of short-term investments (15,300) (1,927) (1,243) Proceeds from sale of short-term investments 28,367 5,805 4,527 Minority investment — (3,000) — Acquisition of businesses, net of cash acquired (21,319) (4,769) (44,526) Purchase of property and equipment, net (7,916) (6,406) (6,377) Proceeds from sale of property and equipment, net — 532 — Decrease (increase) in restricted cash (8,141) 2,020 (2,000) Net cash used in investing activities (24,309) (7,745) (49,619) Cash flows from financing activities: Cash overdraft (20,271) 22,052 2,906 Proceeds from revolving line of credit — 1,792 42,050 Payments on revolving line of credit (2,283) — (47,050) Proceeds from bank loan 380,704 913,411 763,875 Repayment of bank loan (289,772) (983,040) (768,194) Net proceeds (payments) under other lines of credit (26,980) 30,190 1,166 Proceeds from issuance of bonds — — 1,844 Payments of bonds and other long-term liabilities — (5,917) (737) Excess tax benefit from share-based compensation 6,016 — — Dividend payment to minority shareholder — (1,133) — Net proceeds from issuance of common stock 11,212 9,048 60,961 Net cash provided by (used in) financing activities 58,626 (13,597) 56,821 Effect of exchange rate changes on cash and cash equivalents (1,133) (1,022) (729) Net increase (decrease) in cash and cash equivalents 14,245 (15,090) 6,647 Cash and cash equivalents at beginning of period 13,636 28,726 22,079 Cash and cash equivalents at end of period $ 27,881 $ 13,636 $ 28,726 Supplemental disclosures of cash flow information: Interest paid $ 5,292 $ 4,155 $ 2,891 Income taxes paid $ 23,217 $ 24,153 $ 22,638 The accompanying Notes are an integral part of these financial statements. 55 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except per share amounts) NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION: SYNNEX Corporation (together with its subsidiaries, herein referred to as “SYNNEX” or the “Company”) is an information technology products supply chain services company. The Company’s supply chain outsourcing services include distribution, contract assembly, logistics and demand generation marketing. SYNNEX is headquartered in Fremont, California and has operations in the United States, Canada, China, Mexico and the United Kingdom. NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates are evaluated on a regular basis and are based on historical experience and on various assumptions that the Company believes are reasonable. Actual results could differ from those estimates. Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and majority-owned subsidiaries in which no substantive participating rights are held by minority stockholders. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements include 100% of the assets and liabilities of these majority owned subsidiaries and the ownership interest of minority investors are recorded as minority interest. Investments in 20% through 50% owned affiliated companies are included under the equity method of accounting where the Company exercises significant influence over operating and financial affairs of the investee. Investments in less than 20% owned companies or investments in 20% through 50% owned companies where the Company does not exercise significant influence over operating and financial affairs of the investee are recorded under the cost method. Cash and cash equivalents The Company considers all highly liquid debt instruments purchased with an original maturity or remaining maturity at date of purchase of three months or less to be cash equivalents. Cash equivalents consist principally of money market deposit accounts that are stated at cost, which approximates fair value. The Company is exposed to credit risk in the event of default by financial institutions to the extent that cash balances with financial institutions are in excess of amounts that are insured by the Federal Deposit Insurance Corporation. Restricted cash The Company has restricted cash in the amount of $8,141 for future payments to one of its vendors relating to a long-term project at the Company’s Mexico operation as of November 30, 2006. The Company did not have a restricted cash balance at November 30, 2005. 56 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Investments The Company classifies its investments in marketable securities as trading and available-for-sale. All securities related to its deferred compensation plan and the Company’s former investment in MCJ Company Ltd. (“MCJ”) are classified as trading and are recorded at fair value, based on quoted market prices, and unrealized gains and losses are included in “Other income (expense), net” in the Company’s financial statements. All other securities are classified as available-for-sale and are recorded at fair market value, based on quoted market prices, and unrealized gains and losses are included in accumulated other comprehensive income, a component of stockholders’ equity. Realized gains and losses, which are calculated based on the specific identification method, and declines in value judged to be other than temporary, if any, are recorded in operations as incurred. To determine whether a decline in value is other than temporary, the Company evaluates several factors, including current economic environment, market conditions, operational and financial performance of the investee, and other specific factors relating to the business underlying the investment, including business outlook of the investee, future trends in the investee’s industry and the Company’s intent to carry the investment for a sufficient period of time for any recovery in fair value. If a decline in value is deemed as other than temporary, the Company records reductions in carrying values to estimated fair values, which are determined based on quoted market prices if available or on one or more of the valuation methods such as pricing models using historical and projected financial information, liquidation values, and values of other comparable public companies. Long-term investments include instruments that the Company has the ability and intent to hold for more than twelve months. The Company classifies its long-term investments as available-for-sale if a readily determinable fair value is available. The Company has investments in equity instruments of privately held companies. These investments are included in other assets and are accounted for under the cost method, as the Company does not have the ability to exercise significant influence over their operations. The Company monitors its investments for impairment by considering current factors, including economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, and records reductions in carrying values when necessary. Allowance for doubtful accounts The allowance for doubtful accounts is estimated to cover the losses resulting from the inability of customers to make payments for outstanding balances. In estimating the required allowance, the Company takes into consideration the overall quality and aging of the receivables, credit evaluations of customers’ financial condition and existence of credit insurance. The Company also evaluates the collectability of accounts receivable based on specific customer circumstances, current economic trends, historical experience with collections and any value and adequacy of collateral received from customers. Inventories Inventories are stated at the lower of cost or market. Cost is computed based on the weighted-average method. Inventories consist of finished goods purchased from various manufacturers for distribution resale and components used for contract assembly. The Company records estimated inventory reserves for quantities in excess of demand, cost in excess of market value and product obsolescence. 57 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Property and equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization are computed using the straight-line method based upon the shorter of the estimated useful lives of the assets, or the lease term of the respective assets, if applicable. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized. The depreciation and amortization periods for property and equipment categories are as follows: Equipment and Furniture 3-7 years Software 3-7 years Leasehold Improvements 3-10 years Buildings 39 years Goodwill The Company has adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), which revised the standards of accounting for goodwill, by replacing the amortization of these assets with the requirement that they are reviewed annually for impairment, or more frequently if impairment indicators exist. The values assigned to goodwill and indefinite-lived intangible assets are usually based on estimates and judgments regarding expectations for the success and life cycle of products and technologies acquired. No goodwill impairment was recorded for the periods presented. Intangible assets Intangible assets consist of vendor lists, customer lists, trade names and land rights, which are amortized on a straight-line basis over their estimated lives. Intangible assets are amortized as follows: Vendor lists 4-10 years Customer lists 4-8 years Trademarks 4-10 years Other intangible assets 3-5 years Software costs The Company develops software for internal use only. The payroll and other costs related to the development of software have been expensed as incurred. Excluding the costs of support, maintenance and training functions that are not subject to capitalization, the costs of the software department were not material for the periods presented. If the internal software development costs become material, the Company will capitalize the costs based on the defined criteria for capitalization in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Impairment of long-lived assets The Company reviews the recoverability of its long-lived assets, such as property and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying 58 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) value of the asset or asset group from the expected future pre-tax cash flows, undiscounted and without interest charges, of the related operations. If these cash flows are less than the carrying value of such assets, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. Long-term deferred assets and long-term deferred liabilities The Company’s Mexico operation has entered into a multi-year contract to sell equipment to an independent third party contractor that provides equipment and services to the Mexican government. The payments by the Mexican government are generally due on a monthly basis and are contingent upon the contractor continuing to provide services to the Mexican government. The Company recognizes product revenue and cost of revenue on a straight-line basis over the term of the contract. All long-term accounts receivable and deferred cost of revenue associated with this contract are included in the consolidated balance sheet under the caption “Long-term deferred assets.” According to contract terms, the Company will also hold back a certain amount of accounts payable for a certain period of time. All long-term accounts payable from contractual obligations associated with this contract and long-term deferred revenues are included in the consolidated balance sheet under the caption “Long-term deferred liabilities.” Concentration of credit risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalents are maintained with high quality institutions, the compositions and maturities of which are regularly monitored by management. Through November 30, 2006, the Company had not experienced any losses on such deposits. Accounts receivable include amounts due from customers primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for potential credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of the receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer risks. Through November 30, 2006, such losses have been within management’s expectations. In fiscal 2006 and fiscal 2005, sales to no single customer exceeded 10% or more of the Company’s total revenue. In fiscal 2004, sales to one customer accounted for 10% of the Company’s total revenue. At November 30, 2006, no single customer comprised more than 10% of the total consolidated accounts receivable balance. At November 30, 2005, one customer accounted for approximately 18% of the total consolidated accounts receivable balance. Revenue recognition The Company recognizes revenue generally as products are shipped, if a purchase order exists, the sale price is fixed or determinable, collection of resulting receivables is reasonably assured, risk of loss and title have transferred and product returns are reasonably estimable. Shipping terms are typically F.O.B. the Company’s warehouse. Provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers. 59 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) The Company purchases licensed software products from original equipment manufacturer (“OEM”) vendors and distributes them to customers. Revenue is recognized upon shipment of software products when a purchase order exists, the sales price is fixed or determinable and collection is determined to be probable. Subsequent to the sale of software products, the Company generally has no obligation to provide any modification, customization, upgrades, enhancements, or any other post-contract customer support. The Company’s Mexico operation has entered into a multi-year contract to sell equipment to a contractor that provides equipment and services to the Mexican government. Under the agreement, the Mexican government makes payments into the Company’s account. The payments on this contract by the Mexican government are generally due on a monthly basis and are contingent upon the contractor continuing to provide services to the government. The Company recognizes product revenue and cost of revenue on a straight-line basis over the term of the contract. Original Equipment Manufacturer supplier programs Funds received from OEM suppliers for inventory volume promotion programs, price protection and product rebates are recorded as adjustments to cost of revenue. The Company tracks vendor promotional programs for volume discounts on a program-by-program basis. The Company monitors the balances of receivables from vendors on a quarterly basis and adjusts the balance due for differences between expected and actual volume sales. Vendor receivables are generally collected through reductions authorized by the vendor, to accounts payable. For product rebates, the Company records a reduction of cost of revenue. Funds received for specific marketing and infrastructure reimbursements, net of direct costs, are recorded as adjustments to selling, general and administrative expenses, and any excess reimbursement amount is recorded as an adjustment to cost of revenue. Royalties The Company purchases licensed software products from OEM vendors, which it subsequently distributes to resellers. Royalties to OEM vendors are accrued for and recorded in cost of revenue when software products are shipped and revenue is recognized. Warranties The Company’s OEM suppliers generally warrant the products distributed by the Company and allow returns of defective products. The Company generally does not independently warrant the products it distributes; however, the Company does warrant the following: (1) its services with regard to products that it assembles for its customers, and (2) products that it builds to order from components purchased from other sources. To date neither warranty expense, nor the accrual for warranty costs has been material to the Company’s consolidated financial statements. Advertising Costs related to advertising and promotion expenditures of products are charged to selling, general and administrative expense as incurred. To date, costs related to advertising and promotion expenditures have not been material. Income taxes The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of 60 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided against assets that are not likely to be realized. Fair value of financial instruments For certain of the Company’s financial instruments, including cash, short-term investments, forward contracts, accounts receivable and accounts payable, the carrying amounts approximate fair value due to the short maturities. The amount shown for borrowings also approximates fair value since current interest rates offered to the Company for debt of similar maturities are approximately the same. The estimated fair values of foreign exchange forward contracts are based on market prices or current rates offered for contracts with similar terms and maturities. The ultimate amounts paid or received under these foreign exchange contracts, however, depend on future exchange rates. The gains or losses are recognized as “Other income (expense), net” based on changes in the fair value of the contracts, which generally occur as a result of changes in foreign currency exchange rates. Foreign currency translations The functional currencies of the Company’s foreign subsidiaries are their respective local currencies, with the exception of the Company’s UK operation, for which the functional currency is the U.S. dollar. The financial statements of the foreign subsidiaries, other than the UK operations, are translated into U.S. dollars for consolidation as follows: assets and liabilities at the exchange rate as of the balance sheet date, stockholders’ equity at the historical rates of exchange, and income and expense amounts at the average exchange rate for the quarter. Translation adjustments resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income.” Gains and losses resulting from foreign currency transactions are included within “Other income (expense), net.” Such amounts are not significant to any of the periods presented. Comprehensive income Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The primary components of comprehensive income for the Company include net income, foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries and unrealized gains and losses on the Company’s available-for-sale securities. Share-based compensation Effective December 1, 2005, the Company began accounting for share-based compensation under the provision of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the recognition of the fair value of share-based compensation. Under the fair value recognition provisions for SFAS No. 123(R), share-based compensation is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. The Company has used the Black-Scholes valuation model to estimate fair value of share-based awards, which requires various assumptions including estimating stock price volatility, forfeiture rates and expected life. Net income per common share Net income per common share-basic is computed by dividing the net income for the period by the weighted-average number of shares of common stock outstanding during the period. Net income per common share-diluted reflects the potential dilution that could occur if stock options were exercised. The calculations of net income per common share are presented in Note 15. 61 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) SFAS No. 128, “Earnings Per Share” requires that employee stock options, nonvested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded in additional paid-in-capital when the award becomes deductible are assumed to be used to repurchase shares. Reclassifications Certain reclassifications, in addition to the reclassifications relating to discontinued operations discussed in Note 21, have been made to the November 30, 2004 financial statements to conform to the November 30, 2005 financial statements. These reclassifications did not change previously reported total assets, liabilities, and stockholders’ equity or net income. Recent accounting pronouncements In June 2006, the Financial Accounting Standards Board or FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the fiscal years beginning after December 15, 2006 and will be applicable to the Company in the first quarter of fiscal 2008. The Company is currently evaluating the effect of FIN 48 on its consolidated financial position and results of operations. In June 2006, Emerging Issues Task Force or EITF issued consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” or EITF No. 06-03. The Company is required to adopt the provisions of EITF No. 06-03 in the first quarter of fiscal 2007. The Company does not expect the provisions of EITF No. 06-03 to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” or SFAS No.157. SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of fiscal 2008. The Company is currently evaluating the effect that the adoption of SFAS No. 157 will have on its consolidated results of operations and financial condition. In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” or SAB No. 108. SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that 62 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) requires quantification of financial statement errors based on the effects of each of the Company’s balance sheet and statement of operations and the related financial statement disclosures. Early application of the guidance in SAB No. 108 is encouraged in any report for an interim period of the first fiscal year ending after November 15, 2006. The Company adopted SAB No. 108 in fiscal 2006. The adoption did not have a material impact on the Company’s consolidated financial condition and results of operations. NOTE 3—BALANCE SHEET COMPONENTS: November 30, 2006 2005 Short-term investments Trading MCJ $ — $ 25,346 Securities, deferred compensation 13,093 2,379 Money market, deferred compensation 60 149 13,153 27,874 Available-for-Sale Securities 114 108 Money market 4 3 118 111 $ 13,271 $ 27,985 Accounts receivable, net Trade accounts receivables $394,986 $368,407 Less: Allowance for doubtful accounts (14,433) (12,688) Less: Allowance for sales returns (17,116) (13,397) $363,437 $342,322 Receivable from vendors, net Receivables from vendors $ 97,694 $ 85,447 Less: Allowance for doubtful accounts (2,614) (2,726) $ 95,080 $ 82,721 Inventories Components $ 66,775 $ 47,114 Finished goods 527,867 447,503 $594,642 $494,617 Property and equipment, net Equipment and computers $ 42,790 $ 40,203 Furniture and fixtures 7,377 7,210 Vehicles 450 344 Buildings and land 34,300 31,960 84,917 79,717 Less: Accumulated depreciation (48,219) (46,004) $ 36,698 $ 33,713 63 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Goodwill and Intangible Assets: November 30, 2006 2005 Gross Accumulated Gross Accumulated Net Net Amount Amortization Amount Amortization Amount Amount Goodwill $ 30,144 $ — $ 30,144 $ 24,840 $ — $ 24,840 Vendor lists 22,062 (16,307) 5,755 22,062 (14,155) 7,907 Customer lists 15,141 (4,738) 10,403 12,715 (3,130) 9,585 Other intangible assets 3,259 (973) 2,286 1,086 (414) 672 $ 70,606 $ (22,018) $ 48,588 $ 60,703 $ (17,699) $ 43,004 Amortization expense was $4,319, $3,941 and $3,347 for the years ended November 30, 2006, 2005 and 2004, respectively. Goodwill and intangible assets increased as of November 30, 2006 compared to November 30, 2005 due to the acquisitions of Azerty, Telpar and Concentrix. Estimated future amortization expense is as follows: Years ending November 30, 2007 $ 5,099 2008 4,799 2009 4,687 2010 2,319 2011 1,401 thereafter 139 $ 18,444 November 30, 2006 2005 Accrued liabilities: Payroll related accruals $ 19,184 $ 15,149 Deferred compensation liability 18,425 16,770 Royalty and warranty accruals 6,796 3,518 Other accrued liabilities 37,413 33,182 $ 81,818 $ 68,619 NOTE 4—ACQUISITIONS: Acquisitions during the year ended November 30, 2006 On April 28, 2006, the Company acquired the assets of the Telpar distribution segment of Peak Technologies, Inc., or Telpar, for approximately $3,309. Telpar sold auto-ID, data capture and point of sales products and services. The Telpar business has been fully integrated within the Company’s distribution segment. The aggregate purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on estimates of fair value. The excess of the purchase price over the fair value of identifiable net assets acquired of $429 has been recognized as intangible assets. 64 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) On June 9, 2006, the Company acquired substantially all of the assets of the Azerty United Canada ink and toner distribution business from United Stationers Supply Company, or Azerty, for approximately $14,330. The Azerty acquisition strengthens the Company’s position in printer supplies distribution in Canada. The Azerty business has been fully integrated within the Company’s distribution segment. The aggregate purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on estimates of fair value. The excess of the purchase price over the fair value of identifiable net assets acquired of $1,286 has been recognized as goodwill and $114 has been recognized as intangible assets. On September 14, 2006, the Company’s wholly owned subsidiary, BSA Sales, LLC, or BSA Sales, acquired all of the outstanding capital stock of Concentrix Corporation or Concentrix based in Rochester, New York for approximately $8,000. Concentrix is an integrated marketing company that provides call center, database analysis, and print on demand services to customers in the transportation, publishing, banking, healthcare and high technology industries. Concentrix’s business strategy complements and expands the Company’s resources and capabilities of the Company’s demand generation business. The acquisition agreement allowed for an earnout payment of $2,500 to be paid if certain milestones were met in the first 120 days after the acquisition. The defined milestones were not achieved and no earnout payment will be paid on this transaction. The Company has accounted for the acquisition of capital stock as a purchase and, accordingly the excess of the purchase price over the fair value of identifiable net assets acquired of $4,183 has been recognized as goodwill and $3,800 has been recognized as intangible assets. The valuation of the identifiable intangible assets acquired was based on management’s estimates using a valuation report prepared by an independent third party. The Concentrix and BSA Sales operations have been merged under the name of Concentrix Corporation effective December 1, 2006. The above acquisitions, individually and in the aggregate, did not meet the conditions of a material business combination as defined by the Securities and Exchange Commission. As such, they were not subject to the disclosure requirements of SFAS No. 141. However, the Company believes that disclosures provided herein are useful to the understanding of the goodwill and intangible assets activities through November 30, 2006. There were no acquisitions during the year ended November 30, 2005. Acquisitions during the year ended November 30, 2004 During the fourth quarter of fiscal 2004, the Company acquired all of the outstanding common stock of EMJ Data Systems Limited or EMJ, a publicly traded Canadian company on the Toronto Stock Exchange, for cash of approximately $45,056. EMJ is a distributor of computer products and peripherals. The results of operations of EMJ are included in the Company’s consolidated financial statements from the date of acquisition. The purchase consideration has been allocated as follows, based on the estimated fair value of asset acquired and liabilities assumed: Fair Value Purchase Consideration Cash $44,695 Acquisition costs 361 $45,056 65 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Fair Amortization Value Period Allocation Accounts receivable $ 36,847 — Goodwill 19,734 — Inventories 17,519 — Fixed assets 6,099 — Other assets 4,393 — Identifiable intangible assets 8,387 3 - 10 years Borrowings (11,061) — Accounts payable and accruals (13,239) — Long-term liabilities (16,074) — Other liabilities (7,549) — $ 45,056 The goodwill was assigned to the distribution segment and is not expected to be deductible for tax purposes. The following unaudited pro forma financial information combines the consolidated results of operations as if the acquisition of EMJ had occurred as of the beginning of the periods presented. Pro forma adjustments include only the effects of events directly attributed to transactions that are factually supportable and expected to have a continuing impact. The pro forma results contained in the table below include pro forma adjustments for amortization of acquired intangibles and additional finance charges related to the financing of the purchase consideration of the acquisitions. Fiscal Years Ended November 30, 2004 2003 (unaudited) Revenue $ 5,365,941 $ 4,099,142 Net income $ 46,312 $ 31,183 Net income per common share—basic $ 1.74 $ 1.41 Net income per common share—diluted $ 1.54 $ 1.27 The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the beginning of periods presented, nor are they necessarily indicative of future operating results. On March 1, 2004, the Company acquired all of the common stock of BSA Sales, Inc. or BSA, a privately held company, for approximately $2,100. An additional $1,900 was earned by BSA’s selling stockholders by meeting certain performance objectives through March 1, 2005. The purchase price allocation and pro forma financial information for the acquisition of BSA are not presented herein as the impact to the Company’s financial statements is not significant. 66 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) NOTE 5—INVESTMENTS: The carrying amount of the Company’s investments is shown in the table below: November 30, 2006 2005 Unrealized Unrealized Original (Losses)/ Fair Original (Losses)/ Fair Cost Gains Value Cost Gains Value Short-Term: Trading $ 12,729 $ 424 $ 13,153 $ 24,590 $ 3,284 $ 27,874 Available-for-sale 757 (639) 118 757 (646) 111 $ 13,486 $ (215) $ 13,271 $ 25,347 $ 2,638 $ 27,985 Short-term trading securities consist of equity securities relating to the Company’s deferred compensation plan (See Note 11). In addition, for the fiscal year ended November 30, 2005, short-term trading securities include an investment in MCJ shares in the amount of $25,346 that was disposed in fiscal 2006. Short-term available-for-sale securities primarily consist of investments in other companies’ equity securities. As of November 30, 2006, all gross unrealized losses on short-term available-for-sale securities had been in a loss position for more than 12 months. Total realized losses on investments were $2,329 and $23 for the fiscal year ended November 30, 2006 and 2004, respectively. Total realized gains on investments were $265 for the fiscal year ended November 30, 2005. NOTE 6—ACCOUNTS RECEIVABLE ARRANGEMENTS: The Company has established a six-year revolving securitization arrangement (the “U.S. Arrangement”) through a consolidated wholly owned subsidiary to sell up to $275,000 of U.S. trade accounts receivable (the “U.S. Receivables”) to two financial institutions. The U.S. Arrangement expires in August 2008. In connection with the U.S. Arrangement, the Company sells its U.S. Receivables to its wholly owned subsidiary on a continuing basis, which will in turn sell an undivided interest in the U.S. Receivables to the financial institutions without recourse, at market value, calculated as the gross receivable amount, less a facility fee. The fee is based on the prevailing dealer commercial paper interest rate plus 0.75%. A separate fee based on the unused portion of the facility, at 0.30% per annum, is also charged by the financial institutions. The Company has also established a one-year revolving accounts receivable arrangement (the “Canadian Arrangement”) through SYNNEX Canada Limited, or SYNNEX Canada, to sell up to C$100,000 of U.S. and Canadian trade receivables (the “Canadian Receivables”) to a financial institution. The Company renewed the Canadian Arrangement for an additional year until November 2007 with similar terms and conditions. In connection with the Canadian Arrangement, SYNNEX Canada sells its Canadian Receivables to the financial institution on a fully serviced basis. The effective discount rate of the Canadian Arrangement is the prevailing Bankers’ Acceptance rate of return or prime rate in Canada plus 0.45% per annum. To the extent that cash was received in exchange, the amount of U.S. and Canadian Receivables sold to the financial institutions has been recorded as a true sale, in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The amount of U.S. and Canadian Receivables sold to the financial institutions and not yet collected from customers at November 30, 2006 and 2005 was $ 343,838 and $274,751, respectively. The wholly owned 67 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) subsidiary is consolidated in the financial statements of the Company, and the remaining balance of unsold U.S. and Canadian Receivables at November 30, 2006 and 2005 of $345,676 and $253,488, respectively, are included within “Accounts receivable, net.” The gross proceeds resulting from the sale of the U.S. and Canadian Receivables totaled approximately $1,013,987 and $1,054,382 in 2006 and 2005, respectively. The gross payments to the financial institutions under the U.S. and Canadian Arrangements totaled approximately $972,851 and $949,540 in 2006 and 2005, respectively, which arose from the subsequent collection of U.S. and Canadian Receivables. The proceeds (net of the facility fee) are reflected in the consolidated statement of cash flows in operating activities within changes in accounts receivable. The Company continues to collect the U.S. and Canadian Receivables on behalf of the financial institutions, for which it receives a service fee from the financial institutions for the U.S. Receivables, and remits collections to the financial institutions. The Company estimates that the service fee it receives for the U.S. Receivables approximates the market rate for such services, and as a result, has recognized no servicing assets or liabilities in its consolidated balance sheet. Facility fees (net of service fees) charged by the financial institutions totaled $16,602, $6,209 and $3,431 in 2006, 2005 and 2004, respectively, and were recorded within “Interest expense and finance charges, net.” In February 2007, the Company amended its U.S. Arrangement to increase the securitization program to $350,000 of U.S. Receivables, with a group of financial institutions. The Company extended the maturity date of the U.S. Arrangement from August 2008 to February 2011. The Company’s effective borrowing cost under the U.S. Arrangement, as amended, is the prevailing dealer commercial paper rate or LIBOR plus 0.55% per annum. The U.S. Arrangement, as amended, contains similar financial covenants as the former program except that the fixed charge ratio was reduced to 1.60 to 1.00. Under the U.S. and Canadian Arrangements the Company is required to maintain certain financial covenants to maintain its eligibility to sell additional U.S. and Canadian Receivables under the facilities. These covenants include minimum net worth, minimum fixed charge ratio, and net worth percentage. The Company was in compliance with all material covenants at November 30, 2006 and 2005. As is customary in trade accounts receivable securitization arrangements, a credit rating agency’s downgrade of the third party issuer of commercial paper or of a back-up liquidity provider (which provides a source of funding if the commercial paper market cannot be accessed) could result in an adverse change or loss of our financing capacity under these programs if the commercial paper issuer or liquidity back-up provider is not replaced. Loss of such financing capacity could have a material adverse effect on the Company’s financial condition and results of operations. The Company has also entered into financing agreements with various financial institutions (“Flooring Companies”) to allow certain customers of the Company to finance their purchases directly with the Flooring Companies. Under these agreements, the Flooring Companies pay to the Company the selling price of products sold to various customers, less a discount, within approximately 15 to 30 days from the date of sale. The Company is contingently liable to repurchase inventory sold under flooring agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the Flooring Companies. See Note 19, “Commitments and Contingencies” for additional information. Approximately $954,814, $1,161,396 and $1,166,417 of the Company’s net sales were financed under these programs in 2006, 2005 and 2004, respectively. Approximately $44,394 and $40,914 of accounts receivable at November 30, 2006 and 2005, 68 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) respectively, were subject to flooring agreements. Flooring fees were approximately $5,507, $5,524 and $2,960 in 2006, 2005 and 2004, respectively, and are included within “Interest expense and finance charges, net.” NOTE 7—BORROWINGS: Borrowings consist of the following: November 30, 2006 2005 SYNNEX US line of credit $ 27,070 $ — SYNNEX Canada revolving accounts receivable securitization program — 26,391 SYNNEX Canada term loan 1,178 1,518 SYNNEX Mexico term loan 70,436 — SYNNEX UK line of credit 81 1,792 Other 36 — 98,801 29,701 Less: Current portion (50,834) (28,548) Non-current portion $ 47,967 $ 1,153 SYNNEX US senior secured revolving line of credit The Company has a senior secured revolving line of credit arrangement (the “Revolver”) with a group of financial institutions, which is secured by the Company’s inventory and other assets. The Revolver’s maximum commitment is $45,000. Interest on borrowings under the Revolver is based on the financial institution’s prime rate or London Inter Bank Offered Rate (“LIBOR.”) plus 1.75% at the Company’s option. A fee of 0.30% per annum is payable with respect to the unused portion of the commitment. The Company is required to comply with minimum net worth and minimum fixed charge ratio covenants. The Company was in compliance with all material covenants at November 30, 2006 and 2005. In February 2007, the Company amended the Revolver to increase the Company’s borrowing up to a maximum of $100,000. The agreement was also extended to February 2011. Interest on the borrowing under the Revolver is based on LIBOR plus 1.50%. SYNNEX Canada revolving accounts receivable securitization program SYNNEX Canada has a one-year revolving accounts receivable securitization program, which provides for the sale of up to C$100,000 of U.S. and Canadian trade accounts receivable to a financial institution. All assets sold were qualified for off balance sheet treatment as of November 30, 2006. The balance outstanding at November 30, 2005 for assets sold that did not qualify for off balance sheet treatment was $26,391. SYNNEX Canada revolving loan SYNNEX Canada had a revolving loan agreement with a financial institution. Borrowings under the loan agreement were collateralized by substantially all of SYNNEX Canada’s assets, including inventories and accounts receivable. Borrowings bore interest at the prime rate of a Canadian bank designated by the financial institution or at the financial institution’s Bankers’ Acceptance rate plus 1.2% for Canadian dollar denominated loans and at the prime rate of a U.S. bank designated by the financial institution or at LIBOR plus 1.2% for U.S. dollar denominated loans. This loan was terminated in fiscal 2005. 69 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) In December 2006, SYNNEX Canada entered into a revolving credit facility with a credit limit of C$20,000. The revolving credit facility expires in January 2010. Interest on this facility is based on the Canadian adjusted prime rate. SYNNEX Canada term loan Upon acquisition of EMJ (see Note 4), the Company assumed a term loan with a Canadian bank. This Canadian dollar denominated loan bears interest at the bank’s floating rate (7.5% at November 30, 2006) and is payable in monthly installments through January 2011. SYNNEX Mexico secured term loan In May 2006, SYNNEX Mexico signed a secured term loan agreement, or Term Loan. The interest rate for any unpaid principal amount is the Equilibrium Interbank Interest Rate, plus 2.00% per annum. The final maturity date for repayment of any unpaid principal is November 24, 2009. The amount outstanding, under the Term Loan as of November 30, 2006 was $70,436. SYNNEX UK term loans SYNNEX UK has a British pound denominated loan agreement with a financial institution. The total credit available under this facility was $1,966 as of November 30, 2006, and there were no borrowings outstanding at November 30, 2006 and 2005. This facility bears interest at LIBOR plus 1.5%. SYNNEX UK has a second British pound denominated loan agreement with a financial institution. The total credit available under this facility was $8,846 as of November 30, 2006. The balance outstanding at November 30, 2006 and 2005 was $81 and $1,792, respectively. The facility bears interest at the financial institution’s prime rate plus 1.5%. 70 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Future principal payments Future principal payments under the above loans as of November 30, 2006 are as follows: Fiscal Years Ending November 30, 2007 $50,834 2008 23,265 2009 24,627 2010 75 2011 and thereafter — $98,801 Guarantees The Company has issued guarantees to certain vendors and lenders of its subsidiaries’ for trade credit lines and loans, totaling $148,117 and $76,395 as of November 30, 2006 and 2005. The Company is obligated under these guarantees to pay amounts due should its subsidiaries not pay valid amounts owed to their vendors or lenders. The vendor guarantees are typically less than one-year arrangements, with 30-day cancellation clauses and the lender guarantees are typically for the term of the loan agreement. NOTE 8—OTHER LIABILITIES: Other liabilities consisted of the following: November 30, 2006 2005 SYNNEX US Long-term Liabilities $ 8,195 $ — SYNNEX Canada Debentures — 5,009 SYNNEX Canada Preference Shares — 1,076 SYNNEX Canada Promissory Note 407 409 Other liabilities 1,529 431 10,131 6,925 Less: Current portion — (6,085) Non-current portion $10,131 $ 840 Debentures The Company assumed subordinated debentures in the amount of $10,266 as part of its acquisition of EMJ (see Note 4). These debentures had a three-year term, were not collateralized, paid interest at a rate of 12% and were paid off on their maturity date in September 2006. Preference Shares The Company assumed preference shares in the amount of $7,068 as part of its acquisition of EMJ (see Note 4). The preference shares had an annual cumulative dividend at a rate of 8% and were paid off on their due date in September 2006. 71 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Promissory Note The Company assumed a non-interest bearing promissory note in the amount of $1,771 as part of its acquisition of EMJ (see Note 4). Interest is imputed on this Canadian dollar denominated debt at a rate of 5% per annum and it is payable in October 2037. NOTE 9—DERIVATIVE INSTRUMENTS: In the normal course of business, the Company enters into currency forward contracts to protect itself from the risk that the eventual cash outflows or inflows resulting from the purchase or sale of inventory will be adversely affected by exchange rate fluctuations. The Company does not apply hedge accounting to these currency forward contracts and has not designated any of them as hedging instruments. As of November 30, 2006, 2005 and 2004, the Company had unrealized losses (gains) of ($363), $320, and $662, respectively, as a result of fair value changes on its outstanding currency forward contracts. These unrealized losses and gains were charged (credited) to “Other income (expense), net.” The Company’s policy is to not allow the use of derivatives for trading or speculative purposes. During the second quarter of fiscal 2005, the Company sold approximately 93% of the equity it held in its subsidiary, SYNNEX K.K. to MCJ, in exchange for 25,809 shares of MCJ. The Company’s remaining equity interest in SYNNEX K.K. is accounted for under the cost method, as it does not have significant influence over either MCJ or SYNNEX K.K. In order to reduce the risk of holding the MCJ shares, the Company had entered into forward contracts to sell MCJ shares for fixed prices in April 2006. There were no contracts outstanding as of November 30, 2006. As of November 30, 2005, such contracts covered 100% of the MCJ shares held by the Company and these contracts had a value of $22,609. NOTE 10—INCOME TAXES: The provisions for income taxes from continuing operations consisted of: Fiscal Years Ended November 30, 2006 2005 2004 Current tax provision: Federal $24,483 $18,772 $19,216 State 4,825 3,790 3,710 Foreign 3,310 2,796 1,296 $32,618 $25,358 $24,222 Deferred tax provision (benefit): Federal $ (3,747) $ (666) $ 964 State (769) (264) 127 Foreign 218 (516) (2,222) $ (4,298) $ (1,446) $ (1,131) $28,320 $23,912 $23,091 Total tax provision 72 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Net deferred tax assets consist of the following: Fiscal Years Ended November 30, 2006 2005 Inventory reserves $ 5,374 $ 1,397 Bad debt and sales return reserves 4,391 5,988 Vacation and profit sharing accruals 1,125 745 Depreciation and amortization (2,177) (2,756) State tax deduction 795 607 Deferred compensation 8,062 6,575 Net operating losses 3,219 8,313 Deferred revenue 2,339 — Foreign tax credit 1,607 — Other 350 547 Valuation allowance (1,607) (2,178) Net deferred tax assets $23,478 $19,238 The valuation allowance relates to foreign tax credits for which realization of assets is uncertain. A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective income tax rate is as follows: Fiscal Years Ended November 30, 2006 2005 2004 Federal statutory income tax rate 35.0% 35.0% 35.0% States taxes, net of federal income tax benefit 3.3 3.6 4.2 Foreign taxes (1.9) (0.8) 2.1 Effect of unbenefitted tax assets (2.4) 0.2 (5.4) Other 1.3 (0.3) (2.3) Effective income tax rate 35.3% 37.7% 33.6% At November 30, 2006, the Company had approximately $3,584 of federal operating loss carry forwards available to offset future taxable income, which will expire in varying amounts from November 30, 2009 to November 30, 2026. Additionally, the Company had $4,944 in net operating loss carry forwards for the Company’s Canadian subsidiary that begin to expire in 2012. NOTE 11—DEFERRED COMPENSATION PLAN: The Company has a deferred compensation plan for certain directors and officers. The plan is designed to permit eligible officers and directors to accumulate additional income through a nonqualified deferred compensation plan that enables the officer or director to make elective deferrals of compensation to which he or she will become entitled in the future. An account is maintained for each participant for the purpose of recording the current value of his or her elective contributions, including earnings credited thereto. The participant may designate one or more 73 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) investments as the measure of investment return on the participant’s account. The participant’s account is adjusted monthly to reflect earnings and losses on the participant’s designated investments. The amount credited to the participant’s account will be distributed as soon as practicable after the earlier of the participant’s termination of employment or attainment of age sixty-five. The distribution of benefits to the participant will be made in accordance with the election made by the participant in a lump sum or in equal monthly or annual installments over a period not to exceed fifteen years. In the event the participant requests an early distribution other than a hardship distribution, a 10% withdrawal penalty will be levied. Such distribution will be in the form of a lump sum cash payment. As of November 30, 2006 and 2005, the deferred compensation liability balance was $18,425 and $16,770, respectively. Of the balances deferred, $13,153 and $2,528 have been invested in equity securities at November 30, 2006 and 2005, respectively, and are classified as trading securities. The Company has recorded gains in “Other income (expense), net” on the trading securities of $1,082, $1,597 and $243 for the years ended November 30, 2006, 2005 and 2004, respectively. An amount equal to these gains has been charged to selling, general and administrative expenses, relating to the deferred compensation amounts which are payable to the directors and officers. NOTE 12—EMPLOYEE BENEFIT PLAN: The Company has a 401(k) Plan (the “Plan”) under which eligible employees may contribute the lesser of up to 15% of their gross compensation or the maximum amount as provided by law. Employees become eligible to participate in the Plan on the first day of the month after their employment date. The Company can make discretionary contributions under the Plan. During 2006, 2005 and 2004, the Company contributed $378, $211 and $179, respectively. NOTE 13—STOCKHOLDERS’ EQUITY: Initial Public Offering The Company completed its initial public offering (“IPO”) on December 1, 2003 and sold an aggregate of 3,578 shares of its common stock. In January 2004, the underwriters of the Company’s IPO exercised a portion of their over-allotment option and purchased an additional 161 shares of common stock from the Company. Net proceeds from the IPO and the exercise of the over-allotment option aggregated approximately $48,800. Amended and Restated 2003 Stock Incentive Plan The Company’s 2003 Stock Incentive Plan was adopted by its Board of Directors and approved by its stockholders in 2003. The plan provides for the direct award or sale of shares of common stock, restricted stock and restricted stock units, the grant of options to purchase shares of common stock and the award of stock appreciation rights to employees and non-employee directors, advisors and consultants. The 2003 Stock Incentive Plan is administered by the Company’s Compensation Committee. The Compensation Committee determines which eligible individuals are to receive awards under the plan, the number of shares subject to the awards, the vesting schedule applicable to the awards and other terms of the award, subject to the limits of the plan. The Compensation Committee may delegate its administrative authority, subject to certain limitations, with respect to individuals who are not officers. 74 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) The Board of Directors will be able to amend or modify the 2003 Stock Incentive Plan at any time, subject to any required stockholder approval. The plan will terminate no later than September 1, 2013. The number of authorized shares under the 2003 Stock Incentive Plan will not exceed 14,112 shares of common stock. No participant in the 2003 Stock Incentive Plan may receive option grants or stock appreciation rights of more than 1,500 shares per calendar year, or more than 2,500 shares in the participant’s first calendar year of service. During the year ended November 30, 2006, the Board of Directors granted 187 options at exercise prices ranging from $16.51 to $23.13 per share. In the year ended November 30, 2005, the Board of Directors granted 555 options at exercise prices ranging from $16.66 to $18.97 per share. Under the 2003 Stock Incentive Plan: Qualified employees are eligible for the grant of incentive stock options to purchase shares of common stock. Qualified employees and non-employee directors, advisors and consultants are eligible for the grant of nonstatutory stock options, restricted stock grants and restricted stock units. Prior to January 4, 2007, qualified non-employee directors who first joined the Board of Directors after the plan was effective received an initial option grant of twenty-five thousand shares, and all non-employee directors were eligible for annual option grants of five thousand shares for each year they continued to serve. The exercise price of these option grants was equal to 100% of the fair market value of those shares on the date of the grant. Amended and Restated 2003 Stock Incentive Plan, on and after January 4, 2007 On and after January 4, 2007, qualified non-employee directors who first join the Board of Directors after the plan is effective receive an initial option grant of ten thousand shares and two thousand shares of restricted stock. All non-employee directors are eligible for annual grants of two thousand shares of restricted stock for each year they continue to serve. The exercise price of these option grants is equal to 100% of the fair market value of those shares on the date of the grant. In addition, these stock option and restricted stock grants vest over a three year period of time. The Compensation Committee determines the exercise price of options or the purchase price of restricted stock grants, but the option price for incentive stock options will not be less than 100% of the fair market value of the stock on the date of grant and the option price for nonstatutory stock options will not be less than 85% of the fair market value of the stock on the date of grant. Qualified employees and non-employee directors, advisors and consultants will also be eligible for the award of stock appreciation rights, which enable the holder to realize the value of future appreciation in our common stock, payable in cash or shares of common stock. The following table summarizes the stock options outstanding and exercisable under the Company’s option plans as of November 30, 2006 and 2005: Number of Options at Number of Options at November 30, 2006 November 30, 2005 Outstanding Exercisable Outstanding Exercisable Amended and Restated 2003 Stock Incentive Plan 5,994 4,444 7,387 5,158 75 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) 2003 Employee Stock Purchase Plan The Company’s 2003 Employee Stock Purchase Plan (“ESPP”) permits eligible employees to purchase common stock through payroll deductions. The maximum number of shares a participant may purchase during a single accumulation period is one thousand two hundred fifty. The plan was approved by the Company’s stockholders and approved by its Board of Directors in 2003. A total of 500 shares of common stock has been reserved for issuance under the ESPP. Prior to March 2005 amendment, the ESPP had been implemented in a series of overlapping offering periods of 24 months’ duration, with new offering periods, other than the first offering period, beginning in October and April each year. Each offering period consisted of four accumulation periods of up to six months each. During each accumulation period, payroll deductions accumulate without interest. On the last trading day of each accumulation period, accumulated payroll deductions are used to purchase common stock. Prior to the March 2005 amendment, the purchase price equaled 85% of the fair market value per share of common stock on either the first trading day of the offering period or on the last trading day of the accumulation period, whichever was less. If the fair market value of the Company’s stock at the start of an offering period is higher than the fair market value at the start of a subsequent offering period, then the first offering period will automatically terminate and participants will be automatically re-enrolled in the new offering period. The weighted-average per share ESPP enrollment date fair value of common stock during the fiscal year ended November 30, 2006 and 2005 was $1.25 and $4.35, respectively. In March 2005, the Company’s Board of Directors approved the following amendments to the ESPP to be effective for the accumulation period beginning April 1, 2005: • Reduction of participant purchase price discount of Company stock from 15% to 5%; • Reduction of two year offering periods and six month accumulation periods to three month offering and accumulation periods; • Maximum purchase limit of $10 of stock per calendar year per participant; and • Associate vice president level employees and above are not eligible to participate. NOTE 14—SHARE-BASED COMPENSATION: Effective December 1, 2005, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, stock awards and employee stock purchases, based on estimated fair values. The Company previously applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,”(“APB No. 25”) and related Interpretations and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), which was superseded by SFAS No. 123(R). The Company has also applied the provisions of Staff Accounting Bulletin No. 107 (“SAB No. 107”) relating to SFAS No. 123(R). Prior to the Adoption of SFAS No. 123(R) Prior to the adoption of SFAS No. 123(R), the Company provided the disclosures required under SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and 76 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Disclosure.” No employee share-based compensation was reflected in net income for the periods ended November 30, 2005, as all options granted under those plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant. The pro forma information for the fiscal years ended November 30, 2005 and 2004 was as follows: Fiscal Years Ended November 30, 2005 2004 Net income—as reported $52,825 $46,565 Plus: Share-based employee compensation expense determined under APB No. 25, included in reported net income 28 202 Less: Share-based employee compensation expense determined under fair value based method related to the employee stock purchase plan (353) (1,613) Less: Share-based employee compensation expense determined under fair value based method related to stock options (2,967) (3,429) Net income—pro forma $49,533 $41,725 Net earnings per share—basic: As reported $ 1.85 $ 1.74 Pro forma $ 1.73 $ 1.56 Net earnings per share—diluted: As reported $ 1.70 $ 1.55 Pro forma $ 1.62 $ 1.42 Shares used in computing net income per share—basic: As reported 28,555 26,691 Pro forma 28,555 26,691 Shares used in computing net income per share—diluted: As reported 31,131 30,111 Pro forma 30,573 29,410 77 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Impact of the Adoption of SFAS No. 123(R) The Company elected to adopt the modified prospective application transition method as provided by SFAS No. 123(R). Accordingly, during fiscal year ended November 30, 2006, the Company recorded share-based compensation cost totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123(R). Previously reported amounts have not been restated. The effect of recording share-based compensation for the fiscal year ended November 30, 2006 were as follows: Fiscal Year Ended November 30, 2006 Share-based compensation expense by type of award: Employee stock options $ 2,210 Restricted stock 1,444 Employee stock purchase plan 56 Total share-based compensation 3,710 Tax effect on share-based compensation (1,319) Net effect on net income $ 2,391 Tax effect on: Cash flows from operations $ 916 Cash flows from financing activities $ 6,016 Effect on earnings per share: Basic $ 0.08 Diluted $ 0.07 Share-based compensation expense of $1,444 related to restricted stock would have been recorded under the provisions of APB No. 25 for the fiscal year ended November 30, 2006. As of December 1, 2005, the Company had an unrecorded deferred share-based compensation balance related to stock options of $9,307 before estimated forfeitures. In the Company’s pro forma disclosures prior to the adoption of SFAS No. 123(R), the Company accounted for forfeitures upon occurrence. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. Accordingly, as of December 1, 2005, the Company estimated that the share-based compensation for the awards not expected to vest was $310, and therefore, the unrecorded deferred share-based compensation balance related to stock options was adjusted to $8,997 after estimated forfeitures. During the fiscal year ended November 30, 2006, the Company granted approximately 187 stock options, with an estimated total grant-date fair value of $1,781. Of this amount, the Company estimated that the share-based compensation for the awards not expected to vest was $59 for the fiscal year ended November 30, 2006. During the fiscal year ended November 30, 2006, the Company recorded share-based compensation related to stock options and the employee stock purchase plan of $2,266. As of November 30, 2006, the unrecorded deferred share-based compensation balance related to stock options was $8,367 and will be recognized over an estimated weighted average amortization period of 3.5 years. No share-based compensation was capitalized as inventory at November 30, 2006. The Company did not capitalize any share-based compensation to inventory at December 1, 2005 when the SFAS No. 123(R) was initially adopted. 78 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Valuation Assumptions SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s financial statements. Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. In connection with the adoption of SFAS No. 123(R), the Company reassessed its valuation technique and related assumptions. The Company estimates the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R), SAB 107 and the Company’s prior period pro forma disclosures of net earnings, including share-based compensation (determined under a fair value method as prescribed by SFAS No. 123). The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions: Fiscal Year Ended November 30, November 30, November 30, 2006 2004 2005 Stock option plan: Expected life (years) 6.3 5.0 5.0 Risk-free interest rate 4.7% 4.0% 3.4% Expected volatility 35.7% 39.1% N/A Dividend yield 0% 0% 0% Stock purchase plan: Expected life (years) 0.3 1.2 1.2 Risk-free interest rate 4.8% 2.2% 2.0% Expected volatility 29.8% 48.6% 58.1% Dividend yield 0% 0% 0% Prior to the adoption of SFAS No. 123(R), the Company used historical volatility in deriving its expected volatility assumption. 79 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) A summary of the activity under the Company’s stock option plans is set forth below: Options Outstanding Weighted Average Shares Available Number of Exercise Price For Grant Shares Balances, November 30, 2003 5,430 8,682 7.57 Options granted (1,142) 1,142 16.50 Options exercised — (1,669) 5.45 Options cancelled 140 (140) 12.76 Balances, November 30, 2004 4,428 8,015 $ 9.12 Restricted stock granted (97) — — Restricted stock cancelled 1 — — Options granted (555) 555 17.39 Options exercised — (1,067) 6.54 Options cancelled 116 (116) 14.36 Balances, November 30, 2005 3,893 7,387 10.03 Balances, November 30, 2005 3,893 7,387 $ 10.03 Restricted stock granted (487) — — Restricted stock cancelled 4 — — Options granted (187) 187 21.61 Options exercised — (1,460) 7.04 Options cancelled 120 (120) 13.99 Balances, November 30, 2006 3,343 5,994 $ 11.00 The options outstanding and exercisable at November 30, 2006 were in the following exercise price ranges: Options Outstanding Options Vested and Exercisable Weighted Weighted Weighted Weighted Average Average Aggregate Average Average Aggregate Life Exercise Intrinsic Life Exercise Intrinsic Shares (Years) Price Value Shares (Years) Price Value Range of Exercise Prices $3.00 – $4.50 1,148 2.59 $ 4.50 $ 20,904 1,148 2.59 $ 4.50 $ 20,904 $7.00 – $10.00 2,333 4.14 $ 9.38 $ 31,102 2,262 4.10 $ 9.36 $ 30,197 $12.00 – $15.54 879 6.42 $ 12.13 $ 9,295 550 6.23 $ 12.11 $ 5,830 $16.10 – $23.13 1,634 8.30 $ 17.29 $ 8,858 484 7.98 $ 16.62 $ 2,948 $3.00 – $23.13 5,994 5.31 $ 11.00 $ 70,159 4,444 4.40 $ 9.24 $ 59,879 The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $22.71 as of November 30, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of November 30, 2006 was 4,444. The weighted average grant-date fair value of options, as determined under SFAS No. 123(R), granted during the fiscal year ended November 30, 2006 was $9.24. The total fair value of shares vested during the fiscal 80 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) year ended November 30, 2006 was $5,288. The total intrinsic value of options exercised during the fiscal year ended November 30, 2006 was $18.7 million. The total cash received from employees as a result of employee stock option exercises during the fiscal year ended November 30, 2006 was $10,283. In connection with these exercises, the tax benefits realized by the Company for the fiscal year ended November 30, 2006 was $6,932. The Company settles employee stock option exercises with newly issued common shares. Restricted Stock During the fiscal year ended November 30, 2006, the Company’s Compensation Committee approved the grant of 250 shares of restricted stock units to Robert Huang, the Company’s President and Chief Executive Officer. These restricted stock units will vest with respect to 25% of the shares on the date that is 13 months after the date of grant, and an additional 25% of the shares on the second, third and fourth anniversaries of the date of grant. The Company recorded the $4,763 value of these restricted stock units and will amortize that amount over the service period. The value of the restricted stock units was based on the closing market price of the Company’s common stock on the date of award. As of November 30, 2006, there was $10,279 of total deferred share-based compensation related to nonvested restricted stock granted under the Amended and Restated 2003 Stock Incentive Plan. That cost is expected to be recognized over an estimated weighted average amortization period of 4.1 years. Amortization cost for all restricted stock awards for the fiscal year ended November 30, 2006 was $1,444. A summary of the status of the Company’s nonvested restricted stock as of November 30, 2006, is presented below: Restricted Stock Weighted average Number of grant-date Shares fair value Nonvested at November 30, 2005 97 $ 17.17 Awards granted 487 20.96 Awards vested (19) 17.17 Awards cancelled/expired/forfeited (4) 18.29 Nonvested at November 30, 2006 561 $ 20.45 81 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) NOTE 15—NET INCOME PER COMMON SHARE: The following table sets forth the computation of basic and diluted net income per common share for the period indicated: Fiscal Years Ended November 30, 2006 2005 2004 Net income from continuing operations $51,385 $39,606 $46,086 Income from discontinued operations, net of tax — 511 479 Gain on sale of discontinued operations, net of tax — 12,708 — Net income $51,385 $52,825 $46,565 Weighted average common shares—basic 29,700 28,555 26,691 Effect of dilutive securities: Stock options and restricted stock 2,314 2,576 3,420 Weighted average common shares—diluted 32,014 31,131 30,111 Earnings per share: Basic Income from continuing operations $ 1.73 $ 1.39 $ 1.73 Discontinued operations $— $ 0.46 $ 0.01 Net income per common share—basic $ 1.73 $ 1.85 $ 1.74 Diluted Income from continuing operations $ 1.61 $ 1.27 $ 1.53 Discontinued operations $— $ 0.43 $ 0.02 Net income per common share—diluted $ 1.61 $ 1.70 $ 1.55 Options to purchase 747, 67 and 130 shares of common stock as at November 30, 2006, 2005 and 2004, respectively, have not been included in the computation of diluted net income per share as their effect would have been anti-dilutive. NOTE 16—RELATED PARTY TRANSACTIONS: Purchases of inventories from MiTAC International Corporation and its affiliates (principally motherboards and other peripherals) were approximately $430,543, $397,000 and $406,000 during the years ended November 30, 2006, 2005 and 2004, respectively. Sales to MiTAC International and its affiliates during the years ended November 30, 2006, 2005 and 2004, were approximately $2,288, $1,777 and $1,738, respectively. The Company’s relationship with MiTAC International has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue, or capacity commitments. Accordingly, the Company negotiates manufacturing and pricing terms, including allocating customer revenue, on a case-by-case basis with MiTAC International. In October 2001, as a new investment option for the deferred compensation plan, the Company established a brokerage account in Taiwan. The purpose of the account is to hold shares of MiTAC International and its affiliates. As of November 30, 2004, the fair market value of the common stock acquired was approximately $2,259. This brokerage account was closed in fiscal 2005. 82 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) In August 2004, the Company realized a gain of $1,245 for a settlement with MiTAC International on the final purchase price related to the acquisition of the Company’s current subsidiary in the United Kingdom, which was acquired from MiTAC International in fiscal 2000. This amount is included in “Other income (expense), net.” NOTE 17—SEGMENT INFORMATION: Segments were determined based on products and services provided by each segment. Accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company has identified the following two reportable business segments: The Distribution segment distributes computer systems and complementary products to a variety of customers, including value-added resellers, system integrators, retailers and direct resellers. The Contract Assembly segment provides electronics assembly services to OEMs, including integrated supply chain management, build-to-order and configure-to-order system configurations, materials management and logistics. Summarized financial information related to the Company’s reportable business segments as at November 30, 2006, 2005 and 2004, and for each of the years then ended is shown below: Contract Distribution Assembly Consolidated Fiscal year ended November 30, 2004: Revenue $ 4,573,438 $ 577,009 $ 5,150,447 Income from continuing operations before non-operating items, income taxes and minority interest 63,255 14,405 77,660 Total assets 800,618 199,079 999,697 Fiscal year ended November 30, 2005: Revenue $ 5,120,824 $ 519,945 $ 5,640,769 Income from continuing operations before non-operating items, income taxes and minority interest 65,912 13,025 78,937 Total assets 846,220 236,268 1,082,488 Fiscal year ended November 30, 2006: Revenue $ 5,800,293 $ 543,221 $ 6,343,514 Income from continuing operations before non-operating items, income taxes and minority interest 88,458 7,784 96,242 Total assets 1,109,162 273,572 1,382,734 83 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) Summarized financial information related to the geographic areas in which the Company operated at November 30, 2006, 2005 and 2004 and for each of the years then ended is shown below: North Consolidation America Other Adjustments Consolidated Fiscal year ended November 30, 2004: Revenue $ 4,902,143 $ 271,753 $ (23,449) $ 5,150,447 Income from continuing operations 47,548 1,320 (2,782) 46,086 Other long-lived assets 20,592 15,968 — 36,560 Fiscal year ended November 30, 2005: Revenue $ 5,440,293 $ 237,965 $ (37,489) $ 5,640,769 Income from continuing operations 35,761 4,051 (206) 39,606 Other long-lived assets 23,460 18,432 — 41,892 Fiscal year ended November 30, 2006: Revenue $ 6,119,306 $ 265,728 $ (41,520) $ 6,343,514 Income from continuing operations 44,417 7,076 (108) 51,385 Other long-lived assets 33,805 16,477 — 50,282 Revenue in the U.S. was approximately 79%, 80% and 83% of total revenue for fiscal 2006, 2005 and 2004, respectively. NOTE 18—RISK AND UNCERTAINTIES: The Company operates in a highly competitive industry and is subject to various risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to differ materially from expectations include, but are not limited to, dependence on few customers and vendors, competition, new products and services, dependence upon key personnel, industry conditions, foreign currency fluctuations, and aspects of its strategic relationship with MiTAC International. NOTE 19—COMMITMENTS AND CONTINGENCIES: The Company leases its facilities under operating lease agreements, which expire in various periods through 2014. Future minimum rental obligations under non-cancelable lease agreements as of November 30, 2006 were as follows: Fiscal Year Ending November 30, 2007 $12,758 2008 13,039 2009 12,863 2010 14,164 2011 7,709 thereafter 12,849 Total minimum lease payments $73,382 Rent expense for the years ended November 30, 2006, 2005 and 2004 amounted to $9,393, $9,423 and $8,887, respectively. 84 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) The Company was contingently liable at November 30, 2006, under agreements to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by the Company’s customers. These arrangements are described in Note 6. Losses, if any, would be the difference between repossession cost and the resale value of the inventory. There have been no repurchases through November 30, 2006 under these agreements, nor is the Company aware of any pending customer defaults or repossession obligations. The Company is from time to time involved in legal proceedings, including the following: In May 2002, Seanix Technology Inc. filed a trademark infringement action in the Federal Court of Canada against the Company and its Canadian subsidiary, SYNNEX Canada Limited. The suit claims that the Company has infringed on Seanix’s exclusive rights to its Canadian trademark registration and caused confusion between the two companies resulting from, among other things, the Company’s use of trademarks confusingly similar to the Seanix trademarks. The complaint seeks injunctive relief and monetary damages in an amount to be determined. Substantial discovery has taken place and no trial date has been set. In May 2002, Acropolis Systems, Inc. and Tony Yeh filed a civil suit in Santa Clara County California Superior Court against the Company, Robert Huang, C. Kevin Chuang and Stephen R. Bowling. The suit alleges violation of California securities laws, fraud and concealment and breach of contract resulting from, among other things, failure to disclose the existence of a lien in favor of the Company on the assets of eManage.com Inc. prior to entering into stock purchase agreements for shares of eManage.com stock. At the time of this stock purchase, the Company was the majority stockholder of eManage.com. The complaint seeks monetary damages in the amount of approximately $2,000. Substantial discovery has taken place and a trial date has been set for June 2007. In addition, the Company has been involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. These preference actions are filed by the bankruptcy trustee on behalf of the bankrupt estate and generally seek to have payments made by the debtor within 90 days prior to the bankruptcy returned to the bankruptcy estate for allocation among all of the bankrupt estate’s creditors. The Company is not aware of any currently pending preference actions. The Company does not believe that these proceedings will have a material adverse effect on the Company’s results of operations, financial position or cash flows of the business. NOTE 20—RESTRUCTURING CHARGES: In the first quarter of fiscal 2005, the Company announced a restructuring program in its distribution segment, which impacted approximately 35 employees across multiple business functions in SYNNEX Canada and closed its facilities in Richmond, British Columbia, Calgary, Alberta and Saint-Laurent, Quebec. All terminations were completed by May 31, 2005. In the third quarter of fiscal 2005, the Company closed its facility in Markham, Ontario. This restructuring resulted in a total expense of $2,513, which consisted of employee termination benefits of $711, estimated facilities exit expenses of $1,681 and other expenses in the amount of $121. All charges were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” 85 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) The following table summarizes the activity related to the liability for restructuring charges through November 30, 2006: Severance Facility and and Benefits Exit Costs Other Total Balance of accrual at November 30, 2004 $ — $ — $— $ — Restructuring charges expensed in the year ended November 30, 2005 711 1,681 121 2,513 Cash payments (690) (293) (17) (1,000) Adjustments — 157 — 157 Non-cash charges — (636) — (636) Balance of accrual at November 30, 2005 21 909 104 1,034 Cash payments (21) (452) (11) (484) Non-cash charges — (344) (93) (437) Balance of accrual at November 30, 2006 $ — $ 113 $— $ 113 The unpaid portion of the restructuring charges is included in the consolidated balance sheet under the caption “Accrued liabilities.” NOTE 21—DISCONTINUED OPERATIONS: During the second quarter of fiscal 2005, the Company sold approximately 93% of the equity it held in its subsidiary, SYNNEX K.K. to MCJ, in exchange for 26 shares of MCJ. The Company recorded a gain of $12,708, net of tax, as a result of this sale, in the second quarter of fiscal 2005. The Company’s remaining equity interest in SYNNEX K.K. is accounted for under the cost method, as the Company does not have significant involvement or influence over either MCJ or SYNNEX K.K. In connection with this sale, the Company paid a dividend of $1,133 to the minority shareholders of SYNNEX K.K. Under the provisions of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the sale of SYNNEX K.K. qualified as a discontinued operation component of the Company. Accordingly, the Company has excluded results of its Japan’s operation from its consolidated statements of operations for each of the three years in the period ended November 30, 2005 to present this business in discontinued operations. 86 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) The following table shows the results of operation of SYNNEX K.K.: December 1, 2004 Fiscal Year Ended to April 19, 2005 November 30, (date of sale) 2004 Revenue $ 64,477 $ 163,544 Cost of revenue (59,916) (153,938) Gross profit 4,561 9,606 Selling, general and administrative expenses (3,170) (8,286) Income from operations before non-operating items, income taxes and minority interest 1,391 1,320 Interest expense and finance charges, net (140) (464) Other income (expense), net (245) 158 Income before income taxes and minority interest 1,006 1,014 Provision for income taxes (434) (459) Minority interest in subsidiary (61) (76) Net income $ 511 $ 479 87 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued) (amounts in thousands, except for per share amounts) The following table shows the effect of the restatement on the consolidated financial statements: As Previously As Reported Reported Herein Fiscal Year Fiscal Year Ended Ended November 30, November 30, 2004 2004 Revenue $ 5,313,991 $ 5,150,447 Cost of revenue (5,089,013) (4,935,075) Gross profit 224,978 215,372 Selling, general and administrative expenses (145,998) (137,712) Income from continuing operations before non-operating items, income taxes and minority interest 78,980 77,660 Interest expense and finance charges, net (8,423) (7,959) Other income (expense), net (742) (900) Income from continuing operations before income taxes and minority interest 69,815 68,801 Provision for income taxes (23,550) (23,091) Minority interest in subsidiary 300 376 Income from continuing operations 46,565 46,086 Income from discontinued operations, net of tax — 479 Net income $ 46,565 $ 46,565 Earnings per share: Basic Income from continuing operations $ 1.74 $ 1.73 Discontinued operations — 0.01 Net income per common share—basic $ 1.74 $ 1.74 Diluted Income from continuing operations $ 1.55 $ 1.53 Discontinued operations — 0.02 Net income per common share—diluted $ 1.55 $ 1.55 Under the terms of the sale the Company was restricted from selling the shares of MCJ it received until April 2006. As described in Note 5, the shares were classified as trading securities and were recorded at fair value, based on quoted market prices. As of November 30, 2005, the fair value of the shares of MCJ was $25,346, and that amount is included in short-term investments. In order to reduce the risk of holding the MCJ shares, the Company entered into forward contracts to sell MCJ shares for fixed prices in April 2006. As of November 30, 2005, such contracts covered 100% of the MCJ shares held by the Company and these contracts had a value of $22,609. As of November 30, 2006, there were no outstanding forward contracts. 88 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited) The following table presents selected unaudited consolidated financial results for each of the eight quarters in the two-year period ended November 30, 2006. In the Company’s opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial information for the periods presented. Fiscal 2006 Fiscal 2005 Three Months Ended Three Months Ended Feb. 28, May 31, Aug. 31, Nov. 30, Feb. 28, May 31, Aug. 31, Nov. 30, 2006 2006 2006 2006 2005 2005 2005 2005 (in thousands) Statement of Operations Data: Revenue $ 1,501,735 $ 1,511,701 $ 1,592,204 $ 1,737,874 $ 1,309,763 $ 1,346,328 $ 1,391,590 $ 1,593,088 Cost of revenue (1,436,725) (1,443,353) (1,519,486) (1,658,591) (1,253,629) (1,289,772) (1,332,612) (1,526,198) Gross profit 65,010 68,348 72,718 79,283 56,134 56,556 58,978 66,890 Selling, general and administrative expenses (42,763) (45,952) (49,205) (51,197) (39,712) (38,159) (39,249) (42,501) Income from continuing operations before non-operating items, income taxes and minority interest 22,247 22,396 23,513 28,086 16,422 18,397 19,729 24,389 Interest expense and finance charges, net (5,853) (4,340) (2,743) (3,723) (3,812) (3,521) (3,777) (5,926) Other income (expense), net 273 (482) 265 514 709 949 (1,155) 1,056 Income from continuing operations before income taxes and minority interest 16,667 17,574 21,035 24,877 13,319 15,825 14,797 19,519 Provision for income taxes (5,984) (6,257) (7,015) (9,064) (5,042) (6,006) (5,759) (7,105) Minority interest in subsidiaries — — (241) (207) 26 32 — — Income from continuing operations 10,683 11,317 13,779 15,606 8,303 9,851 9,038 12,414 Income from discontinued operations, net of tax — — — — 304 207 — — Gain on sale of discontinued operations, net of tax — — — — — 12,323 — 385 Net income $ 10,683 $ 11,317 $ 13,779 $ 15,606 $ 8,607 $ 22,381 $ 9,038 $ 12,799 Net income per common share, basic $ 0.37 $ 0.38 $ 0.46 $ 0.51 $ 0.31 $ 0.78 $ 0.31 $ 0.44 Net income per common share, diluted $ 0.34 $ 0.36 $ 0.43 $ 0.48 $ 0.27 $ 0.72 $ 0.29 $ 0.41 Weighted average common shares outstanding—basic 29,055 29,499 29,879 30,369 28,005 28,764 29,481 28,903 Weighted average common shares outstanding—diluted 31,204 31,600 31,878 32,565 31,450 31,120 31,673 31,103 89 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SYNNEX CORPORATION SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS For the Years Ended November 30, 2006, 2005 and 2004 (in thousands) Additions Additions Charged and to Subtractions Revenues Balance from and at Acquisitions Costs Write-offs Balance Beginning and and and at End of Year Dispositions Expense Deductions of Year Description Fiscal Year Ended November 30, 2004 Allowance for doubtful trade receivables 8,996 4,106 5,506 (6,731) 11,877 Allowance for doubtful vendor receivables 3,246 782 1,632 (1,565) 4,095 Allowance for sales returns 5,526 — 8,044 (693) 12,877 Allowance for deferred tax assets 8,869 (294) (211) (6,048) 2,316 Fiscal Year Ended November 30, 2005 Allowance for doubtful trade receivables 11,877 (12) 7,083 (6,260) 12,688 Allowance for doubtful vendor receivables 4,095 — 897 (2,266) 2,726 Allowance for sales returns 12,877 — 1,000 (480) 13,397 Allowance for deferred tax assets 2,316 — 515 (653) 2,178 Fiscal Year Ended November 30, 2006 Allowance for doubtful trade receivables 12,688 2,328 9,081 (9,664) 14,433 Allowance for doubtful vendor receivables 2,726 — 1,548 (1,660) 2,614 Allowance for sales returns 13,397 — 3,719 — 17,116 Allowance for deferred tax assets 2,178 — 1,607 (2,178) 1,607 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. 90 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concludes that, as of November 30, 2006, our internal control over financial reporting was effective based on those criteria. Our management’s assessment of the effectiveness of our internal control over financial reporting as of November 30, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears in Item 8 of this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 91 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents PART III Item 10. Directors and Executive Officers of the Registrant The information required by this item (with respect to Directors) is incorporated by reference from the information under the caption “Election of Directors” contained in our Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our 2007 Annual Meeting of Stockholders to be held on March 20, 2007 (the “Proxy Statement”). Certain information required by this item concerning executive officers is set forth in Part I of this Report under the caption “Executive Officers of the Registrant.” Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16(a) of the Exchange Act. This information is contained in the section called “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference. The Company has adopted a code of ethics that applies to all of the Company’s employees, including its principal executive officer, its principal financial officer, its controller and persons performing similar functions. This code of ethics, called a Code of Ethics and Business Conduct for Employees, Officers and Directors, is available free of charge on the Company’s public website (www.synnex.com) on the investor relations webpage. Future amendments or waivers relating to the code of ethics will be disclosed on the webpage referenced in this paragraph within five (5) business days following the date of such amendment or waiver. Item 11. Executive Compensation The information required by this item is incorporated by reference from the information under the captions “Election of Directors—Directors’ Compensation,” “Executive Compensation,” and “Election of Directors—Compensation Committee Interlocks and Insider Participation” contained in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item with respect to security ownership of certain beneficial owners and management is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy Statement. Equity Compensation Plan Information The following table sets forth certain information regarding our equity compensation plans as of November 30, 2006: Number of securities remaining available for future issuance Weighted-average Number of securities under equity exercise price to be issued upon compensation plans of exercise of (excluding securities outstanding outstanding options reflected in column options (a) (a)) (c) Plan category (b) Equity compensation plans approved by security holders 5,993,767 $ 11.00 3,432,772(1)(2) (1) Includes the number of shares reserved for issuance under our Amended and Restated 2003 Stock Incentive Plan. The number of shares authorized for issuance under our Amended and Restated 2003 Stock Incentive Plan will not exceed the sum of (1) the number of shares subject to outstanding options granted under our 1997 Stock Option Plan/Stock Issuance Plan, our Special Executive Stock Option/Stock Issuance Plan and 92 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents our 1993 Stock Option Plan outstanding, to the extent those options expire, terminate or are cancelled for any reason prior to being exercised, plus (2) 5,506,649 shares of common stock; provided, however, that the number of authorized shares under our Amended and Restated 2003 Stock Incentive Plan will not exceed 14,111,761 shares of common stock. (2) Includes 500,000 shares available-for-sale pursuant to our 2003 Employee Stock Purchase Plan (as amended). Shares of common stock will be purchased at a price equal to 95% of the fair market value per share of common stock on either the first trading day of the offering period or on the last trading day of the accumulation period, whichever is less. Item 13. Certain Relationships and Related Transactions The information required by this item is incorporated by reference from the information contained under the caption “Certain Relationships and Related Party Transactions” contained in the Proxy Statement. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference from the information contained under the caption “Ratification of the Appointment of Independent Registered Public Accountants” contained in the Proxy Statement. 93 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) Documents filed as part of this report: (1) Financial Statements See Index under Item 8. (2) Financial Statement Schedule See Index under Item 8. (3) Exhibits See Item 15(b) below. Each compensatory plan required to be filed has been identified. (b) Exhibits. Exhibit Number Description of Document 3(i).1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i)3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 3(ii).2 Restated Bylaws (incorporate by reference to Exhibit 3(ii)3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 4.1 Form of Common Stock Certificate (incorporated by reference to the exhibit of the same number to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.1# Amended and Restated 2003 Stock Incentive Plan and form of agreements thereunder. 10.2# 2003 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.3 Form of Indemnification Agreement between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.4 Registration Rights Agreement dated as of July 1, 2002 (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.5 Standard Industrial Lease dated December 5, 1996, between the Registrant and Alexander & Baldwin, Inc. (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.6 First Amendment to Lease, dated May 24, 1999, between the Registrant and Bedford Property Investors, Inc. (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.7 Second Amendment to Lease, dated March 30, 2001, between the Registrant and Bedford Property Investors, Inc. (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.8# Form of Change of Control Severance Plan (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.9 HP U.S. Business Development Partner Agreement dated November 6, 2003, between the Registrant and Hewlett-Packard Company (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 94 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Exhibit Description of Document Number 10.10 Master External Manufacturing Agreement, dated August 28, 1999, by and among the Registrant, MiTAC International Corporation and Sun Microsystems, Inc., including amendments thereto (incorporated by reference to Exhibit 10.15 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.11 Joint Sales and Marketing Agreement, dated May 6, 2002, between the Registrant and MiTAC International Corporation (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.12 Master Agreement and Plan of Reorganization among the Company, SYNNEX, K.K. and MCJ Co., Ltd. dated March 29, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005). 10.13# Employment Agreement dated February 7, 2006, by and between the Registrant and Robert Huang (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2006). 10.14# Employment Agreement dated July 14, 2004, by and between the Registrant and Jim Estill 10.15 Second Amended and Restated Credit Agreement dated as of February 12, 2007 by and among the Registrant, the lenders signatory thereto from time to time, and General Electric Capital Corporation, a Delaware corporation. 10.16 Second Amended and Restated Receivables Sale and Servicing Agreement, dated as of February 12, 2007, among the Originator, the Servicer and SIT Funding Corporation. 10.17 Second Amended and Restated Receivables Funding and Administration Agreement, dated as February 12, 2007, among SIT Funding Corporation, the lenders party thereto and General Electric Capital Corporation. 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004). 23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 24.1 Power of Attorney (see page 96 of this Form 10-K). 31.1 Rule 13a-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a) Certification of Chief Financial Officer. 32.1* Statement of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). # Indicates management contract or compensatory plan or arrangement. * In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. (c) Financial Statement Schedules. See Index under Item 8. 95 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 13, 2007 SYNNEX CORPORATION /s/ ROBERT HUANG By: Robert Huang President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert Huang and Dennis Polk, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof. 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. Name Title Date /s/ ROBERT HUANG President, Chief Executive Officer and Director February 13, 2007 Robert Huang (Principal Executive Officer) /s/ DENNIS POLK Chief Financial Officer (Principal Financial and February 13, 2007 Dennis Polk Principal Accounting Officer) /s/ MATTHEW MIAU Chairman of the Board February 13, 2007 Matthew Miau /s/ FRED BREIDENBACH Director February 13, 2007 Fred Breidenbach /s/ JAMES VAN HORNE Director February 13, 2007 James Van Horne /s/ GREGORY QUESNEL Director February 13, 2007 Gregory Quesnel /s/ DAVID RYNNE Director February 13, 2007 David Rynne /s/ DWIGHT STEFFENSEN Director February 13, 2007 Dwight Steffensen 96 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents EXHIBIT INDEX Exhibit Number Description of Document 3(i)1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i)3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 3(ii)2 Restated Bylaws (incorporate by reference to Exhibit 3(ii)3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 4.1 Form of Common Stock Certificate (incorporated by reference to the exhibit of the same number to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.1# Amended and Restated 2003 Stock Incentive Plan and form of agreements thereunder. 10.2# 2003 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.3 Form of Indemnification Agreement between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.4 Registration Rights Agreement dated as of July 1, 2002 (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.5 Standard Industrial Lease, dated December 5, 1996, between the Registrant and Alexander & Baldwin, Inc. (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.6 First Amendment to Lease, dated May 24, 1999, between the Registrant and Bedford Property Investors, Inc. (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.7 Second Amendment to Lease, dated March 30, 2001, between the Registrant and Bedford Property Investors, Inc. (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.8# Form of Change of Control Severance Plan (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.9 HP U.S. Business Development Partner Agreement, dated November 6, 2003, between the Registrant and Hewlett-Packard Company (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.10 Master External Manufacturing Agreement, dated August 28, 1999, by and among the Registrant, MiTAC International Corporation and Sun Microsystems, Inc., including amendments thereto (incorporated by reference to Exhibit 10.15 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.11 Joint Sales and Marketing Agreement, dated May 6, 2002, between the Registrant and MiTAC International Corporation (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-108543)). 10.12 Master Agreement and Plan of Reorganization among the Company, SYNNEX, K.K. and MCJ Co., Ltd. dated March 29, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005). 97 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Table of Contents Exhibit Number Description of Document 10.13# Employment Agreement dated February 7, 2006, by and between the Company and Robert Huang (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2006). 10.14# Employment Agreement dated July 14, 2004, by and between the Registrant and Jim Estill 10.15 Second Amended and Restated Credit Agreement dated as of February 12, 2007 by and among the Registrant, the lenders signatory thereto from time to time, and General Electric Capital Corporation, a Delaware corporation. 10.16 Second Amended and Restated Receivables Sale and Servicing Agreement, dated as of February 12, 2007, among the Originator, the Servicer and SIT Funding Corporation. 10.17 Second Amended and Restated Receivables Funding and Administration Agreement, dated as February 12, 2007, among SIT Funding Corporation, the lenders party thereto and General Electric Capital Corporation. 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004). 23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 24.1 Power of Attorney (see page 96 of this Form 10-K). 31.1 Rule 13a-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a) Certification of Chief Financial Officer. 32.1* Statement of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). # Indicates management contract or compensatory plan or arrangement. * In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. 98 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Exhibit 10.1 SYNNEX CORPORATION 2003 STOCK INCENTIVE PLAN (Adopted by the Board on September 2, 2003, and amended and restated by the Board on January 10, 2006, June 20, 2006 and January 4, 2007. Reflects 2:1 Reverse Stock Split on November 12, 2003) Source: SYNNEX CORP, 10-K, February 13, 2007
    • TABLE OF CONTENTS Page Section 1. ESTABLISHMENT AND PURPOSE. 1 Section 2. DEFINITIONS. 1 (a) “Affiliate” 1 (b) “Award” 1 (c) “Board of Directors” 1 (d) “Change in Control” 1 (e) “Code” 2 (f) “Committee” 2 (g) “Company” 2 (h) “Consultant” 2 (i) “Disability” 3 (j) “Employee” 3 (k) “Exchange Act” 3 (l) “Exercise Price” 3 (m) “Fair Market Value” 3 (n) “ISO” 3 (o) “Misconduct” 3 (p) “Nonstatutory Option” or “NSO” 4 (q) “Offeree” 4 (r) “Option” 4 (s) “Optionee” 4 (t) “Outside Director” 4 (u) “Parent” 4 (v) “Participant” 4 (w) “Plan” 4 (x) “Purchase Price” 4 (y) “Restricted Share” 4 (z) “Restricted Share Agreement “ 4 (aa) “SAR” 4 (bb) “SAR Agreement” 4 (cc) “Service” 4 (dd) “Share” 4 (ee) “Stock” 4 (ff) “Stock Option Agreement” 5 (gg) “Stock Unit” 5 (hh) “Stock Unit Agreement” 5 (ii) “Subsidiary” 5 Section 3. ADMINISTRATION. 5 (a) Committee Composition 5 (b) Committee for Non-Officer Grants 5 (c) Committee Procedures 5 -i- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (d) Committee Responsibilities 6 Section 4. ELIGIBILITY. 7 (a) General Rule 7 (b) Automatic Grants to Outside Directors. 7 (c) Ten-Percent Stockholders. 8 (d) Attribution Rules. 8 (e) Outstanding Stock. 9 Section 5. STOCK SUBJECT TO PLAN. 9 (a) Basic Limitation 9 (b) Additional Shares 9 Section 6. RESTRICTED SHARES 9 (a) Restricted Stock Agreement 9 (b) Payment for Awards 9 (c) Vesting 10 (d) Voting and Dividend Rights 10 (e) Restrictions on Transfer of Shares 10 Section 7. TERMS AND CONDITIONS OF OPTIONS. 10 (a) Stock Option Agreement 10 (b) Number of Shares 10 (c) Exercise Price 10 (d) Withholding Taxes 11 (e) Exercisability and Term 11 (f) Exercise of Options Upon Termination of Service 11 (g) Effect of Change in Control 11 (h) Leaves of Absence 11 (i) No Rights as a Stockholder 12 (j) Modification, Extension and Renewal of Options 12 (k) Restrictions on Transfer of Shares 12 (l) Buyout Provisions 12 Section 8. PAYMENT FOR SHARES. 12 (a) General Rule 12 (b) Surrender of Stock 12 (c) Services Rendered 12 (d) Cashless Exercise 12 (e) Exercise/Pledge 13 (f) Promissory Note 13 (g) Other Forms of Payment 13 (h) Limitations under Applicable Law 13 Section 9. STOCK APPRECIATION RIGHTS. 13 (a) SAR Agreement 13 (b) Number of Shares 13 - ii - Source: SYNNEX CORP, 10-K, February 13, 2007
    • (c) Exercise Price 13 (d) Exercisability and Term 13 (e) Effect of Change in Control 14 (f) Exercise of SARs 14 (g) Modification or Assumption of SARs 14 Section 10. STOCK UNITS. 14 (a) Stock Unit Agreement 14 (b) Payment for Awards 14 (c) Vesting Conditions 14 (d) Voting and Dividend Rights 14 (e) Form and Time of Settlement of Stock Units 15 (f) Death of Recipient 15 (g) Creditors’ Rights 15 Section 11. ADJUSTMENT OF SHARES. 15 (a) Adjustments 15 (b) Dissolution or Liquidation 16 (c) Reorganizations 16 (d) Reservation of Rights 16 Section 12. LEGAL AND REGULATORY REQUIREMENTS. 16 Section 13. WITHHOLDING TAXES. 17 (a) General 17 (b) Share Withholding 17 Section 14. LIMITATION ON PARACHUTE PAYMENTS. 17 (a) Scope of Limitation. 17 (b) Basic Rule 17 (c) Reduction of Payments 17 (d) Related Corporations 18 Section 15. NO EMPLOYMENT RIGHTS. 18 Section 16. DURATION AND AMENDMENTS. 18 (a) Term of the Plan 18 (b) Right to Amend or Terminate the Plan 18 (c) Effect of Amendment or Termination 18 Section 17. EXECUTION. 18 - iii - Source: SYNNEX CORP, 10-K, February 13, 2007
    • SYNNEX CORPORATION 2003 STOCK INCENTIVE PLAN SECTION 1. ESTABLISHMENT AND PURPOSE. The Plan was adopted by the Board of Directors on September 2, 2003, effective as of the date of the initial offering of Stock to the public pursuant to a registration statement filed by the Company with the Securities and Exchange Commission, and was amended and restated by the Board of Directors on January 10, 2006. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of restricted shares, stock units, options (which may constitute incentive stock options or nonstatutory stock options) or stock appreciation rights. SECTION 2. DEFINITIONS. (a) “Affiliate” shall mean any entity other than a Subsidiary, if the Company and/or one of more Subsidiaries own not less than 50% of such entity. (b) “Award” shall mean any award of an Option, a SAR, a Restricted Share or a Stock Unit under the Plan. (c) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time. (d) “Change in Control” shall mean the occurrence of any of the following events: (i) A change in the composition of the Board of Directors occurs, as a result of which fewer than one-half of the incumbent directors are directors who either: (A) Had been directors of the Company on the “look-back date” (as defined below) (the “original directors”); or (B) Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved (the “continuing directors”); or (ii) Any “person” (as defined below) who by the acquisition or aggregation of securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities -1- Source: SYNNEX CORP, 10-K, February 13, 2007
    • ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Company’s securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company; or (iii) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity; or (iv) The sale, transfer or other disposition of all or substantially all of the Company’s assets. For purposes of subsection (d)(i) above, the term “look-back” date shall mean the later of (1) September 2, 2003 or (2) the date 24 months prior to the date of the event that may constitute a Change in Control. For purposes of subsection (d)(ii)) above, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (1) a trustee or other fiduciary holding securities under an employee benefit plan maintained by the Company or a Parent or Subsidiary and (2) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Stock. Any other provision of this Section 2(d) notwithstanding, a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction, and a Change in Control shall not be deemed to occur if the Company files a registration statement with the Securities and Exchange Commission for the initial offering of Stock to the public. (e) “Code” shall mean the Internal Revenue Code of 1986, as amended. (f) “Committee” shall mean the Compensation Committee as designated by the Board of Directors, which is authorized to administer the Plan, as described in Section 3 hereof. (g) “Company” shall mean SYNNEX Corporation (h) “Consultant” shall mean a consultant or advisor who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor or a member of the board of directors of a Parent or a Subsidiary who is not an Employee. Service as a Consultant shall be considered Service for all purposes of the Plan. -2- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (i) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. (j) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary. (k) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. (l) “Exercise Price” shall mean, in the case of an Option, the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of a SAR, shall mean an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share in determining the amount payable upon exercise of such SAR. (m) “Fair Market Value” with respect to a Share, shall mean the market price of one Share of Stock, determined by the Committee as follows: (i) If the Stock was traded over-the-counter on the date in question but was not traded on The Nasdaq Stock Market, then the Fair Market Value shall be equal to the last transaction price quoted for such date by the OTC Bulletin Board or, if not so quoted, shall be equal to the mean between the last reported representative bid and asked prices quoted for such date by the principal automated inter-dealer quotation system on which the Stock is quoted or, if the Stock is not quoted on any such system, by the Pink Sheets LLC; (ii) If the Stock was traded on The Nasdaq Stock Market, then the Fair Market Value shall be equal to the last reported sale price quoted for such date by The Nasdaq Stock Market; (iii) If the Stock was traded on a United States stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported for such date by the applicable composite-transactions report; and (iv) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. In all cases, the determination of Fair Market Value by the Committee shall be conclusive and binding on all persons. (n) “ISO” shall mean an employee incentive stock option described in Section 422 of the Code. (o) “Misconduct” shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by the Participant of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by the Participant adversely affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of the Participant or any other individual in the Service of the Company (or any Parent or Subsidiary). -3- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (p) “Nonstatutory Option” or “NSO” shall mean an employee stock option that is not an ISO. (q) “Offeree” shall mean an individual to whom the Committee has offered the right to acquire Shares under the Plan (other than upon exercise of an Option). (r) “Option” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares. (s) “Optionee” shall mean an individual or estate who holds an Option or SAR. (t) “Outside Director” shall mean a member of the Board of Directors who is not a common-law employee of the Company, a Parent or a Subsidiary. Service as an Outside Director shall be considered Service for all purposes of the Plan, except as provided in the second sentence of Section 4(a). (u) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be a Parent commencing as of such date. (v) “Participant” shall mean an individual or estate who holds an Award. (w) “Plan” shall mean this 2003 Stock Incentive Plan of SYNNEX Corporation, as amended from time to time. (x) “Purchase Price” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Committee. (y) “Restricted Share” shall mean a Share awarded under the Plan. (z) “Restricted Share Agreement” shall mean the agreement between the Company and the recipient of a Restricted Share which contains the terms, conditions and restrictions pertaining to such Restricted Shares. (aa) “SAR” shall mean a stock appreciation right granted under the Plan. (bb) “SAR Agreement” shall mean the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her SAR. (cc) “Service” shall mean service as an Employee, Consultant or Outside Director. (dd) “Share” shall mean one share of Stock, as adjusted in accordance with Section 11 (if applicable). (ee) “Stock” shall mean the Common Stock of the Company. -4- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (ff) “Stock Option Agreement” shall mean the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to such Option. (gg) “Stock Unit” shall mean a bookkeeping entry representing the Company’s obligation to deliver one Share (or distribute cash) on a future date in accordance with the terms, conditions and restrictions of a Stock Unit Agreement. (hh) “Stock Unit Agreement” shall mean the agreement between the Company and the recipient of a Stock Unit which contains the terms, conditions and restrictions pertaining to such Stock Unit. (ii) “Subsidiary” shall mean any corporation, if the Company and/or one or more other Subsidiaries own not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. SECTION 3. ADMINISTRATION. (a) Committee Composition. The Plan shall be administered by the Committee. The Committee shall consist of two or more directors of the Company, who shall be appointed by the Board. In addition, the composition of the Committee shall satisfy (i) such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (ii) such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code. (b) Committee for Non-Officer Grants. The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not satisfy the requirements of Section 3(a), who may administer the Plan with respect to Employees who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and may determine all terms of such grants. Within the limitations of the preceding sentence, any reference in the Plan to the Committee shall include such committee or committees appointed pursuant to the preceding sentence. The Board of Directors may also authorize one or more officers of the Company to designate Employees, other than officers under Section 16 of the Exchange Act, to receive Awards and/or to determine the number of such Awards to be received by such persons; provided, however, that the Board of Directors shall specify the total number of Awards that such officers may so award. (c) Committee Procedures. The Board of Directors shall designate one of the members of the Committee as chairman. The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee. -5- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (d) Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions: (i) To interpret the Plan and to apply its provisions; (ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan; (iii) To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; (iv) To determine when Awards are to be granted under the Plan; (v) To select the Offerees and Optionees; (vi) To determine the number of Shares to be made subject to each Award; (vii) To prescribe the terms and conditions of each Award, including (without limitation) the Exercise Price and Purchas Price, and the vesting or duration of the Award (including accelerating the vesting of Awards, either at the time of the Award or thereafter, without the consent of the Participant), to determine whether an Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the agreement relating to such Award; (viii) To amend any outstanding Award agreement, subject to applicable legal restrictions and to the consent of the Participant if the Participant’s rights or obligations would be adversely affected; (ix) To prescribe the consideration for the grant of each Award or other right under the Plan and to determine the sufficiency of such consideration; (x) To determine the disposition of each Award or other right under the Plan in the event of a Participant’s divorce or dissolution of marriage; (xi) To determine whether Awards under the Plan will be granted in replacement of other grants under an incentive or other compensation plan of an acquired business; (xii) To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award agreement; and (xiii) To take any other actions deemed necessary or advisable for the administration of the Plan. Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Options or other rights under the Plan to persons subject to Section 16 of the Exchange Act. All decisions, -6- Source: SYNNEX CORP, 10-K, February 13, 2007
    • interpretations and other actions of the Committee shall be final and binding on all Offerees, all Optionees, and all persons deriving their rights from an Offeree or Optionee. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan, any Option, or any right to acquire Shares under the Plan. SECTION 4. ELIGIBILITY. (a) General Rule. Only Employees shall be eligible for the grant of ISOs. Only Employees, Consultants and Outside Directors shall be eligible for the grant of Restricted Shares, Stock Units, Nonstatutory Options or SARs. (b) Automatic Grants to Outside Directors. (i) Each Outside Director who first joins the Board of Directors after January 4, 2007, and who was not previously an Employee, shall receive a Nonstatutory Option to purchase 10,000 Shares (subject to adjustment under Section 11) and 2,000 Restricted Shares (subject to adjustment under Section 11) on the first business day after his or her election to the Board of Directors; provided, however, if the first business day after his or her election falls within a trading black-out period, then the grant date for Options or Restricted Shares granted pursuant to this section shall be upon the expiration of the third trading day after the trading black-out period ends. (ii) On the first business day following the conclusion of each regular annual meeting of the Company’s stockholders after such Outside Director’s appointment or election to the Board of Directors, commencing with the annual meeting occurring after January 4, 2007, each Outside Director who will continue serving as a member of the Board of Directors thereafter shall receive 2,000 Restricted Shares (subject to adjustment under Section 11), provided such Outside Director has served on the Board of Directors for at least six months; provided, further, if the first business day following the conclusion of the regular annual meeting of the Company’s stockholders after such Outside Director’s appointment or election to the Board of Directors falls within a trading black-out period, then the grant date for Restricted Shares granted pursuant to this section shall be upon the expiration of the third trading day after the trading black-out period ends. (iii) The Exercise Price of all Nonstatutory Options granted to an Outside Director under this Section 4(b) shall be equal to 100% of the Fair Market Value of a Share on the date of grant, payable in one of the forms described in Section 8(a), (b) or (d). (iv)(A) With respect to Options granted to Outside Directors under this Section 4(b) after January 4, 2007, one-third (1/3) of the Shares subject to each Option shall vest and become exercisable on the first anniversary of the date of grant, and the balance of the Shares subject to each Option (i.e., the remaining two-thirds (2/3)) shall vest and become exercisable monthly over a two-year period beginning on the day which is one month after the first anniversary of the date of grant; (B) with respect to Restricted Shares awarded to Outside Directors under this Section 4(b) after January 4, 2007, one-third (1/3) of the Restricted Shares shall vest on each anniversary of the date of grant over -7- Source: SYNNEX CORP, 10-K, February 13, 2007
    • a three-year period; and (C) notwithstanding the foregoing, upon an Outside Director’s retirement from the Board of Directors with the consent of the Board, each award of Restricted Shares under Section 4(b)(ii) above to such Outside Director shall become fully vested. (v) Subject to Sections 4(b)(vi) and (vii) below, all Nonstatutory Options granted to an Outside Director under this Section 4(e) shall terminate on the day before the tenth anniversary of the date of grant of such Options. (vi) If an Outside Director’s Service terminates for any reason, then his or her Options granted under this Section 4(b) shall expire on the earliest of the following occasions: (A) The expiration date determined pursuant to Section 4(b)(v) above; (B) The date 12 months after the termination of the Outside Director’s Service, if the termination occurs because of his or her death or Disability; (C) The date of the Outside Director’s termination of Service, if the termination occurs by reason of his or her Misconduct; or (D) The date three months after the termination of the Outside Director’s Service, if the termination occurs for any reason other than death, Disability or Misconduct. The Outside Director may exercise all or part of his or her Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become vested before his or her Service terminated. The balance of such Options shall lapse when the Outside Director’s Service terminates. (vii) In the event that the Outside Director dies after the termination of his or her Service but before the expiration of his or her Options granted under this Section 4(b), then his or her Options shall expire on the earlier of the following dates: (A) The expiration date determined pursuant to Section 4(b)(v) above; or (B) The date 12 months after his or her death. (c) Ten-Percent Stockholders. An Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, a Parent or Subsidiary shall not be eligible for the grant of an ISO unless such grant satisfies the requirements of Section 422(c)(5) of the Code. (d) Attribution Rules. For purposes of Section 4(c) above, in determining stock ownership, an Employee shall be deemed to own the stock owned, directly or indirectly, by or for such Employee’s brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries. -8- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (e) Outstanding Stock. For purposes of Section 4(c) above, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant. “Outstanding stock” shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person. SECTION 5. STOCK SUBJECT TO PLAN. (a) Basic Limitation. Shares offered under the Plan shall be authorized but unissued Shares or treasury Shares. Subject to Section 5(b) below, the maximum aggregate number of Options, SARs and Restricted Shares awarded under the Plan shall not exceed the sum of (i) the number of Shares subject to outstanding options granted under the Company’s 1997 Stock Option/Stock Issuance Plan, Special Executive Stock Option/Stock Issuance Plan and 1993 Stock Option Plan (the “Predecessor Plans”), as of the effective date of the Plan, to the extent those options expire, terminate or are cancelled for any reason prior to exercise in full, plus (ii) 5,506,649 Shares; provided, however, that such sum shall not exceed 14,111,761 Shares. The limitations of this Section 5(a) shall be subject to adjustment pursuant to Section 11. All Share amounts set forth in the Plan have been adjusted to give effect to a 2 for 1 reverse stock split of the Stock which was effected on November 12, 2003. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. (b) Additional Shares. If Restricted Shares or Shares issued upon the exercise of Options are forfeited, then such Shares shall again become available for Awards under the Plan. If Stock Units, Options or SARs are forfeited or terminate for any other reason before being exercised or settled, as applicable, then the corresponding Shares shall again become available for Awards under the Plan. If Stock Units are settled, then only the number of Shares (if any) actually issued in settlement of such Stock Units shall reduce the number available under Section 5(a) and the balance shall again become available for Awards under the Plan. If SARs are exercised, then only the number of Shares (if any) actually issued in settlement of such SARs shall reduce the number available in Section 5(a) and the balance shall again become available for Awards under the Plan. SECTION 6. RESTRICTED SHARES (a) Restricted Stock Agreement. Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Stock Agreements entered into under the Plan need not be identical. (b) Payment for Awards. Subject to the following sentence, Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, full-recourse promissory notes, past services and future services. To the extent that an Award consists of newly issued Restricted Shares, the Award recipient shall furnish consideration with a value not less than the par value of such Restricted Shares in the form of cash, cash equivalents, or past services rendered to the Company (or a Parent or Subsidiary), as the Committee may determine. -9- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (c) Vesting. Each Award of Restricted Shares may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement. A Restricted Stock Agreement may provide for accelerated vesting in the event of the Participant’s death, disability or retirement or other events. The Committee may determine, at the time of granting Restricted Shares of thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company. (d) Voting and Dividend Rights. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid. (e) Restrictions on Transfer of Shares. Restricted Shares shall be subject to such rights of repurchase, rights of first refusal or other restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Restricted Stock Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares. SECTION 7. TERMS AND CONDITIONS OF OPTIONS. (a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee’s other compensation. (b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 11. Options granted to an Optionee in a single calendar year of the Company shall not cover more than 1,500,000 Shares, except that Options granted to a new Employee or Consultant in the calendar year of the Company in which his or her Service first commences shall not cover more than 2,500,000 Shares (in each case subject to adjustment in accordance with Section 11). (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(c), and the Exercise Price of an NSO shall not be less 85% of the Fair Market Value of a Share on the date of grant. Notwithstanding the foregoing, a Stock Option Agreement may specify that the exercise price of an NSO may vary in accordance with a predetermined formula. Subject to the foregoing in this Section 7(c), the Exercise Price under any Option shall be determined by the Committee at its sole discretion. The Exercise Price shall be payable in one of the forms described in Section 8. -10- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (d) Withholding Taxes. As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise. The Optionee shall also make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option. (e) Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant (five years for Employees described in Section 4(c)). A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee’s death, disability, or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. Subject to the foregoing in this Section 7(e), the Committee at its sole discretion shall determine when all or any installment of an Option is to become exercisable and when an Option is to expire. (f) Exercise of Options Upon Termination of Service. Each Stock Option Agreement shall set forth the extent to which the Optionee shall have the right to exercise the Option following termination of the Optionee’s Service with the Company and its Subsidiaries, and the right to exercise the Option of any executors or administrators of the Optionee’s estate or any person who has acquired such Option(s) directly from the Optionee by bequest or inheritance. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service. (g) Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Shares subject to such Option in the event that a Change in Control occurs with respect to the Company. (h) Leaves of Absence. An Employee’s Service shall cease when such Employee ceases to be actively employed by, or a Consultant to, the Company (or any subsidiary) as determined in the sole discretion of the Board of Directors. For purposes of Options, Service does not terminate when an Employee goes on a bona fide leave of absence, that was approved by the Company in writing, if the terms of the leave provide for continued service crediting, or when continued service crediting is required by applicable law. However, for purposes of determining whether an Option is entitled to ISO status, an Employee’s Service will be treated as terminating 90 days after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract. Service terminates in any event when the approved leave ends, unless such Employee immediately returns to active work. The Company determines which leaves count toward Service, and when Service terminates for all purposes under the Plan. -11- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (i) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by his Option until the date of the issuance of a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 11. (j) Modification, Extension and Renewal of Options. Within the limitations of the Plan, the Committee may modify, extend or renew outstanding options or may accept the cancellation of outstanding options (to the extent not previously exercised), whether or not granted hereunder, in return for the grant of new Options for the same or a different number of Shares and at the same or a different exercise price, or in return for the grant of the same or a different number of Shares. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, adversely affect his or her rights or obligations under such Option. (k) Restrictions on Transfer of Shares. Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares. (l) Buyout Provisions. The Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish. SECTION 8. PAYMENT FOR SHARES. (a) General Rule. The entire Exercise Price or Purchase Price of Shares issued under the Plan shall be payable in lawful money of the United States of America at the time when such Shares are purchased, except as provided in Section 8(b) through Section 8(g) below. (b) Surrender of Stock. To the extent that a Stock Option Agreement so provides, payment may be made all or in part by surrendering, or attesting to the ownership of, Shares which have already been owned by the Optionee or his representative. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes. (c) Services Rendered. At the discretion of the Committee, Shares may be awarded under the Plan in consideration of services rendered to the Company or a Subsidiary prior to the award. If Shares are awarded without the payment of a Purchase Price in cash, the Committee shall make a determination (at the time of the award) of the value of the services rendered by the Offeree and the sufficiency of the consideration to meet the requirements of Section 6(b). (d) Cashless Exercise. To the extent that a Stock Option Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price. -12- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (e) Exercise/Pledge. To the extent that a Stock Option Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker or lender to pledge Shares, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of the aggregate Exercise Price. (f) Promissory Note. To the extent that a Stock Option Agreement or Restricted Stock Agreement so provides, payment may be made all or in part by delivering (on a form prescribed by the Company) a full-recourse promissory note. However, the par value of the Common Shares being purchased under the Plan, if newly issued, shall be paid in cash or cash equivalents. (g) Other Forms of Payment. To the extent that a Stock Option Agreement or Restricted Stock Agreement so provides, payment may be made in any other form that is consistent with applicable laws, regulations and rules. (h) Limitations under Applicable Law. Notwithstanding anything herein or in a Stock Option Agreement or Restricted Stock Agreement to the contrary, payment may not be made in any form that is unlawful, as determined by the Committee in its sole discretion. SECTION 9. STOCK APPRECIATION RIGHTS. (a) SAR Agreement. Each grant of a SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee’s other compensation. (b) Number of Shares. Each SAR Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Section 11. SARs granted to any Optionee in a single calendar year shall in no event pertain to more than 1,500,000 Shares, except that SARs granted to a new Employee or Consultant in the calendar year of the Company in which his or her Service first commences shall not pertain to more than 2,500,000 Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Section 11. (c) Exercise Price. Each SAR Agreement shall specify the Exercise Price. A SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. (d) Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. A SAR Agreement may provide for accelerated exercisability in the event of the Optionee’s death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s service. SARs may be awarded in combination with Options, and such an Award may provide that the SARs will not be exercisable unless the related Options are forfeited. A SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control. -13- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (e) Effect of Change in Control. The Committee may determine, at the time of granting a SAR or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such SAR in the event that a Change in Control occurs with respect to the Company. (f) Exercise of SARs. Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Shares, (b) cash or (c) a combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price. (g) Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of a SAR shall, without the consent of the holder, may alter or impair his or her rights or obligations under such SAR. SECTION 10. STOCK UNITS. (a) Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the recipient and the Company. Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the recipient’s other compensation. (b) Payment for Awards. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients. (c) Vesting Conditions. Each Award of Stock Units may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant’s death, disability or retirement or other events. The Committee may determine, at the time of granting Stock Units or thereafter, that all or part of such Stock Units shall become vested in the event that a Change in Control occurs with respect to the Company. (d) Voting and Dividend Rights. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions (including without limitation, any forfeiture conditions) as the Stock Units to which they attach. -14- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (e) Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 11. (f) Death of Recipient. Any Stock Units Award that becomes payable after the recipient’s death shall be distributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award that becomes payable after the recipient’s death shall be distributed to the recipient’s estate. (g) Creditors’ Rights. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement. SECTION 11. ADJUSTMENT OF SHARES. (a) Adjustments. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of: (i) The number of Options, SARs, Restricted Shares and Stock Units available for future Awards under Section 5; (ii) The limitations set forth in Section 5(a), Section 7(b) and Section 9(b); (iii) The number of NSOs to be granted to Outside Directors under Section 4(b); (iv) The number of Shares covered by each outstanding Option and SAR; (v) The Exercise Price under each outstanding Option and SAR; or -15- Source: SYNNEX CORP, 10-K, February 13, 2007
    • (vi) The number of Stock Units included in any prior Award which has not yet been settled. Except as provided in this Section 11, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. (b) Dissolution or Liquidation. To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company. (c) Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement shall provide for: (i) The continuation of the outstanding Awards by the Company, if the Company is a surviving corporation; (ii) The assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary; (iii) The substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards; (iv) Full exercisability or vesting and accelerated expiration of the outstanding Awards; or (v) Settlement of the full value of the outstanding Awards in cash or cash equivalents followed by cancellation of such Awards. (d) Reservation of Rights. Except as provided in this Section 11, an Optionee or Offeree shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. SECTION 12. LEGAL AND REGULATORY REQUIREMENTS. Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which the Company’s securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable. -16- Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 13. WITHHOLDING TAXES. (a) General. To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied. (b) Share Withholding. The Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. In no event may a Participant have Shares withheld that would otherwise be issued to him or her in excess of the number necessary to satisfy the legally required minimum tax withholding. SECTION 14. LIMITATION ON PARACHUTE PAYMENTS. (a) Scope of Limitation.. This Section 14 shall apply to an Award only if the independent auditors most recently selected by the Board (the “Auditors”) determine that the after-tax value of such Award to the Optionee or Offeree, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Optionee or Offeree (including the excise tax under section 4999 of the Code), will be greater after the application of this Section 14 than it was before application of this Section 14. (b) Basic Rule. In the event that the Auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in Section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Section 14, the “Reduced Amount” shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. (c) Reduction of Payments. If the Auditors determine that any Payment would be nondeductible by the Company because of Section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Section 14, present value -17- Source: SYNNEX CORP, 10-K, February 13, 2007
    • shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Auditors under this Section 14 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan. (d) Related Corporations. For purposes of this Section 14, the term “Company” shall include affiliated corporations to the extent determined by the Auditors in accordance with Section 280G(d)(5) of the Code. SECTION 15. NO EMPLOYMENT RIGHTS. No provision of the Plan, nor any right or Option granted under the Plan, shall be construed to give any person any right to become, to be treated as, or to remain an Employee. The Company and its Subsidiaries reserve the right to terminate any person’s Service at any time and for any reason, with or without notice. SECTION 16. DURATION AND AMENDMENTS. (a) Term of the Plan. The Plan, as set forth herein, shall terminate automatically on September 1, 2013, and may be terminated on any earlier date pursuant to Subsection (b) below. (b) Right to Amend or Terminate the Plan. The Board of Directors may amend the Plan at any time and from time to time. Rights and obligations under any Award granted before amendment of the Plan shall not be materially impaired by such amendment, except with consent of the Participant. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by applicable laws, regulations or rules. (c) Effect of Amendment or Termination. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect Awards previously granted under the Plan. SECTION 17. EXECUTION. To record the amendment and restatement of the Plan by the Board of Directors on January 4, 2007, the Company has caused its authorized officer to execute the same. -18- Source: SYNNEX CORP, 10-K, February 13, 2007
    • SYNNEX Corporation By /s/ Simon Leung Simon Leung General Counsel and Secretary -19- Source: SYNNEX CORP, 10-K, February 13, 2007
    • Exhibit 10.14 EMPLOYMENT AGREEMENT This Employment Agreement (“Agreement”) is made and entered into as of the Effective Date (as defined in the Support Agreement referred to below) by and between SYNNEX Canada Limited, a corporation amalgamated under the laws of the Province of Ontario (hereinafter called the “Company”) and James A. Estill (hereinafter called “Employee”). WHEREAS: A. Employee has been employed with EMJ Data Systems Ltd. (“EMJ”); B. A Retention Escrow Agreement between, among others, Company and Employee has been made and entered into as of July 14, 2004; C. A Support Agreement between, among others, Company and EMJ has been made an entered into as of July 14, 2004; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 1. Employment. Company shall employ Employee and Employee shall perform services on behalf of Company as its employee as provided herein during the Employment Period. In this Agreement, “Employment Period” shall mean the period beginning on the Effective Date, and terminating the date on which Employee’s employment is terminated in accordance with the provisions of Section 11 hereof or upon the death of Employee, whichever occurs first. 2. Capacity and Services. Company shall employ Employee as President and Chief Executive Officer of Company. Employee shall perform such duties and have such authority as may from time to time be assigned, delegated or limited by Company’s Board of Directors (the “Board”) or the President and Chief Executive Officer of SYNNEX Corporation. Employee shall perform these duties in accordance with the charter documents and by-laws of Company, the instructions of the Board, the President and Chief Executive Officer of SYNNEX Corporation and Company policy. Employee shall diligently and faithfully serve Company and use Employee’s best efforts to promote the interests and goodwill of Company. 3. Full Time and Attention. Employee shall devote 100% of Employee’s business time to Employee’s duties hereunder, provided however that the Employee shall be entitled to engage in other commercial and community activities provided that those activities do not conflict with the Employee’s duties hereunder or are not adverse to the interests of Company, including without limitation, participation on boards of directors of other companies of which the Employee is as of the date hereof a director and such other entities as consented to by the Company in writing. 4. Salary. The base salary rate of Employee shall be CAD$110,000.00 per year, subject to withholdings and payable in accordance with Company’s usual payroll practices (“base salary”). Employee’s base salary and performance may be reviewed on an annual basis. In its sole discretion, Company may increase Employee’s base salary rate. 5. Discretionary Bonus. In addition to base salary, Employee will be eligible, but in no event entitled, to receive bonus compensation based on the discretion and profitability of Company and/or other criteria as may be determined at Company’s sole discretion from time to time. Bonus plans, entitlement and eligibility may be modified from time to time at the discretion of Company’s Board of Directors or SYNNEX Corporation, but in any event, shall be consistent with Company’s plans and practices for other senior executives of Company. Source: SYNNEX CORP, 10-K, February 13, 2007
    • -2- 6. Executive Compensation. In addition to base salary, and in accordance with applicable plans, policies and programs, the Employee shall be eligible to participate in SYNNEX Corporation’s stock option plan and any other executive compensation programs that may be in place from time to time for senior executives of Company, on a basis consistent with other senior executives of Company. 7. Health and Welfare Benefits. Employee will be entitled to participate in Employee health benefit programs which are generally made available to senior executives of Company. Company may, at any time and from time to time, modify, suspend, or discontinue any or all such benefits for its employees generally or for any group thereof, without any obligation to replace any such benefit with any other benefit, or to otherwise compensate Employee in respect thereof. 8. Vacation. Employee is entitled to take up to four weeks’ vacation per calendar year. Unless otherwise agreed in writing, vacation must be taken in the year in which it accrues, may not be carried over from year to year. The taking and timing of vacations shall be in accordance with Company’s policies and practices for senior Employees taking into consideration the needs of Company. 9. Expenses Incidental to Employment. Company shall promptly reimburse Employee in accordance with its normal policies and practices for Employee’s travel and other expenses or disbursements reasonably and necessarily incurred or made in connection with Company’s business. 10. Proprietary Information and Inventions Agreement. Employee will comply with the terms of Company’s Proprietary Information and Inventions Agreement, attached hereto as Schedule “A”, the terms of which are incorporated herein by reference and together shall be referred to as this “Agreement”. 11. Non-Competition. During Employee’s employment with Company and for a period of two years thereafter, Employee shall not engage in any activity which is “in competition” with Company in Canada, provided however that if Employee is terminated following a change in control of Company said two year period shall be reduced to nil. For the purposes hereof, “in competition” means acting, directly or indirectly, alone or as a partner, officer, director, employee, consultant, agent, independent contractor or shareholder of any entity that is in competition with the products or services from time to time being designed, developed, licensed, marketed or sold by Company. 12. Termination. (a) Cause. Company may immediately terminate the employment of Employee at any time for Cause by providing written notice to Employee of Employee’s immediate termination of employment. If Company terminates the employment of Employee for Cause under this Section 11(a), Employee’s benefits shall cease and Company shall not be obligated to make any further payments under this Agreement except amounts due and owing at the time of the termination. Without limiting the foregoing, any one or more of the following events shall constitute Cause: (i) theft, dishonesty, or breach of law by Employee; (ii) any material breach or default of Employee’s obligations hereunder, or any material neglect of duty, misconduct or disobedience of Employee in discharging any of Employee’s duties and responsibilities hereunder; Source: SYNNEX CORP, 10-K, February 13, 2007
    • -3- (iii) Employee’s acceptance of a gift of any kind, other than gifts of nominal or inconsequential value, from any source directly or indirectly related to Employee’s employment with Company, except if the acceptance of such a gift is in the ordinary course of business in the industry of Company provided that Employee provides notice to Company’s Board of Directors’ of his acceptance of such a gift; (iv) any failure of or refusal by Employee to comply with the reasonable and lawful policies, rules and regulations of Company; or (v) anything or any behaviour on the part of Employee that constitutes just Cause at law in accordance with the laws of the Province of Ontario. (b) Resignation. Employee shall give Company 30 days’ written notice of the resignation of Employee’s employment hereunder and, subject to the following sentence, Employee’s employment shall terminate on the date specified in the notice. Upon receipt of Employee’s notice of resignation, or at any time thereafter, Company shall have the right to elect to pay Employee’s base salary for the remainder of the notice period and continue Employee’s benefits for the period of notice (subject to any exclusions required by Company’s insurers), and if Company so elects, Employee’s employment shall terminate immediately upon such payment. (c) Disability. “Disability” as used in this Agreement shall mean a physical or mental incapacity of Employee that has prevented Employee from performing the essential duties customarily assigned to Employee, with all reasonable accommodations required by law, for 180 days, whether or not consecutive, out of any 12 consecutive months and that in the opinion of Company’s Board of Directors, acting reasonably, is likely to continue. If Company determines that Employee has suffered any Disability, Company may terminate Employee’s employment by notice given to Employee. If Employee’s employment terminates by reason of notice given under this Section 11(c), Employee shall receive, in lieu of all amounts otherwise payable hereunder (except for amounts earned but not yet paid to Employee through the date of such Disability), compensation at Employee’s base salary rate for a 3-month period following the date of Disability. If and for so long as Employee is eligible and meets any conditions of Company’s plans and policies, Employee will be entitled to long-term disability benefits. (d) Termination on Notice. Company may terminate the employment of Employee at any time without Cause, by prior written notice or pay in lieu of notice given to Employee in accordance with applicable employment laws and the common law of the Province of Ontario. Company will recognize Employee’s service with EMJ for the purpose of determining the period of notice. (e) Resignation for Good Reason. Employee may resign his employment hereunder for Good Reason upon written notice to Company specifying the reasons for resigning for Good Reason. If Employee resigns his employment hereunder for Good Reason, Employee shall be entitled to a payment in lieu of notice in accordance with applicable laws of the Province of Ontario as if Employee’s employment had been terminated without Cause and without prior notice. For the purposes of this Agreement, resignation for “Good Reason” means a resignation by Employee due to a: (i) significant or material diminution in Employee’s authority, duties or responsibilities normally associated with Employee’s position, that is not cured within 10 days of written notification thereof to Company by Employee; Source: SYNNEX CORP, 10-K, February 13, 2007
    • -4- (ii) significant or material change in Employee’s current reporting relationships without prior reasonable notice (which is to be calculated in accordance with paragraph 11(d) hereto), that is not cured within 10 days of written notification thereof to Company by Employee; or (iii) reduction by Company of Employee’s base salary rate. (f) Employee’s health and welfare benefit coverage shall cease upon termination of Employee’s employment pursuant to Sections 11(d) or 11(e), except that where the employment is terminated by pay in lieu of notice, benefit coverage (subject to any exclusions required by Company’s insurers) shall continue only until the expiry of the notice period or until Employee commences other employment, whichever occurs first. For the purposes of this Section 11 and Company’s obligations, “pay in lieu of notice” of “payment in lieu of notice” shall be at Employee’s base salary rate and shall not include any bonus, incentive, executive compensation, stock options, or other discretionary income or benefits, and shall be paid in a lump sum promptly following Employee’s termination of employment subject to dispute as to the length of notice period for which payment is to be made. The notice or payments provided for in this Section 11 shall be inclusive of Employee’s entitlement to notice, termination pay, and severance pay under the Employment Standards Act, 2000, shall satisfy all of Company’s obligations in relation to the termination of Employee’s employment and shall be accepted and received by Employee in lieu of any other notice, pay in lieu of notice, termination pay, severance pay, claim or cause of action for damages relating to the termination of Employee’s employment. Employee acknowledges and agrees that the provisions of Section 11 are fair and reasonable, subject to dispute as to the length of notice period for which payment is to be made, and are the result of negotiation. (g) Employee shall be entitled to all earned but unpaid base salary and payments in respect of expenses subject to reimbursement accrued or incurred up to and including the date on which notice of termination or resignation is given. 13. Results of Termination. Upon termination of Employee’s employment, this Agreement shall remain in force except that the provisions of 2, 3, 4, 5, 6, 7 and 8 shall terminate, and Company shall have no further obligations or responsibilities to Employee hereunder or under any of Company’s employee benefit programs except as expressly provided in Section 11, and nothing herein contained shall be construed to limit or restrict in any way Company’s ability to pursue any remedies it may have at law or equity pursuant to the provisions of this Agreement of Employee’s employment. 14. Representations and Warranties. Employee represents and warrants to Company that the execution and performance of this Agreement will not result in or constitute a default, breach, or violation, or an event that, with notice or lapse of time or both, would be a default, breach, or violation, of any understanding, agreement or commitment, written or oral, express or implied, to which Employee is a party or by which Employee or Employee’s property is bound. Employee shall defend, indemnify and hold Company harmless from any liability, expense or claim (including solicitor’s fees incurred in respect thereof) by any person in any way arising out of, relating to, or in connection with any incorrectness of breach of the representations and warranties in this Section 13. 15. Rights and Remedies. All rights and remedies of the parties are separate and cumulative, and none of them, whether exercised or not, shall be deemed to be to the exclusion of any other rights or remedies or shall be deemed to limit or prejudice any other legal or equitable rights or remedies which either of the parties may have. Source: SYNNEX CORP, 10-K, February 13, 2007
    • -5- 16. Waiver. Any purported waiver of any default, breach or non-compliance under this Agreement is not effective unless in writing and signed by the party to be bound by the waiver. No waiver shall be inferred from or implied by any failure to act or delay in acting by a party in respect of any default, breach or non-observance or by anything done or omitted to be done by the other party. The waiver by a party of any default, breach or non-compliance under this Agreement shall not operate as a waiver of that party’s rights under this Agreement in respect of any continuing or subsequent default, breach or non-observance (whether of the same or any other nature). 17. Severability. Any provision of this Agreement that is prohibited or unenforceable shall be ineffective to the extent of the prohibition or unenforceability and shall be severed from the balance of this Agreement, all without affecting the remaining provisions of this Agreement or affecting the validity or enforceability of such provision. 18. Notices. Any notice or other communication required or permitted to be given or made under this Agreement shall be in writing and shall be effectively given and made if (i) delivered personally, (ii) sent by prepaid courier service, or (iii) sent by fax, or other similar means of electronic communication, in each case to the applicable address set out below: (a) if to Company, to: SYNNEX Canada Limited 44201 Nobel Drive Fremont, CA 94538 Attn: Chief Financial Officer General Counsel Fax: (510) 656-3333 (b) if to Employee, to: James A. Estill c/o EMJ Data Systems Ltd. 7067 Wellington Rd. 124 RR6, Guelph, Ontario, Canada N1H 6J3 Attn: Jim Estill Fax: (519) 837-1479 Any such communication so given or made shall be deemed to have been given or made and to have been received on the day of delivery if delivered by 5:00 p.m. on that day. Otherwise, the communication shall be deemed to have been given and made and to have been received on the next following business day. Any party may from time to time change its address under this Section 17 by notice to the other party given in the manner provided by this section. 19. Successors and Assigns. This Agreement shall enure to the benefit of, and be binding on, the parties and their respective heirs, administrators, executors, successors and permitted assigns. Company shall have the right to assign this Agreement to any successor (whether direct or indirect, by purchase, amalgamation, arrangement, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company provided only that Company must first require the successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. Employee by Employee’s signature hereto expressly consents to such assignment. Employee shall not assign or transfer, whether absolutely, by way of security or otherwise, all or any part of Employee’s rights or obligations under this Agreement without the prior consent of Company, which may be arbitrarily withheld. Source: SYNNEX CORP, 10-K, February 13, 2007
    • -6- 20. Entire Agreement. This Agreement and its Schedules, and applicable provisions of the Retention Escrow Agreement constitute the entire agreement and understanding with respect to the employment of Employee by Company and related covenants and supersedes any and all prior agreements and understandings, whether oral or written, relating thereto. This Agreement shall not be modified or amended except by written agreement signed by Employee and by a representative of Company pursuant to a duly adopted resolution of its Board of Directors approving such modification or amendment 21. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable in that Province. 22. Headings. The division of this Agreement into sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 23. Full Satisfaction. The terms set out in this Agreement, provided that such terms are satisfied by Company, are in lieu of (and not in addition to) and in full satisfaction of any and all other claims or entitlements which Employee has or may have upon the termination of Employee’s employment and the compliance by Company with these terms will effect a full and complete release of Company and its parent and their respective affiliates, associates, subsidiaries and related companies from any and all claims which Employee may have for whatever reason or cause in connection with Employee’s employment and the termination of it, other than those obligations specifically set out in this Agreement. In agreeing to the terms set out in this Agreement, Employee specifically agrees to deliver upon request appropriate resignations from all offices and positions with Company and its parent and their respective affiliated, associated, subsidiary or related companies if, as and when requested by Company upon termination of Employee’s employment within the circumstances contemplated by this Agreement. 24. Acknowledgement. Employee acknowledges that: (a) Employee’s obligations under this Agreement are in addition to and not in substitution of any fiduciary duty Employee may owe to Company, its parent and/or its affiliates; (b) Employee has read and understands the terms of this Agreement and the obligations hereunder; (c) Employee has been given an opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement; and (d) Employee has received a fully executed original copy of this Agreement. [remainder of page intentionally left blank; signature page follows] Source: SYNNEX CORP, 10-K, February 13, 2007
    • -7- IN WITNESS WHEREOF the parties have executed this Agreement. Date: July 14, 2004 /s/ Pamela Hughes /s/ James A. Estill Witness James A. Estill Date: July 14, 2004 SYNNEX Canada Limited /s/ Simon Y. Leung By: Name: Simon Y. Leung Title: General Counsel and Corporate Secretary Source: SYNNEX CORP, 10-K, February 13, 2007
    • Schedule “A” PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT The following Agreement confirms certain terms of my employment with SYNNEX Canada Limited, (hereafter referred to as “SYNNEX” or “the Company”), which is a material part of the consideration for my employment by the Company and the compensation received by me from the Company from time to time. The headings contained in this Agreement are for convenience only, have no legal significance, and are intended to change or limit this Agreement in any matter whatsoever. A. Definitions 1. The “Company” As issued in this Agreement, the “Company” refers to SYNNEX and each of its subsidiaries or affiliated companies. I recognize and agree that my obligations under this Agreement and all term of this Agreement apply to me regardless of whether I am employed by or work for SYNNEX or any other subsidiary or affiliated company of SYNNEX. Furthermore, I understand and agree that the terms of this Agreement will continue to apply to me even if I transfer at some time from one subsidiary or affiliate of the Company to another. 2. “Proprietary Information” I understand that the Company possesses and will possess Proprietary Information which is important to its business. For purposes of this Agreement, “Proprietary Information” is information that was or will be developed, created, or discovered by or on behalf of the Company, or which became or will become known by, or was or is conveyed to the Company, which has commercial value in the Company’s business. “Proprietary Information” includes, but is not limited to information about software programs and subroutines, source and object code, algorithms, trade secrets, designs, technology, know-how, processes, data, ideas, techniques, inventions (whether patentable or not), works or authorship, formulas, business and product development plans, customer lists, terms of compensation and performance levels of Company employees, Company customers and other information concerning the Company’s actual or anticipated business, research or development, or which is received in confidence by or for the Company from any other person. I understand that my employment creates a relationship of confidence and trust between the Company and me with respect to Proprietary Information. 3. “Company Documents and Materials” I understand that the Company possesses or will posses “Company Documents and Materials” which are important to its business. For purposes of this Agreement, “Company Documents and Materials” are documents or other media or tangible items that contain or embody Proprietary Information of any other information concerning the business, operations or plan of the Company, whether such documents, media or items have been prepared by me or by others. “Company Documents and Material” include, but are not limited to, blueprints, drawings, photographs, charts, graphs, notebook, customer lists, computer disks, tapes or printouts, sound recordings and other printed, typewritten or handwritten documents, sample products, prototypes and models. B. Assignment of Rights All Proprietary Information, and all patents, patent rights, copyrights, trade secret rights, trademark rights and other rights (including, without limitation; intellectual property rights) anywhere in the world in connection with Proprietary Information, is and shall be the sole property of the Company. I hereby assign to the Company any and all rights, title and interest I may have or acquire in such Proprietary Information. Source: SYNNEX CORP, 10-K, February 13, 2007
    • -2- At all times, both during my employment by the Company and after its termination, I will keep in confidence and trust and will not use or disclose any Proprietary Information or anything relating to it without the prior written consent of an officer of the Company, except as may be necessary in the ordinary course of performing my duties to the Company. C. Maintenance and Return of Company Documents and Materials I agree to make and maintain adequate and current written records, in a form specified by the Company, of all inventions, trade secrets and works of authorship assigned or to be assigned to the Company pursuant to this Agreement. All Company Documents and Material are and shall be the sole property of the Company. I agree that during my employment by the Company, I will not remove any Company Documents and Material from the business premises of the Company or deliver any Company Document and Materials to any person or entity outside the Company, except as I am required to do in connection with performing the duties of my employment. I further agree that, immediately upon the termination of my employment by me or by the Company for any reason, or during my employment if so requested by the Company, I will return all Company Documents and Material, apparatus, equipment and other physical property, or any reproduction of such property, excepting only (i) my personal copies of records relating to my compensation; (ii) my personal copies of any material previously distributed generally to stockholders of the Company; (iii) my copy of this Agreement. D. Disclosure of Inventions to the Company I will promptly disclose in writing to my immediate supervisor or to such other person designated by the Company all “Inventions”, which includes, without limitation, all software programs or subroutines, source or object code, algorithms, improvements, inventions, works of authorship, trade secrets, technology, designs, formulas, ideas, processes, techniques, know-how and data, whether or not patentable, made or discovered or conceived or reduced to practice or developed by me, either alone or jointly with others, during the term of my employment. I will also disclose to the President of the Company all Inventions made, discovered, conceived, reduced to practice, or developed by me within six (6) months after the termination of my employment with the Company which resulted, in whole or in part, from my prior employment by the Company. Such disclosures shall be received by the Company in confidence (to the extent such Inventions are not assigned to the Company pursuant to Section (E) below) and do not extend the assignment made in Section (E) below. E. Rights to New Ideas 1. Assignment of Inventions to the Company I agree that all Inventions which I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall be the sole property of The Company. I also agree to assign and release all interests in any such Inventions to The Company and to execute all documents required to apply for and obtain Letters Patent or copyright in Canada or in any other country. The assignment shall not extend to Inventions, the assignment of which is prohibited by any applicable law. 2. Works Made for Hire The Company shall be the sole owner of all patents, patents rights, copyrights, trade secret rights, trademark rights and all other intellectual property or other rights in connection with Inventions. I further acknowledge and agree that such Inventions, including, without limitation, any computer programs, programming documentation, and other works of authorship, are “works made for hire” for purposes of the Company’s rights under copyright laws. I hereby assign to the Company any and all rights, title and interest I may have or acquire in such Inventions. If in the course of my employment with the Company, I incorporate into a Company product, process or machine a prior Invention owned by me or in which I have interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, sublicensable, worldwide license to make, have made, modify, use, market, sell, and distribute such prior Invention as part of or in connection with such product, process or machine. Source: SYNNEX CORP, 10-K, February 13, 2007
    • -3- 3. Cooperation I agree to perform, during and after my employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s expense, in further evidencing and perfecting the assignments made to the Company under this Agreement and in obtaining, maintaining, defending and enforcing patents, patent rights, copyrights, trademark rights, trade secret rights or any other rights in connection with such Inventions and improvements thereto in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance of cooperation in legal and proceedings. I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents, as my agents and attorney-in-fact to act for and on my behalf and instead of me, to execute and file any documents, applications or related finding and to do all other lawfully permitted acts to further the purposes set forth above in the Subsection 1, including, without limitation, the perfection of assignment and the prosecution and issuance of patents, patent applications, copyright applications and registrations, trademark applications and registrations or other rights in connection with such Inventions and improvements thereto with the same legal force and effect as if executed by me. 4. Assignment or Waiver of Moral Rights Any assignment of copyright hereunder (and any ownership of a copyright as a work made for hire) include all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights” (collectively “Moral Rights”). To the extent such Moral Rights cannot be assigned under applicable law and to the extent the following is allowed by the laws in the various countries where Moral Rights exist, I hereby waive such Moral Rights and consent to any action of the Company that would violate such Moral Rights in the absence of such consent. 5. List of Inventions I have attached hereto as Exhibit A a complete list of all inventions or improvements to which I claim ownership and that I desire to remove from the operation of this Agreement, and I acknowledge and agree that such list is complete. If no such list is attached to this Agreement, I represent that I have no such inventions or improvements at the time of signing this Agreement. F. Non-Solicitation of Company Employees During the term of my employment and for one (1) year thereafter (the “Applicable Period”), I will not directly or indirectly encourage or solicit any employee of the Company to leave the Company for any reason or to accept employment with any other company, or to otherwise alter his, her of their relationship with Company. In accordance with this restriction, I will not interview or provide any input to any third party regarding any such person during the Applicable Period. However, this obligation shall not affect any responsibility I may have as an employee of the Company with respect to the bona fide hiring and firing of Company personnel. G. Company Authorization for Publication Prior to submitting or disclosing for possible publication or dissemination outside the Company any material prepared by me that incorporates information that concerns the Company’s business, I agree to deliver a copy of such material to an officer of the Company for his or her review. Within twenty (20) days following such submission, the Company agrees to notify me in writing whether the Company believes such material contains any Proprietary Information or Inventions, and I agree to make such deletions and revisions as are reasonably requested by the Company to protect its Proprietary Information and Inventions. I further agree to obtain the written consent of the Company prior to any review of such material by persons outside the Company. Source: SYNNEX CORP, 10-K, February 13, 2007
    • -4- H. Duty of Loyalty I agree that, during my employment with the Company, I will not provide consulting services to or become an employee of, any other firm or person engaged in a business in any way competitive with the Company, without first informing the Company of the existence of such proposed relationship and obtaining the prior written consent of my manager and the Human Resources Manager responsible for the organization in which I work. I. Former Employer Information I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment by the Company, and I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others. I have not entered into and I agree I will not enter into any agreement, either written or oral, in conflict herewith or in conflict with my employment with the Company. I further agree to conform to the rules and regulation of the Company. J. Severability I agree that if one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. K. Authorization to Notify New Employer I hereby authorize the Company to notify my new employer about my rights and obligations under this Agreement following the termination of my employment with the Company. L. Effective Date This Agreement shall be effective as of the first day of my employment with the Company and shall be binding upon me, my heirs, executor, assigns and administrators and shall inure to the benefit of the Company, its subsidiaries, successors and assigns. M. Governing Law This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable to that province, and should be treated, in all respects, as an Ontario contract. [remainder of page intentionally left blank; signature page follows] Source: SYNNEX CORP, 10-K, February 13, 2007
    • -5- I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT VOLUNTARILY AND FREELY. July 14, 2004 /s/ James A. Estill Date James A. Estill Source: SYNNEX CORP, 10-K, February 13, 2007
    • -6- EXHIBIT A 1. The following is a complete list of all inventions or improvement relevant to the subject matter of my employment by the Company that have been made or discovered or conceived or first reduced to practice by me or jointly with others prior to my employment by the Company that I desire to remove from the operation of the Company’s Proprietary Information and Inventions Agreement: x No Inventions or improvements ¨ See below: Any and all inventions regarding ¨ Additional sheets attached 2. I propose to bring to my employment the following material and documents that I obtained during the period of my prior employment. These materials and documents are not the property of any third party and are not subject to any restrictions under any non-disclosure agreement or other agreement limiting their use. x No materials or documents ¨ See below: July 14, 2004 /s/ James A. Estill Date James A. Estill Source: SYNNEX CORP, 10-K, February 13, 2007
    • Exhibit 10.15 EXECUTION VERSION SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of February 12, 2007 among SYNNEX CORPORATION as Borrower and THE LENDERS SIGNATORY HERETO FROM TIME TO TIME, as Lenders and GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender and GE CAPITAL MARKETS SERVICES, INC., as Sole Lead Arranger and Bookrunner Source: SYNNEX CORP, 10-K, February 13, 2007
    • TABLE OF CONTENTS Page ARTICLE 1 AMOUNT AND TERMS OF CREDIT SECTION 1.1. Credit Facilities SECTION 1.2. Repayment; Reduction or Termination of Commitment 6 SECTION 1.3. Use of Proceeds 8 SECTION 1.4. Interest 8 SECTION 1.5. Eligible Inventory; Eligible Receivables 11 SECTION 1.6. Fees 13 SECTION 1.7. Cash Management System 13 SECTION 1.8. Receipt of Payments 13 SECTION 1.9. Application and Allocation of Payments 14 SECTION 1.10. Lenders’ Additional Rights 15 SECTION 1.11. Accounting 15 SECTION 1.12. Indemnity 15 SECTION 1.13. Access 16 SECTION 1.14. Taxes 17 SECTION 1.15. Capital Adequacy; Increased Costs; Illegality 18 SECTION 1.16. Single Loan 20 SECTION 1.17. Pro Rata Treatment 20 SECTION 1.18. Bank Products 21 SECTION 1.19. Non-Receipt of Funds by the Agent 21 SECTION 1.20. Swap Related Reimbursement Obligations 22 ARTICLE 2 CONDITIONS PRECEDENT SECTION 2.1. Conditions to Effectiveness 23 SECTION 2.2. Conditions to Each Advance and Letter of Credit 24 ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1. Existence; Compliance with Law 25 SECTION 3.2. Executive Offices; Collateral Locations; Corporate or Other Names 25 SECTION 3.3. Power; Authorization; Enforceable Obligations 25 SECTION 3.4. Financial Statements and Projections 26 SECTION 3.5. No Litigation 26 SECTION 3.6. Taxes 26 SECTION 3.7. Material Adverse Change 27 SECTION 3.8. Ownership of Property; Liens 27 SECTION 3.9. Restrictions; No Default; Material Contracts 28 SECTION 3.10. Labor Matters 28 SECTION 3.11. Ventures, Subsidiaries and Affiliates; Outstanding Stock and Debt 29 i Source: SYNNEX CORP, 10-K, February 13, 2007
    • TABLE OF CONTENTS (Cont’d) Page SECTION 3.12. Government Regulation 29 SECTION 3.13. Margin Regulations 30 SECTION 3.14. ERISA 30 SECTION 3.15. Brokers 31 SECTION 3.16. Patents, Trademarks, Copyrights and Licenses 31 SECTION 3.17. Full Disclosure 32 SECTION 3.18. Hazardous Materials 32 SECTION 3.19. Insurance Policies 32 SECTION 3.20. Deposit and Disbursement Accounts 32 SECTION 3.21. Solvency 33 SECTION 3.22. Inactive Subsidiaries 33 ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION SECTION 4.1. Reports and Notices 33 SECTION 4.2. Communication with Accountants 33 ARTICLE 5 AFFIRMATIVE COVENANTS SECTION 5.1. Maintenance of Existence and Conduct of Business 34 SECTION 5.2. Payment of Charges and Claims 34 SECTION 5.3. Books and Records 35 SECTION 5.4. Litigation 35 SECTION 5.5. Insurance 35 SECTION 5.6. Compliance with Laws 36 SECTION 5.7. Agreements 36 SECTION 5.8. Supplemental Disclosure 37 SECTION 5.9. Environmental Matters 38 SECTION 5.10. Landlords’ Agreements, Mortgagee Agreements and Bailee Letters 38 SECTION 5.11. [Reserved] 39 SECTION 5.12. Application of Proceeds 39 SECTION 5.13. Fiscal Year 39 SECTION 5.14. Casualty and Condemnation 39 SECTION 5.15. Subsidiaries 40 SECTION 5.16. Intellectual Property 40 SECTION 5.17. Further Assurances 41 ARTICLE 6 NEGATIVE COVENANTS SECTION 6.1. Mergers, Subsidiaries, Etc 41 SECTION 6.2. Investments 42 SECTION 6.3. Debt 46 SECTION 6.4. Affiliate and Employee Loans and Transactions 47 SECTION 6.5. Capital Structure and Business 48 ii Source: SYNNEX CORP, 10-K, February 13, 2007
    • TABLE OF CONTENTS (Cont’d) Page SECTION 6.6. Guaranteed Debt 49 SECTION 6.7. Liens 50 SECTION 6.8. Sale of Assets 50 SECTION 6.9. Material Contracts 51 SECTION 6.10. ERISA 51 SECTION 6.11. Financial Covenants 52 SECTION 6.12. Hazardous Materials 52 SECTION 6.13. Sale-Leasebacks 52 SECTION 6.14. Cancellation of Debt 52 SECTION 6.15. Restricted Payments 52 SECTION 6.16. Real Property Leases 53 SECTION 6.17. Bank Accounts 53 SECTION 6.18. No Speculative Transactions 53 SECTION 6.19. Margin Regulations 54 SECTION 6.20. Limitation on Negative Pledge Clauses, Etc 54 SECTION 6.21. Accounting Changes 55 SECTION 6.22. Amendments and Modifications to Debt Documents 55 SECTION 6.23. Change of Corporate Name or Location; Change of Fiscal Year 55 SECTION 6.24. Changes to Synnex Mexico Loan Documents 56 SECTION 6.25. Mex Bank of America Account 56 SECTION 6.26. SFC Accounts 56 ARTICLE 7 TERM SECTION 7.1. Duration 57 SECTION 7.2. Survival of Obligations 57 ARTICLE 8 EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 8.1. Events of Default 57 SECTION 8.2. Remedies 59 SECTION 8.3. Waivers by Borrower 60 SECTION 8.4. Application of Proceeds 60 ARTICLE 9 ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT SECTION 9.1. Assignment and Participations 61 SECTION 9.2. Appointment of Agent 64 SECTION 9.3. The Agent’s Reliance, Etc 65 SECTION 9.4. GE Capital and Affiliates 65 SECTION 9.5. Lender Credit Decision 66 SECTION 9.6. Indemnification 66 SECTION 9.7. Successor Agent 66 SECTION 9.8. Setoff and Sharing of Payments 67 iii Source: SYNNEX CORP, 10-K, February 13, 2007
    • TABLE OF CONTENTS (Cont’d) Page SECTION 9.9. Advances; Payments; Non-Funding Lenders; Information; Actions in Concert 68 ARTICLE 10 MISCELLANEOUS SECTION 10.1. Complete Agreement; Amendments and Waivers 70 SECTION 10.2. Fees and Expenses 72 SECTION 10.3. No Waiver 73 SECTION 10.4. Remedies 74 SECTION 10.5. Severability 74 SECTION 10.6. Conflict of Terms 74 SECTION 10.7. Right of Set-off 74 SECTION 10.8. Authorized Signature 74 SECTION 10.9. Notices. 75 SECTION 10.10. Section Titles 76 SECTION 10.11. Counterparts 76 SECTION 10.12. Time of the Essence 76 SECTION 10.13. Confidentiality 76 SECTION 10.14. Successors and Assigns 77 SECTION 10.15. Amendment and Restatement 77 SECTION 10.16. Governing Law 78 SECTION 10.17. Waiver of Trial Jury 79 SECTION 10.18. Press Releases and Related Matters 79 SECTION 10.19. Reinstatement 79 SECTION 10.20. Advice of Counsel 80 SECTION 10.21. No Strict Construction 80 SECTION 10.22. Third-Party Beneficiaries; Deliveries to GECDFC; Intercreditor Agreement 80 ANNEX A DEFINITIONS; RULES OF CONSTRUCTION iv Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECOND AMENDED AND RESTATED CREDIT AGREEMENT This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”) (a) is entered into as of February 12, 2007, by and among SYNNEX CORPORATION, a Delaware corporation (the “Borrower”), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“GE Capital”), for itself as Lender, and as Agent for the Lenders, and the other Lenders signatory hereto from time to time, and (b) amends and restates the First Amended Credit Agreement defined below. RECITALS WHEREAS, the Borrower and GE Capital are parties to that certain Amended and Restated Credit Agreement dated as of July 9, 2002, as amended by Amendment No. 1, dated as of October 17, 2002, Amendment No. 2, dated as of May 15, 2003, Amendment No. 3, dated as of June 30, 2003, Amendment No. 4, dated as of September 5, 2003, Amendment No. 5, dated as of December 30, 2003, Amendment No. 6, dated as of September 17, 2004, Amendment No. 7, dated as of September 16, 2005, Amendment No. 8, dated as of February 8, 2006, and Amendment No. 9, dated as of May 17, 2006, and as further amended, supplemented or otherwise modified from time to time prior to the date hereof (the “First Amended Credit Agreement”), which First Amended Credit Agreement, in turn, amended and restated in its entirety, that certain Credit Agreement dated as of December 19, 1997 by and between Borrower and GE Capital (the “Original Credit Agreement”); and WHEREAS, the Borrower desires to borrow up to $50,000,000 in the aggregate from the Lenders, and to reserve the right to request additional revolving loan commitments of up to $50,000,000 in the aggregate, and the Lenders are willing to make certain loans and other financial accommodations in favor of the Borrower of up to such amounts in the aggregate upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings ascribed to them in Annex A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern. Unless otherwise indicated, all references in this Agreement to articles, sections, subsections, schedules, annexes, exhibits, and attachments shall refer to the corresponding articles, sections, subsections, schedules, annexes, exhibits, and attachments of or to this Agreement. All schedules, annexes, exhibits and attachments hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. Unless otherwise expressly set forth herein or in a written amendment referring to such schedules and annexes, all schedules and annexes referred to herein shall mean the schedules and annexes as in effect as of the Effective Date. The above Recitals shall be construed as part of this Agreement. 1 Source: SYNNEX CORP, 10-K, February 13, 2007
    • ARTICLE 1 AMOUNT AND TERMS OF CREDIT SECTION 1.1. Credit Facilities. (a) Revolving Credit Facility. (i) Upon and subject to the terms and conditions hereof, each Lender severally agrees to make available from time to time until the Commitment Termination Date its Pro Rata Share of advances (each, a “Revolving Credit Advance”) to the Borrower. Each Lender’s Pro Rata Share of the Revolving Credit Loan shall not exceed its separate Revolving Credit Commitment. The obligations of each Lender hereunder shall be several and not joint. The aggregate principal amount of Revolving Credit Advances outstanding shall not exceed at any time the lesser of (A) the Maximum Amount and (B) the Borrowing Base, in each case less the principal amount of the Swing Line Loan and Letter of Credit Obligations outstanding at such time. Until the Commitment Termination Date, the Borrower may from time to time borrow, repay and reborrow under this Section 1.1(a)(i). (ii) Each Revolving Credit Advance shall be made on notice by the Borrower in writing (by telecopy or overnight courier) to the Agent (which shall promptly notify the Lenders) at its address at 100 California Street, 10th floor, San Francisco, CA 94111, Attention: SYNNEX Corporation, Account Manager, Telecopier No.: (513) 794-8542, Telephone No.: (415) 277-7400, or such other address as is notified to Borrower in writing by Agent. Such notice shall be given no later than noon (New York time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan, or noon (New York time) on the date which is three (3) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice of borrowing (a “Notice of Revolving Credit Advance”) shall be substantially in the form of Exhibit 1.1(a)(ii) hereto and shall include the information required in such Exhibit and such other information as may reasonably be required by the Agent. If the Borrower desires to have the Revolving Credit Advances bear interest by reference to the LIBOR Rate, it must comply with Section 1.4 (d). The Agent shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Revolving Credit Advance, Notice of Conversion/Continuation or similar notice believed by the Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for the Agent shall have actual knowledge to the contrary. (iii) The Borrower shall execute and deliver to each Lender a note to evidence the Revolving Credit Commitment of that Lender. Each note shall be in the principal amount of the Revolving Credit Commitment of the applicable Lender, dated the Effective Date and substantially in the form of Exhibit 1.1(a)(iii). Each Revolving Credit Note shall represent the obligation of the Borrower to pay the amount of each Lender’s Revolving Credit Commitment or, if less, the applicable Lender’s Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances to the Borrower, together with interest thereon as prescribed in Section 1.4. The entire unpaid balance of the Revolving Credit Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available 2 Source: SYNNEX CORP, 10-K, February 13, 2007
    • funds on the Commitment Termination Date. The date and amount of each Revolving Credit Advance made by the Lenders to the Borrower and each payment of principal with respect thereto shall be recorded on the books and records of such Lender, which books and records shall constitute conclusive evidence, absent manifest error, of the accuracy of the information therein recorded. (iv) The Borrower shall furnish to the Agent and each Lender a Borrowing Base Certificate substantially in the form of Exhibit 1.1(a)(iv) hereto, completed and signed by an officer of the Borrower listed in Schedule 10.8, which certificate sets forth a calculation of the Borrowing Base of the Borrower at the times and for the periods set forth in Annex E. The Borrower agrees that, in making any Revolving Credit Advance available to the Borrower hereunder, the Agent and each Lender shall be entitled to rely upon the most recent Borrowing Base Certificate delivered to the Agent and the Lenders by the Borrower. The Borrower further agrees that if the Borrower shall have failed to deliver a Borrowing Base Certificate to the Agent and the Lenders within the specified period, the Lenders shall be under no obligation to make any further Revolving Credit Advances to the Borrower, or incur any additional Letter of Credit Obligations, until such time as such Borrowing Base Certificate is delivered to the Agent and the Lenders. (v) Any provision of this Agreement to the contrary notwithstanding, at the request of Borrower, in its discretion Agent may (but shall have absolutely no obligation to), make Revolving Credit Advances to Borrower on behalf of the Lenders in amounts that cause the outstanding balance of the aggregate Revolving Credit Loan to exceed the Borrowing Base (less the Swing Line Loan) (any such excess Revolving Credit Advances are herein referred to collectively as “Overadvances”); provided that (A) no such event or occurrence shall cause or constitute a waiver of Agent’s, the Swing Line Lender’s or Lenders’ right to refuse to make any further Overadvances, Swing Line Advances or Revolving Credit Advances, or incur any Letter of Credit Obligations, as the case may be, at any time that an Overadvance exists, (B) no Overadvance shall result in a Default or Event of Default due to Borrower’s failure to comply with Section 1.2(b) for so long as Agent permits such Overadvance to remain outstanding, but solely with respect to the amount of such Overadvance, and (C) no Overadvance may remain outstanding more than 30 days (and for at least five consecutive Business Days after such Overadvance is repaid, no further Overadvance may be made). In addition, Overadvances may be made even if the conditions to lending set forth in Section 2 have not been met. All Overadvances shall constitute Index Rate Loans, shall bear interest at the Default Rate and shall be payable on the earlier of demand or the Commitment Termination Date. Except as otherwise provided in Section 1.9, the authority of Agent to make Overadvances is limited to an aggregate amount not to exceed 10% of the Borrowing Base at any time, shall not cause the Revolving Credit Loan to exceed the Maximum Amount, and may be revoked prospectively by a written notice to Agent signed by the Lenders holding more than 50% of the Revolving Loan Commitments. (b) Swing Line Facility. (i) Upon and subject to the terms and conditions hereof, the Swing Line Lender agrees to make available from time to time until the Commitment Termination Date advances (each, a “Swing Line Advance”) to the Borrower. The aggregate 3 Source: SYNNEX CORP, 10-K, February 13, 2007
    • amount of Swing Line Advances outstanding shall not exceed the lesser of (A) the Swing Line Commitment and (B) the lesser of (x) the Maximum Amount, and (y) (except for Overadvances) the Borrowing Base, in either case less the outstanding principal balance of the Revolving Credit Loan at such time (“Swing Line Availability”). Until the Commitment Termination Date, the Borrower may from time to time borrow, repay and reborrow under this Section 1.1(b). Each Swing Line Advance shall be made on notice by the Borrower in writing (by telecopy or overnight courier) to the Agent at its address at 100 California Street, 10th floor, San Francisco, CA 94111, Attention: SYNNEX Corporation, Account Manager, Telecopier No.: (513) 794-8542, Telephone No.: (415) 277-7400, or such other address as is notified to Borrower in writing by Agent. Such notice shall be given no later than noon (New York time) on the Business Day of the proposed Swing Line Advance. Each such notice of borrowing (a “Notice of Swing Line Advance”) shall be substantially in the form of Exhibit 1.1(b)(i) hereto and shall include the information required in such Exhibit and such other information as may reasonably be required by the Agent. The Agent shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Swing Line Advance or similar notice believed by the Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for the Agent shall have actual knowledge to the contrary. Unless the Swing Line Lender has received at least one Business Day’s prior written notice from the Requisite Lenders instructing it not to make a Swing Line Advance, the Swing Line Lender shall, notwithstanding the failure of any conditions precedent set forth in Section 2.2, be entitled to fund such Swing Line Advance, and to have each lender make Revolving Credit Advances in accordance with Section 1.1(b)(iii) or purchase participation interests in accordance with Section 1.1(b)(iv). Notwithstanding any other provision of this Agreement or the other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Borrower shall repay the aggregate outstanding principal amount of the Swing Line Loan upon demand therefor by Agent. (ii) The Borrower shall execute and deliver to the Swing Line Lender a promissory note to evidence the Swing Line Commitment. Such note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Effective Date and substantially in the form of Exhibit 1.1(b)(ii) (the “Swing Line Note”). The Swing Line Note shall represent the obligation of the Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to the Borrower together with interest thereon as prescribed in Section 1.4. The entire unpaid balance of the Swing Line Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full. (iii) The Swing Line Lender, at any time and from time to time in its sole and absolute discretion, may, and shall on at least a weekly basis, on behalf of the Borrower (and the Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Lender (including the Swing Line Lender) to make a Revolving Credit Advance to the Borrower (which shall be an Index Rate Loan) in an amount equal to such Lender’s Pro Rata Share of the principal amount of the Swing Line Loan (the “Refunded Swing Line Loan”) outstanding on the date such notice is given. Unless any of the events described in Sections 4 Source: SYNNEX CORP, 10-K, February 13, 2007
    • 8.1(f) shall have occurred (in which event the procedures of Section 1.1(b)(iv) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Lender shall disburse directly to the Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to 3:00 p.m. (New York time), in immediately available funds on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan. (iv) If, prior to refunding the Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1(b)(iii), one of the events described in Sections 8.1(f) shall have occurred, then, subject to the provisions of Section 1.1(b)(v) below, each Lender will, on the date such Revolving Credit Advance was to have been made for the benefit of the Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of the Swing Line Loan. Upon request, each Lender will promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation. (v) Each Lender’s obligation to make Revolving Credit Advances in accordance with Section 1.1(b)(iii) and to purchase participation interests in accordance with Section 1.1(b)(iv) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of the Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participation interest is to be purchased; or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Lender does not make available to the Agent or the Swing Line Lender, as applicable, the amount required pursuant to Section 1.1(b)(iii) or 1.1(b)(iv), as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate plus the Applicable Margin thereafter. (c) The Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation or similar notice believed by the Agent to be genuine. The Agent may assume that each Person executing and delivering such a notice was duly authorized, unless the responsible individual acting thereon for the Agent has actual knowledge to the contrary. SECTION 1.1A Letters of Credit. Subject to and in accordance with the terms and conditions contained herein and in Annex J, Borrower shall have the right to request, and Lenders agree to incur, or purchase participations in, Letter of Credit Obligations in respect of Borrower. 5 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 1.2. Repayment; Reduction or Termination of Commitment. (a) The Borrower hereby promises to pay to the Agent, for the account of each Lender, the entire outstanding principal amount of the Revolving Credit Loan, and the Revolving Credit Loan shall mature, on the Commitment Termination Date. (b) In the event that the outstanding principal balance of the Revolving Credit Loan made to the Borrower shall at any time exceed the Borrowing Availability, the Borrower shall immediately repay the Revolving Credit Advances made to the Borrower in the amount of such excess and, if after such repayment any excess remains because of the Letter of Credit Obligations, such repayment shall be accompanied by cash collateralization or other satisfaction of such Letter of Credit Obligations in accordance with Annex J. Any such excess balance described in the preceding sentence shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all of the benefits thereof and of the Loan Documents and shall be evidenced by the Revolving Credit Notes. Notwithstanding the foregoing, any Overadvance made pursuant to Section 1.1(a)(v) shall be repaid in accordance with Section 1.1(a)(v). (c) The Borrower shall have the right at any time and from time to time, upon sixty (60) days’ prior written notice to the Agent, to permanently reduce (ratably among the Lenders) or terminate voluntarily the Revolving Credit Commitments (in whole or in part) without premium or penalty other than as provided in Section 1.4(e); provided that the Revolving Credit Commitments shall not be reduced to lower than $25,000,000, except in connection with a reduction to zero or a termination thereof. The aggregate amount of any such partial reduction of the Revolving Credit Commitments shall be in integral multiples of $5,000,000 and to the extent, if any, that the Revolving Credit Loan and the Swing Line Loan then outstanding exceed the Maximum Amount at such time (after giving effect to such reduction in the Revolving Credit Commitments), such reduction shall be accompanied by (a) prepayment of the Revolving Credit Advances in the amount of such excess and, if after such prepayment any excess remains because of the Letter of Credit Obligations, such reduction shall be accompanied by cash collateralization or other satisfaction of such Letter of Credit Obligations in accordance with Annex J, in each case together with the payment of any fees, premiums, costs and charges required to be paid pursuant to Section 1.4(e), and accrued interest on the amount so prepaid to the date of such prepayment. Upon the termination of the Revolving Credit Commitments, the Borrower’s right to receive Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances shall terminate and the Borrower’s obligation to pay the Unused Facility Fee shall terminate, and notwithstanding anything to the contrary contained herein or in any Revolving Credit Note, the entire outstanding balance of the Revolving Credit Loan and the Swing Line Loan shall be immediately due and payable. On the date of such termination, the Borrower shall pay to the Agent in immediately available funds all of its Obligations and any accrued and unpaid interest and in accordance with Annex J shall cash collateralize all Letter of Credit Obligations or otherwise satisfy such Letter of Credit Obligations. (d) All Obligations (excluding the GECDFC Obligations), including the Revolving Credit Loan, shall be immediately due and payable, and the Revolving Credit 6 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Commitments shall immediately terminate, in each instance without notice, on the earliest of (x) the occurrence of the “Commitment Termination Date” (as defined in the Receivables Funding Agreement), (y) the date of the voluntary termination by SFC of the loan commitments under the Receivables Funding Agreement or (z) the date of the voluntary termination by the Borrower or SFC of the obligations of the Borrower or SFC to transfer or purchase, as appropriate, receivables pursuant to the Receivables Sale Agreement. (e) For the purposes of increasing the Revolving Credit Commitments, the Borrower may from time to time request a new or additional commitment (an “Incremental Commitment”) from one or more Lenders or other Persons consented to by the Agent pursuant to the Incremental Commitment Agreement (each such Person upon satisfaction of the conditions set forth herein, an “Incremental Lender”) so long as (x) after giving effect to such Incremental Commitment, (A) the Revolving Credit Commitment shall not exceed $100,000,000, (B) each such Incremental Commitment is in a minimum amount of $25,000,000 and integral multiples of $25,000,000 in excess of such amount, and (C) the aggregate amount of all such Incremental Commitments hereunder shall not exceed $50,000,000, and (y) on the date on which such Incremental Commitment is requested to be effective (such date, an “Incremental Commitment Date”), no Default or Event of Default shall have occurred and be continuing, or will occur after giving effect to such Incremental Commitment. No Incremental Commitment pursuant to this Section 1.2(e) shall be effective unless the Borrower delivers to the Agent an Incremental Commitment Agreement executed and delivered by the Borrower and the related Incremental Lender and a certificate executed by an officer of the Borrower listed in Schedule 10.8 to the effect that the condition set forth in clause (y) above is satisfied; provided, that subject to the conditions set forth herein, each Lender hereby commits to provide its Pro Rata Share of each Incremental Commitment at any time prior to the first anniversary of the Effective Date. Neither the Agent nor any Lender shall be obligated to deliver or fund any Incremental Commitment pursuant hereto unless such Person becomes party to an Incremental Commitment Agreement as an Incremental Lender. On each Incremental Commitment Date, and as a condition to becoming a Lender hereunder, the applicable Incremental Lenders shall fund Advances to the Agent in an amount necessary for such Incremental Lender’s Pro Rata Share to be equal to (I) the sum of (A) such Lender’s Revolving Credit Advances, plus (B) such Lender’s share of the obligations to purchase participations in Swing Line Advances and refinance Swing Line Advances pursuant to Section 1.1(b) of this Agreement, divided by (II) the aggregate outstanding principal amount of the Revolving Credit Loan and the Swing Line Loan on such Incremental Commitment Date. Upon receipt of such amount, the Agent shall disburse such amounts to the other Lenders ratably in accordance with their Pro Rata Shares. Notwithstanding anything herein to the contrary, in connection with any request by Borrower for an Incremental Commitment hereunder by any Person, Borrower shall first deliver to the Agent a written notice requesting that the existing Lenders provide such Incremental Commitment hereunder based on such Lenders’ Pro Rata Shares, and to the extent that any Lender hereunder agrees to provide any portion of such Incremental Commitment, such Lender shall always be entitled to fund a portion of such Incremental Commitment that is necessary to preserve its Pro Rata Share hereunder as in effect immediately prior to giving effect to such Incremental Commitment. 7 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (f) Within five (5) Business Days of receipt by the Borrower or any Domestic Subsidiary thereof of any Net Cash Proceeds of a sale, assignment or other disposition of assets or property, other than sales of assets permitted under Section 6.8(a), 6.8(b), 6.8(c) or 6.8(d), the Borrower agrees to make a mandatory prepayment of the Advances in an amount equal to one hundred percent (100%) of such Net Cash Proceeds. SECTION 1.3. Use of Proceeds. The Borrower shall use the proceeds of the Revolving Credit Loan and the Swing Line Loan for (i) the payment of costs and expenses of the financing transactions contemplated by this Agreement and the Receivables Funding Agreement that are payable by the Borrower, and (ii) general working capital and other corporate purposes of the Borrower not prohibited by the terms of this Agreement and the other Loan Documents. The Borrower agrees that it shall not borrow any Revolving Credit Advances or Swing Line Advances except to fulfill its immediate cash needs for such purposes. SECTION 1.4. Interest. (a) The Borrower shall pay interest to the Agent for the account of each Lender on the aggregate outstanding balance of the Revolving Credit Advances made to the Borrower from time to time from the date made until paid in full at a per annum interest rate equal to the Index Rate in effect from time to time or, at the election of the Borrower, the applicable LIBOR Rate, in each case, plus the Applicable Margin. The Borrower shall pay interest to the Agent for the account of the Swing Line Lender on the aggregate outstanding balance of the Swing Line Advances made to the Borrower from time to time from the date made until maturity at a per annum interest rate equal to the applicable Index Rate plus the Applicable Margin in effect from time to time. On the Effective Date, the Applicable Margins are as follows: Applicable Margin for Index Rate Loans (1.00)% Applicable Margin for LIBOR Loans 1.50% Applicable Margin for Letters of Credit 1.50% The Applicable Margins may be adjusted by reference to the following grids: Level of If Fixed Charge Coverage Ratio is: Applicable Margins: < 1.9:1.0 Level I > 1.9:1.0 Level II Applicable Margins Level I Level II Applicable Margin for Index Rate Loans (1.00)% (1.25)% Applicable Margin for LIBOR Loans 1.50% 1.20% Applicable Margin for Letters of Credit 1.50% 1.25% 8 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Adjustments in the Applicable Margins shall commence with the first Fiscal Quarter ending after the first anniversary of the Effective Date, and thereafter shall be implemented quarterly on a prospective basis, for each calendar month commencing at least five (5) days after the date of delivery to Lenders of the quarterly unaudited or annual audited (as applicable) Financial Statements evidencing the need for an adjustment. Concurrently with the delivery of those Financial Statements, Borrower shall deliver to Agent and Lenders a certificate, signed by its chief financial officer, setting forth in reasonable detail the basis for the continuance of, or any change in, the Applicable Margins. Failure to timely deliver such Financial Statements shall, in addition to any other remedy provided for in this Agreement, result in an increase in the Applicable Margins to the highest level set forth in the foregoing grid, until the date of delivery of those Financial Statements demonstrating that such an increase is not required. If an Event of Default has occurred and is continuing at the time any reduction in the Applicable Margins is to be implemented, that reduction shall be deferred until the first day of the first calendar month following the date on which such Event of Default is waived or cured. If, for any reason (including inaccurate reporting on financial statements or a Compliance Certificate), it is determined that a higher Applicable Margin should have applied to a period than was actually applied, then the proper margin shall be applied retroactively and the Borrower shall pay to Agent, for the benefit of the Lenders, promptly on demand therefor, an amount equal to the difference between the amount of interest and fees that would have accrued using the proper margin and the amount actually paid. (b) Interest on the Revolving Credit Advances and the Swing Line Advances made to the Borrower shall be payable by the Borrower to the Agent for the account of each Lender at the following times: (i) on each Interest Payment Date; (ii) on the date of any payment or prepayment of the principal of the Revolving Credit Advances or the Swing Line Advances (to the extent of the interest accrued and unpaid on such portion paid or prepaid); and (iii) if any interest accrues or remains payable after the Commitment Termination Date, upon demand. If any payment of principal of the Revolving Credit Advances or the Swing Line Advances becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Interest shall be calculated by the Agent on a daily basis and on the basis of a three hundred sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest is payable. Each determination by the Agent of an interest rate hereunder and each calculation of interest hereunder shall be conclusive and binding for all purposes, absent manifest error. 9 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (c) Upon the occurrence and during the continuation of any Event of Default, at the election of the Agent (or upon the written request of the Requisite Lenders) confirmed by written notice from the Agent to the Borrower, (x) the interest rate applicable to the Letter of Credit Fees and principal on the Revolving Credit Advances and the Swing Line Advances shall be increased to the Default Rate and (y) interest on interest and other Obligations (excluding principal on the Revolving Credit Advances and the Swing Line Advances) in default shall be charged at the Default Rate and shall be payable on demand. Such increased interest rate or interest charge, as appropriate, or Letter of Credit Fees at the Default Rate, shall commence to accrue on the date of the occurrence of the Default giving rise to such Event of Default. (d) So long as no Default or Event of Default shall have occurred and be continuing, and subject to the additional conditions precedent set forth in Section 2.2, the Borrower shall have the option to (i) request that any Revolving Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Revolving Credit Advances from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.4(e) if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue all or any portion of any LIBOR Loan as a LIBOR Loan upon the expiration of the applicable LIBOR Period, and the succeeding LIBOR Period of that continued LIBOR Loan shall commence on the last day of the LIBOR Period of the LIBOR Loan to be continued. Any portion of the Revolving Credit Advances to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $2,000,000 and integral multiples of $500,000 in excess of such amount. Any such election must be made by noon (New York time) on the third (3rd) Business Day prior to (1) the date of any proposed Revolving Credit Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such, or (3) the date on which the Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by the Borrower in such election. If no election is received with respect to a LIBOR Loan by noon (New York time) on the third (3rd) Business Day prior to the end of the LIBOR Period with respect thereto (or if a Default or an Event of Default shall have occurred and be continuing or the additional conditions precedent set forth in Section 2.2 shall not have been satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period. The Borrower must make such election by notice to the Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a “Notice of Conversion/Continuation”) in the form of Exhibit 1.4(d). (e) To induce the Lenders to provide the LIBOR Rate option on the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise); (ii) the Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii) the Borrower shall default in making any borrowing of, conversion into or continuation of LIBOR Loans after the Borrower has given notice requesting the same in accordance herewith; or (iv) the Borrower shall fail to make any prepayment of a LIBOR Loan after the Borrower has given a notice thereof in accordance herewith, the Borrower 10 Source: SYNNEX CORP, 10-K, February 13, 2007
    • shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Revolving Credit Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances, each Lender shall provide the Borrower with its written calculation of all amounts payable pursuant to this Section 1.4(e), and such calculation shall be binding on the parties hereto unless the Borrower shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail. (f) Notwithstanding anything to the contrary set forth in this Section 1.4, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Agent, on behalf of the Lenders, is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Sections 1.4(a) through (e) above, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.4(f), a court of competent jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, the Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.9 and thereafter shall refund any excess to the Borrower or as a court of competent jurisdiction may otherwise order. SECTION 1.5. Eligible Inventory; Eligible Receivables. (a) Based on the most recent Borrowing Base Certificate delivered by the Borrower to the Agent and on other information available to the Agent, the Agent shall in its 11 Source: SYNNEX CORP, 10-K, February 13, 2007
    • reasonable business judgment determine which Inventory of the Borrower shall be deemed to be “Eligible Inventory” of the Borrower for purposes of determining the amounts, if any, to be advanced to the Borrower under the Revolving Credit Loan and the Swing Line Loan. In determining whether any particular Inventory constitutes Eligible Inventory, the Agent shall not include any such Inventory to which any of the exclusionary criteria set forth below applies. The Agent reserves the right, at any time and from time to time after the Effective Date, to adjust any such criteria, to establish new criteria and to adjust advance rates with respect to Eligible Inventory in its reasonable business judgment, subject to the approval of Supermajority Lenders in the case of adjustments or new criteria or changes in advance rates which have the effect of making more credit available. Eligible Inventory shall not include any Inventory of the Borrower: (i) that is not owned by the Borrower free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure the Borrower’s performance with respect to that Inventory), except the Liens in favor of the Agent, on behalf of itself and the Lenders, and a second Lien in favor of GE Capital as the Administrative Agent under the Receivables Funding Agreement; (ii) that is (i) not located on premises owned, leased or operated by the Borrower or (ii) stored with a bailee, warehouseman or similar Person, unless the Agent has given its prior consent thereto and unless (x) a satisfactory bailee letter or landlord waiver has been delivered to the Agent, or (y) Reserves satisfactory to the Agent have been established with respect thereto, or (iii) located at any site if the aggregate book value of Inventory at any such location is less than $100,000; (iii) that is placed on consignment, is in transit or is otherwise not located on premises owned, leased or operated by the Borrower; (iv) that is covered by a negotiable document of title, unless such document and evidence of acceptable insurance covering such Inventory have been delivered to the Agent; (v) that in the Agent’s reasonable determination, is excess, obsolete, unsalable, shopworn, seconds, damaged, imperfect or unfit for sale; (vi) that consists of display items, promotional materials, packing or shipping materials, manufacturing supplies, work-in-process Inventory or replacement parts; (vii) that consists of goods which have been returned by the buyer; (viii) that is not of a type held for sale in the ordinary course of the Borrower’s business; (ix) that consists of discontinued or slow-moving items (over 90 days old), goods of substandard quality or goods classified as “clearance inventory”; 12 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (x) that is bill-and-hold inventory or that is evidenced by an account; (xi) as to which the Agent’s Lien, on behalf of itself and the Lenders, therein is not a first priority perfected Lien; (xii) as to which any of the representations or warranties pertaining to Inventory set forth in this Agreement or the Borrower Security Agreement is untrue; (xiii) that consists of any costs associated with “freight-in” charges; (xiv) that consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available; (xv) that is not covered by casualty insurance acceptable to the Agent; (xvi) that is (i) Cisco Inventory, (ii) Dell Inventory, (iii) Hewlett Packard Inventory, (iv) Lenovo Inventory, or (v) IBM Inventory; or (xvii) that is otherwise unacceptable to the Agent in its reasonable business judgment. (b) Eligible Receivables. Agent reserves the right, at any time and from time to time after the Effective Date, to adjust any of the criteria set forth in the definitions of Eligible Receivables, and to establish new criteria, and to adjust advance rates with respect to Eligible Receivables, in its reasonable credit judgment, reflecting changes in the collectibility or realization values of such Accounts arising or discovered by Agent after the Effective Date subject to the approval of Supermajority Lenders in the case of adjustments or new criteria or changes in advance rates which have the effect of making more credit available. SECTION 1.6. Fees. As compensation for the Agent’s and the Lenders’ costs, skills, services and efforts incurred and expended in making the Revolving Credit Loan available to the Borrower, the Borrower agrees to pay to the Agent for its own account or the account of the Lenders, as the case may be, the Letter of Credit Fee as provided in Annex J and the fees set forth in Annex D. SECTION 1.7. Cash Management System. On or prior to the Effective Date, the Borrower and each other Domestic Subsidiary of the Borrower (other than SFC) will establish and maintain until the Termination Date, the cash management system described in Annex B. SECTION 1.8. Receipt of Payments. The Borrower shall make each payment under this Agreement not later than 3:00 p.m. (New York time) on the day when due in Dollars in immediately available funds to the Collection Account. Payments received after 3:00 p.m. (New York time) on any Business Day shall be deemed to have been received on the following Business Day. For the purposes of computing interest and Fees and determining the Borrowing Availability as of any date: (i) all payments (including cash sweeps) consisting of cash, wire, or electronic transfers in immediately available funds shall be deemed received by the Agent upon 13 Source: SYNNEX CORP, 10-K, February 13, 2007
    • deposit in the Collection Account; and (ii) all payments consisting of checks, drafts, or similar non-cash items shall be deemed received upon receipt of good funds following deposit in the Collection Account. Subject to Section 9.9(a)(ii), each payment received by the Agent under this Agreement or any Revolving Credit Note or Swing Line Note for the account of any Lender or the Swing Line Lender, as applicable, shall be paid by the Agent promptly to such Lender, in the same funds received, for application to the Revolving Credit Loan, Swing Line Loan or other obligation in respect of which such payment is made. SECTION 1.9. Application and Allocation of Payments. The Borrower irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received from or on behalf of the Borrower, and the Borrower irrevocably agrees that the Agent and the Lenders shall have the continuing exclusive right to apply any and all such payments against the then due and payable Obligations and in repayment of the Revolving Credit Advances as the Lenders may deem advisable. In the absence of a specific determination by the Agent with respect thereto or unless otherwise expressly provided herein, payments shall be applied in the following order: (a) to then due and payable Fees, expenses and other Obligations (including Revolving Credit Advances made by the Agent in its capacity as the Agent) owing by the Borrower to the Agent; (b) to then due and payable interest payments on the Swing Line Loan owing by the Borrower; (c) to then due and payable principal payments on the Swing Line Loan owing by the Borrower; (d) to then due and payable interest payments on the Revolving Credit Loan (to include the Letter of Credit Fees) and unpaid Swap Related Reimbursement Obligations, ratably in proportion to the interest accrued as to the Revolving Credit Loan and Swap Related Reimbursement Obligation, as applicable; (e) to then due and payable principal payments on the Revolving Credit Loan owing by the Borrower and unpaid Swap Related Reimbursement Obligations and to provide for cash collateral for Letter of Credit Obligations in the manner described in Annex J, ratably to the aggregate, combined principal balance of the Revolving Credit Advances, unpaid Swap Related Reimbursement Obligations and outstanding Letter of Credit Obligations; and (f) to any other Obligations to the Lenders owing by the Borrower; provided that if an Event of Default shall occur and be continuing or after the acceleration of the Obligations (by operation of law or otherwise), such payments shall be applied to the Obligations in the manner and order described in Section 8.4. Except as otherwise provided in this Agreement, if after making all of the payments referred to in the immediately preceding sentence, there shall remain with the Agent any excess monies received from or on behalf of the Borrower, the Agent shall promptly return same to the Borrower by depositing such amount into a Disbursement Account of the Borrower (or as required by law); provided that if at such time there shall exist an Event of Default (and for so long as an Event of Default is continuing), the Agent may retain such excess monies as cash collateral for any outstanding Obligations. The Agent, on behalf of the Lenders, is authorized to, and at its option may, make or cause to be made Revolving Credit Advances by the Lenders on behalf of the Borrower for payment of any or all Fees, expenses, charges, costs, principal, interest, or other Obligations then due and payable by the Borrower under this Agreement or any of the Loan Documents, even if the making of such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, in which case the terms of Section 1.2(b) shall apply. 14 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 1.10. Lenders’ Additional Rights. (a) The Borrower agrees that, in addition to (and without limitation of) any right of setoff, banker’s lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as between the Lenders, to the provisions of Section 9.9(f)), to offset balances held by such Lender or its Affiliates for the account of the Borrower at any of its or its Affiliates offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender’s pro rata portion of the Revolving Credit Loan or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to the Borrower), in which case such Lender shall promptly notify the Borrower and the Agent thereof; provided, that such Lender’s failure to give such notice shall not affect the validity thereof. (b) Nothing contained herein shall require the Agent and/or the Lenders to exercise any right as against the Borrower as described in this Section 1.10 or shall affect the right of the Agent and/or the Lenders to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. SECTION 1.11. Accounting. The Agent will provide a monthly accounting of transactions under the Revolving Credit Loan and the Swing Line Loan to the Borrower. Each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon the Borrower in all respects as to all matters reflected therein, unless the Borrower, within sixty (60) days after the date any such accounting is rendered, shall notify the Agent in writing of any objection which the Borrower may have to any such accounting, describing the basis for such objection with specificity. In that event, only those items (the “disputed items”) expressly objected to in such notice shall be deemed to be disputed by the Borrower. The Agent’s determination in good faith, based upon the facts available, of any disputed item shall (absent manifest error) be final, binding and conclusive on the Borrower. SECTION 1.12. Indemnity. (a) The Borrower shall indemnify and hold the Agent, each Lender, and their respective Affiliates, officers, directors, employees, attorneys and agents (each, an “Indemnified Person”), harmless from and against any and all suits, actions, costs, fines, deficiencies, penalties, proceedings, claims, damages, losses, liabilities and expenses (including attorneys’ fees and disbursements and other costs of investigations or defense, including those incurred upon any appeal) (each, a “Claim”) which may be instituted or asserted against or incurred by such Indemnified Person as the result of this Agreement, any other Loan Document, credit having been extended under this Agreement or any other Loan Document, the use or intended use of proceeds of Revolving Credit Advances or Swing Line Advances, or otherwise arising in connection with the transactions contemplated hereunder and thereunder, including any and all Environmental Liabilities and Costs and regardless of whether the Indemnified Person is a party to such Claim; provided, that the Borrower shall not be liable for any indemnification to such Indemnified Person with respect to (x) any portion of any such Claim which results from such Indemnified Person’s gross negligence or willful misconduct as determined by a final judgment 15 Source: SYNNEX CORP, 10-K, February 13, 2007
    • of a court of competent jurisdiction, or (y) any portion of such Claim which arises solely out of or in connection with a dispute between such Indemnified Person and one or more other Indemnified Persons. NEITHER THE AGENT NOR ANY LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS, THE USE OR INTENDED USE OF PROCEEDS OF REVOLVING CREDIT ADVANCES OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY. The foregoing provision in favor of any Indemnified Person shall be in addition to any rights that such Indemnified Person may have at common law or otherwise, including, but not limited to, any right to contribution. In any suit, proceeding or action brought by the Agent or the Lenders relating to any Collateral for any sum owing hereunder, or to enforce any provision of any Collateral, the Borrower shall save, indemnify and keep the Agent and the Lenders harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder arising out of a breach by the Borrower of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from the Borrower, all such obligations of the Borrower shall be and remain enforceable against, and only against, the Borrower and shall not be enforceable against the Agent or any Lender. (b) The Borrower hereby acknowledges and agrees that neither the Agent nor any Lender (as of the date hereof) (i) is now or has ever been in control of any of the Real Property or the affairs of the Borrower or any Subsidiary thereof, or (ii) has the capacity through the provisions of the Loan Documents to influence the conduct of the Borrower or any Subsidiary thereof with respect to the ownership, operation or management of any of the Real Property. SECTION 1.13. Access. The Borrower shall (and shall cause each of its Subsidiaries to) (a) provide access to the Agent (on behalf of the Lenders) and any of its officers, employees, representatives, consultants and agents, to the properties and facilities of the Borrower or any of its Subsidiaries, (b) permit the Agent (on behalf of the Lenders) and any of its officers, employees, representatives, consultants and agents to inspect, audit and make extracts from all of the Borrower’s and its Subsidiaries’ records, files and books of account, (c) permit the Agent (on behalf of the Lenders) or any representatives, consultants or agents of the Agent to inspect, review and evaluate the Collateral, and (d) make available to the Agent and its counsel, as quickly as practicable under the circumstances, originals or copies of all books, records, board minutes, contracts, insurance policies, environmental audits, business plans, files, financial statements (actual and proforma), filings with federal, state and local and foreign regulatory agencies, and other instruments and documents which the Agent may reasonably request in order to assure that the Borrower is in compliance with its obligations under the Loan Documents, to 16 Source: SYNNEX CORP, 10-K, February 13, 2007
    • ascertain and/or verify the business, operations and condition (financial or otherwise) of the Borrower and/or to audit, inspect, verify, protect, preserve or otherwise deal with any of the Collateral; provided, that unless a Default or Event of Default has occurred and is continuing, or the Agent (acting in good faith) has reason to believe that a Default or Event of Default is imminent, or the Agent in its sole discretion exercised in good faith deems the Lenders’ rights or interests in any Collateral or otherwise under this Agreement insecure, such audits shall be upon reasonable notice and shall be conducted during normal business hours (it being understood and agreed that the Agent will make a good faith effort to schedule any such audits concurrently with audits under the analogous provisions of the Receivables Funding Documents). The Borrower agrees to render to the Agent and its representatives, consultants and agents at the Borrower’s cost and expense, such clerical and other assistance as may be reasonably requested in connection with the exercise of the Agent’s rights pursuant to the foregoing sentence. The Borrower shall also deliver any document or instrument necessary for the Agent as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for the Borrower or its Subsidiaries, and shall maintain duplicate records or supporting documentation on media, including computer tapes and disks owned by the Borrower. The Agent shall conduct a field examination of the Borrower, its books and records, and the Collateral at least twice per calendar year, unless Requisite Lenders shall otherwise agree. SECTION 1.14. Taxes. (a) Any and all payments by or on behalf of the Borrower hereunder or under any Note or other Loan Document, shall be made, in accordance with this Section 1.14, free and clear of and without deduction or withholding for any and all present or future Taxes. If the Borrower shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder or under any Note or other Loan Document to the Agent or any Lender, as applicable, (i) the sum payable shall be increased as may be necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section 1.14), the Agent or such Lender, as applicable, receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) the Borrower shall make such deductions and withholdings, and (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxing or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future intangible personal property, stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents or any other matter contemplated by this Agreement (hereinafter referred to as “Other Taxes”). (c) The Borrower shall indemnify and pay, within ten (10) days of demand therefor, the Agent or any Lender, as applicable, for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 1.14) paid by the Agent or such Lender, as applicable, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. 17 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (d) Within thirty (30) days after the date of any such payment of Taxes or Other Taxes, the Borrower shall furnish to the Agent or any Lender, as applicable, at its address referred to in Section 10.9, the original or a certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement of the Borrower under this Agreement or any other Loan Document, the agreements and obligations of the Borrower contained in this Section 1.14 shall survive the Termination Date. (f) Each Lender organized under the laws of a jurisdiction outside the United States (a “Foreign Lender”) as to which payments to be made under this Agreement or under the Notes are exempt from United States withholding tax under an applicable statute or tax treaty shall provide to Borrower and Agent a properly completed and executed IRS Form W-8ECI or Form W-8BEN or other applicable form, certificate or document prescribed by the IRS or the United States certifying as to such Foreign Lender’s entitlement to such exemption (a “Certificate of Exemption”). Any foreign Person that seeks to become a Lender under this Agreement shall provide a Certificate of Exemption to Borrower and Agent prior to becoming a Lender hereunder. No foreign Person may become a Lender hereunder if such Person fails to deliver a Certificate of Exemption in advance of becoming a Lender. SECTION 1.15. Capital Adequacy; Increased Costs; Illegality. (a) If any Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by such Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law) from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender (excluding with respect to LIBOR Loans any such requirement included in the calculation of the LIBOR Rate) and thereby reducing the rate of return on such Lender’s capital as a consequence of its obligations hereunder, then the Borrower shall from time to time upon demand by such Lender (with a copy of such demand to the Agent) pay to the Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to the Borrower and to the Agent shall, absent manifest error, be final, conclusive and binding for all purposes. (b) If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case, effective after the date hereof, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan, then the 18 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and to the Agent by such Lender, shall be conclusive and binding on the Borrower for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender’s internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by the Borrower pursuant to this Section 1.15(b). (c) Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its Revolving Credit Advances or the income obtained therefrom, on notice thereof and demand therefor by such Lender to the Borrower through the Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) the Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing to such Lender, together with interest accrued thereon, unless the Borrower, within five (5) Business Days after the delivery of such notice and demand, converts all such LIBOR Loans into an Index Rate Loan. (d) Replacement or Prepayment of Lender in Respect of Increased Costs. Within fifteen (15) days after receipt by the Borrower of written notice and demand from any Lender (an “Affected Lender”) for payment of additional amounts or increased costs as provided in Section 1.14(a), 1.15(a) or 1.15(b), the Borrower may, at its option, notify the Agent and such Affected Lender of its intention to replace or prepay in full the Affected Lender. So long as no Default or Event of Default shall have occurred and be continuing, the Borrower, with the consent of the Agent, may obtain, at the Borrower’s expense, a replacement Lender (“Replacement Lender”) for the Affected Lender, which Replacement Lender must be satisfactory to the Agent in its reasonable discretion. If the Borrower obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender must sell and assign its Revolving Credit Advances and Revolving Credit Commitment to such Replacement Lender for an amount equal to the principal balance of all Revolving Credit Advances held by the Affected Lender and all accrued interest and Fees with respect thereto through the date of such sale, provided that the Borrower shall have reimbursed the Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment, including, without limitation, all amounts payable pursuant to Section 1.4(e). Alternatively, so long as no Default or Event of Default shall have occurred and be continuing, the Borrower may, within ninety (90) days following notice of its intention to do so, prepay the principal balance of all Revolving Credit Advances held by the Affected Lender and pay all accrued interest and Fees with respect thereto 19 Source: SYNNEX CORP, 10-K, February 13, 2007
    • through the date of such repayment, provided that the Borrower shall have reimbursed the Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such prepayment, including, without limitation, all amounts payable pursuant to Section 1.4(e), and providedfurther that, effective upon the date of such prepayment, the Affected Lender’s Revolving Credit Commitment shall automatically be terminated in its entirety and the Maximum Amount and the aggregate amount of the Commitments shall be adjusted accordingly. (e) Unavailability of Rates. If the Requisite Lenders determine that, for any reason adequate and reasonable means do not exist for determining the LIBOR Rate for any requested LIBOR Period with respect to a proposed LIBOR Loan, or that the LIBOR Rate applicable pursuant to Section 1.4(a) for any requested LIBOR Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to such Lenders of funding such LIBOR Loan, the Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Loans hereunder shall be suspended until the Agent, upon the instruction of the Requisite Lenders, revokes such notice in writing. Upon receipt of such notice, the Borrower may revoke any Notice of Revolving Credit Advance or Notice of Conversion/Continuation then submitted by it. If the Borrower does not revoke such notice, the Lenders shall make, convert or continue the Advances, as proposed by the Borrower, in the amount specified in the applicable notice submitted by the Borrower, but such Advances shall be made, converted or continued as Index Rate Loans instead of LIBOR Loans. Notwithstanding the foregoing, the Borrower shall not have the right to obtain a Replacement Lender or prepay the Affected Lender if the Affected Lender rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of the Borrower’s notice of intention to replace or prepay such Affected Lender. Furthermore, if the Borrower gives a notice of intention to replace or prepay and does not so replace or prepay such Affected Lender within ninety (90) days thereafter, the Borrower’s rights under this Section 1.15(d) shall terminate and the Borrower shall promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 1.14(a), 1.15(a) and 1.15(b). SECTION 1.16. Single Loan. All Advances to the Borrower and all of the other Obligations of the Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of the Borrower secured, until the Termination Date, by all of the Collateral. SECTION 1.17. Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each Revolving Credit Advance shall be incurred and made by the Lenders prorata according to the amounts of their respective ratable portions of the Revolving Credit Commitments; (b) each payment or prepayment of principal of the Revolving Credit Loan by the Borrower shall be made to the Agent for the account of the Lenders prorata in accordance with the respective unpaid principal amounts of the Revolving Credit Loan held by the Lenders; (c) each payment of interest on the Revolving Credit Loan by the Borrower shall be made to the Agent for the account of the Lenders prorata in accordance with the amounts of interest on the Revolving Credit Loan then due and payable to each Lender; (d) each payment of Unused Facility Fees 20 Source: SYNNEX CORP, 10-K, February 13, 2007
    • shall be made to the Agent for the account of the Lenders pro rata according to the amounts of their respective Revolving Credit Commitments; and (e) each payment of Letter of Credit Fees or provision of cash collateral for Letter of Credit Obligations shall be made to the Agent for the account of the Lenders, pro rata, according to the amounts of their respective Letter of Credit Obligations. SECTION 1.18. Bank Products. The Borrower may request and the Agent or any Lender may, in its sole and absolute discretion, arrange for the Borrower to obtain from the Agent or any Lender or any of their respective Affiliates, Bank Products although the Borrower is not required to do so. If Bank Products are provided by an Affiliate of the Agent or a Lender in reliance on an indemnity from the Agent or such Lender (to the extent such indemnity is approved in writing by the Borrower), the Borrower agrees to pay the Agent or such Lender, as the case may be, all costs and obligations owing by the Agent or such Lender which arise from any such indemnity given by the Agent or such Lender to its Affiliates related to such Bank Products; provided, however, nothing herein shall limit the Borrower’s rights against the Agent or such Lender or any of their respective Affiliates that arise under any documents relating to such Bank Products. This Section 1.18 shall survive termination of this Agreement. SECTION 1.19. Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or by the Borrower (in either case, a “Payor”) prior to the date on which such Payor is to make payment to the Agent of (in the case of a Lender) the proceeds of a Revolving Credit Advance to be made by such Lender hereunder or (in the case of the Borrower) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the “Required Payment”), which notice shall be effective upon receipt by the Agent, that such Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if such Payor has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the “Advance Date”) such amount was so made available by the Agent until the date the Agent recovers such amount, at a rate per annum equal to the Index Rate plus the Applicable Margin or, if the Payor is a Lender, the Federal Funds Rate in effect from time to time and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from such Payor, together with interest as aforesaid; provided that if neither the recipient(s) nor such Payor shall return or make, as appropriate, the Required Payment to the Agent within three (3) Business Days of the Advance Date, then, retroactively to the Advance Date, such Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment (without duplication) as follows: (a) if the Required Payment shall represent a payment to be made by the Borrower to the Lenders, the Borrower and the recipient(s) shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of the Borrower to pay interest to such recipient(s) at the Default Rate in respect of the Required Payment); and 21 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (b) if the Required Payment shall represent proceeds of a Revolving Credit Advance to be made by the Lenders to the Borrower, such Payor and the Borrower shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant hereto (and, in case the Borrower shall return the Required Payment to the Agent, without limiting any claim the Borrower may have against the Payor in respect of the Required Payment). Nothing in this Section 1.19 or elsewhere in this Agreement or the other Loan Documents shall be deemed to require the Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Revolving Credit Commitment hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder. SECTION 1.20. Swap Related Reimbursement Obligations. (a) Borrower agrees to reimburse GE Capital in immediately available funds in the amount of any payment made by GE Capital under a Swap Related L/C (such reimbursement obligation, whether contingent upon payment by GE Capital under the Swap Related L/C or otherwise, being herein called a “Swap Related Reimbursement Obligation”). No Swap Related Reimbursement Obligation for any Swap Related L/C may exceed the amount of the payment obligations owed by Borrower under the interest rate protection or hedging agreement or transaction supported by the Swap Related L/C. (b) A Swap Related Reimbursement Obligation shall be due and payable by Borrower within one (1) Business Day after the date on which the related payment is made by GE Capital under the Swap Related L/C. (c) Any Swap Related Reimbursement Obligation shall, during the period in which it is unpaid, bear interest at the rate per annum equal to the LIBOR Rate plus one percent (1%), as if the unpaid amount of the Swap Related Reimbursement Obligation were a LIBOR Loan, and not at any otherwise applicable Default Rate. Such interest shall be payable upon demand. The following additional provisions apply to the calculation and charging of interest by reference to the LIBOR Rate: (i) The LIBOR Rate shall be determined for each successive one-month LIBOR Period during which the Swap Related Reimbursement Obligation is unpaid, notwithstanding the occurrence of any Event of Default and even if the LIBOR Period were to extend beyond the Commitment Termination Date. (ii) If a Swap Related Reimbursement Obligation is paid during a monthly period for which the LIBOR Rate is determined, interest shall be pro-rated and charged for the portion of the monthly period during which the Swap Related Reimbursement Obligation was unpaid. Section 1.4(e) shall not apply to any payment of a Swap Related Reimbursement Obligation during the monthly period. 22 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (d) Except as provided in the foregoing provisions of this Section 1.20 and in Section 10.2, Borrower shall not be obligated to pay to GE Capital or any of its Affiliates any Letter of Credit Fee, or any other fees, charges or expenses, in respect of a Swap Related L/C or arranging for any interest rate protection or hedging agreement or transaction supported by the Swap Related L/C. GE Capital and its Affiliates shall look to the beneficiary of a Swap Related L/C for payment of any such letter of credit fees or other fees, charges or expenses and such beneficiary may factor such fees, charges, or expenses into the pricing of any interest rate protection or hedging arrangement or transaction supported by the Swap Related L/C. (e) If any Swap Related L/C is revocable prior to its scheduled expiry date, GE Capital agrees not to revoke the Swap Related L/C unless the Commitment Termination Date or an Event of Default has occurred. (f) GE Capital or any of its Affiliates shall be permitted to (i) provide confidential or other information furnished to it by the Borrower or any of its Subsidiaries (including, without limitation, copies of any documents and information in or referred to in the Closing Checklist, Financial Statements and Compliance Certificates) to a beneficiary of a Swap Related L/C and (ii) receive confidential or other information from the beneficiary relating to any agreement or transaction supported or to be supported by the Swap Related L/C. However, no confidential information shall be provided to any Person under this paragraph unless the Person has agreed to comply with the covenant substantially as contained in Section 10.13 of this Agreement. ARTICLE 2 CONDITIONS PRECEDENT SECTION 2.1. Conditions to Effectiveness. This Agreement shall become effective when, and only when, the following conditions have been fulfilled to the satisfaction of the Agent: (a) This Agreement or counterparts hereof shall have been duly executed by, and delivered to, the Borrower, the Agent and each Lender. (b) The Agent and the Lenders shall have received such documents, instruments, certificates, opinions and agreements as the Agent shall reasonably request in connection with the transactions contemplated by this Agreement, including in any event all documents, instruments, agreements and other materials listed in the Schedule of Closing Documents attached as Annex C hereto, each in form and substance satisfactory to the Agent and the Requisite Lenders. 23 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (c) The Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out of pocket expenses required to be reimbursed or paid by the Borrower hereunder. (d) As of the Effective Date, the Borrower and its Subsidiaries shall have satisfied such other conditions precedent as the Agent shall have reasonably required. SECTION 2.2. Conditions to Each Advance and Letter of Credit. It shall be a condition to the funding of each Advance or the incurrence of any Letter of Credit Obligation hereunder, or the conversion or continuation of any Revolving Credit Loan that the following statements shall be true on the date of each such funding, advance or incurrence, as the case may be: (a) The Borrower’s representations and warranties contained herein or in any of the Loan Documents shall be true and correct on and as of the Effective Date and the date on which each such Advance is made or Letter of Credit Obligation is incurred, as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date and except for changes therein permitted or contemplated by this Agreement and Agent and Requisite Lenders have determined not to make such Advance, convert or continue the Revolving Credit Advances or incur such Letter of Credit Obligation as a result of the fact that such warranty or representation is untrue or incorrect. (b) No event shall have occurred and be continuing, or would result from the making of any such Advance or incurrence of Letter of Credit Obligations, which constitutes or would constitute a Default or an Event of Default and Agent or Requisite Lenders shall have determined not to make any Advance, convert or continue the Revolving Credit Advances or incur such Letter of Credit Obligation as a result of that Default or Event of Default. (c) After giving effect to any such Advance or Letter of Credit Obligations, the aggregate principal amount of the Revolving Credit Advances and Letter of Credit Obligations made to the Borrower shall not exceed the Borrowing Availability and there shall be no requirement under Section 1.2(b) to prepay any Revolving Credit Loan, the aggregate principal amount of the Swing Line Advances made to the Borrower shall not exceed the Swing Line Availability, and the aggregate Letter of Credit Obligations shall not exceed the L/C Sublimit. (d) No event or circumstance having a Material Adverse Effect shall have occurred which shall not have been cured or waived in writing by the Requisite Lenders. (e) All legal matters incident to the making of such Advance shall have been satisfied as of such date to the satisfaction of the Agent. The request and acceptance by the Borrower of the proceeds of any Advance, the incurrence of any Letter of Credit Obligations or the conversion or continuation of any Revolving Credit Advance shall be deemed to constitute, as of the date of such request or acceptance, (i) a representation and warranty by the Borrower that the conditions in this Section 2.2 have been satisfied and (ii) a confirmation by the Borrower of the granting and continuance of the Agent’s Liens, on behalf of itself and the Lenders, pursuant to the Collateral Documents. 24 Source: SYNNEX CORP, 10-K, February 13, 2007
    • ARTICLE 3 REPRESENTATIONS AND WARRANTIES To induce the Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Agent and the Lenders (which representations and warranties shall be made on the Effective Date and made or deemed made at such other times as provided hereunder (including, without limitation, as provided in Section 2.2)) that: SECTION 3.1. Existence; Compliance with Law. The Borrower and each of its Domestic Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business requires it to be so qualified (except where the failure to be so qualified and in good standing would not have a Material Adverse Effect); (b) has the requisite power and authority and the legal right to own, pledge, mortgage, operate and convey all of its properties, to lease the property it operates under lease, and to conduct its business as now or proposed to be conducted, and to execute and deliver this Agreement and the Loan Documents to which they are parties and to perform the transactions contemplated hereby and thereby; (c) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct (except where the failure to have such licenses, permits, consents or approvals or make such filings or give such notices would not have a Material Adverse Effect); (d) is in compliance with its articles or certificate of incorporation and bylaws and other organizational documents; and (e) is in compliance with all applicable provisions of law (except where the failure to be in compliance would not have a Material Adverse Effect). SECTION 3.2. Executive Offices; Collateral Locations; Corporate or Other Names. As of the Effective Date, the current locations of each Credit Party’s executive office and all warehouses and premises within which any Collateral is stored or located are set forth in Schedule 3.2 and, except as set forth in Schedule 3.2, such locations have not changed during the preceding twelve months. In addition, Schedule 3.2 lists the federal employer identification number of each Credit Party. SECTION 3.3. Power; Authorization; Enforceable Obligations. The execution, delivery and performance by each Credit Party of this Agreement and the other Loan Documents to which it is a party and the creation by such Credit Party of all Liens provided for herein and therein: (a) are within such Credit Party’s corporate power; (b) have been duly authorized by all necessary corporate or other action; (c) do not contravene or cause such Credit Party to be in default under (i) any provision of such Credit Party’s articles or certificate of incorporation or bylaws, (ii) any contractual restriction contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note or other agreement or instrument binding on or 25 Source: SYNNEX CORP, 10-K, February 13, 2007
    • affecting such Credit Party or its property, or (iii) any law, rule, regulation, order, license requirement, writ, judgment, award, injunction, or decree applicable to, binding on or affecting such Credit Party or its property; (d) will not result in the creation or imposition of any Lien upon any of the property of such Credit Party or any Subsidiary thereof other than those in favor of the Agent or any Lender, all pursuant to the Loan Documents; and (e) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(d), all of which will have been duly obtained, made or complied with prior to the Effective Date and which are in full force and effect. At or prior to the Effective Date, each of the Loan Documents shall have been duly executed and delivered for the benefit of or on behalf of the Credit Party intended to be party thereto and each shall then constitute a legal, valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its terms, subject, as to enforceability, to (A) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors’ rights generally and (B) general equitable principles, whether applied in a proceeding at law or in equity. SECTION 3.4. Financial Statements and Projections. The Borrower has delivered the Financials and Projections identified in Schedule 3.4 (which Projections are attached hereto as Exhibit 3.4), and each of such Financials and Projections complies with the description thereof contained in Schedule 3.4. SECTION 3.5. No Litigation. Except as set forth in Schedule 3.5, no action, claim or proceeding is now pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary thereof, at law, in equity or otherwise, before any Governmental Authority (a) which challenges any such Person’s right, power, or competence to enter into or perform any of its obligations under the Loan Documents, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) which is reasonably likely to result in a Material Adverse Effect. To the knowledge of the Borrower, there does not exist a state of facts which is reasonably likely to give rise to such proceedings. Except as set forth in Schedule 3.5, the Borrower is not a party to any consent decree. SECTION 3.6. Taxes. Except as disclosed in Schedule 3.6, all federal, state, local and foreign tax returns, reports and statements, including information returns (Form 1120-S) required to be filed by the Borrower or any Domestic Subsidiary thereof, have been filed with the appropriate Governmental Authority and all Charges and other impositions shown thereon to be due and payable (other than Charges or other impositions which the Borrower is diligently contesting in good faith by appropriate proceedings, in respect of which no final unappealable order has been made against the Borrower, and with respect to which the Borrower is maintaining adequate reserves under GAAP) have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. The Borrower and each Domestic Subsidiary thereof has paid when due and payable all material Charges required to be paid by it. Proper and accurate amounts have been withheld by the Borrower and each Domestic Subsidiary thereof from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and 26 Source: SYNNEX CORP, 10-K, February 13, 2007
    • such withholdings have been timely paid to the respective Governmental Authorities. Schedule 3.6 sets forth those taxable years for which any of the tax returns of the Borrower or any Domestic Subsidiary thereof are currently being audited by the IRS or any other applicable Governmental Authority; and any assessments or threatened assessments in connection with such audit or otherwise currently outstanding. Except as described in Schedule 3.6, neither the Borrower nor any Domestic Subsidiary thereof has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. Neither the Borrower nor any Domestic Subsidiary thereof has agreed or been requested to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise. Neither the Borrower nor any Domestic Subsidiary thereof has any obligation under any written tax sharing agreement except as described in Schedule 3.6. SECTION 3.7. Material Adverse Change. Except as set forth in Schedule 3.7, as of the Effective Date, neither the Borrower nor any Subsidiary thereof has any material obligations, contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the audited November 30, 2005 consolidated balance sheet of the Borrower and its Subsidiaries (including all footnote disclosures thereto), except for those which were incurred or entered into in the ordinary course of the Borrower’s or such Subsidiary’s business. Except as set forth in Schedule 3.7, since November 30, 2005, no event has occurred which would result in a Material Adverse Effect. SECTION 3.8. Ownership of Property; Liens. The real estate listed in Schedule 3.8 constitutes all of the Real Property owned, leased or used in the Borrower’s and its Domestic Subsidiaries’ business. The Borrower and each of its Domestic Subsidiaries holds (a) good and marketable fee simple title to all Real Property owned by it and described in Schedule 3.8, (b) valid and marketable leasehold interests in all of such Person’s Leases (both as lessor and lessee, sublessee or assignee) described in Schedule 3.8, and (c) good and marketable title to, or valid leasehold interests in, all of its assets identified as Eligible Inventory, and (d) good and marketable title to, or valid leasehold interests in, all of its other properties and assets, except, with respect to the title and leasehold interests referred to in the foregoing clauses (a), (b) and (d), where the failure to so hold such title or leasehold interests could not reasonably be expected to result in a Material Adverse Effect. None of the properties and assets of the Borrower and its Domestic Subsidiaries are subject to any Liens, except Liens permitted by Section 6.7. The Borrower and its Domestic Subsidiaries have received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and duly effected all recordings, filings and other actions necessary to establish, protect and perfect the Borrower’s or such Subsidiary’s right, title and interest in and to all such real estate and other assets or property, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Except as described in Schedule 3.8, (a) neither the Borrower nor any of its Domestic Subsidiaries nor, to the Borrower’s knowledge, any other party to any such Lease described in Schedule 3.8 is in default of its obligations thereunder or has delivered or received any notice of default under any such Lease, and no event has occurred which, with the giving of notice, the passage of time, or both, would constitute a default under any such Lease; (b) neither the Borrower nor any of its Domestic Subsidiaries either owns or holds, or is obligated under or a 27 Source: SYNNEX CORP, 10-K, February 13, 2007
    • party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any Real Property owned or leased by the Borrower or any of its Domestic Subsidiaries except as set forth in Schedule 3.8; and (c) no portion of any Real Property owned or leased by the Borrower or any of its Domestic Subsidiaries has suffered any material damage by fire or other casualty loss which has either (i) not heretofore been repaired and restored to good operating condition, or (ii) could not reasonably be expected to result in a Material Adverse Effect. All material permits required to have been issued or appropriate to enable the Real Property to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are in full force and effect. Neither the Borrower nor any of its Domestic Subsidiaries owns any tangible real or personal property located outside the United States. SECTION 3.9. Restrictions; No Default; Material Contracts. No contract, lease, agreement or other instrument to which the Borrower or any of its Domestic Subsidiaries is a party or by which it or any of its properties or assets is bound or affected and no provision of any charter, corporate restriction, applicable law or governmental regulation has resulted in or will result in a Material Adverse Effect. Neither the Borrower nor any of its Domestic Subsidiaries is in default and, to the Borrower’s knowledge, no third party is in default, under or with respect to any material instrument, document or agreement evidencing, creating, guaranteeing or governing Debt or Guaranteed Debt of Borrower or such Domestic Subsidiary, or any Material Contract. No Default or Event of Default has occurred and is continuing. Schedule 3.9, as supplemented from time to time by written disclosures to the Agent, sets forth a complete and accurate list of all Material Contracts of the Borrower and any Domestic Subsidiary thereof; provided, however, that for purposes of this Agreement, “Material Contracts” shall mean all contracts, agreements, leases and other instruments between the Borrower, or any Subsidiary thereof, and any Person which are from time to time filed or required to be filed on any regular, periodic or special report filed by Borrower with the Securities and Exchange Commission (or any governmental agency substituted therefor). The Borrower and each of its Domestic Subsidiaries is in compliance with (i) all material license agreements to which it is a party or bound by, and (ii) the terms and conditions of its insurance coverage and policies therefor. SECTION 3.10. Labor Matters. Except as set forth in Schedule 3.10, there are no material strikes or other labor disputes against the Borrower or any of its Domestic Subsidiaries that are pending or, to the Borrower’s knowledge, threatened which could have a Material Adverse Effect. Hours worked by and payment made to employees of the Borrower or any of its Domestic Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which could have a Material Adverse Effect. All material payments due from the Borrower or any of its Domestic Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the Borrower or any of its Domestic Subsidiaries. Except as set forth in Schedule 3.10, neither the Borrower nor any of its Domestic Subsidiaries has any material obligation under any collective bargaining agreement, management agreement, or any employment agreement, and a correct and complete copy of each agreement listed on Schedule 3.10 has been provided to the Agent. There is no material organizing activity involving the Borrower or any of its Domestic Subsidiaries pending or, to the Borrower’s knowledge, threatened by any labor union or group of 28 Source: SYNNEX CORP, 10-K, February 13, 2007
    • employees. Except as set forth in Schedule 3.5, there are no representation proceedings pending or, to the Borrower’s knowledge, threatened with the National Labor Relations Board or any similar Governmental Authority, and no labor organization or group of employees of the Borrower or any of its Domestic Subsidiaries has made a pending demand for recognition, and there are no material complaints or charges against the Borrower or any of its Domestic Subsidiaries pending or threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by the Borrower or any of its Domestic Subsidiaries of any individual. SECTION 3.11. Ventures, Subsidiaries and Affiliates; Outstanding Stock and Debt. On the Effective Date, neither the Borrower nor any of its Subsidiaries has any Subsidiaries other than those Subsidiaries set forth on Schedule 3.11 and, except as set forth in Schedule 3.11, on the Effective Date, neither the Borrower nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person or has any equity interest in any other Person. On the Effective Date, the Stock of the Borrower and of any Subsidiary thereof owned by each of the stockholders thereof named or described in Schedule 3.11 constitutes all of the issued and outstanding Stock of such Persons and all such Stock is duly and validly issued, fully paid and non-assessable. Schedule 3.11 lists the name of each Subsidiary of the Borrower, its jurisdiction of organization, the number of authorized and outstanding shares or interest of Stock of such Subsidiary and the owners of such Stock as of the Effective Date. Except as set forth in Schedule 3.11 and except for stock options issued after the Effective Date pursuant to the Borrower’s stock option plans set forth on Schedule 3.14, there are no outstanding rights to purchase stock, options, warrants or similar rights, agreements or plans pursuant to which the Borrower or any of its Subsidiaries may be required to issue, sell or purchase any Stock or other equity security. Schedule 3.11 lists all Debt of the Borrower and its Domestic Subsidiaries as of the Effective Date, other than any such Debt consisting of any Letters of Credit or any other letter of credit issued for the account of the Borrower or such Domestic Subsidiary by GE Capital. On and as of the Effective Date, the aggregate amount of all Investments maintained by Borrower outside of the Borrower’s securities accounts pursuant to the Borrower’s unqualified deferred compensation arrangements does not exceed $150,000. SECTION 3.12. Government Regulation. Neither the Borrower nor any Domestic Subsidiary thereof (a) is an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended, or (b) is subject to regulation under the Federal Power Act, the Interstate Commerce Act or any other federal or state or foreign statute that restricts or limits such Person’s ability to incur Debt, pledge its assets, or to perform its obligations hereunder or under any other Loan Document, and, with respect to the Borrower, the making of the Advances by the Lenders, the incurrence of Letter of Credit Obligations on behalf of the Borrower, the application of the proceeds and repayment thereof by the Borrower, and the consummation of the transactions contemplated by this Agreement and the other Loan Documents, will not constitute a violation by the Borrower or any Domestic Subsidiary thereof (or to the knowledge of the Borrower, by any other Person) of any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. 29 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 3.13. Margin Regulations. Neither the Borrower nor any Subsidiary thereof is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock and no proceeds of any Revolving Credit Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the Borrower nor any Subsidiary thereof will take or permit to be taken any action which might cause any Loan Document or any document or instrument delivered pursuant hereto or thereto to violate any regulation of the Board of Governors of the Federal Reserve Board. SECTION 3.14. ERISA. (a) Schedule 3.14 lists all Plans maintained or contributed to by the Borrower, any Domestic Subsidiary thereof or any ERISA Affiliate, and separately identifies the Title IV Plans, Multi-employer Plans, multiple employer plans subject to Section 4064 of ERISA, nonqualified or unfunded Pension Plans, Welfare Plans and Retiree Welfare Plans. IRS determination letters regarding the qualified status under IRC Section 401 of each Qualified Plan have been received as of the dates listed in Schedule 3.14. Except as disclosed in Schedule 3.14, to the knowledge of the Borrower, the Qualified Plans continue to qualify under Section 401 of the IRC, the trusts created thereunder continue to be exempt from tax under the provisions of IRC Section 501(a), and nothing has occurred which would cause the loss of such qualification or tax-exempt status. Except as disclosed in Schedule 3.14, to the knowledge of the Borrower, each Plan is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the filing of all reports required under the IRC or ERISA which are true and correct as of the date filed, and all required contributions and benefits have been paid in accordance with the provisions of each such Plan. Neither the Borrower, any Domestic Subsidiary thereof nor any ERISA Affiliate, with respect to any Qualified Plan, has failed to make any contribution or pay any amount due as required by IRC Section 412 or Section 302 of ERISA. Except as set forth on Schedule 3.14, with respect to all Retiree Welfare Plans, the present value of future anticipated expenses pursuant to the latest actuarial projections of liabilities does not exceed $300,000; with respect to Pension Plans, other than Qualified Plans and the unfunded Pension Plans listed in Schedule 3.14, the present value of the liabilities for current participants thereunder using interest assumptions described in IRC Section 411(a)(ii) does not exceed $300,000. Neither the Borrower nor any Domestic Subsidiary thereof or ERISA Affiliate has engaged in a prohibited transaction, as defined in IRC Section 4975 or Section 406 of ERISA, in connection with any Plan which would subject the Borrower or any Domestic Subsidiary thereof (after giving effect to any exemption) to a material tax on prohibited transactions imposed by IRC Section 4975 or any other material liability. (b) Except as set forth in Schedule 3.14: (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur which in either case would be material; (iii) there are no pending, or to the knowledge of the Borrower, material threatened, claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against (x) any Plan or its assets, (y) any fiduciary with respect to any Plan or (z) the Borrower, any Domestic Subsidiary thereof or any ERISA Affiliate with 30 Source: SYNNEX CORP, 10-K, February 13, 2007
    • respect to any Plan; (iv) neither the Borrower or any Domestic Subsidiary thereof nor any ERISA Affiliate has incurred or reasonably expects to incur any Withdrawal Liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multi-employer Plan; (v) within the last five (5) years neither the Borrower or any Domestic Subsidiary thereof nor any ERISA Affiliate has engaged in a transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities being transferred outside of the “controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which is a Retiree Welfare Plan provides for continuing benefits or coverage for any participant or any beneficiary of a participant after the last day of the month during which such participant’s termination of employment (except as may be required by IRC Section 4980B and at the sole expense of the participant or the beneficiary of the participant); (vii) the Borrower, each Domestic Subsidiary thereof and each ERISA Affiliate have materially complied with the notice and continuation coverage requirements of IRC Section 4980B and the proposed or final regulations thereunder; and (viii) no liability under any Plan has been funded, nor has such obligation been satisfied with, the purchase of a contract from an insurance company that is not rated AAA by Standard & Poor’s Ratings Service and the equivalent by each other nationally recognized rating agency. SECTION 3.15. Brokers. No broker or finder acting on behalf of the Borrower or any Subsidiary thereof brought about the obtaining, making or closing of the credit extended pursuant to this Agreement or the transactions contemplated by the Loan Documents or the transactions contemplated thereby, and neither the Borrower nor any Subsidiary thereof has any obligation to any Person in respect of any finder’s or brokerage fees in connection herewith or therewith. SECTION 3.16. Patents, Trademarks, Copyrights and Licenses. Except as otherwise set forth in Schedule 3.16, the Borrower and each of its Domestic Subsidiaries owns all licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications and trade names which are necessary to continue to conduct its business as heretofore conducted by it, now conducted by it and proposed to be conducted by it, each of which is listed, together with United States Patent and Trademark Office or United States Copyright Office application or registration numbers (or similar information for foreign registration or applications), where applicable, in Schedule 3.16, and will be promptly updated by the Borrower to reflect any change therein. The Borrower and each of its Subsidiaries conducts business without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except where such infringement or claim of infringement, individually or in the aggregate, could not have or result in a Material Adverse Effect. Except as set forth in Schedule 3.16, to the Borrower’s knowledge, there is no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of the Borrower or any Subsidiary thereof, except where such infringement or claim of infringement, individually or in the aggregate, could not have or result in a Material Adverse Effect. 31 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 3.17. Full Disclosure. No information contained in this Agreement, the other Loan Documents, the Financials or any written statement furnished by or on behalf of the Borrower or any Affiliate thereof pursuant to the terms of this Agreement or any other Loan Document, which has previously been delivered to the Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. All business plans and other forecasts and projections (including the Projections) furnished by or on behalf of the Borrower and made available to the Agent or any Lender relating to the financial condition, operations, business, properties or prospects of the Borrower or any Subsidiary thereof were prepared in good faith on the basis of the facts and assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower’s reasonable estimate of its plans, forecasts or projections, as applicable, based on the information available at the time (it being acknowledged that actual results may vary, and such variations may be material). SECTION 3.18. Hazardous Materials. Except in the case of routine operations in the ordinary course of business in compliance with applicable permits issued by all applicable Governmental Authorities, the Real Property is free of any Hazardous Material. Except as set forth in Schedule 3.18, there are no existing or potential environmental liabilities of the Borrower or any of its Domestic Subsidiaries of which the Borrower, after due inquiry, has knowledge, which could result in Environmental Liabilities and Costs in excess of $1,000,000 individually or $5,000,000 in the aggregate for the Borrower and its Domestic Subsidiaries. Except as set forth in Schedule 3.18, neither the Borrower nor any of its Domestic Subsidiaries has caused or suffered to occur any Release at, under, above or within any Real Property or any other real property which could expose such Person to any actual or potential liability in excess of $1,000,000, and the aggregate actual or potential liabilities of the Borrower and its Domestic Subsidiaries with respect to all such Releases does not exceed $5,000,000. Neither the Borrower nor any of its Domestic Subsidiaries is involved in operations which are reasonably likely to lead to the imposition of any liability under the Environmental Laws in excess of $5,000,000 or any Lien on it, or any owner of any premises which it occupies, under the Environmental Laws, and neither the Borrower nor any of its Domestic Subsidiaries has permitted any tenant or occupant of such premises to engage in any such activity. SECTION 3.19. Insurance Policies. Schedule 3.19 lists all insurance of any nature maintained as of the Effective Date for current occurrences by the Borrower and its Domestic Subsidiaries. Such insurance complies with and shall at all times comply with the standards set forth in Annex F. SECTION 3.20. Deposit and Disbursement Accounts. Schedule 3.20 lists all banks and other financial institutions at which the Borrower or any of its Domestic Subsidiaries (other than SFC) maintains deposits and/or other accounts and/or post office lock boxes, including the Disbursement Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. 32 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 3.21. Solvency. The Borrower and each of its Subsidiaries is Solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the Receivables Funding Documents. The Borrower and each of its Subsidiaries, after giving effect to the transactions contemplated by this Agreement and the Receivables Funding Documents, will have an adequate amount of capital to conduct its business in the foreseeable future. Both before and after giving effect to the Advances and Letter of Credit Obligations to be made or incurred on each date on which Advances and Letter of Credit Obligations requested hereunder are made or incurred, the Borrower and each of its Subsidiaries is and will be Solvent. SECTION 3.22. Inactive Subsidiaries. Schedule 3.22 sets forth all Subsidiaries of the Borrower which do not own any assets or owe any liabilities or obligations (other than for franchise taxes and liabilities or obligations described in Schedule 3.22) or conduct any business or other activity and such Subsidiaries shall not at any time own any assets, owe any liabilities or obligations (other than for franchise taxes and liabilities or obligations described in Schedule 22) or conduct any business or other activity. ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION SECTION 4.1. Reports and Notices. The Borrower covenants and agrees that from and after the Effective Date and until the Termination Date, it shall deliver to the Agent and each Lender the Financials, Projections and notices at the times and in the manner set forth in Annex E. SECTION 4.2. Communication with Accountants. The Borrower (for itself and its Subsidiaries) authorizes the Agent (on behalf of the Lenders) to communicate directly with its and each Subsidiary’s independent certified public accountants and authorizes those accountants to make available to the Agent (on behalf of the Lenders) and each Lender any and all financial statements and other supporting financial documents and schedules with respect to the business, financial condition and other affairs of the Borrower and each Subsidiary thereof, in each instance, provided that the Agent shall (i) give the Borrower prior notice of each intended communication with such accountants and of each request to have such accountants make available to the Agent any such financial information and material and (ii) permit a representative of the Borrower to be present at any such communication or making available of financial information and material. At or before the Effective Date, the Borrower shall deliver a letter (the “Accountant’s Letter”) addressed to and acknowledged by such accountants instructing them to make available to the Agent (on behalf of the Lenders) such information and records as the Agent may reasonably request and to otherwise comply with the provisions of this Article 4. After the Effective Date, if the Borrower or any Subsidiary thereof engages the services of accountants other than PricewaterhouseCoopers LLP, it shall deliver a letter addressed to and acknowledged by such accountants containing the same terms and provisions as the Accountant’s Letter. 33 Source: SYNNEX CORP, 10-K, February 13, 2007
    • ARTICLE 5 AFFIRMATIVE COVENANTS The Borrower covenants and agrees (for itself and any Subsidiary thereof) that, unless the Requisite Lenders shall otherwise consent in writing, from and after the date hereof and until the Termination Date: SECTION 5.1. Maintenance of Existence and Conduct of Business. The Borrower shall (and shall cause each of its Subsidiaries to): (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect, its rights and franchises; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its Intellectual Property, and preserve all the remainder of its property, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that neither the Borrower nor any Subsidiary shall be required to maintain, preserve and protect any Intellectual Property which the Borrower shall have determined, in its prudent business judgment, is not necessary to the proper and advantageous conduct of its business; (d) maintain its Equipment and Fixtures in good operating condition sufficient for the continuation of such Person’s business conducted on a basis consistent with past practices and shall provide or arrange for all maintenance and service and all repairs necessary for such purpose; and (e) with respect to each Credit Party, transact business only under the names set forth in Schedule 3.2 (unless the Borrower shall provide the Agent with not less than thirty (30) days prior written notice of any Credit Party’s use of another name and take such actions as the Agent may reasonably request in connection therewith). SECTION 5.2. Payment of Charges and Claims. The Borrower shall (and shall cause each of its Subsidiaries to) pay and discharge in accordance with the terms thereof (A) all Charges imposed upon it or its income and profits, or any of its property (real, personal or mixed), (B) all lawful claims for labor, materials, supplies and services or otherwise, which if unpaid might by law become a Lien on its property, and (C) all rent in whatever form owing with respect to the lease by the Borrower or any of its Subsidiaries of real property; provided, that neither the Borrower nor any such Subsidiary shall be required to pay any such Charge, claim or rent which is being contested in good faith by proper legal actions or proceedings, so long as at the time of commencement of any such action or proceeding and during the pendency thereof (i) no Default or Event of Default shall have occurred and be continuing, (ii) adequate reserves with respect thereto are established and are maintained in accordance with GAAP, (iii) such contest operates to suspend collection of the contested Charges, claims or rent and is maintained and prosecuted continuously with diligence, (iv) none of the Collateral would be subject to forfeiture or loss or any Lien by reason of the institution or prosecution of such contest, (v) no Lien shall exist, be imposed or be attempted to be imposed for such Charges, claims or rent 34 Source: SYNNEX CORP, 10-K, February 13, 2007
    • during such action or proceeding unless the full amount of such Charge, claim or rent is covered by insurance satisfactory in all respects to the Agent, and (vi) the Borrower or such Subsidiary, as appropriate, shall promptly pay or discharge such contested Charges, claims or rent and all additional charges, interest penalties and expenses, if any, and shall, concurrently with the delivery of each quarterly Compliance Certificate (and in any event within 30 days after the end of each Fiscal Quarter), deliver to the Agent (x) evidence acceptable to the Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to the Borrower or such Subsidiary, as appropriate, and (y) a report listing all such contested Charges then existing to the extent in excess of $5,000,000 in the aggregate and any and all reserves established and maintained with respect thereto. SECTION 5.3. Books and Records. The Borrower shall (and shall cause each of its Subsidiaries to) keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its consolidated and consolidating financial transactions, are made in accordance with GAAP and on a basis consistent with the Financials. SECTION 5.4. Litigation. The Borrower shall notify the Agent and each Lender in writing, promptly upon learning thereof, of any litigation, Claim or other action commenced or threatened against the Borrower or any of its Subsidiaries, and of the institution against any such Person of any suit or administrative proceeding which (a) is reasonably likely to involve an amount in excess of $5,000,000 individually or (to the extent litigation, Claims or other actions are related) in the aggregate or (b) is reasonably likely to result in a Material Adverse Effect if adversely determined. SECTION 5.5. Insurance. (a) The Borrower shall, at its (or any of its Domestic Subsidiaries’) sole cost and expense, maintain or cause to be maintained with respect to the Borrower and its Domestic Subsidiaries, the policies of insurance in such amounts and as otherwise described in Annex F. The Borrower shall notify the Agent promptly of any occurrence causing a material loss or decline in value of any real or personal property and the estimated (or actual, if available) amount of such loss or decline, except as specified otherwise in Annex F. The Borrower (for itself and its Domestic Subsidiaries) hereby directs all present and future insurers under its “All Risk” policies of insurance to pay all proceeds payable thereunder in respect of Collateral directly to the Agent (on behalf of the Holders), other than proceeds relating to the loss or damage to property which secures Debt permitted under Section 6.3(f) that is required by the terms of such Debt to be paid to the holder thereof (“Excluded Proceeds”). The Borrower (for itself and its Domestic Subsidiaries) irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as such Person’s true and lawful agent and attorney in-fact for the purpose of (i) making, settling and adjusting claims under the “All Risk” policies of insurance, (ii) endorsing the name of such Person on any check, draft, instrument or other item of payment for the proceeds (other than Excluded Proceeds) of such “All Risk” policies of insurance, and (iii) for making all determinations and decisions with respect to such “All Risk” policies of insurance; provided, that the Agent agrees not to exercise such powers as attorney-in-fact under clause (i) or (iii) above unless a Default or Event of 35 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Default shall have occurred and be continuing. In the event the Borrower and/or a Domestic Subsidiary of the Borrower at any time or times hereafter shall fail to obtain or maintain (or fail to cause to be obtained or maintained) any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, the Agent or the Lenders, without waiving or releasing any Obligations or Default or Event of Default hereunder, may at any time or times thereafter (but shall not be obligated to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which the Agent or the Lenders deem advisable. All sums so disbursed, including attorneys’ fees, court costs and other charges related thereto, shall be payable, on demand, by the Borrower to the Agent (on behalf of the Holders) and shall be additional Obligations hereunder secured by the Collateral, provided, that if and to the extent the Borrower fails to promptly pay any of such sums upon the Agent’s demand therefor, the Agent is authorized to, and at its option may, make or cause to be made Revolving Credit Advances on behalf of the Borrower for payment thereof. If, notwithstanding that all proceeds of insurance in respect of any Collateral shall be payable to the Agent, the Borrower or any Subsidiary thereof receives any proceeds of insurance in respect of any Collateral in respect of the policies required to be maintained under this Agreement (except for such proceeds which the Borrower or any Domestic Subsidiary thereof is permitted to retain pursuant to the last sentence of Section 5.14(a) to replace, repair or restore Property as therein provided), such proceeds shall be held in trust by such Person (and the Borrower shall cause such Person to hold in trust such proceeds) for the Agent and, unless the Agent otherwise permits, shall be forthwith paid over to the Agent. (b) The Borrower shall, if so requested by the Agent, deliver to the Agent, as often as the Agent may reasonably request, a report of a reputable insurance broker satisfactory to the Agent with respect to its insurance policies. (c) The Borrower shall deliver to the Agent endorsements to all of its and its Domestic Subsidiaries’ (i) “All Risk” and business interruption insurance naming the Agent, for the benefit of the Holders, as loss payee to the extent provided in Section 5.5(a), and (ii) general liability and other liability policies naming the Agent, for the benefit of the Holders, as an additional insured. SECTION 5.6. Compliance with Laws. The Borrower shall (and shall cause each of its Subsidiaries to) comply with all federal, state, local and foreign laws, permits and regulations applicable to it, including those relating to licensing, environmental, ERISA and labor matters (except where the failure to so comply could not be reasonably expected to result in a Material Adverse Effect and would not be reasonably likely to subject the Borrower or any of its Subsidiaries to any criminal penalties (other than non-material fines) or the Agent or any of the Lenders to any civil or criminal penalties). SECTION 5.7. Agreements. The Borrower shall (and shall cause each of its Subsidiaries to) perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each agreement, contract, instrument or other document to which it is a party, including any leases, licenses and customer contracts to which it is a party where the failure to so perform and enforce could have or result in 36 Source: SYNNEX CORP, 10-K, February 13, 2007
    • a Material Adverse Effect. The Borrower shall (and shall cause each of its Subsidiaries to) take such actions or omit to take such actions so as not to cause a breach of the representations and warranties made hereunder and under the other Loan Documents. SECTION 5.8. Supplemental Disclosure. On the request of the Agent or any Lender (in the event that such information is not otherwise delivered by the Borrower to the Agent or the Lenders pursuant to this Agreement), the Borrower will supplement (or cause to be supplemented) each Schedule hereto, or representation herein or in any other Loan Document with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedule or as an exception to such representation or which is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby; provided that such supplement to any such Schedule or representation shall not be deemed an amendment thereof except if and to the extent that (i) the information disclosed in such supplement updates (A) Schedule 3.2 or Schedule 3.8 to include any Real Property leased or acquired by Borrower or any Domestic Subsidiary thereof in accordance with this Agreement, but includes no additional exceptions or other changes to said schedule, (B) Schedule 3.11 to include any Subsidiaries, joint ventures or partnerships with, or other equity interests in, any Person that are acquired or created by Borrower or any Domestic Subsidiary thereof in accordance with this Agreement, but only if the Borrower is in compliance with its obligations under Sections 5.15 and 5.17 with respect thereto, (C) Schedule 3.14 to include any new Plans maintained or contributed to by the Borrower or any Domestic Subsidiary or ERISA Affiliate thereof in accordance with this Agreement, but includes no additional exceptions or other changes to said schedule, (D) Schedule 3.16 to include any additional licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications and trade names acquired in accordance with this Agreement and then owned by the Borrower or any Domestic Subsidiary thereof, and any registration numbers applicable thereto, but includes no additional exceptions or other changes to said schedule, (E) Schedule 3.20 to include any deposit or securities accounts opened and maintained by Borrower or any Domestic Subsidiary thereof in accordance with this Agreement and Annex B hereto, and (F) the schedules in any Security Agreement that disclose the properties or locations where Collateral is located to include any new properties or locations leased or acquired after the Effective Date at which Collateral is located, in each case if and to the extent that each such property and location is leased or acquired, and Collateral is located at each such property and location, in accordance with this Agreement and the Loan Documents and, in the case of any such supplement amending any schedule referred to in this clause (F), such schedule shall be deemed amended upon the delivery of written notice by the Borrower to Agent of any such new property or location, or (ii) such amendment is expressly consented to in writing by the Agent and Requisite Lenders, and no such amendments, except as the same may be consented to in a writing which expressly includes a waiver, shall be or be deemed a waiver by the Lenders of any Default disclosed therein. The Borrower shall, if so requested by the Agent or the Requisite Lenders, furnish to the Agent and the Lenders as often as it reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent and the Lenders may reasonably request, all in reasonable detail, and the Borrower shall advise the Agent and the Lenders promptly, in reasonable detail, of (a) any Lien, other than as permitted pursuant to Section 6.7, attaching to or asserted against any of 37 Source: SYNNEX CORP, 10-K, February 13, 2007
    • the Collateral, (b) any material change in the composition of the Collateral, and (c) the occurrence of any other event which would have a Material Adverse Effect upon the Collateral and/or the Agent’s and Lenders’ Lien thereon. SECTION 5.9. Environmental Matters. The Borrower shall (and shall cause each of its Subsidiaries to) (a) comply in all material respects with the Environmental Laws and permits applicable to it, (b) notify the Agent and each Lender promptly after the Borrower or any Subsidiary thereof becomes aware of any Release upon any Real Property which is reasonably likely to result in or expose the Borrower or any of its Subsidiaries to actual or potential liability in excess of $1,000,000, and (c) promptly forward to the Agent and each Lender a copy of any order, notice, permit, application, or any communication or report received by the Borrower or any Subsidiary thereof in connection with any such Release or any other matter relating to the Environmental Laws that may affect any Real Property or the Borrower or any Subsidiary thereof. The provisions of this Section 5.9 shall apply whether or not the Environmental Protection Agency, any other federal agency or any state or local or foreign environmental agency has taken or threatened any action in connection with any Release or the presence of any Hazardous Materials. SECTION 5.10. Landlords’ Agreements, Mortgagee Agreements and Bailee Letters. The Borrower shall use good faith reasonable efforts to obtain a landlord’s agreement, mortgagee agreement or bailee letter, as applicable, from the lessor of each leased property or mortgagee of owned property or with respect to any warehouse, processor or converter facility or other location where Collateral is located, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may assert against the Inventory or Collateral at that location, and shall otherwise be satisfactory in form and substance to the Agent; provided, however, that the Borrower shall have no obligation to reimburse Agent and Lenders for any legal fees incurred by Agent or any Lender in connection with the negotiation, preparation, filing and/or recordation of any such landlord’s agreement, mortgagee agreement or bailee letter relating to any such property that is leased or owned, or any other location where Collateral is located, on and as of the Effective Date, and the Borrower’s obligation to reimburse Agent and Lenders for any legal fees incurred by Agent or any Lender in connection with the negotiation, preparation, filing and/or recordation of all such landlord’s agreements, mortgagee agreements and bailee letters relating to any other such properties and locations shall not exceed $2,000 for each such property or location; and provided, further, that the Lenders shall have no obligation to reimburse Agent for any such legal fees incurred by Agent in excess of $2,000 for each such property or location unless Agent incurs such legal fees with the consent, or pursuant to the instructions, of the Requisite Lenders. With respect to such locations or warehouse space leased or owned as of the Effective Date, if the Agent has not received a landlord or mortgagee agreement or bailee letter as of the Effective Date, the Borrower’s Eligible Inventory at that location may, in the Agent’s discretion, be excluded from the Borrowing Base or be subject to such Reserves as may be established by the Agent in its reasonable business judgment. The Borrower shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located. 38 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 5.11. [Reserved] SECTION 5.12. Application of Proceeds. The Borrower shall use the proceeds of Advances as provided in Section 1.3. SECTION 5.13. Fiscal Year. The Borrower shall (and shall cause each of its Subsidiaries to) maintain as its Fiscal Year the twelve-month period ending on November 30 in each year. SECTION 5.14. Casualty and Condemnation. (a) The Borrower shall promptly notify the Agent of any loss, damage, or destruction to any Collateral or any Real Property owned by the Borrower or any of its Domestic Subsidiaries whether or not constituting Collateral (collectively, “Property”) or arising from its use, whether or not covered by insurance; provided that no such notice is necessary with respect to the loss, damage or destruction of any Collateral or Real Property with a value of less than $3,000,000 per casualty event and $10,000,000 in the aggregate. The Agent on behalf of the Lenders (in consultation with the Borrower so long as no Default or Event of Default is continuing) is hereby authorized to adjust losses and collect all insurance proceeds in respect of any Collateral directly. If, notwithstanding the provisions hereof, which require that the Agent be the sole loss payee for insurance proceeds in respect of Collateral, a check or other instrument from an insurer is made payable to the Borrower or the Borrower and the Agent jointly, the Agent may endorse the Borrower’s name thereon and take such other action as the Agent may elect to obtain the proceeds thereof. After deducting from such proceeds the expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent may apply such proceeds to the reduction of the Obligations under or in connection with this Agreement and the other Loan Documents in the manner set forth in Section 1.9 or, at the Agent’s option with the consent of the Requisite Lenders, may permit or require the Borrower to use such proceeds, or any part thereof, to replace, repair or restore such Collateral as provided in paragraph (d) below. So long as no Default or Event of Default shall be continuing, the Borrower shall be entitled to use such proceeds to the extent the same are proceeds payable with respect to a casualty to Collateral other than Inventory (or such lesser amount thereof as shall be necessary) to replace, repair, restore or rebuild such Collateral as provided in paragraph (d) below where the amount of such moneys on account of a single event of loss, damage or destruction is less than $3,000,000 and it is reasonably expected that such replacement, repair, restoration or rebuilding can be completed within six (6) months after the loss, damage or destruction (and if not completed by the end of such six-month period, the remaining monies shall be delivered to the Agent to be applied to the payment of the Obligations). (b) The Borrower shall, promptly upon the Borrower or any of its Domestic Subsidiaries learning of the institution of any proceeding for the condemnation or other taking of any of its Property constituting Collateral, notify the Agent of the pendency of such proceeding, and agrees that the Agent may participate in any such proceeding and the Borrower from time to time will deliver (or cause to be delivered) to the Agent all instruments reasonably requested by the Agent to permit such participation. The Agent shall (and is hereby authorized to) collect any 39 Source: SYNNEX CORP, 10-K, February 13, 2007
    • and all awards, payments or other proceeds of any such condemnation or taking and apply such proceeds to the reduction of the Obligations in the manner set forth in Section 1.9 or, at the Agent’s option with the consent of the Requisite Lenders, may permit or require the Borrower to use such proceeds, or any part thereof, to replace, repair or restore such Collateral as provided in paragraph (d) below. (c) Subject to the terms and conditions hereof (including Section 2.2), after application of the proceeds of any loss or taking of the Borrower’s Collateral to the reduction of the Obligations pursuant to paragraphs (a) and (b) above, the Borrower may borrow Revolving Credit Advances for the purpose of replacing, repairing or restoring any Collateral subject to such loss or taking in accordance with paragraph (d) below. (d) Any Collateral which is to be replaced, repaired or restored pursuant to paragraph (a), (b) or (c) above shall be replaced, repaired or restored pursuant to such terms and conditions as the Agent may reasonably require and with materials and workmanship of substantially as good a quality as existed before such loss or taking, and the Borrower shall commence such replacement, repair or restoration as soon as practicable and proceed diligently with it until completion to the Agent’s satisfaction. The Borrower shall provide to the Agent written progress reports, other information and evidence of its compliance with the foregoing. SECTION 5.15. Subsidiaries. In the event that, at any time on or after the Effective Date, the Borrower or any of its Domestic Subsidiaries creates, forms or acquires a new Domestic Subsidiary, the Borrower shall execute and deliver (or cause to be executed and delivered) to Agent, for the benefit of the Holders, within 30 days after such creation, formation or acquisition, and at all times thereafter shall maintain (or cause to be maintained) in effect, (a) a Guaranty from such new Domestic Subsidiary in respect of the Obligations in substantially the form of Exhibit F-4, (b) a Security Agreement, in substantially the form of Exhibit G-4, and if necessary or reasonably desirable, other applicable Collateral Document, granting a first priority Lien (subject only to Permitted Encumbrances) on all assets of such new Domestic Subsidiary, (c) a Stock Pledge Agreement granting a Lien on all present and future issued and outstanding Stock of such new Domestic Subsidiary, all distributions made or to be made in respect thereof and all proceeds thereof, and (d) such supporting documentation, including corporate resolutions and opinions of counsel with respect to such additional Guaranty, Security Agreement, Stock Pledge Agreement or other documentation, as may be reasonably required by the Agent. SECTION 5.16. Intellectual Property. In the event that the Borrower or any Domestic Subsidiary shall acquire any Intellectual Property which is or becomes material to the business or operations of the Borrower or such Subsidiary or which otherwise becomes valuable, then the Borrower or such Subsidiary which has acquired such material or valuable Intellectual Property shall execute and deliver to the Agent, concurrently with the delivery of the next quarterly Compliance Certificate (and in any event within 30 days after the end of the next Fiscal Quarter), such security documents and other instruments, agreements, and certificates, each in form and substance satisfactory to the Agent, as the Agent may reasonably request in order that the Agent shall have been granted a first priority perfected and fully enforceable Lien in such material or valuable Intellectual Property and all Proceeds thereof. 40 Source: SYNNEX CORP, 10-K, February 13, 2007
    • SECTION 5.17. Further Assurances. The Borrower shall, and shall cause each of its Subsidiaries to, at its cost and expense, upon request of the Agent, duly execute and deliver, or cause to be duly executed and delivered, to the Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the opinion of the Agent to carry out more effectually the provisions and purposes of this Agreement or any other Loan Document. ARTICLE 6 NEGATIVE COVENANTS The Borrower covenants and agrees (for itself and each of its Subsidiaries) that, without the Requisite Lenders’ prior written consent, from and after the date hereof and until the Termination Date: SECTION 6.1. Mergers, Subsidiaries, Etc. The Borrower shall not (and shall not suffer or permit any of its Domestic Subsidiaries to), directly or indirectly, by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets or Stock of, or otherwise combine with, any Person or acquire any Subsidiary; provided that: (a) any Domestic Subsidiary of the Borrower may merge or consolidate with any other Domestic Subsidiary of the Borrower; and (b) the Borrower or any of its Domestic Subsidiaries may acquire all or substantially all of the assets or Stock or other ownership interests of any Domestic Person (the “Domestic Target”) or any Foreign Person (the “Foreign Target”), in each case subject to satisfaction of the following conditions of this Section 6.1 (any such acquisition of a Domestic Target, a “Permitted Domestic Acquisition”; any such acquisition of a Foreign Target, a “Permitted Foreign Acquisition”; and any Permitted Domestic Acquisition or Permitted Foreign Acquisition, a “Permitted Acquisition”): (i) such Permitted Acquisition shall only involve assets comprising a business, or those assets of a business, of the type engaged in by the Borrower as of the Effective Date, and which business would not subject the Agent or any Lender to regulatory or third party approvals in connection with the exercise of its rights and remedies under this Agreement or any other Loan Documents, other than approvals applicable to the exercise of such rights and remedies with respect to the Borrower prior to such Permitted Acquisition; (ii) the sum of all amounts paid or payable in connection with any such Permitted Domestic Acquisition (including all transaction costs and all Indebtedness, liabilities and contingent obligations incurred or assumed in connection therewith or otherwise reflected on a consolidated balance sheet of the Borrower and the Domestic Target), together with the sum of all such amounts paid or payable for all such prior Permitted Domestic Acquisitions made on or after the Effective Date (collectively, “Prior Permitted Domestic Acquisitions”) and the sum of all amounts paid or payable for all Permitted Domestic Investments made on or prior to such date in accordance with Section 6.2(g), shall not exceed $75,000,000 in the aggregate (the “Domestic 41 Source: SYNNEX CORP, 10-K, February 13, 2007
    • Cap”); provided that if, after a Permitted Domestic Acquisition shall have been consummated, (A) the Borrower delivers to the Agent, concurrently with the first financial statements required to be delivered hereunder on or after the date six months following such Permitted Domestic Acquisition, (1) pro forma quarterly consolidated financial statements of Borrower and its Subsidiaries reflecting two Fiscal Quarters actual results and two Fiscal Quarters projected results (which (x) in the case of the financial statements reflecting actual results, shall be complete, and (y) in the case of both the actual and projected financial statements, shall fairly present in all material respects the assets, liabilities, financial condition and results of operations of Borrower and its Subsidiaries in accordance with GAAP consistently applied, but shall take into account such Permitted Domestic Acquisition and the funding of all Advances in connection therewith), and (2) a certificate of the chief financial officer of the Borrower, in form and substance acceptable to the Agent, certifying that the Borrower would be in compliance with each financial covenant set forth in Annex G for such four-Fiscal Quarter period (and showing in reasonable detail the calculations used in determining compliance) on a proforma basis (taking into account such Permitted Domestic Acquisition), and (B) average daily Net Liquidity Availability for the six-month period following the actual date of consummation of such Permitted Domestic Acquisition shall have been $30,000,000 or more, then such Permitted Domestic Acquisition thereafter shall not be included as a Prior Permitted Domestic Acquisition for purposes of this Section 6.1(b)(ii) and the sum of all amounts paid or payable in connection with such Permitted Domestic Acquisition shall not be included in the calculation of the Domestic Cap; (iii) the sum of all amounts paid or payable in connection with any such Permitted Foreign Acquisition (including all transaction costs and all Indebtedness, liabilities and contingent obligations incurred or assumed in connection therewith or otherwise reflected on a consolidated balance sheet of the Borrower and the Foreign Target), together with the sum of all amounts paid or payable for all Permitted Foreign Investments made on or prior to such date in accordance with Section 6.2(g) (other than Permitted Foreign Investments made pursuant to Section 6.2(g)(iv) or Section 6.2(g)(v)), shall not exceed, in the aggregate, the limit set forth in Section 6.2(g)(iii); and (iv) such Permitted Acquisition otherwise constitutes a Permitted Investment under Section 6.2(g); provided, that, notwithstanding the foregoing, the Inventory and Accounts of the Domestic Target shall not be included in Eligible Inventory or Net Receivables Balance without the prior written consent of the Agent and the Requisite Lenders. SECTION 6.2. Investments. The Borrower shall not (and shall not suffer or permit any of its Domestic Subsidiaries to), directly or indirectly, make or maintain any Investment except: (a) as otherwise permitted by Section 6.1(b), 6.4 or 6.6; (b) Investments outstanding on the Effective Date and listed in Schedule 6.2, but not any additional investments therein (it being understood that any such Investment, once repaid or recovered, may not be reborrowed or renewed) unless such additional investment is permitted under another clause of this Section 6.2; 42 Source: SYNNEX CORP, 10-K, February 13, 2007
    • (c) cash and Cash Equivalents; provided, that (i) so long as there shall rema