-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KHjWfgT5ooil8oCpCp9xITCC/pSFz0bHz9mVB6hvr8ylXxSQp4PrsAXnoFS3xwiC K5fBgTbnKZbsXK2E+QliZw== 0000356028-99-000027.txt : 19990608 0000356028-99-000027.hdr.sgml : 19990608 ACCESSION NUMBER: 0000356028-99-000027 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990604 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CHS ELECTRONICS INC CENTRAL INDEX KEY: 0000924374 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 870435376 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48117 FILM NUMBER: 99641072 BUSINESS ADDRESS: STREET 1: 2000 NW 84TH AVE CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3057168273 MAIL ADDRESS: STREET 1: 2153 NW 86TH AVENUE CITY: MIAMI STATE: FL ZIP: 33122 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER ASSOCIATES INTERNATIONAL INC CENTRAL INDEX KEY: 0000356028 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132857434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11788 BUSINESS PHONE: 5163425224 SC 13D 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (Rule 13d-101) Under the Securities Exchange Act of 1934 CHS ELECTRONICS, INC. (Name of Issuer) Common Stock, Par Value $.001 Per Share (Title of Class of Securities) 12 542 A-20-6 (CUSIP Number) Steven M. Woghin, Esq. Senior Vice President and General Counsel Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 (516) 342-5224 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) May 26, 1999 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a Statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this Schedule because of Rule 13d-1(b)(3) or (4), check the following box Page 1 of 8 Pages CUSIP No. 12542A-20-6 13D Page 2 of 8 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person Computer Associates International, Inc. 2 Check the Appropriate Box if a Member of a Group (See Instructions) (a) (b) 3 SEC Use Only 4 Sources of Funds (See Instructions) WC 5 Check Box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e) 6 Citizenship or Place of Organization Delaware Number of Shares 7 Sole Voting Power 4,709,091 Beneficially Owned by 8 Shared Voting Power 0 Each 9 Sole Dispositive Power Reporting 4,709,091 Person With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 4,709,091 12 Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) 13 Percent of Class Represented by Amount in Row (11) 7.5% 14 Type of Reporting Person (See Instructions) CO Item 1. Security and Issuer. The class of equity securities to which this Statement relates is the Common Stock, par value $.001 per share (the "Common Stock"), of CHS Electronics, Inc., a Delaware corporation (the "Issuer"), with its principal executive offices located at 2000 NW 84th Avenue,Miami, Florida 33122. Item 2. Identity and Background. (a)-(c), (f) This Statement is filed by Computer Associates International, Inc., a Delaware corporation ("Computer Associates"). Computer Associates is engaged in the design, development, marketing and support of standardized computer software products for use with a broad range of desktop, midrange and mainframe computers from many different hardware manufacturers. The principal executive offices of Computer Associates are located at One Computer Associates Plaza, Islandia, New York 11788. The name, business address and present principal occupation or employment of each director and executive officer of Computer Associates and the name, principal business and address of any corporation or other organization in which such employment is conducted is set forth below. Each such person is a citizen of the United States of America, except for Willem F.P. de Vogel and Roel Pieper who are each a citizen of The Netherlands. Unless otherwise indicated below, the business address of each such person is c/o Computer Associates International, Inc., One Computer Associates Plaza, Islandia, New York 11788. Russel M. Artzt is a director and Executive Vice President-Research and Development of Computer Associates. Willem F.P. de Vogel, a director of Computer Associates, is the President of Three Cities Research, Inc., a private investment management firm. The business address of Mr. de Vogel is c/o Three Cities Research, Inc., 650 Madison Avenue, New York , New York 10022. Irving Goldstein, a director of Computer Associates, has retired from his position as Director General and Chief Executive Officer of INTELSAT, an international satellite telecommunications company. Richard A. Grasso, a director of Computer Associates, is the Chairman and Chief Executive Officer of the New York Stock Exchange, a national securities exchange. The business address of Mr. Grasso is c/o New York Stock Exchange, 11 Wall Street, New York, New York 10005. Shirley Strum Kenny, a director of Computer Associates, is the President of the State University of New York at Stony Brook, a New York State-run university. The business address of Ms. Kenny is President's Office, State University of New York at Stony Brook, Stony Brook, New York 11794. Roel Pieper, a director of Computer Associates, is the Chief Executive Officer of Fifth Force Inc. Mr. Pieper's business address is Vogelenzangseweg 5, NL-2111HP, Aerdenhout, The Netherlands. Sanjay Kumar is a director and President and Chief Operating Officer of Computer Associates. Charles B. Wang is a director and Chief Executive Officer and Chairman of the Board of Computer Associates. Michael A. McElroy is a Vice President-Legal and Secretary of Computer Associates. Charles P. McWade is a Senior Vice President-Finance of Computer Associates. Ira H. Zar is a Senior Vice President-Finance and Chief Financial Officer of Computer Associates. Lisa Savino is a Vice President and Treasurer of Computer Associates. (d) and (e) Neither Computer Associates nor, to the knowledge of Computer Associates, any of the other persons specified in Item 2 above has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. On May 26, 1999, pursuant to the Debenture Purchase Agreement between the Issuer and Computer Associates, a copy of which is attached as Exhibit 1 to this Statement (the "Debenture Purchase Agreement"), the Issuer agreed to issue and deliver to Computer Associates, and Computer Associates agreed to purchase, in a private placement, the Issuer's Floating Rate Convertible Debentures Due 2003 in the principal amount of $50 million. A copy of the form of Floating Rate Convertible Debentures Due 2003 is attached as Exhibit 2 to this Statement (the "Convertible Debentures"). As part of the Debenture Purchase Agreement, the Issuer agreed to issue and deliver to Computer Associates a common stock purchase warrant to purchase 2,000,000 shares of the Issuer's Common Stock at an exercise price of $5.50 per share (the "Warrant"), subject to adjustment as set forth in the Warrant. A copy of the Warrant is attached as Exhibit 3 to this Statement. Pursuant to the terms of the Debenture Purchase Agreement, on May 26, 1999 the Issuer issued and delivered to Computer Associates, and Computer Associates purchased the Issuer's Convertible Debentures in the principal amount of $14,900,000 and the Warrant. Computer Associates paid the $14.9 million purchase price for the Convertible Debentures and the Warrant using working capital available to it. The $35.9 million balance of the Convertible Debentures to be issued to and purchased by Computer Associates, is subject to obtaining the necessary clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Approval"). The principal amount of the Convertible Debentures, in whole or in part, may be converted into shares of Common Stock at a per share conversion price of $5.50. Such conversion price is subject to adjustment as set forth in the Convertible Debentures. The information set forth in this Item 3 is qualified in its entirety by reference to the Debenture Purchase Agreement, the Convertible Debentures and the Warrant, each of which is incorporated herein by reference. Item 4. Purpose of Transaction. Computer Associates purchased the Convertible Debentures in the principal amount of $14,900,000 and the Warrant on May 26, 1999 and agreed to purchase additional Convertible Debentures in the princpal amount of $35,100,000, subject to obtaining HSR Approval, for investment purposes. Computer Associates will continue to evaluate its investment in the Issuer on the basis of various factors, including the Issuer's business, financial condition, results of operations and prospects, general economic and industry conditions, the securities markets in general and those for the Issuer's securities in particular, Computer Associates' own financial condition, other investment opportunities and other future developments. Based upon such evaluation, Computer Associates will take such actions in the future as Computer Associates may deem appropriate in light of the circumstances existing from time to time. Depending on market and other factors, Computer Associates may determine to dispose of all or a portion of the Convertible Debentures or the Warrant, or the shares of Common Stock issuable upon conversion of the Convertible Debentures, or upon exercise of the Warrant (collectively, the "Conversion Shares") or to enter into option or other transactions (including, without limitation, hedging transactions) with third parties with respect to the Common Stock. Except as set forth in this Item 4, Computer Associates has no plans or proposals with respect to any of the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D. Item 5. Interest in Securities of the Issuer. (a) As of the close of business on May 26, 1999, Computer Associates beneficially owned 4,709,091 shares of Common Stock, of which 2,709,091 shares of Common Stock are issuable upon conversion of the Convertible Debentures, and 2,000,000 shares of Common Stock are issuable upon exercise of the Warrant. Assuming full conversion of the Convertible Debentures and full exercise of the Warrant, such 4,709,091 shares represent approximately 7.5% of the outstanding shares of Common Stock (computed on the basis of 58,040,369 shares of Common Stock outstanding as of May 10, 1999 as specified in the Issuer's Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 1999, plus 4,709,091 shares issuable upon conversion of the Convertible Debentures and exercise of the Warrant). Debentures provide, among other things, that the Convertible Debentures may be converted into shares of Common Stock, at the option of Computer Associates, at any time and from time to time beginning on the date of issuance of the Convertible Debentures. The Convertible Debentures were issued in the principal amount of $14,900,000 on May 26, 1999. To the knowledge of Computer Associates, none of Computer Associates' directors, executive officers, affiliates or associates beneficially owns any equity securities, or rights to acquire any equity securities, of the Issuer. (b) Computer Associates has the sole power to vote or to direct the vote, and to dispose or to direct the disposition of, the 4,709,091 Conversion Shares. (c) None. (d) No other person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, any of the 4,709,091 Conversion Shares. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with respect to Securities of the Issuer. On May 26, 1999, pursuant to the Debenture Purchase Agreement, the Issuer issued and delivered to Computer Associates, and Computer Associates purchased, in a private placement, the Convertible Debentures in the principal amount of $14,900,000 and the Warrant. The principal amount of the Convertible Debentures, in whole or in part, may be converted into shares of Common Stock at a per share conversion price of $5.50, subject to adjustment as set forth in the Convertible Debentures, and the Warrant may be exercised, in whole or in part, at an exercise price of $5.50 per share, subject to adjustment as set forth in the Warrant, for the issuance of up to 2,000,000 shares of Common Stock. The Debenture Purchase Agreement provides for the issuance and delivery by the Issuer to Computer Associates and the purchase by Computer Associates of additional Convertible Debentures in the principal amount of $35,100,000, subject to obtaining HSR Approval. The Debenture Purchase Agreement, the Convertible Debentures and the Warrant also contain, among other things, certain covenants and representations and warranties of the Issuer, registration rights with respect to the Conversion Shares, transfer restrictions on the Convertible Debentures, the Warrant and the Conversion Shares, and anti-dilution provisions. In addition, the holders of a majority of the outstanding principal amount of Convertible Debentures have the right to designate an individual who will be appointed to the Issuer's Board of Directors. The information set forth above in this Item 6 is qualified in its entirety by reference to the Debenture Purchase Agreement, the Convertible Debentures and the Warrant, each of which is incorporated herein by reference. Except as described in this Statement, to the knowledge of Computer Associates, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 hereof and between such persons and any other person with respect to any securities of the Issuer, including, but not limited to, transfer or voting of any of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Material to be Filed as Exhibits. Exhibit 1 Debenture Purchase Agreement, dated May 26, 1999, between the Issuer and Computer Associates Exhibit 2 $14,900,000 Floating Rate Convertible Debentures Due 2003 issued on May 26, 1999 by the Issuer to Computer Associates Exhibit 3 Common Stock Purchase Warrant to purchase 2,000,000 shares of Common Stock issued on May 26,1999 by the Issuer to Computer Associates. SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this Statement is true, complete and correct. Dated: June 4, 1999 COMPUTER ASSOCIATES INTERNATIONAL, INC. By:/s/ Steven M. Woghin ----------------------- Name: Steven M. Woghin Title:Sr. Vice President and General Counsel EX-99.1 2 $50,000,000 FLOATING RATE CONVERTIBLE DEBENTURES Due 2003 DEBENTURE PURCHASE AGREEMENT dated May 26, 1999 between CHS ELECTRONICS, INC. and COMPUTER ASSOCIATES INTERNATIONAL, INC. TABLE OF CONTENTS Section Page 1. Issuance of Securities and Reservation of Reserved Shares..................1 not defined. 2. Purchase, Sale and Delivery................................................1 3. Representations and Warranties of the Corporation...........................................................1 (a) Organization...................... ..............................1 (b) Capital Stock; Indebtedness; Liens...............................2 (c) Authorization of Agreement.......................................2 (d) Authorization of Debentures......................................2 (e) Authorization of Shares..........................................3 (f) Non-Contravention; No Required Consents.........................................................3 (g) Litigation.......................................................4 (h) Compliance; Governmental Authorizations...................................................4 (i) Financial Statements.............................................4 (j) Absence of Changes...............................................4 (k) Taxes............................................................5 (l) Intellectual Property............................................5 (m) Compliance with ERISA............................................5 (n) No Defaults......................................................6 (o) SEC Reports......................................................6 (p) Offering Exemption...............................................7 (q) Use of Proceeds..................................................7 (r) Investment Company...............................................7 (s) Disclosure.......................................................7 (t) No Finders' Fees.................................................7 (u) Delaware Law; Rights Agreement...................................7 4. Representations and Warranties of the Purchaser............................8 (a) Investment Purpose...............................................8 (b) Restricted Securities............................................8 (c) Accredited Investor..............................................8 5. Conditions of Obligations of the Purchaser.................................9 (a) Debenture........................................................9 (b) Actions Authorized...............................................9 (c) Legal Opinion....................................................9 (d) Representations and Warranties; Compliance; No Default...........9 (e) HSR Act......................................................... 9 6. Transfer of Securities.....................................................9 (a) Restriction on Transfer..........................................9 (b) Restrictive Legend...............................................9 (c) Notice of Transfer..............................................10 7. Registration of Registrable Stock.........................................10 (a) Shelf Registration..............................................10 (b) Registration Procedures ........................................11 (c) Designation of Underwriter......................................12 (d) Cooperation by Prospective Sellers..............................12 (e) Expenses........................................................12 (f) Indemnification.................................................13 8. Covenants.................................................................14 (a) Information.....................................................14 (b) Payment of Obligations..........................................15 (c) Conduct of Business and Maintenance of Existence................16 (d) Compliance with Laws............................................16 (e) Inspection of Property, Books and Records.......................16 (f) Prohibited Transactions.........................................16 (g) Increase in Authorized Capital..................................16 9. Survival of Representations, Warranties and Agreements Etc................17 10. Miscellaneous............................................................17 (a) Entire Agreement................................................17 (b) Headings........................................................17 (c) Notices.........................................................17 (d) Counterparts....................................................18 (e) Amendments......................................................18 (f) Assignment......................................................19 (g) Expenses; Documentary Taxes; Indemnification....................19 (h) CHOICE OF LAW...................................................20 (i) CONSENT TO JURISDICTION.........................................20 (j) WAIVER OF JURY TRIAL............................................20 EXHIBITS Exhibit A - Form of Floating Rate Convertible Debenture Due 2003 Exhibit B - Form of Warrant Exhibit C - (Reserved) Exhibit D - Form of Opinion of Counsel to the Company DEBENTURE PURCHASE AGREEMENT dated as of May 26, 1999 between CHS ELECTRONICS, INC., a Florida corporation (the "Company" or "CHS"), and COMPUTER ASSOCIATES INTERNATIONAL,INC., a Delaware corporation (the "Purchaser"). The parties hereto agree as follows: 1. Issuance of Securities and Reservation of Reserved Shares. Subject to the terms and conditions of this Agreement, the Company has authorized the issuance of its Floating Rate Convertible Debentures due 2003 (the "Debentures") in substantially the form of Exhibit A hereto in the aggregate principal amount of $50,000,000, and the Company has authorized the reservation of a sufficient number of shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated Rights (as defined below in Section 3(b)) of the Company to provide for conversion of the Debentures and exercise of the Warrants (as defined below in Section 2) (such reserved shares being referred to herein as the "Reserved Shares"). 2. Purchase, Sale and Delivery On the basis of the representations, warranties, covenants and agreements, but subject to the terms and conditions, set forth in this Agreement, at the Closings (as defined below), the Company agrees to sell and deliver to the Purchaser, and the Purchaser agrees to purchase from the Company, one or more Debentures in the aggregate principal amount of $50,000,000 at 100% of the principal amount (the "Purchase Price"). The Purchaser will designate to the Company the number and denominations of Debentures at least one business day prior to the Closing. The closings (the "Closings") for the consummation of the transactions contemplated by this Agreement shall take place at the offices of the Purchaser, as follows: (a) at the first closing (the "First Closing"), which shall occur simultaneously with the execution of this Agreement, subject to satisfaction of the conditions set forth in Section 5, the Company shall issue to the Purchaser warrants to purchase an aggregate of 2,000,000 shares of Common Stock (the "Warrants"), (the terms of such Warrants to be evidenced by a warrant certificate in substantially the form of Exhibit B) and issue and deliver, and Purchaser shall purchase and pay for, $14,900,000 in principal amount of Debentures; and (b) at the second closing (the "Second Closing"), the Company shall issue and deliver, and Purchaser shall purchase and pay for, $35,100,000 in principal amount of the Debentures. The Second Closing shall take place within five (5) business days after the date the parties receive the necessary clearances under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), subject to satisfaction of the conditions set forth in Section 5. Promptly after the date hereof, the parties shall make the necessary filings under the HSR Act, and shall use their commercially reasonable efforts to obtain such clearances as promptly as possible.(such dates of the Closing being herein referred to as the "Closing Dates"). The applicable portions of the Purchase Price shall be delivered to the Company at each Closing by wire transfer of immediately available Federal funds (instructions for which will be provided by the Company to the Purchaser), against receipt of the Debentures. 3. Representations and Warranties of the Company. Except in the case of any representation and warranty below, to the extent described under the caption identifying such representation and warranty in the Company Disclosure Letter dated the date of this Agreement and furnished by the Company to the Purchaser on the date of this Agreement (the "Company Disclosure Letter"), the Company represents and warrants, and agrees, as follows: (a) Organization The Company and each of the subsidiaries of the Company, a list of which are set forth on Schedule 3(a) of the Company Disclosure Letter (each a "Subsidiary" and, collectively, the "Subsidiaries"), are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation, and are duly qualified and in good standing to do business in each jurisdiction in which such qualification is necessary because of the property owned or leased or because of the nature of business conducted by it, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), assets, liabilities, operations, earnings or business of the Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect"). The Company does not own, directly or indirectly, any equity interest in any corporation, partnership, joint venture or other entity other than the Subsidiaries. (b) Capital Stock; Indebtedness; Liens. (i) The authorized capital stock of the Company as of the date hereof consists of 100,000,000 shares of Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred Stock, of which 58,049,580 shares of Common Stock, including associated Rights (the "Rights") issued pursuant to the Rights Agreement, as amended, dated as of March 18, 1998, between the Company and American Stock Transfer and Trust Company, as Rights Agent (the "Rights Agreement"), are validly issued and outstanding, fully paid and non-assessable, with no personal liability attaching to the ownership thereof, and no shares of Preferred Stock are issued or outstanding. All outstanding shares of capital stock of the Company are duly authorized and not subject to any pre-emptive rights. Except for such 58,049,580 shares of Common Stock and the Rights, there are no other shares of capital stock or other equity securities of the Company issued or outstanding. (ii) Except as set forth in the Reports (as defined below) and in Schedule 3(b)(ii): (A) there are no options, warrants, contracts, commitments or agreements to which the Company is a party or is bound relating to any shares of capital stock or other securities of the Company, whether or not outstanding, and (B) other than the Purchaser pursuant to this Agreement, no person has any right to cause the Company to effect the registration under the Securities Act of 1933, as amended (the "Securities Act"), of Common Stock or any other securities of the Company, and (C) there are no voting trusts, voting agreements, proxies or other agreements or instruments with respect to the voting of the Company's capital stock to which the Company is a party or, to the best of the Company's knowledge, among or between any persons other than the Company. (c) Authorization of Agreement. The execution, delivery and performance by the Company of this Agreement are within the Company's corporate powers and have been duly authorized by all requisite corporate action by the Company; and this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company. (d) Authorization of Debentures and Warrants. The issuance, sale and delivery of the Debentures and the Warrants are within the Company's corporate powers and have been duly authorized by all requisite corporate action of the Company, and when issued, sold and delivered in accordance with the provisions of this Agreement, the Debentures and the Warrants will constitute the valid and binding obligations of the Company, enforceable in accordance with their respective terms. (e) Authorization of Shares. The Debentures are convertible into Common Stock in accordance with the terms of this Agreement and of the Debentures. The Warrants are exercisable for shares of Common Stock in accordance with the terms set forth in this Agreement and the Warrant Certificate. The reservation, issuance and delivery of the Reserved Shares are within the Company's corporate powers and have been duly authorized by all requisite corporate action of the Company, and when issued and delivered in accordance with the terms of this Agreement and the terms of the Debentures and the Warrants, as the case may be, and accepted for listing on The New York Stock Exchange ("NYSE"), the Reserved Shares will be validly issued and outstanding, fully paid and non-assessable with no personal liability attaching to the ownership thereof, and not subject to preemptive or any other similar rights of the shareholders of the Company or others. The stockholders of the Company have no preemptive rights with respect to the Debentures, the Warrants, the Reserved Shares or the Common Stock. (f) Non-Contravention; No Required Consents. The execution, delivery and performance of this Agreement, the issuance, sale and delivery of the Debentures and the Warrants and the reservation, issuance and delivery of the Reserved Shares, and compliance with the provisions hereof and thereof by the Company will not (i) violate any provision of law, statute, rule or regulation, or any ruling, writ, injunction, order, judgment, or decree of any court, administrative agency or other governmental body applicable to the Company, any of the Subsidiaries or any of their properties or assets or (ii) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute (with due notice or lapse of time, or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under, (A) the Company's or any Subsidiary's articles of incorporation or bylaws, or (B) any note, indenture, mortgage, lease, contract, agreement or instrument (1) to which the Company is a party or by which it or any of its properties or assets are bound or affected and (2) relating to any debt owed by, or any capital stock issued by, the Company, (C) any other material lease, contract, agreement or other instrument to which the Company is a party or by which any of its properties or assets are bound or affected or (D) any material note, indenture, mortgage, lease, agreement or other contract, agreement or instrument to which any Subsidiary is a party or by which it or any of its properties or assets are bound or affected. Except for the filing of any notice subsequent to the Closings that may be required under applicable Federal or state securities laws (which, if required, shall be filed on a timely basis as may be so required), obtaining the necessary clearances under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and listing the Reserved Shares on the NYSE, no consent, approval or authorization of, or declaration to, or filing with, any Person is required for the valid authorization, execution, delivery, and performance by the Company of this Agreement or for the valid authorization, issuance, sale and delivery of the Debentures or for the valid authorization, reservation, issuance and delivery of the Reserved Shares. The term "Person", as used herein, means an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated association or any other entity or organization, including, without limitation, a government or political subdivision or an agency, instrumentality or official thereof. (g) Litigation. Except as disclosed in Schedule 3(g) or in the Reports (i) there are no actions, suits, claims, investigations or legal or administrative or arbitration proceedings pending or, to the knowledge of the Company or any Subsidiary, threatened against or affecting the Company or any Subsidiary, whether at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality which individually or in the aggregate would, if adversely determined, have a Material Adverse Effect, or which in any manner draws into question the validity of this Agreement, the Debentures or the Reserved Shares or the transactions contemplated hereby or thereby; and (ii) there are no judgments, decrees, injunctions or orders of any court, governmental department, commission, agency, instrumentality or arbitrator against or affecting the Company or any Subsidiary, which individually or in the aggregate, would have a Material Adverse Effect. (h) Compliance; Governmental Authorizations. Each of the Company and each Subsidiary has complied, and is in compliance with, in all respects with the Federal, state, local or foreign laws, ordinances, regulations and orders (including environmental laws, ordinances, regulations and orders) necessary for the conduct of its business, except where the failure to comply with any of the foregoing would not have a Material Adverse Effect. Each of the Company and each Subsidiary has all Federal, state and foreign governmental licenses and permits necessary for the conduct of its business as presently being conducted (including all those required by the United States Environmental Protection Agency and similar state agencies), such licenses and permits are in full force and effect, no violations are or have been recorded in respect of any thereof and no proceeding is pending or, to the knowledge of the Company or any Subsidiary, threatened to revoke or limit any thereof, except where the failure to comply with any of the foregoing would not have a Material Adverse Effect. (i) Financial Statements. The consolidated financial statements of the Company and the Subsidiaries set forth in the (i) Company's Annual Report on Form 10-K for the year ended December 31, 1998, reported on by Grant Thornton LLP, and (ii) Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1999, in each case fairly present the consolidated financial position of the Company and the Subsidiaries as of such date and the consolidated results of operation and cash flows for such period then ended in conformity with generally accepted accounting principles. Grant Thornton is the Company's independent accountant as defined under the Securities Act and the rules and regulations promulgated thereunder. (j) Absence of Changes. Since March 31, 1999, and except as disclosed in Schedule 3(j), the Company and each Subsidiary has been operated in the ordinary course of business consistent with past practice and there has not been (i) any material adverse change in the condition (financial or otherwise), assets, liabilities, operations, earnings or business of the Company and its Subsidiaries, taken as a whole; or (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of Common Stock, or any direct or indirect redemption, purchase or other acquisition of any such shares of Common Stock. (k) Taxes. Except as disclosed in Schedule 3.2(k), the federal income tax returns of the Company or its predecessors have never been examined by the Internal Revenue Service. Neither the Company nor its predecessors has taken any reporting positions for which they do not have a reasonable basis and the Company does not anticipate any further material tax liability with respect to the years for which returns have been filed prior to the date of this Agreement. For purposes of this paragraph, the term "Company" shall include each other corporation with which the Company files consolidated or combined income tax returns or reports. The Company and each Subsidiary have timely filed (or received extensions for filing) all United States federal income tax returns and all other material tax returns (federal, state, local and foreign) required to be filed by it, which returns are true and correct in all material respects, and all taxes, assessments, fees and othergovernmental charges thereupon and upon its properties, assets, income and franchises which are due and payable prior to the date of this Agreement, the failure of which to pay when due and payable has or is likely to have a Material Adverse Effect, have been paid when due and payable, or reserves have been provided for payment thereof to the extent required under generally accepted accounting standards. The Company does not know of any actual or proposed additional tax assessments for any fiscal period against it or any of the Subsidiaries which, singly or in the aggregate, would have a Material Adverse Effect and the Company has established adequate reserves for such additional tax assessments, if any. (l) Intellectual Property. The Company or a Subsidiary exclusively or jointly owns, or is licensed to use, all patents, licenses, copyrights, trademarks or trade names or other intellectual property rights ("Intellectual Property") which the Company believes are necessary, required or desirable for the conduct of the business of the Company and the Subsidiaries as presently conducted or as presently proposed to be conducted. There are no pending or threatened claims against the Company or any Subsidiary alleging that the conduct of the Company's or such Subsidiary's business (as now conducted or presently proposed to be conducted) infringes or conflicts with or will infringe or will conflict with the rights of others in any Intellectual Property. To the knowledge of the Company, no third party is infringing any of the Intellectual Property of the Company or any Subsidiary. To the Company's knowledge, neither the Company nor any Subsidiary is making unauthorized use of any confidential information or trade secrets of any person, including without limitation, any former or present employees of the Company or any Subsidiary. (m) Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Company and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company, are treated as a single employer under Section 414 of the Internal Revenue Code. "PBGC" means the Pension Benefit Guaranty Company or any entity succeeding to any or all of its functions under ERISA. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a) (3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five Plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. (n) No Defaults. Except as disclosed in Schedule 3(n), (A) neither the Company nor any Subsidiary is in default (i) under its articles of incorporation or bylaws, or any indenture, mortgage, lease, purchase or sales order, or any other contract, agreement or instrument to which the Company or any Subsidiary is a party or by which they or any of their properties are bound or affected or (ii) with respect to any order, writ, injunction or decree of any court or any Federal, state, municipal or other domestic or foreign governmental department, commission, board, bureau, agency or instrumentality, which defaults individually or in the aggregate would have a Material Adverse Effect; and (B) there exists no condition, event or act which constitutes, or which after notice, lapse of time, or both, would constitute, a default under any of the foregoing, which defaults individually or in the aggregate would have a Material Adverse Effect. (o) SEC Reports. The Company has delivered to the Purchaser its (i) AnnualReport on Form 10-K for the year ended December 31, 1998 and (ii) Quarterly Report on Form 10-Q for the three months ended March 31, 1999 (together, the "Reports"). The description of the business, operations, properties and assets of the Company contained in the Reports, as well as all other factual statements concerning the Company contained therein,are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (p) Offering Exemption. Neither the Company nor any of its agents has offered or sold any Debentures, Warrants or Common Stock, or any similar security or securities to, or solicited any offers to buy any of the foregoing from, or otherwise approached or negotiated in respect thereof with, any person or persons so as to require registration of the Debentures, the Warrants or the Reserved Shares under the Securities Act or qualification under the Trust Indenture Act of 1939. The offering and sale of the Debentures and the Warrants and the issuance of the Reserved Shares upon conversion of the Debentures and the Warrants, as the case may be, are each exempt from registration under the Securities Act pursuant to Section 4(2) of such Act. (q) Use of Proceeds. The proceeds received by the Company from the sale of the Debentures and the Warrants shall be used by the Company for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation T, U or X of the Board of Governors of the Federal Reserve System. (r) Investment Company. The Company is not an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. (s) Disclosure. No document, certificate, instrument or written statement or information furnished or made available to the Purchaser by or on behalf of the Company in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. There is no fact peculiar to the Company which materially adversely affects (without regard to general market and economic conditions), or in the future may (so far as the Company can now foresee), to the best knowledge of the Company, materially adversely affect the business, operations, condition, properties or assets of the Company which has not been set forth in this Agreement or in the other documents, certificates, instruments or written statements furnished to the Purchaser by or on behalf of the Company pursuant hereto. (t) No Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company or any Subsidiary who might be entitled to any fee or commission from the Company, any Subsidiary, the Purchaser or any of Purchaser's affiliates upon consummation of the transactions contemplated by this Agreement or thereafter. (u) Florida Law; Rights Agreement. The Company has delivered to the Purchaser a complete and correct copy of the Rights Agreement, including all amendments and exhibits thereto. The Company has taken, and as soon as possible after the date hereof (but in no event later than five business days after the date hereof), the Rights Agent will take, all actions necessary or appropriate to amend the Rights Agreement to ensure that the execution of this Agreement and the issuance and delivery of the Reserved Shares in accordance with the terms of thiS Agreement and the terms of the Debentures and the other transactions contemplated by this Agreement and the Debentures and the Warrants will not cause (i) the Purchaser or any of its affiliates to be considered an Acquiring Person (as such term isdefined in the Rights Agreement), (ii) the occurrence of a Distribution Date or Stock Acquisition Date (as such terms are defined in the Rights Agreement) or (iii) the separation of the Rights from the underlying Shares, and will not give the holders thereof the right to acquire securities of any party hereto;provided that: (A) the amendments described in subsections (i) through (iii) above shall be effective only so long as Purchaser does not acquire, upon conversion of the Debenture, exercise of the Warrants, or otherwise, 20% or more of the outstanding Common Stock; and (B) if Purchaser acquires Common Stock ("Excess Shares") in excess of the amounts set forth in subsection (A), such acquisition will be considered a "Triggering Event," and Purchaser will be deemed an "Acquiring Person," all as defined in the Rights Agreement. If the shareholders of the Company approve the Holder's purchase of Excess Shares upon conversion of the Debentures and exercise of the Warrants (in accordance with Section 3(g) of the Debentures), then the Company and its Board of Directors shall take such further actions as may be necessary to exempt such Excess Shares (and the Holder's acquisition thereof) from the provisions of Florida Statutes ss.607.0902 and the Rights Agreement. If due to the Company's issuance(s) of Common Stock after the date hereof, the total number of shares of Common Stock which may be acquired by Purchaser pursuant to the Debentures and the Warrants is less than 19.95% of the total shares of Common Stock then outstanding, Purchaser may, at its option, elect to purchase additional shares of Common Stock other than pursuant to the Debenture or the Warrants (the "Outside Purchases"). Such Outside Purchases shall be exempt from the Rights Agreement, so long as the total shares acquired through Outside Purchases, plus the maximum amount of shares of Common Stock which have been or may be acquired by Purchaser pursuant to the Debentures and the Warrants, does not exceed 19.95% of the total shares of Common Stock then outstanding. 4. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company as follows: (a) Investment Purpose. The Purchaser is acquiring the Debentures and the Warrants for the Purchaser's own account, not as a nominee or agent, and the Purchaser is acquiring the Debentures and the Warrants for investment and not with a view to the distribution thereof within the meaning of the Securities Act. (b) Restricted Securities. (i) The Purchaser understands that the Debentures and the Warrants have not been registered under the Securities Act; and that the Debentures and the Warrants are restricted securities within the meaning of Rule 144 under the Securities Act. (ii) The Purchaser understands that the Reserved Shares issuable upon conversion and the shares issuable upon exercise of the Warrants will not b registered under the Securities Act (except as otherwise provided in Sectio 6) and may only be sold or transferred in compliance with the Securities Act. (c) Accredited Investor. Purchaser is an Accredited Investor (as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended). 5. Conditions of Obligations of the Purchaser. The obligations of the Purchaser to perform under this Agreement are subject to the satisfaction of the following conditions at each closing unless waived by the Purchaser: (a) Debenture and Warrant Certificate. The Purchaser shall have received a duly executed Debenture or Debentures evidencing the principal amount of Debentures purchased and a duly executed Warrant Certificate. (b) Actions Authorized. All action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Company, and the Company shall have full power and right to consummate the transactions contemplated hereby. The Company shall have furnished to the Purchaser such documents relating to its corporate existence and authority (including, without limitation, certified copies of the Company's Articles of Incorporation, Bylaws, resolutions and minutes of meetings of the Board of Directors authorizing the Agreement and good standing certificates from the Secretary of State of the states of Florida and such other matters as the Purchaser or its counsel may reasonably request. (c) Legal Opinion. The Purchaser shall have received an opinion dated the Closing Date of Shutts and Bowen LLP, and/or Greenberg Traurig LLP, counsel to the Company in the form of Exhibit D. (d) Representations and Warranties; Compliance; No Default The representations and warranties of the Company in Section 3 shall be true and correct in all respects on and as of each Closing Date; the Company shall have complied in all material respects with all obligations, covenants and conditions required to be complied with by it pursuant to this Agreement on or prior to each Closing; and the Purchaser shall have received a certificate at each Closing signed by the Company's President and Chief Executive Officer to the foregoing effect. No Event of Default under the Debentures and no event or condition which, with the giving of notice or the lapse of time or both, would, unless cured or waived, become such an Event of Default, shall have occurred and be continuing. (e) HSR Act. Prior to the Second Closing, the parties shall have received clearance under the HSR Act to proceed with the Second Closing. 6. Transfer of Debentures. (a) Restriction on Transfer. The Debentures shall not be transferable except upon the conditions specified in this Section 6, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the transfer of the Debentures. In addition, in no event shall the Debentures be transferred to any person listed on Schedule 6(a). (b) Restrictive Legend. Each Debenture shall (unless otherwise permitted by the provisions of Section 6(d)) be stamped or otherwise imprinted with legends in substantially the following form: THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939. THIS DEBENTURE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. ADDITIONALLY, THE TRANSFER OF THIS DEBENTURE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6 OF THE DEBENTURE PURCHASE AGREEMENT PURSUANT TO WHICH THIS DEBENTURE WAS PURCHASED, AND NO TRANSFER OF THIS DEBENTURE SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. (c) Notice of Transfer. Each holder of a Debenture (a "Holder"), by acceptance thereof agrees, prior to any transfer of any Debentures, to give written notice to the Company of such Holder's intention to effect such transfer and to comply in all other respects with the provisions of this Section 6(c). Each such notice shall describe the manner and circumstances of the proposed transfer and shall be accompanied by the written opinion of counsel for such Holder, as to whether in the opinion of such counsel such proposed transfer involves a transaction requiring registration of such Debentures under the Securities Act. If in the opinion of such counsel the proposed transfer of the Debentures may be effected without registration under the Securities Act, the Holder shall thereupon be entitled to transfer the Debentures in accordance with the terms of the notice delivered by it to the Company. Each certificate or other instrument evidencing the securities issued upon the transfer of any Debentures (and each certificate or other instrument evidencing any untransferred balance of such Debentures) shall bear the legend set forth in Section 6(b) unless in the opinion of such counsel registration of future transfer is not required by the applicable provisions of the Securities Act. 7. Registration of Registrable Stock. (a) Shelf Registration. (i) The Company shall within the earlier of 30 business days of (A) the Second Closing and from time to time thereafter; and (B) delivery of a written request to register Registrable Stock (as defined below) by any holder or holders owning beneficially, in the aggregate, Debentures and/or Warrants convertible or exchangeable into at least 51% of the Registrable Stock, file with the Securities and Exchange ommission (the "SEC") a Shelf Registration Statement (as defined below) relating to the offer and sale of the shares of Common Stock or other securities issued or issuable upon conversion of the Debentures or exercise of the Warrants (the "Registrable Stock") by the holders of Registrable Stock from time to time in accordance with the methods of distribution elected by such holders and set forth in such Shelf Registration Statement, and (y) use its best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act as promptly as practicable. "Register," "registered" and "registration" each refer to a registration of Registrable Stock effected by filing with the SEC a registration statement in compliance with the Securities Act and the declaration or ordering by the SEC of effectiveness of such registration statement. "Shelf Registration" means a registration effected pursuant to this Section 7. "Shelf Registration Statement" means a shelf registration statement of the Company filed with the SEC pursuant to the provisions of this Section 7 which covers some or all of the Registrable Stock, as applicable, on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, amendments and supplements to such registration statement, includingpost-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. (ii) The Company shall use its best efforts (x) to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by the holders of Registrable Stock for a period ending at such time as any holder could sell under Rule 144 under the Securities Act, in any three month period, all of the Registrable Stock then held by it, without any such Shelf Registration Statement being effective, and (y) after the effectiveness of the Shelf Registration Statement, promptly upon the request of any holder of Registrable Stock, to take any action necessary including filing an amendment to the Shelf Registration Statement to register the sale of any Registrable Stock of such holder and to identify such holder as a selling securityholder. ( b) Registration Procedures. In connection with any Shelf Registration Statement, the Company shall: (i) prepare and file with the SEC a Shelf Registration Statement with respect to the Registrable Stock and use its best efforts to cause such Shelf Registration Statement to become and remain effective as provided in this Agreement; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such Shelf Registration Statement effective and current and to comply with the provisions of the Securities Act with respect to the disposition of all shares covered by such Shelf Registration Statement, including such amendments and supplements as may be necessary to reflect the intended method of disposition from time to time of the prospective seller or sellers of such Registrable Stock; (iii) furnish to each selling holder of Registrable Stock such number of copies of a prospectus in conformity with the requirements of the Securities Act, and such other documents, as such holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Stock owned by such holder; (iv) use its best efforts to register or qualify the shares of Registrable Stock covered by such Shelf Registration Statement under such other securities or blue sky or other applicable laws of such jurisdiction within the United States as each prospective seller shall reasonably request, to enable such seller to consummate the public sale or other disposition in such jurisdictions of the shares of Registrable Stock owned by such seller; and (v) furnish to each prospective seller a signed counterpart, addressed to the prospective sellers, of (i) an opinion of counsel for the Company, dated the effective date of the Shelf Registration Statement, and (ii) a "comfort" letter (or, in the case of any such Person which does not satisfy the conditions for receipt of a "comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed upon procedures" letter) signed by the independent auditors who have certified the Company's financial statements included in the Shelf Registration Statement, covering substantially the same matters with respect to the Shelf Registration Statement (and the prospectus included therein) and (in the case of the "comfort" or "agreed upon procedures" letter) with respect to events subsequent to the date of the financial statements, as are customarily covered (at the time of such registration) in opinions of issuer's counsel and in "comfort" letters delivered to the underwriters in underwritten public offerings of securities (with, in the case of an "agreed upon procedures" letter, such modifications or deletions as may be required under Statement on Auditing Standards No. 35). (c) Designation of Underwriter. In the case of any registration effected pursuant to this Section 7, a majority in interest of the holders of Registrable Stock shall have the right to designate the managing underwriter in any underwritten offering. The Company agrees to enter into a customary underwriting agreement with the managing underwritten in connection with any such underwriter offering. (d) Cooperation by Prospective Sellers. (i) Each prospective seller of Registrable Stock, and each underwriter designated by each such seller, will furnish to the Company such information as the Company may reasonably require from such seller or underwriter in connection with the Shelf Registration Statement (and the prospectus included therein). No holder of Registrable Stock may participate in any offering unless such Holder completes and executes all questionnaires, indemnities, underwriting agreements and other documents reasonably required in connection with the offering. (ii) Failure of a prospective seller of Registrable Stock to furnish the information and agreements described in this Agreement shall not affect the obligations of the Company under this Agreement to remaining sellers to furnish such information and agreements unless, in the reasonable opinion of counsel to the Company or the underwriters, such failure impairs or may impair the viability of the offering or the legality of the registration or the underlying offering. (iii) The holders of shares of Registrable Stock included in the registration will not (until further notice by the Company) effect sales thereof (or deliver a prospectus to any purchaser) after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a registration statement or prospectus. In connection with any offering each Holder who is a prospective seller, will not use any offering document, offering circular or other offering materials with respect to the offer or sale of Registrable Stock, other than the prospectuses provided by the Company and any documents incorporated by reference therein. (e) Expenses. All expenses incurred in complying with this Section 7, including, without limitation, all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), fees and expenses of complying with securities and "blue sky" laws, printing expenses and fees and disbursements of counsel for the Company, and one counsel for the holders of Registrable Stock, and of the independent certified public accountants shall be paid by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the Registrable Stock, covered by registrations effected pursuant to this Section 7 shall not be borne by the Company but shall be borne by the seller or sellers. (f) Indemnification. (i) In the event of any registration of any Registrable Stock under the Securities Act pursuant to this Section 7 or registration or qualification of any Registrable Stock pursuant to this Section 7, the Company shall indemnify and hold harmless the seller of such shares, each underwriter of such shares, if any, each broker or any other person acting on behalf of such seller and each other person, if any, who controls any of the foregoing persons, within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which any of the foregoing persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Stock as registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or any document prepared or furnished by the Company incident to the registration or qualification of any Registrable Stock pursuant to this Section 7, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein in light of the circumstances under which they were made, not misleading, or any violation by the Company of the Securities Act or state securities or "blue sky" laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws; and shall reimburse such seller, such underwriter, broker or other person acting on behalf of such seller and each such controlling person for any legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable (i) in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the registration statement, the preliminary prospectus or prospectus or in any amendment or supplement thereof pursuant to this Section 7 in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller or such underwriter specifically for use in the preparation thereof and (ii) to any broker or other person acting on behalf of such seller to the extent that any such loss, claim, damage or liability arises out of or is based upon any representation or other statement of such broker or other person that is not in conformity with the preliminary prospectus or prospectus. (ii) Before Registrable Stock held by a prospective seller shall be included in any registration pursuant to this Section 7, such prospective seller and any underwriter acting on its behalf shall have agreed to indemnify and hold harmless (in the same manner and to the same extent as set forth in (i) above) the Company, each director of the Company, each officer of the Company who shall sign such registration statement and any person who controls the Company within the meaning of the Securities Act, with respect to any untrue statement or omission from such registration statement, any preliminary prospectus or prospectus contained therein, or any amendment or supplement thereof, if such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller or such underwriter, as the case may be, specifically for use in the preparation of such registration statement, preliminary prospectus, prospectus or amendment or supplement; provided that the maximum amount of liability in respect of such indemnification shall be limited, in the case of each prospective seller of Registrable Stock, to an amount equal to the net proceeds actually received by such prospective seller from the sale of Registrable Stock effected pursuant to such registration. (iii) Notwithstanding the foregoing provisions of this Section 7(f), if pursuant to an underwritten public offering of Common Stock, the Company, the selling shareholders and the underwriters enter into an underwriting or purchase agreement relating to such offering which contains provisions covering indemnification among the parties thereto in connection with such offering, the indemnification provisions of Section 7(f) shall be deemed inoperative for purposes of such offering. (iv) Each party entitled to indemnification under this Section 7(f) (the "indemnified party") shall give notice to the party required to provide indemnification (the "indemnifying party") promptly after such indemnified party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the indemnifying party (at its expense) to assume the defense of any claim or any litigation resulting therefrom, provided that counsel for the indemnifying party, who shall conduct the defense of such claim or litigation, shall be reasonably satisfactory to the indemnified party, and the indemnified party may participate in such defense, but only at such indemnified party's expense, and provided, further, that the omission by any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 7(f) except to the extent that the omission results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged solely as a result of the failure to give notice. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 8. Covenants. The Company agrees that: (a) Information. The Company shall deliver to each Holder: (i) (A) as soon as available and in any event within 5 days after filing of each of the Company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K with the Commission, copies of each of such reports; and (B) as soon as available and in any event within 10 days after filing of each of the Company's Annual Reports on Form 10-K including copies of the Company's Annual Report to Shareholders and Schedule 14A with the Commission, copies of each of such reports; (ii) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all information (other than as described in clause (i)) so mailed; (iii) simultaneously with the delivery of each set of financial statements referred to above, a certificate of the chief financial officer or the chief accounting officer of the Company stating whether any Event of Default, as defined in the Debentures, or any condition or event which, with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default, exists on the date of such certificate and, if any Event of Default or any such condition or event then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (iv) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Company setting forth details as to such occurrence and action, if any, which the Company or applicable member of the ERISA Group is required or proposes to take; and (v) from time to time such additional information regarding the financial position or business of the Company and its Subsidiaries as any Holder may reasonably request (it being understood and agreed that no Holder shall be entitled to request any confidential or proprietary information of the Company and its Subsidiaries pursuant to this clause (v)). (b) Payment of Obligations. The Company will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. (c) Conduct of Business and Maintenance of Existence. The Company will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Company and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business, provided that nothing in this Section 8(c) shall prohibit (i) the merger of a Subsidiary into the Company or the merger or consolidation of the Company or a Subsidiary with or into another Person as permitted by Section 6(d) of the Debenture, or (ii) the termination of the corporate existence of any Subsidiary if the Company in good faith determines that such termination is in the best interest of the Company and is not materially disadvantageous to the Holders of the Debentures. (d) Compliance with Laws. The Company will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, environmental laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. (e) Inspection of Property, Books and Records. The Company will keep, and will use its best efforts to cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Holder at such Holder's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times, upon reasonable notice and as often as may reasonably be desired (it being understood and agreed that no Holder shall be entitled to request any confidential or proprietary information of the Company and its Subsidiaries pursuant to this subsection (e)). (f) Prohibited Transactions. Neither the Company nor any agent acting on its behalf will, directly or indirectly, sell or offer for sale or dispose of, or attempt or offer to dispose of, any of the Debentures, Common Stock or any similar security of the Company to, or solicit any offers to buy any thereof from, or otherwise approach or negotiate in respect thereof with, any person or persons, so as to require registration of the Debentures or the Reserved Shares under the Securities Act. (g) Increase in Authorized Capital. At its next annual meeting of shareholders which shall be held prior to July 1, 2000, the Company shall propose to its shareholders an amendment to its Articles of Incorporation which would increase the number of authorized shares of common stock to at least 200,000,000 and shall use its best efforts to cause such amendment to be adopted by its shareholders. 9. Survival of Representations, Warranties and Agreements Etc. All representations and warranties hereunder shall survive the Closing. All statements contained in any certificate or other instrument delivered by the Company or pursuant to this Agreement or in connection with the transactions contemplated by this Agreement shall constitute representations and warranties by the Company under this Agreement. 10. Miscellaneous. (a) Entire Agreement. This Agreement and the Schedules and Exhibits hereto contain the entire agreement between the Company and the Purchaser with respect to the transactions contemplated hereby and supersede all prior agreements or understandings among the parties with respect thereto. (b) Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. (c) Notices. All notices or other communications provided for in this Agreement shall be in writing and shall be sent by confirmed telecopy (with an undertaking to provide a hard copy) or delivered by hand or sent by overnight courier service prepaid to the address specified below. If to the Company: CHS Electronics, Inc. 2000 N.W. 84th Avenue Miami, Florida 33122 Attn: Antonio Boccalandro Telecopy: (305) 908-7040 with a copy to: Shutts & Bowen 1500 Miami Center 201 S. Biscayne Blvd. Miami, Florida 33131 Attn: Luis A. de Armas Telecopy: (305) 381-9982 If to the Purchaser: Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 Attention: President Telecopy: 516-342-4866 with a copy to: Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 Attention: General Counsel Telecopy: 516-342-4866 or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. (d) Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. (e) Amendments. This Agreement shall not be altered or otherwise amended except pursuant to an instrument in writing signed by each of (i) the Company, and (ii) the holders of 51% of the aggregate principal amount of the Debentures (or, if the Debentures have been converted, the holders of 51% of the number of the Reserved Shares issued upon such conversion). (f) Assignment. This Agreement shall not be assignable by either party without the consent of the other party, except that it, or the rights under this Agreement, in whole or in part, may be assigned by the Purchaser to any party or parties who purchase the Debenture or Debentures owned by the Purchaser (or, if the Debentures have been converted, to any party or parties who purchase the Reserved Shares issued upon such conversion). (g) Expenses; Documentary Taxes; Indemnification. (i) The Company shall pay (A) all out-of-pocket expenses of each Holder, including fees and disbursements of counsel for such Holder, in connection with the preparation of this Agreement, (B) all out-of-pocket expenses of each Holder, including fees and disbursements of counsel for such Holder, in connection with any waiver or consent under this Agreement or under the Debentures or any amendment of this Agreement or the Debentures or any default or alleged default under this Agreement or under the Debentures and (C) if an Event of Default, as defined in the Debentures, occurs, all out-of-pocket expenses incurred by each Holder, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Company shall indemnify each Holder against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Debentures. (ii) The Company hereby indemnifies and holds each Holder and its affiliates, shareholders, officers, directors, employees and agents (collectively, the "Indemnified Parties") harmless from and against any and all actions, causes of action, suits, losses, costs, claims, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including attorneys' and other experts' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (A) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds from the sale of the Debentures; or (B) the entering into and performance of this Agreement and any other document delivered in connection herewith byany of the Indemnified Parties, but excluding Indemnified Liabilities arising under agreements entered into by the Purchaser prior to the date hereof which are unrelated to this Agreement. An Indemnified Party shall be entitled to be represented by the counsel of such Indemnified Party's choice in connection with the defense (including any investigation) of any third party claim against or involving such Indemnified Party for which indemnification is sought under this Agreement and, on demand (and as incurred), the Company shall pay, or reimburse such Indemnified Party for, the fees and expenses of such counsel and all other expenses relating to such defense. This indemnity shall survive repayment or transfer of the Debentures, the conversion of any Debenture into Reserved Shares or the transfer of any Reserved Shares. The Company's obligation to any Indemnified Party under this indemnity shall be without regard to fault on the part of the Company with respect to the violation or condition which results in liability of any Indemnified Party If and to the extent that the foregoing undertaking is determined to be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. (h) CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (i) CONSENT TO JURISDICTION. EACH OF THE HOLDERS AND THE COMPANY HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE HOLDERS AND THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE HOLDERS AND THE COMPANY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE DELIVERY (BY OVERNIGHT COURIER) TO IT AT ITS ADDRESS SPECIFIED IN SECTION 10(c) OF THIS AGREEMENT (OR IN THE CASE OF A HOLDER OTHER THAN THE PURCHASER, TO ITS ADDRESS AS IT APPEARS IN THE REGISTER MAINTAINED BY THE COMPANY). EACH OF THE HOLDERS AND THE COMPANY FURTHER AGREES THAT A FINAL JUDGMENT IN ANY SUCH PROCEEDING SHALL BE CONCLUSIVE AND BINDING AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. (j) WAIVER OF JURY TRIAL. THE COMPANY AND EACH OF THE HOLDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, this Debenture Purchase Agreement has been duly executed by an officer of each of the parties hereto thereunto duly authorized all on the date first above written. CHS ELECTRONICS, INC. By:/s/ Antonio Boccalandro ------------------------ Name: Antonio Boccalandro Title: Chief Officer - Mergers and Acquisitions COMPUTER ASSOCIATES INTERNATIONAL, INC. By:/s/ Charles P. McWade ----------------------- Name: Charles P. McWade Title: Senior Vice President EX-99.2 3 Exhibit 2 THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939. THIS DEBENTURE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT. ADDITIONALLY, THE TRANSFER OF THIS DEBENTURE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6 OF THE DEBENTURE PURCHASE AGREEMENT PURSUANT TO WHICH THIS DEBENTURE WAS PURCHASED AND NO TRANSFER OF THIS DEBENTURE SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. Floating Rate Convertible Debenture Due 2003 May 26, 1999 CHS ELECTRONICS, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to the order of Computer Associates International, Inc. or registered assigns, the principal amount of U.S. $14,900,000 on May 31, 2003 (or, if such day is not a business day (as defined in Section 9 below), the next succeeding business day) (the "Maturity Date"). The outstanding principal amount of this Debenture shall bear interest from and including the date hereof (the "Closing Date") to but excluding the Maturity Date (or, if a Conversion Notice (as defined below) has been delivered pursuant to Section 3(a), the Conversion Date (as defined below)), for each Interest Period (as defined below) applicable thereto, at a rate per annum (calculated on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate for such Interest Period. "Applicable Rate" means, for any day during any Interest Period, the LIBOR Rate from time to time in effect plus 2.00%. Interest shall be paid semi-annually in arrears on each Interest Payment Date by wire transfer to the account of each holder of a Debenture (a "Holder") specified in writing to the Company. "Interest Period" means each period beginning on and including an Interest Payment Date (or in the case of the first Interest Period, the Closing Date) and ending on but excluding the immediately succeeding Interest Payment Date (or in the case of the last Interest Payment Date, the Maturity Date (or, if a Conversion Notice has been delivered pursuant to Section 3(a), the Conversion Date)). "Interest Payment Date" means the last business day of November and May of each year commencing on November 30, 1999. The outstanding principal amount of this Debenture (together with accrued interest thereon) shall be payable to the Holder on the Maturity Date in lawful money of the United States by wire transfer of immediately available funds to such account as the Holder shall specify in writing to the Company. SECTION 1. The Debentures. This Debenture is one of the Debentures of the Company which are being issued in the aggregate principal amount of $50,000,000 and are designated as "Floating Rate Convertible Debentures Due 2003" (the "Debentures"). This Debenture was issued pursuant to the terms of a Debenture Purchase Agreement, dated as of May 26, 1999 (the "Purchase Agreement"), between the Company and Computer Associates International, Inc. (the "Purchaser"). SECTION 2. (Reserved) SECTION 3. Conversion. (a) At the option of the Holder, at any time, subject to Section 3(e), the Debentures, in whole or in part, may be converted on the Conversion Date (as defined below) at the principal amount thereof, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock, including the associated Rights (as defined in the Debenture Purchase Agreement), at the Conversion Price (as defined below), in effect at the time of conversion. The price at which the number of shares of Common Stock to be delivered shall be determined upon conversion shall be $5.50 per share of Common Stock (the "Conversion Price"). The Conversion Price shall be adjusted in certain instances as provided in this Debenture, including paragraph (d) of this Section 3. (b) If the Holder elects to convert the Debentures, the Holder shall provide written notice (the "Conversion Notice") to the Company (at the Company's address) which states that the Holder elects to convert such Debenture. In order to exchange the securities, the Holder shall surrender the Debentures, duly endorsed or assigned to the Company or in blank. Subject to Section 3(e), each conversion shall be deemed to have been effected immediately prior to the close of business on the date the Holder delivers the Conversion Notice (the "Conversion Date"). If such day is not a business day, and a day on which the principal national securities exchange or market quotation system on which the Common Stock is then listed or admitted for trading is open (a "Trading Day"), then such conversion will be deemed to have been effected on the next succeeding Trading Day. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver the certificates representing the number of full shares of Common Stock, including the associated Rights, issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 3(c). (c) No fractional shares of Common Stock shall be issued upon conversion of Debentures. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Debenture, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock at the close of business on the Conversion Date. (d) The Conversion Price shall be subject to the following adjustments: (i) If, on any Conversion Date, the average closing price of the Common Stock during the twenty trading days immediately preceding the Conversion Date is less than the Conversion Price ($5.50, before any anti-dilution adjustments pursuant to this Agreement including Section 3(d)(ii)-(vii)), then the Conversion Price shall be reduced to such average closing price (the "Market Conversion Price"). Adjustments to the Conversion Price pursuant to this subsection (i) are referred to as "Market Adjustments"; all other adjustments to the Conversion Price provided in this Debenture are "Anti-Dilution Adjustments". (ii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iii) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company in Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (iv) In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Conversion Price, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such rights or warrants shall be adjusted to such subscription or purchase price, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (v) In case the Company shall issue Common Stock (other than shares of Common Stock issued upon exercise of rights, options and warrants outstanding as of the date hereof), or rights, options or warrants convertible into, or exchangeable or exercisable for, Common Stock to any third party, or shall reprice or adjust the conversion, exchange or exercise price of rights, options or warrants outstanding as of the date hereof, at or to a price per share of Common Stock less than the Conversion Price, the Conversion Price in effect at the opening of business on the day following the date of such issuance, repricing or adjustment shall be adjusted to such issue, conversion, exchange or exercise price or, in the case of a repricing or adjustment, such conversion, exchange or exercise price as so adjusted, such reduction to become effective immediately after the opening of business on the day following the date of such issuance, repricing or adjustment, as the case may be, provided, no such adjustment shall be made with respect to: (A) up to 3,833,333 shares of Common Stock to be issued for $3 per share in connection with CHS's acquisition of SIS Distribution Ltd.; (B) up to 2,653,000 shares of Common Stock to be issued for $3 per share in connection with CHS's acquisition of Micro Informatica Corp.; or (C) shares of Common Stock or Preferred Stock issued pursuant to the Rights Agreement. (vi) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in clause (iv) of this Section, any dividend or distribution paid in cash out of the retained earnings of the Company and any dividend or distribution referred to in clause (iii) of this Section), the Conversion Price in effect at the opening of business on the date fixed for the determination of stockholders entitled to receive such distribution shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the Conversion Price on the date fixed for such determination less the then fair market value of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such Conversion Price, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for such determination. (vii) The reclassification of Common Stock into securities including other than Common Stock shall be deemed to involve (A) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of clause (vi) of this Section), and (B) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of clause (ii) of this Section). (e) If the Holder elects to convert the Debenture and deliver a Conversion Notice to the Company which provides for conversion at a Conversion Price which is lower than the initial Conversion Price, as adjusted only for Anti-Dilution Adjustments, then the Company shall have the right to redeem the Debenture intended to be converted 60 days after delivery of the Conversion Notice. The Closing of the redemption, if any, shall occur on the sixtieth day following delivery of the Conversion Notice. During the sixty day period the Holder shall have the right at any time to rescind the Conversion Notice by written notice to the Company; and consequently such redemption shall automatically be terminated. (f) Whenever the Conversion Price is adjusted pursuant to Section 3(d): (i) the Company shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Company setting forth the adjusted Conversion Price showing in reasonable detail the facts upon which such adjustment is based; and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be prepared, and as soon as practicable after it is prepared (together with a copy of the certificate referred to in clause (i) above), such notice shall be mailed by the Company to all Holders. The term "Person" shall mean an individual, a company, a partnership, a limited liability company, a trust, an unincorporated association or any other entity or organization, including, without limitation, a government or political subdivision or an agency, instrumentality or official thereof. (g) Notwithstanding anything to the contrary set forth in the Debentures, unless and until the Company's stockholders have approved the transactions contemplated by the Purchase Agreement, the Debentures and the Warrants, the Company shall not be obligated to issue more than the number of shares of Common Stock permitted under the rules of the New York Stock Exchange (as adjusted to reflect stock dividends, stock splits, recapitalization, reorganization, stock exchange or other combination) (the "NYSE Limit") upon conversion of the Debentures and/or exercise of the Warrants, on a combined basis. If, on any Conversion Date, the Debentures are converted into a number of shares of Common Stock that is less than the number of shares that the Debentures would have been convertible into had the NYSE Limit not been in effect, the Company shall, within sixty days after such Conversion Date, pay to the Holder by wire transfer of immediately available funds an amount equal to the product of (1) the excess of (A) such number of shares that would have been issued upon such conversion had such limitation not been in effect over (B) such number of shares that were being issued upon such conversion and (2) the closing price of the Common Stock on the trading day immediately preceding the Conversion Date; provided that the amount paid pursuant to this sentence shall be applied to repay the unpaid balance of the Debentures which was unable to be converted pursuant to the NYSE Limit. (h) If (i) the Holder (A) elects to convert this Debenture as provided herein; and (B) is unable to convert all of the outstanding principal of the Debenture because of the NYSE Limit; and (ii) the Company fails to pay in full the amount required to be paid by the Company to the Holder pursuant to Section 3(f), then the Company shall call a meeting of its shareholders (the "Special Meeting") for the purpose of approving the Purchase Agreement, the Debenture and the Warrants (the "Transaction Documents") including without limitation, the Holder's acquisition of CHS Common Stock in excess of the NYSE Limit ("Excess Shares"), all in accordance with Section 312.03 of the Rules of the NYSE. The Special Meeting shall be held within 120 days after the Company's receipt of the Conversion Notice subject to compliance with SEC proxy regulations. Notwithstanding anything to the contrary set forth in the Debentures, in no event shall the CHS Board of Directors be required to recommend to CHS shareholders that they approve, at the Special Meeting, the Holder's acquisition of Excess Shares. If at the Special Meeting the CHS shareholders fail to approve the Transaction Documents as provided hereby, then (a) CHS shall be required to pay the Holder, in addition to the outstanding principal due under the Debenture, the Make-Whole Amount defined below, (b) Holder shall not acquire any Excess Shares, and, (c) the shareholders' failure to approve the Transaction Documents shall not affect the Holders' (1) rights to acquire, own or vote any shares of CHS Common Stock within the NYSE Limit or (2) other rights under the Transaction Documents. "Make-Whole Amount" means an amount equal to the excess of (x) the amount of interest that would have been due on the original outstanding principal amount of the Debentures from the date of issuance through and including the Conversion Date and for such unpaid amount from the Conversion Date through the payment datehad the Applicable Rate been equal to 21%, over (y) the amount of interest that was actually due and paid on the applicable outstanding principal amount of the Debentures for such periods. (i) The Company shall at all times reserve and keep available, free from any pre-emptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Debentures and the exercise of the Warrants, the full number of shares of Common Stock then issuable upon the conversion of all outstanding Debentures and Warrants (but in no event less than 11,579,054 shares). (j) The Company will pay any and all transfer, documentary and similar taxes or charges that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Debenture or Debentures to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. (k) The Company covenants that all shares of Common Stock which may be issued upon conversion of Debentures will upon issue be fully paid and nonassessable and, except as provided in Section 3(j), the Company will pay all taxes, liens and charges with respect to the issue thereof. (l) All Debentures that have been converted shall be promptly delivered to the Company to be canceled by the Company. SECTION 4. Exchange or Replacement of Debentures. (a) The Holder of any Debenture, at such Holder's option may in person or by duly authorized attorney surrender such Debenture for exchange, at the office or agency of the Company maintained pursuant to Section 6(a) of this Debenture, and receive in exchange therefor a new Debenture in the same principal amount as the outstanding principal amount of the Debenture so surrendered and bearing interest at the same annual rate as the Debenture so surrendered, each such new Debenture to be dated as of the most recent Interest Payment Date on the Debenture so surrendered and to be in such outstanding principal amount and payable to such person or persons, or order, as such Holder may designate in writing; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any new Debenture in a name other than that of the Holder of the Debenture surrendered in exchange therefor; provided, further, however, that the Company shall not be required to so register the transfer unless the conditions for transfer in the Purchase Agreement have been satisfied. The Holder shall give to the Company 10 days' prior written notice of such Holder's intention to make such exchange. (b) Upon receipt by the Company of evidence satisfactory to it of the loss, theft or destruction, mutilation of any Debenture and (in case of loss, theft or destruction) of indemnity satisfactory to it, and upon surrender and cancellation of such Debenture, if mutilated, the Company will execute and deliver in lieu of such Debenture a new Debenture of like tenor. Any such new Debenture shall be dated as of the most recent Interest Payment Date on the Debenture in lieu of which such new Debenture is executed and delivered. The term "outstanding" when used in this Debenture with reference to the Debentures as of any particular time shall not include (i) any Debenture in lieu of which a new Debenture has been executed and delivered by the Company in accordance with the provisions of this Section and (ii) any Debenture held or beneficially owned by the Company or any of its affiliates. SECTION 5. Amendments and Waivers. With the written consent of the Holders of at least 51% of the aggregate outstanding principal amount of the Debentures at the time outstanding, any covenant, agreement or condition contained in the Debentures may be waived (either generally or in a particular instance and either retroactively or prospectively), or such Holders, and the Company may from time to time enter into agreements for the purpose of amending any covenant, agreement or condition of the Debentures or changing in any manner the rights of the holders of the Debentures or the Company; provided, however, that: (i) no such amendment or waiver shall change the Maturity Date of this Debenture or reduce the rate or extend the time of payment of interest hereon, or reduce the amount of the payment of interest hereon, or reduce the amount of the principal hereof, or modify any of the provisions of this Debenture with respect to the payment hereof, without in any such case the consent of the Holder of this outstanding Debenture; and (ii) no such waiver shall extend or affect any obligation not expressly waived or impair any right consequent thereon. Any such amendment or waiver shall be binding upon each future Holder of this Debenture and upon the Company, whether or not such Debenture shall have been marked to indicate such amendment or waiver, but any Debenture issued thereafter shall bear a notation referring to any such amendment or continuing waiver. SECTION 6. Covenants. (a) The Company shall maintain an office where notices, presentations and demands to or upon the Company in respect of Debentures, including those relative to conversion of the Debentures, may be given. (b) The Company shall keep at such office a register at its expense, which shall provide for the registration and transfer of Debentures. The Company and any agent of the Company may treat the person in whose name any Debenture is registered as the Holder of such Debenture for the purpose of receiving payment of the principal and interest on such Debenture and for all other purposes, whether or not such Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (c) The Company agrees that so long as any of the Debentures are outstanding, it shall not directly or indirectly (i) declare or pay any dividend (other than a stock dividend) or make any distribution on its capital stock or to the holders of its capital stock, (ii) purchase, redeem or otherwise acquire or retire for value, or permit any of the Subsidiaries to, directly or indirectly, purchase, redeem or otherwise acquire or retire for value, any such capital stock (or options, warrants or other rights to acquire such capital stock), (iii) except as provided under this Debenture, or required by the Indenture dated as of April 9, 1998 by and among the Company, certain of its subsidiaries and the Chase Manhattan Bank as Trustee relating to $200,000,000 principal amount of 9 7/8% Senior Notes due 2005 (the "Indenture"), redeem, repurchase, defease (including, but not limited to, in-substance or legal defeasance) or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, Indebtedness of the Company which is pari passu or subordinate (whether pursuant to its terms or by operation of law) in right of payment to the Debentures and which is scheduled to mature (after giving effect to any and all options to extend the maturity thereof) on or after the maturity date of such Debentures (after giving effect to any and all options to extend the maturity thereof). (d) The Company agrees that as long as any of the Debentures are outstanding, it shall not (i) consolidate with or merge into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Company and the Subsidiaries, taken as a whole, to any other Person unless (A) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease all or any substantial part of the assets of the Company and the Subsidiaries as an entirety, as the case may be, shall be a solvent corporation organized and existing under the laws of the United States or any State thereof (including the District of Columbia), and, if the Company is not such corporation, such corporation shall have executed and delivered to each holder of any Debentures its assumption of the due and punctual performance and observance of each covenant and condition of the Purchase Agreement and the Debentures and (B) immediately after giving effect to such transaction, no Event of Default and no condition or event which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default, shall have occurred and be continuing. (e) The Company agrees that so long as any of the Debentures are outstanding, neither the Company nor any of the Subsidiaries will in any manner, directly or indirectly, incur or be liable in respect of any Indebtedness senior to or ranking pari passu with the Debentures, except: (i) Indebtedness of the Company represented by the Debentures; (ii)Indebtedness of the Company existing as of May 26, 1999; (iii) other Indebtedness permitted by the Indenture, but which shall not be senior to or rank ahead of the Debenture; and (iv) extensions, refinancings, amendments and modifications of any Indebtedness described in clause (ii) above, provided that the principal amount of such Indebtedness is not increased. "Indebtedness" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, banker's acceptances, surety or other bonds and similar instruments, (vi) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities or property, (vii) all Indebtedness of others secured by a Lien (as defined below) on any asset of such Person, whether or not such Indebtedness is assumed by such Person, and (viii) all Indebtedness of others guaranteed by such Person or for which such Person is otherwise contingently liable. (f) The Company agrees that so long as any of the Debentures are outstanding, neither the Company nor any of the Subsidiaries shall create, incur, assume or suffer to exist any mortgage, deed of trust, security interest, lien or other encumbrance (each, a "Lien") upon any of its properties or assets, whether now owned or hereafter acquired, except Liens in favor of holders of the Debentures and Permitted Liens (as defined below). "Permitted Liens" means (i) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceeding promptly instituted and diligently conducted and for which a reserve or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real or personal property acquired after the Closing Date; PROVIDED that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred, in accordance with Section 6.6 of the Indenture, (1) to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (2) to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item and any proceeds thereof; (vii) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (x) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xi) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, or becomes a part of, any Restricted Subsidiary; PROVIDED that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired and any proceeds thereof; (xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (xiv) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens encumbering customary initial deposits and margin deposits, and other Liens that are either within the general parameters customary in the industry and incurred in the ordinary course of business, in each case securing Indebtedness under Interest Rate Agreements and Currency Agreements and forward contracts, options, future contracts, futures options or similar agreements or arrangements designed solely to protect the Company or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Restricted Subsidiaries prior to the Closing Date; and (xviii) Liens on or sales of receivables, including related intangible assets and proceeds thereof. All defined terms in this definition shall have the meanings set forth in the Indenture. (g) The Company shall deliver (by overnight courier) to each Holder promptly following the occurrence thereof written notice of (i) an Event of Default or of any condition or event which, after notice, lapse of time, or both, could constitute an Event of Default, and (ii) the commencement of any action, suit, claim, investigation or legal or administrative or arbitration proceeding which could have a material adverse affect on the Company Subsidiaries taken as a whole. SECTION 7. Voting Rights. Holders of the Debentures holding at least a majority of the aggregate principal amount outstanding under the Debentures shall have the right, voting as a class, to designate one director to serve on the CHS Board of Directors. The initial director shall be elected to the Board of Directors by the Board of Directors promptly after receipt of written notice from the Holder of a majority in interest of the outstanding Debentures. Thereafter, so long as the Debentures remain outstanding, upon expiration of such director's three year term, the Company's Board of Directors shall nominate such director (or a replacement designated by Holders of a majority in interest of the outstanding Debentures), shall use their best efforts to cause the Company's shareholders to vote their shares to elect such person as a director, and shall vote their own shares in favor of the election of such person. During such time as the Debentures remain outstanding, the Company shall maintain Directors and Officers Liability Insurance in an amount of at least $20 million. SECTION 8. Events of Default. (a) The following shall constitute an "Event of Default" under the Debentures: (i) the Company shall fail to pay when due any principal of or interest on any Debenture or any other amount payable under the Debentures or the Purchase Agreement; (ii) the Company shall fail to observe or perform any covenant contained in Section 6; (iii)the Company shall fail to observe or perform any covenant or agreement contained in the Debentures, the Warrants or the Purchase Agreement (other than those covered by clause (i) or (ii) above) for 15 days after written notice thereof has been given to the Company; (iv) any representation, warranty, certification or statement made by the Company in the Purchase Agreement, in the Debentures or in the Warrants or in any certificate, financial statement or other document delivered pursuant to the Purchase Agreement or the Debentures shall prove to have been incorrect in any material respect when made; (v) the Company or any of its subsidiaries shall fail to make any payment in respect of any Material Indebtedness (as defined below) when due or within any applicable grace period; (vi) any event or condition shall occur which (A) results in the acceleration of the maturity of any Material Indebtedness or (B) enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Indebtedness or any Person acting on such holder's behalf to accelerate the maturity thereof; (vii) the Company or any of its subsidiaries shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (viii) an involuntary case or other proceeding shall be commenced against the Company or any of its subsidiaries seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Company or any of its subsidiaries under the federal bankruptcy laws as now or hereafter in effect; (ix) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $100,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c) (5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $200,000; (x) Except as permitted by the Agreement a judgment or order for the payment of money in excess of $1,000,000 shall be rendered against the Company or any of its subsidiaries and such judgment or order shall continue unsatisfied and unstayed for a period of 30 business days; or (xi) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) (other than the Purchaser and its affiliates) after the date hereof shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Company; or individuals who were directors of the Company as of the date hereof (together with any new director whose election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination was previously so approved) shall cease for any reason to constitute a majority of the board of directors of the Company (a "Change of Control"). For purposes of this Section, "Material Indebtedness" means Indebtedness (other than the Debentures) of the Company or one or more of any Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $10,000,000; provided that such term shall not include the Indebtedness described on Schedule 3(n) of the Company Disclosure Letter for so long as none of the following has occurred: (i) any holder of such Indebtedness shall have either accelerated such Indebtedness or commenced any enforcement action with respect thereto, (ii) any holder of such Indebtedness shall have ceased to waive any default under such Senior Indebtedness arising out of such failure to pay any Indebtedness described on Schedule 3(n) and (iii) the aggregate dollar amount of all such outstanding Indebtedness specified on Schedule 3(n) (other than fees, interest or penalties thereon) shall have increased above the level so specified. As used herein, the terms "ERISA", "ERISA Group", "Material Plan", "Multiemployer Plan" and "PBGC" have the meanings set forth in the Purchase Agreement. (b) In case of the happening of an Event of Default, then, and in every such happening and at any time thereafter during the continuance of such Event of Default, the Holders of at least 51% in interest of Debentures at the time outstanding may, by written notice to the Company, declare the Debentures to be forthwith due and payable, whereupon the Debentures shall become forthwith due and payable, both as to the outstanding principal amount thereof and accrued interest thereon, without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived, anything contained herein or therein to the contrary notwithstanding; provided that in the case of any of the Events of Default specified in Section 7(a)(vii) or 7(a)(viii) above with respect to the Company, without any notice to the Company or any other act by the Holders, the Debentures shall become forthwith due and payable, both as to the outstanding principal amount thereof and accrued interest thereon, without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived, anything contained herein or therein to the contrary notwithstanding. (c) In case an Event of Default shall have occurred and be continuing, then, (i) the Holders of at least 51% in interest of the Debentures at the time outstanding may proceed to protect and enforce such Holders' rights either by suit in equity and/or by action at law, whether for the specific performance of any covenant or agreement contained in the Purchase Agreement or the Debentures or in aid of the exercise of any power granted in the Purchase Agreement or in the Debentures, or proceed to enforce the payment of the Debentures or to enforce any other legal or equitable right of the Holders of the Debentures and (ii) the interest rate per annum with respect to any Debenture shall, for each day that such Event of Default exists, be automatically increased to a rate per annum equal to the sum of (A) 3% plus (B) the prime rate of interest as announced from time to time by Credit Suisse First Boston Corporation for such day. Any overdue principal of or interest on this Debenture and any overdue amount payable hereunder or under the Purchase Agreement shall bear interest, payable on demand, and in lawful money of the United States, for each day until paid at the rate per annum specified in clause (ii) of the immediately preceding sentence. No remedy herein conferred hereunder is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or not or hereafter existing at law or in equity or by statute or otherwise. No course of dealing between the Company or any of its subsidiaries and any Holder of Debentures or any delay on the part of any Holder of Debentures in exercising any rights hereunder shall operate as a waiver of any rights of any such person hereunder or under the Purchase Agreement. SECTION 9. Extension of Maturity. Should the principal of or interest on this Debenture become due and payable on other than a business day, the maturity thereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the rate per annum (calculated on the basis of the actual number of days elapsed over a year of 360 days) herein specified during such extension. The term "business day" shall mean any day that is not a Saturday, Sunday or legal holiday in the State of New York. SECTION 10. GOVERNING LAW. THIS DEBENTURE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 11. CONSENT TO JURISDICTION. EACH OF THE HOLDER AND THE COMPANY HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE DEBENTURES OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE HOLDER AND THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE HOLDER AND THE COMPANY CONSENT TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE DELIVERY (BY OVERNIGHT COURIER) TO IT AT ITS ADDRESS SPECIFIED IN SECTION 9(c) OF THE PURCHASE AGREEMENT (OR IN THE CASE OF A HOLDER OTHER THAN THE PURCHASER, TO ITS ADDRESS AS IT APPEARS IN THE REGISTER MAINTAINED BY THE COMPANY). EACH OF THE HOLDER AND THE COMPANY FURTHER AGREES THAT A FINAL JUDGMENT IN ANY SUCH PROCEEDING SHALL BE CONCLUSIVE AND BINDING AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. SECTION 12. WAIVER OF JURY TRIAL. EACH OF THE HOLDER AND THE COMPANY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE DEBENTURES OR THE TRANSACTIONS CONTEMPLATED HEREBY. CHS ELECTRONICS, INC. By:/s/ Antonio Boccalandro ------------------------ Name: Antonio Boccalandro Title: Chief Officer-Mergers and Acquisitions [FORM OF TRANSFER NOTICE] For value received hereby sells, assigns and transfers unto, whose social security or other identifying number is and whose address (including postal zip code)is and does hereby irrevocably constitute and appoint attorney to transfer the said Debenture of the within named Company with full power of substitution in the premises. Dated: Transferor NOTICE: The Signature to this Notice must correspond with the name as written upon the face of this Debenture and every particular, without alteration or enlargement or any change whatever. EX-99.3 4 CHS Electronics, Inc. COMMON STOCK PURCHASE WARRANT Void after May 26, 2004 Right to Purchase 2,000,000 (Subject to Section 18) shares of Common Stock (subject to adjustment) No. W-1 CHS Electronics, Inc. (the "Company"), a Florida corporation, hereby certifies that, for value received, Computer Associates International, Inc. (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 P.M. New York time, on May 26, 2004 (subject to Section 18), fully paid and nonassessable shares of Common Stock, $0.001 par value, of the Company, at the purchase price per share (the "Purchase Price") of $5.50 (the "Initial Purchase Price"). The Initial Purchase Price as may be adjusted from time to time as provided herein is sometimes referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock, the Initial Purchase Price and the Purchase Price are subject to adjustment as provided herein. This Common Stock Purchase Warrant (the "Warrants"), evidencing the right to purchase shares of Common Stock of the Company, is issued pursuant to a certain Debenture Purchase Agreement (the "Agreement"), dated as of May 26, 1999, between the Company and Computer Associates International, Inc., a copy of which is on file at the principal office of the Company. The Warrants evidence rights to purchase an aggregate of 2,000,000 shares of Common Stock of the Company, subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a)The term "Company" includes any corporation which shall succeed to or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes all stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency). (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, on the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 6 or otherwise. (d) The term "Shares" means the Common Stock issued or issuable upon exercise of the Warrants. (e) The term "Securities Act" means the Securities Act of 1933, or any successor federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder, all as the same shall be in effect at the time. (f) The term "Securities and Exchange Commission" or "Commission" refers to the Securities and Exchange Commission or any other federal agency then administering the Securities Act. (g) The term "Securities Exchange Act" means the Securities Exchange Act of 1934 or any successor federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder, all as the same shall be in effect at the time. 1. Registration Rights. The rights of the Holders of Warrants to register Shares shall be as stated in the Agreement 2. Restricted Stock. 2.1 If, at the time of any transfer or exchange (other than a transfer or exchange not involving a change in the beneficial ownership of such Warrant or Shares) of a Warrant or Shares, such Warrant or Shares shall not be registered under the Securities Act, the Company may require, as a condition of allowing such transfer or exchange, that the Holder or transferee of such Warrant or Shares, as the case may be, furnish to the Company an opinion of counsel reasonably acceptable to the Company or a "no action" or similar letter from the Securities and Exchange Commission to the effect that such exercise transfer or exchange may be made without registration under the Securities Act. In the case of such transfer or exchange and in the case of an exercise of a Warrant if the Shares to be issued thereupon are not registered pursuant to the Securities Act, the Company may require a written statement that such Warrant or Shares, as the case may be, are being acquired for investment and not with a view to the distribution thereof. The certificates evidencing the Shares issued on the exercise of the Warrants shall, if such Shares are being sold or transferred without registration under the Securities Act, bear a legend to the effect that the Shares evidenced by such certificates have not been so registered. 2.2 (a) The Company shall make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times. (b) The Company shall file with the Commission in a timely manner all reports and other documents as the Commission may prescribe under Section 13(a) or 15(d) of the Exchange Act so long as the Company is subject to such reporting requirements of the Exchange Act. (c) The Company shall furnish to a Holder and/or a prospective purchaser of such Warrants or Shares designated by such Holder, forthwith upon request, (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act and of the reporting requirements of the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company, (iii) any other reports and documents necessary to satisfy the information-furnishing condition to offers and sales under Rule 144A under the Securities Act, and (iv) such other reports and documents as a Holder of any Warrants or Shares reasonably requests to avail itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration. 3. Exercise of Warrant. 3.1 Exercise in Full. The holder of this Warrant may exercise it in full by surrendering this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office. The surrendered Warrant shall be accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock called for on the face of this Warrant, as adjusted, by the Initial Purchase Price, as adjusted. 3.2 Partial Exercise. This Warrant may be exercised in part by surrender of this Warrant in the manner and at the place provided in Subsection 3.1 upon payment of the amount obtained by multiplying (a) the number of shares of Common Stock called for on the face of this Warrant, as adjusted, as shall be designated by the holder in the subscription at the end hereof by (b) the Initial Purchase Price, as adjusted. On any such partial exercise, subject to the provisions of Section 2 hereof, the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal to the number of such shares called for on the face of this Warrant, as adjusted, minus the number of such shares designated by the holder in the subscription at the end hereof. 3.3 Exercise by Surrender of Warrant. In addition to the method of payment set forth in Sections 3.1 and 3.2, and in lieu of any cash payment required thereunder, the holder of this Warrant shall have the right at any time and from time to time to exercise this Warrant in full or in part by surrendering this Warrant in the manner specified in Section 3.1 in exchange for the number of shares of Common Stock equal to the product of (x) the number of shares as to which the Warrant is being exercised multiplied by (y) a fraction, the numerator of which is the average closing price of the Common Stock during the 20 trading days ending on the day prior to the date of exercise (the "Market Price"), less the amount of the Purchase Price, as adjusted; and the denominator of which is the Market Price. 3.4 Company Acknowledgment. The Company will, at the time of the exercise, exchange or transfer of this Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder or transferee any rights (including, without limitation, any right to registration of the Shares) to which such holder or transferee shall continue to be entitled after such exercise, exchange or transfer in accordance with the provisions of this Warrant, provided that if the holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder or transferee any such rights. 3.5 Limitation on Exercise. The exercise of the Warrant is subject to certain limitations set forth in Section 3(g) of the Company's Convertible Debentures issued pursuant to the Agreement. 4. Delivery of Stock Certificates, Etc., on Exercise. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable Shares to which such holder shall be entitled on such exercise, plus, in lieu of any fractional Share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Market Price of one full Share as computed in accordance with Subsection 5.1(d) hereof. 5. Adjustment of Purchase Price and Number of Shares. 5.1 The Initial Purchase Price and any subsequent Purchase Price hereof shall be subject to adjustment from time to time as follows: (a) In case the Company shall (i) pay a dividend on its Common Stock in Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares, then, in such an event, the Purchase Price in effect immediately prior thereto shall be adjusted proportionately so that the adjusted Purchase Price will bear the same relation to the Purchase Price in effect immediately prior to any such event as the total number of shares of Common Stock outstanding immediately prior to any such event shall bear to the total number of shares of Common Stock outstanding immediately after such event. An adjustment made pursuant to this subdivision (a), (i) shall become effective retroactively immediately after the record date in the case of a dividend and (ii) shall become effective immediately after the effective date in the case of a subdivision or combination. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. (b) In case the Company shall issue shares of Common Stock (other than shares of Common Stock issued (i) pursuant to the Rights Agreement or upon exercise of rights, options and warrants outstanding as of the date hereof, or (ii) in payment of the purchase price for companies acquired by the Company prior to the date hereof or listed as a pending acquisition in Schedule 3(b)(ii) of the Agreement, provided that such Common Stock is issued at the then Market Price; if issued below the Market Price, then adjustment is applicable), purchase rights, options or warrants with respect to shares of Common Stock entitling the holders thereof to subscribe for or purchase shares of Common Stock at a Net Consideration Per Share (as defined in subdivision (e) below) which is less than the Purchase Price at the time of such issuance, the Purchase Price shall be adjusted to an amount equal to such Net Consideration Per Share. Such adjustment shall be made whenever such purchase rights, options or warrants are issued and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such Common Stock, rights or warrants. In the event the Company shall subsequently cancel or terminate such purchase rights, options or warrants, the Purchase Price shall be readjusted to be the same as if the Company had not issued such purchase rights, options or warrants. (c) In case the Company shall distribute to holders of shares of Common Stock Other Securities, evidences of its indebtedness or assets (excluding cash dividends or distributions) or purchase rights, options or warrants to subscribe for or purchase such Other Securities, evidences of indebtedness or assets (excluding those referred to in subdivision (b) above), then in each such case the Purchase Price in effect thereafter shall be determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of outstanding shares of Common Stock multiplied by the current market price per share of Common Stock (as determined in accordance with the provisions of subdivision (d) below) on the record date mentioned below, less the fair market value as determined in accordance with Generally Accepted Accounting Principles ("GAAP")of the Other Securities, assets or evidences of indebtedness so distributed or of such rights or warrants, and of which the denominator shall be the total number of outstanding shares of Common Stock multiplied by such current market price per share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such distribution. (d) For the purpose of any computation under subdivisions (b) and (c) above, the current market price per share of Common Stock at any date ("Market Price") shall be deemed to be the average closing price on the New York Stock Exchange during the twenty trading days immediately preceding such date. (e) "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration received by the Company for the issuance of such shares of Common Stock, purchase rights, options, warrants or other purchase rights or convertible or exchangeable securities, plus the minimum aggregate amount of consideration, if any, payable to the Company upon any exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such purchase rights, options, warrants, or other purchase rights were exercised, exchanged or converted. (f) No adjustment of the Purchase Price shall be made if the amount of such adjustment shall be less than $.02 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, which, together with any adjustment so carried forward, shall amount to not less than $.02 per share. In case the Company shall at any time issue Common Stock by way of dividend on any stock of the Company or subdivide or combine the outstanding shares of the Common Stock, said amount of $.02 per share (as theretofore increased or decreased, if the same amount shall have been adjusted in accordance with the provisions of this subparagraph) shall forthwith be proportionately increased in the case of a combination or decreased in the case of such a subdivision or stock dividend so as appropriately to reflect the same. 5.2. Upon each adjustment of the Purchase Price pursuant to subdivisions (a) and (b) of Subsection 5.1, the number of shares of Common Stock purchasable upon exercise of this Warrant Certificate shall be adjusted to the number of shares of Common Stock, calculated to the nearest one hundredth of a share, obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon the exercise of this Warrant Certificate by the Purchase Price in effect prior to such adjustment and dividing the product so obtained by the new Purchase Price. 5.3 In case of any capital reorganization of the Company, or of any reclassification of the Common Stock, this Warrant Certificate shall be exercisable after such capital reorganization or reclassification upon the terms and conditions specified in this Warrant Certificate, for the number of shares of stock or other securities which the Common Stock issuable (at the time of such capital reorganization or reclassification) upon exercise of this Warrant Certificate would have been entitled to receive upon such capital reorganization or reclassification if such exercise had taken place immediately prior to such action. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares of Common Stock shall not be deemed to be a reclassification of the Common Stock of the Company for the purposes of this Subsection 5.3. 5.4 Whenever the Purchase Price is adjusted as herein provided, the Company shall compute the adjusted Purchase Price in accordance with Subsection 5.1 and shall prepare a certificate signed by its Chairman of the Board, Vice Chairman of the Board, President or Vice President and its principal accounting officer setting forth the adjusted Purchase Price and showing in reasonable detail the method of such adjustment and the fact requiring the adjustment and upon which such calculation is based, and such certificate shall forthwith be forwarded to the Warrant Holder. 5.5 In case at any time after the date of this Warrant Certificate: (a) The Company shall declare a dividend (or any other distribution) on its shares of Common Stock payable otherwise than in cash out of its earned surplus; or (b) The Company shall authorize the granting to the holders of its shares of Common Stock of rights to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (c) The Company shall authorize any reclassification of the shares of its Common Stock (other than a subdivision or combination of its outstanding shares of Common Stock), or any consolidation or merger to which it is a party and for which approval of any shareholders of the Company is required, or the sale or transfer of all or substantially all of its assets or all or substantially all of its issued and outstanding stock; or (d) Events shall have occurred resulting in the voluntary and involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause notice to be sent to the Warrant Holder at least 20 days prior (or 10 days prior in any case specified in clause (a) or (b) above, or on the date of any case specified in clause (d) above) to the applicable record date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend, distribution or rights, or, if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined or (2) the date on which such reclassification, consolidation, merger, sale, transfer, initial public offering, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of shares of Common Stock of record shall be entitled to exchange their shares for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. 5.6 The form of this Warrant Certificate need not be changed because of any change in the Purchase Price pursuant to this Section 5 and any Warrant Certificate issued after such change may state the same Purchase Price and the same number of shares of Common Stock as are stated in this Warrant Certificate as initially issued. However, the Company may at any time in its sole discretion (which shall be conclusive) make any change in the form of this Warrant Certificate that it may deem appropriate and that does not affect the substance thereof. Any Warrant Certificate thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. 6. Adjustment for Reorganization, Consolidation, Merger, Etc. 6.1 In case at any time or from time to time after May 31, 1999, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company within 24 months from the date of such transfer (any such transaction being hereinafter sometimes referred to as a "Reorganization") then, in each such case, the holder of this Warrant, on the exercise hereof as provided in Section 3 at any time after the consummation or effective date of such Reorganization (the "Effective Date"), shall receive, in lieu of the Shares issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto (all subject to further adjustment thereafter as provided in Section 5), provided that the successor corporation in any such Reorganization described in clause (b) or (c) above where the Company will not be the surviving entity (the "Acquiring Company") has agreed prior to such Reorganization in a writing satisfactory in form and substance to the holder hereof that this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on exercise after the consummation of such Reorganization, and shall be binding upon the issuer of any such stock or other securities (including, in the case of any transfer of properties or assets referred to above, the person acquiring all or substantially all of the properties or assets of the Company). If the Acquiring Company has not so agreed to continue this Warrant, then the Company shall give 30 days' prior written notice to the holder of this Warrant of such Reorganization, during which 30-day period (the "Notice Period") the holder at its option and upon written notice to the Company shall be able to (i) exercise this Warrant or any part thereof at an exercise price (the "Discounted Exercise Price") equal to the then prevailing purchase price hereunder discounted at the Discount Rate (as used herein the "Discount Rate" shall mean the then prevailing interest rate on U.S. Treasury Notes issued on (or immediately prior to) the date of such 30-day notice and maturing on May 31, 2004 (or immediately prior thereto), such rate to be compounded annually through May 31, 2004, and in no event to be less than 10% annually); or (ii) on the Effective Date, require the Company to pay to the holder of this Warrant an amount (the "Merger Profit Amount") equal to the difference between the fair market value per share of common stock of the Company being purchased by the Acquiring Company in the Reorganization and the Discounted Exercise Price described in clause (i) above and the Warrant shall simultaneously expire. The Merger Profit Amount shall be payable in the same form as the common stockholders of the Company shall be paid by the Acquiring Company for their shares of common stock of the Company. By way of example only, if the Acquiring Company is acquiring shares of the Company's common stock in a stock-for-stock exchange and the Acquiring Company is paying such common stockholders in shares of the Acquiring Company's common stock value at $5 per share for each share of common stock of the Company held by them, then if the Discounted Exercise Price is $1, the holder of this Warrant would be entitled to receive 4/5 of a share of the Acquiring Company's common stock for each share of common stock of the company he would have been entitled to receive upon exercise of this Warrant at the Discounted Exercise Price. The fair market value of any noncash property received from the Acquiring Company upon the Reorganization shall be determined in accordance with GAAP. If, upon the expiration of the Notice Period, the holder of this Warrant has not elected either option described in clause (i) or (ii) of this Section 6.1, this Warrant shall expire. 6.2 Dissolution. Except as otherwise expressly provided in Subsection 6.1, in the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 6 to the holder or holders of the Warrants. 6.3 Continuation of Terms. Except as otherwise expressly provided in Subsection 6.1, upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 6, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 6.1. 7. No Dilution or Impairment. The Company will not, by amendment of its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, (b) will at all times reserve and keep available out of its authorized capital stock, solely for the purpose of issue upon exercise of this Warrant as herein provided, such number of shares of Common Stock as shall then be issuable upon exercise of this Warrant in full and shall take all such action as may be necessary or appropriate in order that all shares of Common Stock that shall be so issuable shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, (c) will not effect a subdivision or split up of shares or similar transaction with respect to any class of the Common Stock without effecting an equivalent transaction with respect to all other classes of Common Stock, and (d) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets. 8. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the Shares issuable on the exercise of the Warrants, the Company at its expense will promptly cause independent certified public accountants of recognized standing selected by the Company (and not objected to by the holders of 25% or more of the Shares) to compute such adjustment or readjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price in effect and number and type of Shares for which the Warrants were exercisable immediately prior to such issue or sale and as each is adjusted and readjusted on account thereof. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the Purchase Price and the number and type of Shares at the time in effect and showing how it was calculated. 9. Reporting Requirements. 9.1 Financial Information. Prior to the exercise or expiration of the right to exercise this Warrant the Company shall furnish to each holder the information required to be sent to each purchaser of Debentures pursuant to the Agreement. The Company shall permit any holder of a Warrant, or agents thereof, at any reasonable time and from time to time to examine and make copies of and extracts from the records and books of account of, and visit the properties of, the Company and any of its subsidiaries, and to discuss the affairs, finances, and accounts of the Company and any of the subsidiaries with any of their officers or directors and independent accountants (but no holder shall be entitled to review any confidential or proprietary information of the Company and its subsidiaries pursuant to this paragraph). 9.2 Notice of Record Date, Etc. In case of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities (other than the issue of Shares on the exercise of the Warrants), then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least 30 days prior to the date specified in such notice on which any such action is to be taken. 10. Exchange of Warrants. On surrender for exchange of any Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or (subject to Section 2) on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder or any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 12. Expenses. The Company agrees to pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the Warrants and the issuance of the Warrants. 13. Warrant Agent. The Company may, by written notice to each holder of a Warrant, appoint an agent having an office in New York, New York, for the purpose of issuing Shares upon the exercise of the Warrants pursuant to Section 3, exchanging Warrants pursuant to Section 12, and replacing Warrants pursuant to Section 13, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 14. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 15. Negotiability, Etc. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery, provided that the Company shall have the right of first refusal with respect to any transfer of this Warrant or any part thereof, which right of first refusal shall expire five (5) days after notice of any offer is presented to the Company by the Holder; (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 16. Notice, Etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 17. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in the State of New York and shall be construed and enforced in accordance with and governed by its laws. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. All nouns and pronouns used herein shall be deemed to refer to the masculine, feminine or neuter, as the identity of the person or persons to whom reference is made herein may require. 18. Expiration. The right to exercise this Warrant shall expire at the later to occur of (a) 5:00 P.M., New York time, on May 31, 2004, and (b) thirty days after the debt evidenced by the Convertible Debenture has been paid in full or converted into shares of Common Stock of the Company, such that no portion of the Convertible Debentures are outstanding or unpaid. Dated: CHS ELECTRONICS, INC. (Corporate Seal) By:/s/ Antonio Boccalandro ---------------------- Antonio Boccalandro, Chief Officer - Mergers and Acquisitions Attest: -----END PRIVACY-ENHANCED MESSAGE-----