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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March 22, 1999
HMG WORLDWIDE CORPORATION
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(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-13121 13-3402432
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(State or other jurisdiction (Commission File No.) (Employer Identification No.)
of incorporation)
</TABLE>
<TABLE>
<S> <C>
475 Tenth Avenue, 12th Floor, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 736-2300
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Item 5. Other Events
On February 24, 1999, the Company issued $5,000,000 of 7%
Convertible Notes Due February 24, 2002 to two institutional investors. The
principal amount of the Notes is convertible into shares of the Company's common
stock at a conversion price of the lesser of $4.00 per share or a price based on
the prevailing market price of the Company's common stock, subject to a maximum
issuance of 2,160,000 shares upon the conversion of the Notes, taken together.
The Notes were issued through a private placement; however, the Company has
undertaken to register, for resale by the holders of the Notes, the shares which
may be acquired upon the conversion of the Notes under the Securities Act of
1933.
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<S> <C>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(C) Exhibits
1. Form of Securities Purchase Agreement
2. Form of Convertible Note
3. Form of Registration Rights Agreement
</TABLE>
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 22, 1999 HMG WORLDWIDE CORPORATION
(Registrant)
By: /s/ Robert V. Cuddihy, Jr.
------------------------------
Robert V. Cuddihy, Jr.
Chief Operating Officer and
Chief Financial Officer
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================================================================================
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SECURITIES PURCHASE AGREEMENT
between
HMG WORLDWIDE CORPORATION
and
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dated as of
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SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
24, 1999, between HMG WORLDWIDE CORPORATION, a Delaware corporation (the
"Company"), and ____________, a bank organized under the laws of _______ (the
"Purchaser").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell an aggregate of U.S.
$________ aggregate principal amount of the Company's 7% Convertible Notes Due
___________, ____ (the "Notes") on a private placement basis pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and the Purchaser desires to purchase from the
Company on such basis U.S. $_________ aggregate principal amount of the Notes,
on the terms and subject to the conditions set forth herein.
WHEREAS, the Notes will be convertible into shares of common stock, par
value $.01 per share, of the Company (the "Common Stock"), pursuant to the terms
of the Notes, and the holders of the Notes will have registration rights with
respect to such shares of Common Stock issuable upon conversion of the Notes
(the "Conversion Shares") pursuant to the terms of the Registration Rights
Agreement dated as of the date hereof, between the Company and the Purchaser
(the "Registration Rights Agreement").
NOW THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01. Certain Definitions. For purposes of this
Agreement, the following terms shall have the following meanings:
"Affiliate" of a Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person. The term "control" (including
the terms "controlling," "controlled by" and "under common control with") means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a
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person, whether through the ownership of voting securities, by contract, or
otherwise.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such Person.
"Closing" has the meaning set forth in Section 2.02.
"Commission" means the United States Securities and Exchange
Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Authority" means any federal, state or other political
subdivision thereof and any agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Material Adverse Effect" has the meaning set forth in Section 3.01.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind.
"SEC Reports" means the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, the Company's Quarterly Report on Form 10-Q for
the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 and the
Company's Current Reports on Form 8-K filed on August 12, 1998 and August 27,
1998.
"Securities Act" means the Securities Exchange Act of 1933, as amended.
"Transaction Documents" means, collectively, this Agreement, the
Registration Rights Agreement and the Notes.
"United States" has the meaning ascribed to such term in Rule 902(p) of
Regulation S under the Securities Act.
"U.S. Person" has the meaning ascribed to such term in Rule
902(o) of Regulation S under the Securities Act.
"Year 2000 Compliant" means, with respect to a person's information
technology, the information technology is designed to be used prior to, during,
and after the calendar Year 2000 A.D., and the information technology used
during each such time period
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will accurately receive, provide and process date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of date/time date, to the extent that
other information technology, used in combination with the information
technology being acquired, properly exchanges date/time date with it.
ARTICLE II
SALE AND PURCHASE
-----------------
SECTION 2.01. Agreement to Sell and to Purchase; Purchase Price. On the
terms and subject to the conditions set forth in this Agreement, the Company
hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, an aggregate of U.S. $__________ aggregate
principal amount of Notes at an aggregate purchase price of $_________, payable
in immediately available funds (the "Purchase Price"). A copy of the form of
Note is attached as Exhibit A hereto and the terms thereof are hereby expressly
incorporated by reference herein.
SECTION 2.02. Closing. The closing of the sale and purchase of the
Notes (the "Closing") shall be deemed to take place concurrently with the
execution and delivery of this Agreement by the parties hereto. At the Closing,
the following closing transactions shall take place, each of which shall be
deemed to occur simultaneously with the Closing: (i) the Company shall execute,
issue and deliver the Notes to the Purchaser in such denominations as the
Purchaser shall request; (ii) the Purchaser shall pay the Purchase Price by wire
transfer to the account designated by the Company in writing prior to the
Closing; (iii) the Company shall pay the expenses set forth in Section 6.02
hereof by wire transfer to the account designated by the Purchaser in writing
prior to the Closing; provided that if the Purchaser so elects, such expenses
may be netted against payment of the Purchase Price pursuant to clause (ii)
above; (iv) the Company and the Purchaser shall execute and deliver the
Registration Rights Agreement; (v) the Company shall deliver to the Purchaser a
certificate executed by the secretary of the Company, signing in such capacity,
dated the date of the Closing (A) certifying that attached thereto are true and
complete copies of the resolutions duly adopted by the Board of Directors of the
Company authorizing the execution and delivery of the Transaction Documents and
the consummation of the transactions contemplated thereby (including, without
limitation, the issuance and sale of the Notes and the reservation and issuance
of the Conversion Shares upon conversion of the Notes), which authorization
shall
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be in full force and effect on and as of the date of such certificate, and (B)
certifying and attesting to the office, incumbency, due authority and specimen
signatures of each Person who executed any Transaction Document for or on behalf
of the Company; and (vi) Parker Duryee Rosoff & Haft, counsel to the Company,
shall deliver to the Purchaser an opinion, dated the date of the Closing and
addressed to the Purchaser, in form and substance acceptable to the Purchaser.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As a material inducement to the Purchaser to purchase the Notes, the
Company hereby represents and warrants to the Purchaser that on and as of the
date hereof:
SECTION 3.01. Organization and Standing. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority, and all authorizations, licenses,
permits and certifications necessary to own its properties and assets and to
carry on its business as it is now being conducted (and as described in the SEC
Reports) and proposed to be conducted. The Company and each of its subsidiaries
is duly qualified to transact business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of its businesses makes such qualification necessary, except where
the failure to so qualify or be in good standing would not have a material
adverse effect on the business, assets, operations, properties, condition
(financial or otherwise) or prospects of the Company and its subsidiaries, taken
as a whole, or any material adverse effect on the Company's ability to
consummate the transactions contemplated by, and to execute, deliver and perform
its obligations under, each of the Transaction Documents (a "Material Adverse
Effect").
SECTION 3.02. Securities of the Company. The authorized Capital Stock
of the Company consists ___________ shares of Common Stock, of which
____________ shares were issued and outstanding as of ____________. Except as
set forth in the SEC Reports, the Company has no other authorized, issued or
outstanding equity securities or securities containing any equity features, or
any other securities convertible into, exchangeable for or entitling any person
to otherwise acquire any other securities of the Company containing any equity
features. All of the outstanding shares of Capital Stock of the Company have
been duly and validly authorized and issued, and are fully paid and
nonassessable. The Notes and all of the Conversion Shares have been duly and
validly authorized. When issued against payment therefor as provided in this
Agreement, the Notes will be validly issued and will constitute valid and
enforceable obligations of the Company, enforceable against the Company in
accordance with their terms (subject to the effects of applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity). When issued
upon conversion of the Notes, the Conversion Shares will be validly issued,
fully paid and nonassessable, free and clear all preemptive rights, claims,
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liens, charges, encumbrances and security interests of any nature whatsoever. A
sufficient number of shares of Common Stock has been duly reserved and will
remain available for issuance upon conversion of the Notes. Except as set forth
in the SEC Reports, there are no outstanding options, warrants, agreements,
conversion rights, subscription rights, preemptive rights, rights of first
refusal or other rights or agreements of any nature outstanding to subscribe for
or to purchase any shares of Capital Stock of the Company or any other
securities of the Company of any kind. Neither the issuance of the Notes nor the
Conversion Shares is subject to any preemptive rights, rights of first refusal
or other similar limitation. Except as otherwise required by law, there are no
restrictions upon the voting or transfer of any shares of the Company's Capital
Stock pursuant to the Company's organizational and other governing documents.
There are no agreements or other obligations (contingent or otherwise) that may
require the Company to repurchase or otherwise acquire any shares of its Capital
Stock.
SECTION 3.03. Authorization; Enforceability. The Company has the
corporate power and authority to execute, deliver and perform the terms and
provisions of each of the Transaction Documents, and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
each of the Transaction Documents and to consummate the transactions
contemplated thereby. No other corporate proceedings on the part of the Company
are necessary and no consent of the shareholders of the Company is required for
the valid execution and delivery by the Company of the Transaction Documents and
the performance and consummation by the Company of the transactions contemplated
thereby. The Company has duly executed and delivered each of the Transaction
Documents. The Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
SECTION 3.04. No Violation; Consents.
(a) The execution, delivery and performance by the Company of
the Transaction Documents and the consummation of the transactions contemplated
thereby do not and will not (i) contravene the applicable provisions of any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or Governmental Authority to or by which the Company or any of its
subsidiaries or any of its respective property or assets is bound, (ii) violate,
result in a breach of or constitute (with due notice or lapse of time or both) a
default or give rise to an event of acceleration under any contract, lease, loan
or credit agreement, mortgage, security agreement, trust indenture or other
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agreement or instrument to which the Company is a party or by which it or any of
its subsidiaries is bound or to which any of its respective properties or assets
is subject, nor result in the creation or imposition of any lien, security
interest, charge or encumbrance of any kind upon any of the properties, assets
or Capital Stock of the Company or any of its subsidiaries, or (iii) violate any
provision of the organizational and other governing documents of the Company or
any of its subsidiaries.
(b) No consent, approval, authorization or order of, or filing or
registration with, any court or Governmental Authority or other Person is
required to be obtained or made by the Company for the execution, delivery and
performance of the Transaction Documents or the consummation of any of the
transactions contemplated thereby (other than the registration of the resale of
the Conversion Shares with the SEC and pursuant to any state "blue sky" laws as
contemplated by the Registration Rights Agreement and other than any shareholder
approval as may be required by the rules applicable to companies whose common
stock is quoted on Amex), except for those consents or authorizations previously
obtained and those filings previously made.
SECTION 3.05. Securities Act Representations. The Company has not
offered or sold and will not offer or sell any Notes in this offering other than
the Notes. Assuming the accuracy of the Purchaser's representations pursuant to
Section 4.02 hereof (and the similar representations of the other purchasers),
the sale of the Notes hereunder is, and the issuance of the Conversion Shares
upon conversion of the Notes will be, exempt from the registration requirements
of the Securities Act. Neither the Company, nor any of its affiliates, or, to
its knowledge, any person acting on its or their behalf has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act) in connection with the offer or sale of the Notes or
Conversion Shares. Neither the Company, nor any of its affiliates, nor to its
knowledge, any person acting on its or their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security other than pursuant to this Agreement, under circumstances that would
require registration under the Securities Act of the Notes to be issued under
this Agreement. The Company is eligible to use Form S-3 under the Securities Act
to file the Registration Statement (as defined in the Registration Rights
Agreement). The Company has not provided the Purchaser with any material
non-public information or any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed.
SECTION 3.06. Solvency; No Default. (a) The Company is, and upon
giving effect to the transactions contemplated hereby
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will be, Solvent (as defined below). "Solvent" means that, as of the date of
determination, (i) the then fair saleable value of the assets of the Company
exceeds the then total amount of its debts and other liabilities (including any
guarantees and other contingent, subordinated, unmatured or unliquidated
liabilities whether or not reduced to judgment, disputed or undisputed, secured
or unsecured), (ii) the Company has sufficient funds and cash flow to pay its
liability on its existing and anticipated debts as they become absolute and
matured, (iii) final judgments against the Company in pending or threatened
actions for money damages will not be rendered at a time when, or in an amount
such that the Company will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable amount
of such judgments in any such actions (other than amounts that would be remote)
and the earliest reasonable time at which such judgments would be rendered), and
(iv) the Company does not have unreasonably small capital with which to engage
in its present or anticipated business.
(b) The Company is not, and immediately after the consummation of the
transactions contemplated hereby will not be, in default under or in violation
of (whether upon the passage of time, the giving of notice or both), its
organizational and other governing documents, or any provision of any security
issued by the Company, or of any agreement, instrument or other undertaking to
which the Company is a party or by which it or any of its property or assets is
bound, or the applicable provisions of any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or Governmental
Authority to or by which the Company or any of its property or assets is bound)
which default or violation, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.07. No Brokers. No broker, finder, agent or similar
intermediary is entitled to any broker's, finder's, placement or similar fee or
other commission in connection with the transactions contemplated hereby based
on any agreement, arrangement or understanding with the Company.
SECTION 3.08. SEC Reports; Financial Condition; No Adverse Changes. (a)
The audited financial statements of the Company and the related notes thereto as
at December 31, 1997 reported on by Friedman Alpren & Green LLP, independent
accountants, copies of which have heretofore been furnished to the Purchaser,
present fairly the financial condition, results of operations and cash flows of
the Company at such date and for the periods set forth therein. The unaudited
balance sheets, statements of operations and statements of cash flows at and for
the period ended September 30, 1998 (such audited and unaudited financial
statements, collectively, the "Financial Statements"), copies of which have
heretofore been furnished to the Purchaser, present
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fairly the financial condition, results of operations and cash flows of the
Company at such date and for the periods set forth therein. The Financial
Statements, including the related schedules and notes thereto (if any), have
been prepared in accordance with generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board as in effect on the
date of filing of such documents with the Commission, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) unless otherwise expressly stated therein. During the period from
January 1, 1998 to and including the date hereof, there has been no sale,
transfer or other disposition by the Company of any material part of the
business, property or securities of the Company and no purchase or other
acquisition of any business, property or securities by the Company material in
relation to the financial condition of the Company.
(b) Except as are fully reflected or reserved against in the Financial
Statements and the notes thereto, there are no liabilities or obligations with
respect to the Company or any of its subsidiaries of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether or not due)
which, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(c) Since December 31, 1997, there has been no development or event,
nor any prospective development or event known to the Company or any of its
subsidiaries, or any litigation, proceeding or other action seeking an
injunction or other restraining order, damages or other relief from a court or
administrative agency of competent jurisdiction pending or, to the best
knowledge of the Company, threatened or contemplated, or any action of any
Governmental Authority, which has had or could reasonably be expected to have a
Material Adverse Effect.
SECTION 3.09. Use of Proceeds; Federal Regulations. No part of the net
proceeds from the sale of the Notes will be used for working capital and general
corporate purposes; such uses will not violate the provisions of Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 3.10. Subsidiaries. As of the date hereof, the Company has the
subsidiaries listed on Exhibit 21 of the Company's Annual Report on 10-K for the
year ended December 31, 1997 or as otherwise disclosed in SEC Reports filed
subsequent to December 31, 1997.
SECTION 3.11. Year 2000 Compliance. The Company and its subsidiaries
are Year 2000 Compliant. To the best knowledge of the
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Company each of the suppliers, vendors and customers material to the operations
of the Company and its subsidiaries are Year 2000 Compliant.
SECTION 3.12. No Integrated Offering. Neither the Company, nor any of
its affiliates, nor to its knowledge any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration under the Securities Act of the offer and sale of the Notes.
SECTION 3.13. No Litigation. No litigation or claim (including those
for unpaid taxes), or environmental proceeding against the Company or any of its
subsidiaries is pending, threatened or, to the Company's best knowledge,
contemplated and no other event has occurred, which if determined adversely
would have a Material Adverse Effect on the Company.
SECTION 3.14. Environmental Matters. The Company and each of its
subsidiaries is in compliance in all material respects with all applicable state
and federal environmental laws and no event or condition has occurred that may
interfere with the compliance by the Company or any of its subsidiaries with any
environmental law or that may give rise to any liability under any environmental
law that, individually or in the aggregate, would have a Material Adverse
Effect.
SECTION 3.15. Intellectual Property. The Company (and/or its
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted or as proposed to be conducted as disclosed in the SEC Documents. The
Company has no reason to believe that the intellectual property rights which it
(and/or its subsidiaries) owns are invalid or unenforceable or that the use of
such intellectual property by the Company (and/or its subsidiaries) infringes
upon or conflicts with any right of any third party, and neither the Company nor
any of its subsidiaries has received notice of any such infringement or
conflict. The Company has no knowledge of any infringement of its (and/or its
subsidiaries) intellectual property by any third party.
SECTION 3.16. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. The Company has no reason to believe that it and its
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subsidiaries will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.
SECTION 3.17. Disclosure. The representations and warranties of the
Company in this Agreement and the statements contained in the SEC Reports and
the schedules, certificates and exhibits furnished to the Purchaser by or on
behalf of the Company in connection herewith do not contain any untrue statement
of a material fact and do not omit to state any material fact necessary to make
the statements herein or therein not misleading. The SEC Reports contain all
material information concerning the Company required to be set forth therein,
and no event or circumstance has occurred or exists since December 31, 1997
which would require the Company to disclose such event or circumstance in order
to make the statements in the SEC Reports not misleading as of the date of the
Closing but which has not been so disclosed. The Company hereby acknowledges
that the Purchaser is and will be relying on the SEC Reports and the Company's
representations, warranties and covenants contained herein in making an
investment decision with respect to the Notes and Conversion Shares and will be
relying thereon (together with future reports filed with the Commission) in
connection with any transfer of Notes and Conversion Shares.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
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The Purchaser hereby acknowledges, represents, warrants and covenants
to the Company as follows:
SECTION 4.01. Authorization; Enforceability; No Violations.
(a) The Purchaser is a bank, duly organized, validly existing and in
good standing under the laws of France, and has all requisite corporate power
and authority to execute, deliver and perform the terms and provisions of this
Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of this Agreement and to consummate
the transactions contemplated hereby.
(b) The execution, delivery and performance by such Purchaser of this
Agreement and the consummation by such Purchaser of the transactions
contemplated hereby do not and will not violate any provision of (i) such
Purchaser's organizational documents and (ii) any law, statute, rule,
regulation, order, writ, injunction, judgment or decree to which such Purchaser
is subject. Such Purchaser has duly executed and delivered this Agreement.
Assuming the due execution hereof by the Company, this Agreement constitutes the
legal, valid and binding
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obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
SECTION 4.02. Securities Act Representations; Legends.
(a) The Purchaser understands that (i) the offering and sale of the
Notes to be issued and sold hereunder is intended to be exempt from the
registration requirements of the Securities Act; (ii) neither the Notes nor the
Conversion Shares have been registered under the Securities Act or any other
applicable securities laws and such securities may be resold only if registered
under the Securities Act or if an exemption from such registration requirements
is available; and (iii) the Company is required to register any resale of the
Notes or the Conversion Shares under the Securities Act only to the extent
provided in the Registration Rights Agreement.
(b) The Notes to be acquired by the Purchaser pursuant to this
Agreement are being acquired for its own account, for investment purposes, and
not with a view to, or for sale in connection with, any distribution thereof or
of Conversion Shares issuable upon conversion of the Notes in violation of the
Securities Act or any other securities laws which may be applicable.
(c) The Purchaser is not an affiliate of the Company (as such term is
defined in the Securities Act).
(d) The Purchaser is not a U.S. Person and, at the time the buy order
for the Notes being purchased hereunder was originated, such Purchaser was
outside of the United States.
(e) The Purchaser (i) has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Notes and is capable of bearing the economic
risks of such investment, including a complete loss of its investment in the
Notes; (ii) believes that its investment in the Notes is suitable for it based
upon its objectives and financial needs, and the Purchaser has adequate means
for providing for its current financial needs and business contingencies and has
no present need for liquidity of investment with respect to the Notes; (iii) has
no present plan, intention or understanding and has made no arrangement to sell
the Notes or the Conversion Shares at any predetermined time or for any
predetermined price; (iv) has not purchased, sold or entered into, any put
option, short position or similar arrangement with respect to the Common Stock,
and will not, for
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so long as it owns any Notes or Conversion Shares, purchase,
sell or enter into, any such option, position or understanding with any
Conversion Shares in any manner which violates the provisions of the Securities
Act or the Exchange Act.
(f) No oral or written statements or representations have been made to
such Purchaser by or on behalf of the Company in connection with the offering
and sale of the Notes hereunder other than those set forth in the SEC Reports,
the Notes or as set forth herein, and such Purchaser is not subscribing for the
Notes as a result of, or in response to, any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
(g) The Purchaser acknowledges that the Securities Act restricts the
transferability of securities, such as the Notes and Conversion Shares, issued
in reliance upon the exemption from the registration requirements of the
Securities Act provided by Section 4(2) thereunder, and that, subject to Section
5.02 hereof, the certificates representing the Notes and the Conversion Shares
will bear a legend in substantially the form included in the form of Note
attached as Exhibit A hereto by which such Purchaser and each subsequent holder
of such securities will be bound.
(h) The Purchaser acknowledges that as the Common Stock is currently
quoted on a U.S. automated interdealer quotation system, Rule 144A under the
Securities Act may not be available with respect to resales of the Notes or the
Conversion Shares.
SECTION 4.03. No Brokers. No broker, finder, agent or similar
intermediary is entitled to any broker's, finder's, placement or similar fee or
other commission in connection with the transactions contemplated hereby based
on any agreement, arrangement or understanding with such Purchaser.
SECTION 4.04. No Influence on Business. The Purchaser (whether in its
capacity as holder of Notes and/or Conversion Shares or otherwise) covenants and
agrees with the Company that it will not (a) in any manner exercise or attempt
to exercise a controlling influence over the management or policies of the
Company or attempt to influence the business activities or decisions or the
Company; (b) propose a director or slate of directors to serve on the board of
directors of the Company; (c) have or seek to have a representative of the
Purchaser be appointed to serve as a director of the Company or participate as
an observer at meetings of the board of directors (or committees thereof) or
have or seek to have any employee or representative of the Purchaser serve as an
officer, agent or employee of the Company; (d) attempt to influence the dividend
policies or
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practices of the Company; (e) solicit or participate in soliciting proxies with
respect to any matter presented to the shareholders of the Company; (f) dispose
or threaten to dispose of the Notes or Conversion Shares to any third party in
any manner as a condition to specific action or non-action by the Company; or
(g) enter into any joint venture, enterprise or undertaking of any kind with the
Company.
Section 4.05. Limitations on Resales. The Purchaser covenants and
agrees that it (together with its Affiliates) will not transfer the Notes to any
Person (together with such Person's Affiliates), other than the Company or
Affiliates of the Purchaser, in a transaction or series of transactions, in an
aggregate principal amount in excess of such principal amount as would be
convertible at the date of transfer into in excess of 2% of the issued and
outstanding shares of Common Stock of the Company (based upon the applicable
Conversion Price (as defined in the Note) and number of shares of Common Stock
of the Company issued and outstanding on the applicable date of transfer and
without giving effect to any limitations on conversion set forth in the Note).
The Purchaser further covenants and agrees that it will not knowingly transfer
to any Person (together with such Person's Affiliates), other than the Company
or Affiliates of the Purchaser, in a transaction or series of transactions,
Conversion Shares in an aggregate amount in excess of 2% of the issued and
outstanding shares of Common Stock of the Company (based upon the number of
shares of Common Stock of the Company issued and outstanding on the applicable
date of transfer); in furtherance thereof, the Purchaser covenants and agrees
that it shall not on any five day trading period transfer Conversion Shares in
secondary market transactions in which the identity of the acquiror is not known
to the Purchaser in an amount in excess of 2% of the issued and outstanding
shares of Common Stock of the Company (based upon the number of shares of Common
Stock of the Company issued and outstanding on the applicable date of transfer).
The Purchaser covenants and agrees that the foregoing transfers to third parties
shall be made in bonafide, arms-length transactions and that upon any such
transfer, it will not retain the power to control the disposition of the
securities transferred and, in the case of Conversion Shares, to direct the
voting with respect thereto.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
SECTION 5.01. Exemption from Registration.
The Company will not make any offer to sell, solicit any
offer to buy, agree to sell or sell any security or right to acquire any
security, except at such time and in such manner so as not to cause the loss of
any of the exemptions for the offer
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<PAGE>
and sale of the Notes hereunder and for the issuance of the Conversion Shares
upon conversion of the Notes from the registration requirements under the
Securities Act or under the securities or "blue sky" laws of any jurisdiction in
which such offer, sale or issuance is made. Without limiting the generality of
the foregoing, the Company will not make any offer to sell, solicit any offer to
buy, agree to sell or sell any securities similar in tenor to the Notes or right
to acquire any securities similar in tenor to the Notes during the period
commencing on the date of the Closing and ending one hundred and eighty (180)
days thereafter.
SECTION 5.02 Transfer Restrictions. (a) The Purchaser acknowledges that
any proposed offer, sale, pledge or other transfer of Notes or Conversion Shares
prior to the date which is two (2) years from the Closing (or such other date as
may be required pursuant to Rule 144 under the Securities Act (or similar
successor provision) as in effect from time to time), in the absence of
registration under the Securities Act, is limited. Accordingly, prior to such
passage of time or such registration, the Notes or the Conversion Shares may be
offered, sold, pledged or otherwise transferred only to (i) the Company, (ii) in
an offshore transaction in accordance with Rule 904 under the Securities Act,
(iii) pursuant to any other exemption from registration provided by the
Securities Act, and (iv) pursuant to Rule 144 under the Securities Act; in the
case of any transfer pursuant to clause (ii), (iii) or (iv), the Company shall
be entitled to receive an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that registration is not required in
connection with such disposition. Any Notes or Conversion Shares sold to the
Company may not be reissued or resold.
(b) The Company agrees to issue certificates representing the Notes or
Conversion Shares without the legend referenced in clause (a) above at such time
as (i) the holder thereof is permitted to dispose of such Notes or Conversion
Shares pursuant to Rule 144 (k) under the Act, (ii) such Notes or Conversion
Shares are sold to a purchaser or purchasers who (in the opinion of counsel to
the seller or such purchaser(s), in form and substance reasonably satisfactory
to the Company) are able to dispose of such securities publicly without
registration under the Act and such legend is no longer required to be included
on the Notes or Conversion Shares or (iii) such Notes or Conversion Shares are
sold pursuant to an effective registration statement under the Securities Act.
(c) In the alternative to physical delivery of certificates for
Conversion Shares, if delivery of the Conversion Shares pursuant to any
conversion thereunder may be effectuated by electronic book-entry through The
Depositary Trust Company
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<PAGE>
("DTC"), then delivery of Conversion Shares pursuant to such conversion shall,
if requested by the Purchaser (or holder of Conversion Shares), settle by
book-entry transfer through DTC by the third trading day following the Date of
Conversion (as defined in the Note). The parties agree to coordinate with DTC to
accomplish this objective.
SECTION 5.03. Rules 144; Current Information. For so long as any Notes
or Conversion Shares are outstanding, the Company will (i) cause its Common
Stock to continue to be registered under Section 12 of the Exchange Act, file
all reports required to be filed by it under the Securities Act and the Exchange
Act and will take such further actions as any Purchaser may reasonably request,
all to the extent required from time to time to enable such Purchaser to sell
Notes and Conversion Shares without registration under the Securities Act
pursuant to the safe harbors and exemptions provided by Rule 144 under the
Securities Act, as such rules may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission, and (ii) furnish each
Purchaser with all reports, proxy statements and registration statements which
the Company files with the Commission or distributes to its securityholders
pursuant to the Securities Act and the Exchange Act at the times of such filings
and distributions. Upon the request of any Purchaser, the Company will deliver
to such Purchaser a written statement as to whether it has complied with the
foregoing requirements.
SECTION 5.04. Reservation of Conversion Shares. The Company shall at
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, sufficient shares of Common Stock to
provide for the issuance of the Conversion Shares in an amount equal to the
Maximum Share Issuance (as defined in the Note).
SECTION 5.05. Stock Listing. The Company shall endeavor to have the
Conversion Shares in an amount equal to the Maximum Share Issuance (as defined
in the Note) approved for quotation or listing, prior to issuance, upon the
Approved Market (as defined in the Note) prices upon which the Common Stock is
listed or traded at the time of issuance of such Conversion Shares.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Press Releases and Disclosure. No party hereto shall
issue any press release or make any other public disclosure related to this
Agreement or any of the transactions contemplated hereby without the prior
written approval of the
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<PAGE>
other party hereto, except as may be necessary or appropriate in the opinion of
the party seeking to make disclosure to comply with the requirements of
applicable law or stock exchange rules. If any such press release or public
disclosure is so required, the party making such disclosure shall consult with
the other party prior to making such disclosure, and the parties shall use all
reasonable efforts, acting in good faith, to agree upon a text for such
disclosure which is satisfactory to all parties.
SECTION 6.02. Expenses. Except as otherwise expressly provided for
herein, the Company will pay all of its and all of the Purchaser's expenses
(including attorneys' fees and expenses) in connection with the negotiation of
the Transaction Documents, the performance of the obligations of the Purchaser
thereunder, and the consummation of the transactions contemplated thereby
(whether consummated or not). Such Purchaser's expenses shall be payable at the
Closing and may be netted against the Purchase Price otherwise payable by the
Purchaser. In addition to the foregoing, as provided in the Registration Rights
Agreement, the Company will also pay all of its and all of the Purchaser's
expenses (including attorneys' fees and expenses) in connection with the review
of the Registration Statement contemplated by the Registration Rights Agreement,
the conduct of due diligence in connection therewith (including the review of
opinions of counsel and comfort letters), and all matters related thereto; the
Company agrees to promptly pay such expenses, as incurred by the Purchaser.
SECTION 6.03. Notices. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (i) if to the
Company, to: HMG Worldwide Corporation, 475 Tenth Avenue, New York, New York
10018-1199, Attention: Chief Financial Officer, Facsimile No.: (212) 564-3395;
with copies (which shall not constitute notice) to: Parker Duryee Rosoff & Haft,
529 Fifth Avenue, New York, New York 10017, Attention: Herbert Kozlov, Esq.,
Facsimile No.: (212) 972-9487; and (ii) if to the Purchaser: [name], [address],
Facsimile No.: ___________ with copies (which shall not constitute notice) to:
[counsel]. Notice shall be deemed given on the date of service or transmission
if personally served or transmitted by telegram,
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<PAGE>
telex or facsimile. Notice otherwise sent as provided herein shall be deemed
given on the third business day following the date mailed or on the next
business day following delivery of such notice to a reputable air courier
service.
SECTION 6.04. Entire Agreement. This Agreement (together with the other
Transaction Documents and all other documents delivered pursuant hereto and
thereto) constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties, whether oral or written, with respect to the subject matter hereof.
SECTION 6.05. Amendment and Waiver. This Agreement may not be amended,
modified, supplemented, restated or waived except by a writing executed by the
party against which such amendment, modification or waiver is sought to been
forced. Waivers may be made in advance or after the right waived has arisen or
the breach or default waived has occurred. Any waiver may be conditional. No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. No waiver or extension of time for
performance of any obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.
SECTION 6.06. Assignment; No Third Party Beneficiaries. This Agreement
and the rights, duties and obligations hereunder may not be assigned or
delegated by either the Company, on the one hand, or the Purchaser, on the other
hand, without the prior written consent of the other parties hereto; provided
that the Purchaser may assign or delegate its rights, duties and obligations
hereunder to any Affiliate of the Purchaser. Except as provided in the preceding
sentence, any purported assignment or delegation of rights, duties or
obligations hereunder made without the prior written consent of the other
parties hereto shall be void and of no effect. This Agreement and the provisions
hereof shall be binding upon and shall inure to the benefit of each of the
parties and their respective successors and permitted assigns. This Agreement is
not intended to confer any rights or benefits on any Persons other than as set
forth above.
SECTION 6.07. Severability. This Agreement shall be deemed severable,
and the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or
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<PAGE>
provision, the parties hereto intend that there shall be added as a part of this
Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
SECTION 6.08. Further Assurances. Each party hereto, upon the request
of any other party hereto, shall do all such further acts and execute,
acknowledge and deliver all such further instruments and documents as may be
necessary or desirable to carry out the transactions contemplated by this
Agreement.
SECTION 6.09. Titles and Headings. Titles, captions and headings of the
sections of this Agreement are for convenience of reference only and shall not
affect the construction of any provision of this Agreement.
SECTION 6.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
SECTION 6.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
HMG WORLDWIDE CORPORATION
By:----------------------------------
Name: Robert V. Cuddihy, Jr.
Title: Chief Operating Officer and
Chief Financial Officer
-------------------
By:----------------------------------
Name:
Title:
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HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES
LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR ANY SECURITIES ISSUABLE
UPON THE CONVERSION HEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED OTHER THAN (A) TO HMG WORLDWIDE CORPORATION (THE "COMPANY") OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, (C)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT; THE HOLDER OF THIS CERTIFICATE
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY OR ANY SECURITY
ISSUED UPON CONVERSION HEREOF IS TRANSFERRED (UNLESS SUCH SECURITY IS
TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
PROPOSED TRANSFER PURSUANT TO CLAUSES (B), (C) OR (D) ABOVE, THE COMPANY MAY
REQUIRE THAT THE TRANSFEROR FURNISH IT WITH AN OPINION OF COUNSEL CONFIRMING
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", AND "UNITED STATES" HAVE THE
RESPECTIVE MEANINGS ASSIGNED TO THEM IN REGULATION S UNDER THE SECURITIES ACT.
Certificate No.----------- U.S. $------------
FOR VALUE RECEIVED, HMG WORLDWIDE CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (the "Company"), hereby
promises to pay to ---------- , or registered assigns, the principal sum of
$---------- (or such lesser amount as a result of partial conversions of this
Note as set forth on Schedule I hereto) on February 24, 2002 (unless such date
is extended as provided on the reverse hereof), and to pay interest thereon in
the manner set forth on the reverse hereof from February 24, 1999 at the rate of
7% per annum until the principal hereof is paid or made available for payment.
Reference is hereby made to the further provisions set forth on the reverse
hereof, which provisions shall for all purposes have the same effect as if set
forth in this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: HMG WORLDWIDE CORPORATION
By:---------------------------------
Name: Robert V. Cuddihy, Jr.
Title: Chief Operating Officer and
Chief Financial Officer
<PAGE>
<PAGE>
- REVERSE OF NOTE -
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
1. ISSUANCE. This Note is one of a duly authorized issue of Notes of the Company
designated as its 7% Convertible Notes Due February 24, 2002 in an aggregate
principal amount of $5,000,000.
2. INTEREST. The Company promises to pay interest on the principal amount of
this Note at the rate of 7 % per annum; provided that the applicable rate of
interest on this Note will increase to 15% per annum upon the occurrence of the
events described in Section 3 below. Interest on this Note will accrue from
February 24, 1999 until payment in full of the principal amount hereof has been
made or duly provided for and will be based on the actual number of days and
months elapsed and computed on a 360-day year consisting of twelve 30-day
months. Interest shall be payable in arrears on the earlier to occur of (i) the
date of conversion to Common Stock (as defined in Section 4 below) as provided
herein of all or a portion of this Note (if this Note shall be converted in
part, then interest only with respect to the portion of this Note so converted
shall be payable at such time) and (ii) the Maturity Date. The "Maturity Date"
shall mean February 24, 2002; provided, however, that such date shall be
extended by two days for each day (i) in excess of 120 days from the date of
original issuance of this Note that the Registration Statement (as defined in
the Registration Rights Agreement entered into on the date of original issuance
of the Notes between the Company and the original purchasers of the Notes) is
not declared effective and (ii) subsequent to which the Registration Statement
is declared effective that the Holder is unable to sell Common Stock pursuant to
the Registration Statement. Interest on this Note is payable to the holder of
this Note registered on the books of the Company (the "Holder") at the option of
the Company in the form of either (i) such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts or (ii) the number of full shares of Common Stock which the amount
of interest payable would entitle the Holder to acquire based upon a price per
share equal to the Conversion Price (as defined in Section 4 below). The Company
shall notify the Holder in writing within one (1) business day of the date
Notice of Conversion by the Holder is received by the Company or five (5)
business days prior to the Maturity Date, as applicable, of the form in which
the Company elects to pay accrued interest. In the event the Company fails to
timely provide such notice, payments of interest shall be in Common Stock.
3. PRINCIPAL. On the Maturity Date, upon surrender of this Note by the Holder to
the Company, the Company shall pay to the Holder the outstanding principal
amount hereof in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts,
together with accrued interest on such outstanding principal amount as set forth
in Section 2 above.
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HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
4. CONVERSION.
(a) Conversion Price; Amount; Maximum Share Issuance. Subject to this
Section 4, the Holder of this Note has the right to convert this Note, in whole
or from time to time in part, into shares of common stock, par value $.01 per
share, of the Company (the "Common Stock"). The price at which the Holder may
convert this Note (or any portion thereof) into shares of Common Stock (the
"Conversion Price") shall be the lesser of (i) $4.00 (the "Maximum Conversion
Price") and (ii) the average of the two lowest Closing Prices (as defined below)
of the Common Stock during the 30 trading days preceding (but excluding) the
Date of Conversion (as defined below) (the "Variable Conversion Price"). The
"Closing Price" with respect to the per share price of Common Stock on any day
means the last reported bid price regular way on Nasdaq Small Cap Market (or the
Nasdaq National Market, the New York Stock Exchange or American Stock Exchange
in the event any such market or exchange constitutes the principal market on
which the Common Stock is quoted or listed or admitted to trading) (such four
markets and exchanges, the "Approved Markets") or, if not quoted or listed or
admitted to trading on any such market or exchange, the closing bid price in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose. In lieu of
any fractional share of Common Stock to which the Holder would otherwise be
entitled upon conversion of this Note (or portion thereof), the number of shares
of Common Stock issuable upon conversion of this Note shall be rounded up to the
nearest whole number. In the case of a dispute as to the calculation of the
Conversion Price, the Holder's calculation shall be deemed conclusive absent
manifest error.
The maximum number of shares of Common Stock (the "Maximum Share
Issuance") issuable upon conversion of all or any portion of the aggregate
principal amount of the Notes (including shares of Common Stock which (x) the
Company elects to issue in payment of interest as provided in Section 2 hereof
and (y) the Holder elects to receive in the form of Common Stock, if any,
pursuant to the Registration Rights Agreement entered into in connection with
the issuance of the Notes) is 2,160,000 (subject to adjustment for stock splits,
stock dividends, reclassification or other similar events). Such number of
shares constituting the Maximum Share Issuance initially shall be allocated
among the holders of the Notes on a pro rata basis based upon the proportion
such holders' position of Notes constitutes to the entire original issuance of
Notes; provided that in the event that the entire principal amount of a holder's
position of Notes ceases to be outstanding (whether as a result of conversion or
otherwise), the portion, if any, of the Maximum Share Issuance allocated to such
holder's Notes which were not issued upon conversion shall be reallocated on a
pro rata basis among the remaining holders of Notes. As of the date which the
Maximum Share Issuance has occurred in respect of a holder's entire position of
Notes, the interest rate payable on the remaining portion of the Notes held by
such holder shall permanently increase to 15% per annum
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HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
(regardless of whether the allocable Maximum Share Issuance applicable to such
holder's Notes subsequently increases as a result of the reallocation described
above). Upon any transfer of Notes, the transferor's unused portion of the
Maximum Share Issuance shall be allocated on a pro rata basis between the
transferor's remaining position of Notes, if any, and the transferee's acquired
position of Notes; in the event a holder transfers its entire position of Notes,
the unused portion of the Maximum Share Issuance allocable to such transferor's
Notes shall be allocated to the Notes transferred to the transferee.
Except as otherwise provided herein, the Holder of this Note shall be
entitled to convert this Note into Common Stock as follows: (i) during calendar
days 1 through 75 following the date of the initial issuance of this Note (the
"Initial Issuance Date"), up to 25% of the original principal amount of this
Note; (ii) during calendar days 76 through 150 following the Initial Issuance
Date, up to 50% (on a cumulative basis) of the original principal amount of this
Note; (iii) during calendar days 151 through 225 following the Initial Issuance
Date, up to 75% (on a cumulative basis) the original principal amount of this
Note; and (iv) at any time on or after the 226th calendar day following the
Initial Issuance Date, up to 100% of the original principal amount of this Note.
The last date on which this Note may be converted is three (3) business days
prior to the Maturity Date. Subject to the foregoing, the Holder may convert a
portion of this Note into Common Stock at any time if the portion converted
(exclusive of accrued interest with respect thereto) is equal to or exceeds
$10,000.
Notwithstanding any other provision of this Section 4, as of any date
prior to the Maturity Date, the aggregate number of shares of Common Stock into
which this Note, all other Notes and all other securities convertible into
Common Stock held by the Holder of this Note and its affiliates shall be
convertible, together with the shares of Common Stock then beneficially owned
(as defined in the U.S. Securities Exchange Act of 1934, as amended) by such
Holder and its affiliates (excluding shares of Common Stock otherwise deemed
beneficially owned as a result of the convertibility of the Notes held by the
Holder or its affiliates), shall not exceed 4.9% of the total outstanding shares
of Common Stock as of such date; notwithstanding any other provision of this
Note, the foregoing limitation on conversion may not be waived, amended or
modified.
(b) Mechanics of Conversion. To convert this Note (or a portion
thereof) the Holder must (i) complete and sign the Notice of Conversion set
forth as Exhibit A to this Note (the "Notice of Conversion") and deliver the
Notice of Conversion to the Company as herein provided and (ii) on or prior to
the date on which delivery of Common Stock is required to be made hereunder, (x)
deliver this Note, duly endorsed, to the Company and (y) pay any transfer or
similar tax if required. The Holder shall surrender this Note and the Notice of
Conversion to the Company (with an advance copy by facsimile of the Notice of
Conversion). The date on which Notice of Conversion is given (the "Date of
Conversion") shall be deemed to be the date of receipt by the Company of the
facsimile of the Notice of Conversion, provided that this Note is received by
the Company within five (5) business days thereafter. The Company shall not be
obligated to cause the transfer agent for the
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HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
Common Stock (the "Transfer Agent") to issue certificates evidencing the shares
of Common Stock issuable upon such conversion unless either this Note has been
received by the Company or, if this Note has been lost, stolen or destroyed, the
Holder executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with this Note.
The Company shall cause the Transfer Agent with respect to its Common
Stock, which Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, to electronically
transmit the shares of Common Stock issuable to the Holder upon conversion of
this Note by crediting the account of the Holder's prime broker with DTC through
DTC's Deposit Withdrawal Agent Commission (DWAC") system, within three (3)
business days after delivery to the Company of this Note to the Holder. In the
event the Holder otherwise elects in writing, however, the Company shall cause
the Transfer Agent to issue and deliver (within such three (3) business day
period) at the address of the Holder on the books of the Company, as
contemplated by the Securities Purchase Agreement or as otherwise directed
pursuant to the Notice of Conversion, a certificate or certificates for the
number of shares of Common Stock to which such Holder shall be entitled as
aforesaid. In the event the Company fails to complete such delivery as
aforesaid, it shall be responsible for actual damages incurred by the Holder as
a result thereof. The person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
Notwithstanding that the Holder is required to deliver this Note, duly endorsed,
within five (5) business days after the Date of Conversion, if this Note is not
received by the Company within ten (10) business days after the Date of
Conversion, the Notice of Conversion shall become null and void.
Following conversion of this Note, or a portion thereof, the principal,
together with the interest payable on this Note, or portion thereof so
converted, will be deemed paid in full and satisfied, and such Note or portion
thereof will no longer be outstanding. In the event this Note is converted in
part, the Company will issue to the Holder a new Note in a principal amount
equal to the portion of this Note not converted or shall endorse this Note to
reflect such conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock or shares of Common Stock held in treasury, or both, solely for
the purpose of effecting the conversion of this Note, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of the Notes and all other securities of the Company convertible or exchangeable
into Common Stock.
(d) Adjustment to Fixed Conversion Price and the Variable Conversion
Price.
-A5-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
(i) If, prior to the conversion of the entire principal amount
of this Note, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend of shares of Common Stock or other shares of capital
stock, reclassification or other similar event, the Maximum Conversion Price, if
applicable, and the Variable Conversion Price (together, the "Conversion
Prices") shall be proportionately reduced, or if the number of outstanding
shares of Common Stock is decreased by a combination or reclassification of
shares or other similar event, the Conversion Prices shall be proportionately
increased, in each case, such that the Holder of this Note will have the right
to receive upon conversion of this Note the number of shares of Common Stock (or
other shares of Capital Stock) of the Company (notwithstanding the limitation
set forth in the third paragraph of Section 4(a)) which such Holder would have
been entitled to receive had the Holder converted this Note immediately prior to
such action.
(ii) If, prior to the conversion of the entire principal
amount of this Note, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization or other similar event (a "Conversion
Reclassification Event"), as a result of which shares of Common Stock of the
Company shall be changed into the same or a different number of shares of the
Company or the same or another class or classes of stock or securities of the
Company or another entity, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the basis and the terms
and conditions specified herein, such shares of stock and/or securities as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore receivable upon the conversion of this Note
(irrespective of the limitations set forth in Section 4(a)) had such Conversion
Reclassification Event not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holder
of this Note such that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares
issuable upon conversion of this Note) shall thereafter be applicable, as nearly
as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion of this Note. The Company shall not
effect any Conversion Reclassification Event unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Holder of this Note such shares of stock and/or
securities as the Holder of this Note is entitled to receive upon conversion in
accordance with the foregoing.
(iii) In addition to the adjustments set forth above, if the
Company distributes to all holders of its Common Stock any of its assets or debt
securities or any rights or warrants to purchase securities other than Common
Stock, then the Conversion Prices shall be adjusted in such a manner as shall be
agreed to by the Company and the Holder as shall fairly preserve the economic
rights and benefits of the Holder as contemplated by this Note. In the event
that within 15 days of any such event, the Company and the Holder do not reach
an agreement as to the appropriate adjustment, the Company shall retain, and pay
for, a nationally recognized investment bank or accounting firm to
-A6-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
determine the appropriate adjustment as soon as possible, but in any event not
later than 45 days from the date of such event.
No adjustment shall be required for cash dividends or
distributions except to the extent that any such cash dividend or distribution
made on any date would, upon payment, cause the aggregate fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive) of all such dividends and distributions which have occurred on such
date and during the 365-day period immediately preceding such date (other than
any dividends or distributions in respect of which an adjustment to the
Conversion Prices pursuant to this Section 4(d) had previously been made) exceed
the product of (x) .20 times (y) the Closing Price on the record date for such
most recent dividend or distribution times (z) the number of shares of Common
Stock outstanding on such date.
(iv) In the event that the Company shall at any time after the
date of the issuance of this Note (A) issue shares of Common Stock without
consideration (other than in the form of a dividend) or at a price per share
less than the Closing Price on the date of issue, (B) issue options, rights or
warrants to subscribe for or purchase Common Stock (or securities convertible
into Common Stock) without consideration or at a price per share (or having a
conversion price per share, if a security convertible into Common Stock) less
than the Closing Price of the Common Stock on the date of issue (other than
options issued to employees pursuant to stock option plans in effect as of the
date of original issuance of the Notes) or (C) securities convertible into
Common Stock having a conversion price less than the Closing Price of the Common
Stock on the date of conversion, the Conversion Prices to be in effect after the
date of such issuance shall be adjusted by multiplying the Conversion Prices in
effect immediately prior to the date of any such issuances referenced above by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the date of such issuance plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so to be issued (or the aggregate initial conversion price of the
convertible securities so to be issued) would purchase at the Closing Price on
the date of such issue and of which the denominator shall be the number of
shares of Common Stock outstanding on the date of such issuance plus the number
of additional shares of Common Stock to be issued (or into which the convertible
securities so to be issued are initially convertible). In case the subscription
price for such securities may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive. Such adjustment shall be made successively
whenever the date of such issuance is fixed and, in the event that such shares
or option, rights or warrants (or portions thereof) expire without being issued,
the Conversion Price shall again be adjusted to reflect such occurrence.
(v) Adjustments to the Maximum Conversion Price pursuant to
this Section 4 shall be permanent. Adjustment to the Variable Conversion Price
pursuant to this Section 4 shall
-A7-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
be made only to the extent an event requiring adjustment occurs during the
period that the Variable Conversion Price is required to be calculated to
determine the Conversion Price by making adjustments to the applicable Closing
Prices within such period.
(vi) If any adjustment under this Section 4(d) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.
5. RANKING. The Notes constitute senior unsecured indebtedness of the Company,
rank pari passu in right of payment with other unsubordinated and unsecured
indebtedness of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company.
6. REGISTERED HOLDER. The Company may for all purposes treat the registered
holders on its books and records of this Note as the Holder.
7. DENOMINATIONS. Notes (and any Note issued in exchange, upon transfer or upon
conversion) may be issued in a minimum principal amount of $100,000 (or such
lesser amount upon a conversion in part of a Note provided such lesser amount
represents such Holder's entire holding of Notes).
8. EVENTS OF DEFAULT.
(a) An "Event of Default" under this Note occurs if:
(1) the Company defaults in effecting a conversion of this
Note in accordance with the provisions hereof and such default continues for a
period of 10 days;
(2) the Company defaults in the payment of the principal of or
interest on this Note when the same becomes due and payable;
(3) the Company fails to comply in any material respect with
any of its agreements in this Note or the provisions of the Securities Purchase
Agreement (the "Securities Purchase Agreement") or the Registration Rights
Agreement, each dated as of the date of the original issuance of this Note
between the Company and the original Holder of this Note (other than those
referred to in clauses (1) and (2) above), and such failure continues for 30
days after the notice specified below;
(4) indebtedness of the Company or any subsidiary is not paid
within any applicable grace period after maturity or is accelerated by the
holders thereof because of a default,
-A8-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
the total amount of such indebtedness unpaid or accelerated exceeds $1,000,000
and such default continues for 10 days after the notice specified below;
(5) the Company or any subsidiary pursuant to or within the
meaning of any federal or state bankruptcy, insolvency or other law for the
relief of debtors ("Bankruptcy Law"):
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(C) consents to the appointment of any receiver,
trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law (a "Custodian") of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of
its creditors;
or takes any comparable action under any foreign laws relating to insolvency;
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
subsidiary in an involuntary case or proceeding;
(B) appoints a Custodian of the Company or any
subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the
Company or any subsidiary;
or similar relief is granted under any foreign laws and the order or decree
remains unstayed and in effect for 60 days;
(7) the Common Stock is not quoted or listed or admitted to
trading on an Approved Market;
(8) a going private transaction under Rule 13e-3 under the
Exchange Act or a tender offer by the Company under Rule 13e-4 under the
Exchange Act is announced; or
-A9-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
(9) any final judgment or decree for the payment of money in
excess of $1,000,000 (to the extent not covered by insurance) is rendered
against the Company or any subsidiary and is not discharged and either (A) an
enforcement proceeding has been commenced by any creditor upon such judgment or
decree or (B) there is a period of 60 days following such judgment during which
such judgment or decree is not discharged, waived or the execution thereof
stayed and, in the case of (B), such default continues for 10 days after the
notice specified below.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
A default under clause (3), (4), (7), (8) or (9) above is not an Event
of Default until the Holder of this Note notifies the Company of such default
and the Company does not cure such default within the time specified after
receipt of such notice. Such notice must specify the default, demand that it be
remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Holder of this Note, within 30 days
after the occurrence thereof, written notice of any event which with the giving
of notice, the lapse of time or both would become an Event of Default under
clause (3), (4), (7), (8) or (9) above, its status and what action the Company
is taking or proposes to take with respect thereto.
(b) If an Event of Default (other than an Event of Default specified in
clauses (5) or (6) above) occurs and is continuing, the Holder of this Note may
declare the principal of and accrued interest on this Note to be immediately due
and payable and upon such declaration, an amount equal to 115% of such principal
and interest shall be due and payable immediately. If an Event of Default
specified in clauses (5) or (6) above occurs, the principal of and interest on
this Note shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Holder of this Note.
9. NO AMENDMENT. No provision of this Note may be amended, altered or modified
without the written agreement of the Holder and the Company.
10. NO VOTING RIGHTS. This Note shall not entitle the Holder hereof to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to attend any
meetings of stockholders or any other proceedings of the Company.
11. LOST OR DESTROYED NOTE. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of
-A10-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
a mutilated Note, or in lieu of or in substitution for a lost, stolen or
destroyed Note, a new Note for the principal amount of this Note so mutilated,
lost, stolen or destroyed but only upon receipt of evidence of such loss, theft
or destruction of such Note, and of the ownership thereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
12. CHANGE OF CONTROL. Upon the notice or occurrence of, or announcement of the
Company's intent (or a third party's or parties' intent in the case of Change of
Control Transaction of the type set forth in clause (iii) of the definition of a
Change of Control Transaction) to engage in, a Change of Control Transaction,
then, this Note shall thereupon be convertible in full, notwithstanding the
limitations set forth in Section 4 hereof; provided that a holder's ability to
convert this Note shall cease three (3) trading days prior to the consummation
of a Change of Control Transaction of the type set forth in clauses (i) and (ii)
of the definition thereof. In addition, upon either the notice of, or the
announcement of the Company's intent to engage in, a Change of Control
Transaction (of the type set forth in clauses (i) and (ii) of the definition
thereof), shall have the right, up to and including the third trading day prior
to the date of effectiveness of such Change of Control Transaction, to elect
redemption by the Company of this Note at a redemption price equal to 125% of
the principal amount thereof, plus accrued interest, which redemption, in the
case of such Change of Control Transaction, shall be conditioned upon and shall
be effective immediately prior to consummation of such Change of Control
Transaction. If the Holder does not make such an election, this Note shall be
deemed automatically converted into shares of Common Stock immediately prior to
the consummation of such Change of Control Transaction, and the holder shall
receive the same consideration that a holder of Common Stock is entitled to
receive in connection with such Change of Control Transaction.
A "Change of Control Transaction" shall mean, (i) the sale, conveyance
or disposition of all or substantially all of the assets of the Company, (ii) a
consolidation or merger of the Company with or into any other "Person" (whether
or not the Company is the surviving Person, but other than a merger or
consolidation whereby the stockholders of the Company immediately preceding the
merger or consolidation continue to own greater than 50% of the voting power of
the capital stock of the surviving Person in such merger or consolidation that
is normally entitled to vote in the election of directors, managers or trustees,
as applicable) or, (iii) any Person or any "group" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), becomes the beneficial owner or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's voting power of the capital
stock of the Company normally entitled to vote in the election of directors of
the Company (other than (A) any group that held such voting power as of the date
of original issuance of this Note, or (B) any group that holds such voting power
subsequent to the date or original issuance of this Note, provided that the
persons that constitute such group include the majority of the members of, and
at least 50% of the voting power held by, a group referenced in clause (A)). The
Company shall promptly mail written notice of either the occurrence of, or the
-A11-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
announcement of the Company's intent to engage in, a Change of Control
Transaction (with a copy sent by facsimile), but in any event such notice (other
than, if applicable, in the case of a Change of Control Transaction of the type
set forth in clause (iii)) shall not be given less than twenty (20) days prior
to the effective date of such Change of Control Transaction to the Holder.
13. REDEMPTION AT THE OPTION OF THE COMPANY. At any time after one year from the
date of original issuance of the Notes, the Company shall have the right, upon
sixty (60) days prior written notice to the Holders of the Notes, to redeem all
(but not less than all) of the Notes then outstanding, provided that (i) the
Holders shall have been entitled to sell the Conversion Shares pursuant to the
Registration Statement (as defined in the Registration Rights Agreement) for a
period of at least 225 consecutive days prior to delivery of such notice of
redemption and shall be entitled pursuant to the Registration Statement to sell
Conversion Shares throughout the entire notice period (and accordingly the Notes
shall continue to be convertible throughout the entire notice period upon the
date preceding the date of redemption); provided that this clause (i) shall not
apply if the Maximum Share Issuance has occurred, (ii) no Event of Default (or
event which upon the giving of notice, passage of time or both would constitute
an Event of Default) under the Notes shall have occurred and be continuing as of
each of the date of notice of redemption and date of redemption; (iii) neither
such notice of redemption nor the redemption shall constitute an Event of
Default (or event which upon the giving of notice, passage of time or both would
constitute an Event of Default) under the Notes; and (iv) as of each of the date
of notice of redemption and the date of redemption, the Company shall be Solvent
(as defined in the Securities Purchase Agreement) and neither of such notice of
redemption nor such redemption shall result in the Company no longer being
Solvent. The redemption price payable by the Company shall be an amount in cash
equal to the greater of (x) 110% of the aggregate principal amount of, plus
accrued interest on, the Notes through the date of redemption and (y) the market
value of the Conversion Shares into which the Notes to be redeemed would have
been converted assuming such conversion had occurred on the date of notice of
redemption or the date of redemption (based upon the applicable Closing Prices
and Conversion Prices on such dates), whichever is higher; provided that if the
Maximum Share Issuance shall have occurred, the redemption price payable by the
Company shall equal the amount determined pursuant to clause (x).
14. GOVERNING LAW. This Note shall be governed by, enforced under and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of laws thereof.
15. BUSINESS DAY DEFINITION. For purposes hereof, the term "business day" shall
mean any day on which banks are generally open for business in the City of New
York.
16. NOTICE. Any notice or other communication required or permitted to be given
hereunder shall be given as provided herein or delivered against receipt if to
(i) the Company at 475 Tenth
-A12-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
Avenue, New York, New York 10018-1199; Facsimile No.: 212-564-3395, Attention:
Chief Financial Officer and (ii) the Holder of this Note, to such Holder at its
last address as shown on the Note register (or to such other address as any such
party shall have furnished to the Company in writing). Any notice or other
communication mailed or otherwise delivered shall be deemed given at the time of
receipt thereof.
17. WAIVER.
(a) The Company hereby waives presentment for payment, notice of
dishonor, protest and notice of protest and, in the event of default hereunder,
the Company agrees to pay all costs of collection, including reasonable
attorneys' fees.
(b) Any waiver by the Company or the Holder hereof of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder hereof to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver must
be in writing.
18. UNENFORCEABLE PROVISIONS. If any provision of this Note is invalid, illegal
or unenforceable, the remaining provisions of this Note shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
-A13-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
SCHEDULE I
----------
REDUCTION OF PRINCIPAL AMOUNT ON CONVERSION
The following reductions of the principal amount of this Note upon
partial conversions thereof have been made:
<TABLE>
<CAPTION>
Principal Notation Made
Amount of Aggregate Principal by or on Behalf
Date of Conversion Reduction Amount resulting of Company
- ------------------ --------- ---------------- ----------
<S> <C> <C> <C>
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
- --------- --------- --------- ---------
</TABLE>
-A14-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION - NOTICE OF CONVERSION
------------------------------------------------
7% CONVERTIBLE NOTE DUE February 24, 2002
(To be executed by the Holders in order to convert the Note or portion thereof)
The undersigned hereby irrevocably elects to convert [the entire principal
amount] [$------ principal amount] of Note No.---- into shares of Common Stock,
$.01 par value (the "Common Stock"), of HMG Worldwide Corporation (the
"Company") as of the Date of Conversion (which shall be the first date of
receipt by the Company of this Notice of Conversion, whether by facsimile or
otherwise). If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates as reasonably requested by
the Company or its Transfer Agent. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Note shall be made pursuant to registration under the
Securities Act or in compliance with an exemption from registration under the
Securities Act. The undersigned also represents and warrants that the number of
shares of Common Stock to be received upon conversion, together with the shares
of Common Stock beneficially owned by the undersigned (and its affiliates) on
the Date of Conversion (excluding shares of Common Stock otherwise deemed
beneficially owned as a result of the convertibility of such Notes held by the
undersigned a its affiliates), do not exceed 4.9% of the outstanding shares of
Common Stock of the Company (as set forth in the Company's most recent filing
with the Securities and Exchange Commission unless the Company shall notify the
Holder that a greater or lesser number of shares is outstanding).
If the stock certificate is to be made out in another person's name, fill in the
form below:
- --------------------------
- --------------------------
(Print or type other person's name, address and zip code)
- --------------------------
- --------------------------
(Insert assignee's U.S. social security or tax identification
number, if any)
Conversion calculations: -----------------------------
Date of Conversion
-----------------------------
Applicable Conversion Price
- ----------
Total number of shares $----------------------------
(assuming interest payable Accrued Interest
in shares of Common Stock)
[Name of Holder]
By:--------------------------
Name:
Title:
-A15-
<PAGE>
<PAGE>
HMG WORLDWIDE CORPORATION
-------------------------
7% CONVERTIBLE NOTE DUE FEBRUARY 24, 2002
================================================================================
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
- ------------------------------------
(Print or type assignee's name, address and zip code)
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
(Insert assignee's social security or tax identification number, if any)
and irrevocably appoint---------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date:-------------- -------------------------
(Sign exactly as your name
appears on the face of
this Note)
-A16-
<PAGE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of February 24, 1999 is made and entered into between HMG WORLDWIDE
CORPORATION, a Delaware corporation ("the Company"), and _____________, a bank
organized under the laws of _____ (the "Purchaser").
WHEREAS, the Company has issued and sold an aggregate of
$________ aggregate principal amount of its 7% Convertible Notes Due
___________, ____ (the "Notes"), which Notes, together with, in certain
circumstances, accrued interest thereon, are convertible into such number of
shares of Common Stock, $.01 par value per share, of the Company as are
specified in the Notes (the "Convertible Shares");
WHEREAS, the Company and the Purchaser have entered into that
certain Securities Purchase Agreement, dated as of the date hereof (the
"Subscription Agreement"), pursuant to which the Company has issued to the
Purchaser U.S.$________ aggregate principal amount of the Notes;
WHEREAS, pursuant to the terms of, and in partial
consideration for, the Purchaser's agreement to enter into the Subscription
Agreement, the Company has agreed to provide the Purchaser with certain
registration rights with respect to the Conversion Shares (as defined below);
NOW, THEREFORE, in consideration of the premises, the
representations, warranties, covenants and agreements contained herein and in
the Subscription Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Capitalized terms defined in the Subscription
Agreement shall have the same meanings herein as are ascribed to them therein.
In addition, the following terms shall have the meanings ascribed to them below:
"Purchaser" shall mean the Purchaser referenced in the
preamble, and, unless the context otherwise requires, shall include the
Purchaser for so long as it owns any Registrable Securities and any assignee or
transferee of the Notes or Registrable Securities
<PAGE>
<PAGE>
to whom the registration rights conferred by this Agreement have been
transferred in compliance with this Agreement.
"Registrable Securities" means all of the Convertible Shares
and any other securities issued or issuable upon conversion of the Notes as
provided therein (together, the "Conversion Shares") until (i) a registration
statement under the Securities Act covering the offer and sale of such
Conversion Shares has been declared effective by the Commission and such
Conversion Shares have been disposed of pursuant to such effective registration
statement, (ii) such Conversion Shares are sold under circumstances in which all
of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act ("Rule 144") are met, (iii) such Conversion
Shares have been otherwise transferred and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, which counsel shall be acceptable to the Purchaser in its sole
discretion, such Conversion Shares may be sold without any time, volume or
manner limitation pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act.
"Registration Statement" means the Registration Statement
filed by the Company pursuant to Section 2.1(a) and any additional Registration
Statement filed by the Company pursuant to Section 2.1(b).
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not as part
of such dealer's market-making activities.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Registration Requirements. The Company shall use its best
efforts to effect the registration of the Registrable Securities (including
without limitation the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as would permit or facilitate the sale or distribution
of all the Registrable Securities in the manner (including manner of sale) and
in all states reasonably requested by the Holders. Such best efforts by the
Company shall include the following:
(a) The Company will as expeditiously as possible, and in no
event later than April 9, 1999 (the "Filing Deadline"), prepare and file with
the Commission a registration statement (the "Registration Statement") on Form
S-3 (if use of such form is then available to the Company pursuant to the rules
of the Commission
-2-
<PAGE>
<PAGE>
and, if not, on such other form promulgated by the Commission for which the
Company then qualifies and which counsel for the Company shall deem appropriate
and which form shall be available for the sale of the Registrable Securities to
be registered thereunder in accordance with the provisions of this Agreement and
in accordance with the intended method of such Registrable Securities), and use
its commercially reasonable efforts to cause such filed Registration Statement
to become effective by the Effectiveness Deadline. The "Effectiveness Deadline"
shall mean one hundred and twenty (120) days from the date hereof; provided that
such date shall be extended for such reasonable additional number of days (not
to exceed ninety (90) days) that the Company (i) delays the timely filing of a
report filed under the Exchange Act containing financial statements (or that the
Company requires in order to restate its financial statements included in a
report filed under the Exchange Act))(ii) requires to amend the disclosure
included in the Registration Statement, in each case solely as a result of its
entering into a transaction (such as a merger or acquisition or disposition of a
business) which transaction is required to be reflected in such financial
statements or which otherwise is required to be reflected in the Registration
Statement (together "Delaying Events"). The Company will as expeditiously as
possible prepare and file with the Commission such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective, for a period of
not less than: (i) in the case of a non-underwritten offering of Registrable
Securities, until there shall no longer be any Registrable Securities or (ii)
with respect to an underwritten offering of Registrable Securities, ninety (90)
days after the commencement of the distribution of all Registrable Securities
covered by such Registration Statement (but not before the expiration of the
period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the Purchaser set forth in such Registration Statement.
(b) The number of Registrable Securities covered by the
initial Registration Statement shall equal 2,160,000 shares of Common Stock of
the Company; such Registration Statement shall reflect that such Registrable
Securities shall initially be allocated on a pro rata basis among the holders of
Notes (based upon such holders' relative positions), provided that in the event
a holder converts its entire position of Notes into a number of Registrable
Securities less than such holder's allocated pro rata number of Registrable
Securities (or such Notes otherwise cease to be outstanding) such excess number
of Registrable Securities shall be reallocated on a pro rata basis among the
remaining holders of the Notes.
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In the event that in the future Registrable Securities shall
consist of securities other than or in additional to the shares of Common Stock
referenced in the preceding paragraph, the Company shall as expeditiously as
possible (and in no event more than fifteen (15) days from the date of the event
which results in such change) file a post-effective amendment to the
Registration Statement (or if necessary file a new or additional Registration
Statement to reflect the registration of the offer and sale of such additional
or other securities and use its commercially reasonable efforts to cause such
post-effective amendment or new or additional Registration Statement to become
effective within ninety (90) days from the date of the event which results in
such change. In the event the filing of a new or additional Registration
Statement is required, references herein to the Registration Statement shall
also refer to such new or additional Registration Statement (except that for
purposes of Section 3.1, the Filing Deadline and Effectiveness Deadline shall
refer to the fifteen (15) and ninety (90) day periods referenced above).
(c) The Company will, prior to filing the Registration
Statement or prospectus or any amendment or supplement thereto, furnish to the
Purchaser, and counsel to the Purchaser, and each Underwriter, if any, of the
Registrable Securities covered by such Registration Statement copies of such
Registration Statement as proposed to be filed, together with exhibits thereto,
which documents will be subject to review and approval by the foregoing, and
thereafter furnish to the Purchaser, its counsel and each Underwriter, if any,
for their review and comment such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such Registration Statement (including each preliminary
prospectus) and such other documents or information as the Purchaser, counsel or
each Underwriter may reasonably request in order to facilitate the disposition
of the Registrable Securities.
(d) After the filing of the Registration Statement, the
Company will promptly notify the Purchaser of any stop order issued or
threatened by the Commission in connection therewith and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(e) The Company will use its reasonable efforts to (i)
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions in the United States as the Purchaser may
reasonably (in light of its intended plan of distribution) request, and (ii)
cause such Registrable Securities to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably
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necessary or advisable to enable the Purchaser to consummate the disposition of
the Registrable Securities; provided that the Company will not be required to
(A) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (e), (B) subject itself
to taxation in any such jurisdiction or (C) consent or subject itself to general
service of process in any such jurisdiction.
(f) The Company will immediately notify the Purchaser upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities; (i)
receipt of any request for additional information by the Commission or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to such Registration
Statement or related prospectus; (ii) the issuance by the Commission or any
other federal or state governmental authority of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in such Registration Statement, related prospectus or documents so that,
in the case of such Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (vi) the Company's
reasonable determination that a post-effective amendment to such Registration
Statement would be appropriate; and the Company will promptly make available to
the Purchaser any such supplement or amendment to the related prospectus.
(g) The Company will enter into customary agreements
(including, if applicable, an underwriting agreement in customary form and which
is reasonably satisfactory to the Company) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities (the Purchaser may, at its option, require that any or
all of the representations, warranties and covenants of the Company or to or for
the benefit of such Underwriters also be made to and for the benefit of the
Purchaser).
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(h) The Company will make available to the Purchaser (and will
deliver to Purchasers's counsel) and each Underwriter, if any, subject to
restrictions imposed by the United States federal government or any agency or
instrumentality thereof, copies of all correspondence between the Commission and
the Company, its counsel or auditors and will also make available for inspection
by the Purchaser, any Underwriter participating in any disposition pursuant to a
Registration Statement and any attorney, accountant or other professional
retained by the Purchaser or such Underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers and employees to supply all information reasonably requested
by any Inspectors in connection with such Registration Statement. Records which
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such registration statement or (ii) the disclosure
or release of such Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a subpoena or other
order from a court of competent jurisdiction or other process; provided that
prior to any disclosure or release pursuant to clause (ii), the Inspectors shall
provide the Company with prompt notice of any such request or requirement so
that the Company may seek an appropriate protective order or waive such
Inspectors' obligation not to disclose such Records; and, provided further, that
if failing the entry of a protective order or the waiver by the Company
permitting the disclosure or release of such Records, the Inspectors, upon
advice of counsel, are compelled to disclose such Records, the Inspectors may
disclose that portion of the Records which counsel has advised the Inspectors
that the Inspectors are compelled to disclose. The Purchaser agrees that
information obtained by it solely as a result of such inspections (not including
any information obtained from a third party who, insofar as is known to the
Purchaser after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its Affiliates unless
and until such information is made generally available to the public. The
Purchaser further agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential.
(i) The Company will furnish to the Purchaser and to each
Underwriter, if any, a signed counterpart, addressed to the
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Purchaser or such Underwriter, of (1) an opinion or opinions of counsel to the
Company, and (2) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as the Purchaser or the managing Underwriter therefor reasonably requests.
The Company agrees that, (x) upon effectiveness of the Registration statement
and (y) upon each amendment thereto subsequent to effectiveness whether by the
filing of a post-effective amendment thereto or the incorporation by reference
of reports subsequently filed with the Commission, it will cause to be delivered
to the Purchaser (i) a comfort letter in customary form from its independent
public accountants and (ii) an opinion of Parker Duryee Rosoff & Haft, counsel
to the Company, covering customary matters, including the absence of any untrue
statement of a material fact or omission to state any material fact required to
be stated therein or necessary to make the statements contained in the Initial
Registration Statement and the related prospectus not misleading.
(j) The Company will otherwise comply with all applicable
rules and regulations of the Commission, including, without limitation,
compliance with applicable reporting requirements under the Exchange Act, and
will make available to its securityholders, as soon as reasonably practicable,
an earnings statement covering a period of twelve (12) months, beginning within
three (3) months after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(k) The Company will appoint a transfer agent and registrar
for all such Registrable Securities covered by a Registration Statement not
later than the effective date of such Registration Statement.
(l) The Company shall take all steps necessary to enable the
Holders to avail themselves of the prospectus delivery mechanism set forth in
Rule 153 (or successor thereto) under the Securities Act, if available.
(m) In connection with an underwritten offering, the Company
will participate, to the extent reasonably requested by the managing Underwriter
for the offering or the Purchaser, in customary efforts to sell the securities
under the offering, including, without limitation, participating in "road shows"
on a schedule as shall be reasonably satisfactory to, and not unduly burdensome
on, the Company; provided that the Company shall not be obligated be to
participate in more than one such offering in any twelve (12)-month period and
any such participation by the Company shall be at the expense of the managing
Underwriter or the
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Purchaser unless the Company shall also be offering securities in such
underwritten offering.
The Company may require the Purchaser to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the Commission or the NASD. If the Purchaser fails to provide such
information requested in connection with such registration within ten (10)
business days after receiving such written request, then the Company may cease
pursuit of such registration until such information is provided.
The Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, the Purchaser will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Purchaser's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.1(e) hereof, and, if so directed by
the Company, the Purchaser will deliver to the Company all copies, other than
permanent file copies then in the Purchaser's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event the Company shall give such notice, the Company shall
extend the period during which a Registration Statement shall be maintained
effective (including the period referred to in Section 3.1(a) hereof) by the
number of days during the period from and including the date of the giving of
notice pursuant to Section 3.1(e) hereof to the date when the Company shall make
available to the Purchaser a prospectus supplemented or amended to conform with
the requirements of Section 3.1(e) hereof.
SECTION 2.2. Registration Expenses. In connection with registration
hereunder, the Company shall pay the following registration expenses incurred in
connection therewith (the "Registration Expenses"): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of a single firm of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses incurred in connection
with the listing or quotation of the Registrable Securities, (vi) fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
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independent certified public accountants of a comfort letter or comfort letters
requested pursuant to Section 3.1(h) hereof), (vii) the fees and expenses of any
special experts retained by the Company in connection with such registration and
(viii) reasonable fees and expenses of a single firm of counsel with respect to
such registration (including without limitation its review of the Registration
Statement and due diligence with respect thereto and related matters through the
period that registration is required hereunder). The Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, or the cost of any special audit required
by the Purchaser, such costs to be borne by the Purchaser.
ARTICLE III
PAYMENTS BY THE COMPANY
SECTION 3.1. Payments by the Company. In the event the Registration
Statement is not filed by the Filing Deadline or declared effective by the
Effectiveness Deadline (or after the Registration Statement has been declared
effective by the Commission, sales of all the Registrable Securities (including
any Registrable Securities required to be registered pursuant to Section 3.2
hereof) cannot be made pursuant to the Registration Statement (by reason of a
stop order, the Company's failure to update such Registration Statement, the
need to file and have declared effective a post-effective amendment or any other
reason outside the control of the Purchaser), then the Company will make
payments to the Purchaser in such amounts and at such times as shall be
determined pursuant to this Section 3.1 as partial relief for the damages to the
Purchaser by reason of any such delay in or reduction of their ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity provided that in the event of a Delaying
Event requiring the filing of a post-effective amendment to the Registration
Statement no payment shall be required to the extent sales of Registrable
Securities cannot be made pursuant to the Registration Statement for periods
aggregating no more than ninety (90) days in any 365-day period. The Company
shall pay to the Purchaser an amount equal to (i) (A) .01 times (B) the
aggregate principal amount of the Notes held by the Purchaser (including,
without limitation, Notes that have been converted into Registrable Securities
then held by such Purchaser but excluding any Notes as to which the Notes
received upon conversion or exercise, as the case may be, have been sold) times
(ii) the sum of: (A) the number of months (prorated per day for partial months)
following the Filing Deadline that the Registration Statement is not filed
pursuant to Section 2.1(a) or following the Effectiveness Deadline that the
Registration Statement is not declared effective by the SEC, as the case may be,
plus (B) the number of months (prorated per day for partial months) following
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the Effectiveness Deadline that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective. Such amounts shall be paid in cash or, at the Purchaser's option, may
be convertible (subject to the Maximum Share Issuance, as defined in the Note)
into Common Stock at the applicable Conversion Price (as defined in the Notes).
Any shares of Common Stock issued upon conversion of such amounts shall
constitute Registrable Securities. If the Purchaser desires to convert or
exercise the amounts due hereunder into Registrable Securities it shall so
notify the Company in writing within two (2) business days prior to the date on
which such amounts are first payable in cash and such amounts shall be so
convertible (pursuant to the terms of the Notes), beginning on the last day upon
which the cash amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within three (3)
business days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
payments shall be made for each such thirty (30) day period within three (3)
business days after the end of such thirty (30) day period.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Purchaser, its partners, Affiliates, officers,
directors, employees and duly authorized agents, and each Person or entity, if
any, who controls the Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the partners,
Affiliates, officers, directors, employees and duly authorized agents of such
controlling Person or entity (collectively, the "Controlling Persons"), from and
against any loss, claim, damage, liability, reasonable attorneys' fees, costs or
expenses and costs and expenses of investigating and defending any such claim
(collectively, "Damages"), joint or several, and any action in respect thereof
to which the Purchaser, its partners, Affiliates, officers, directors, employees
and duly authorized agents, and any such Controlling Person may become subject
under the Securities Act or otherwise, insofar as such Damages (or proceedings
in respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities or any
preliminary prospectus, or arises out of, or are based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are based upon information furnished in writing to the Company by the
Purchaser or an Underwriter expressly for use therein, and shall reimburse the
Purchaser, its partners, Affiliates, officers, directors, employees and duly
authorized agents, and each such
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Controlling Person for any legal and other expenses reasonably incurred by the
Purchaser, its partners, Affiliates, officers, directors, employees and duly
authorized agents, or any such Controlling Person in investigating or defending
or preparing to defend against any such Damages or proceedings; provided,
however, that the Company shall not be liable to the Purchaser to the extent
that any such Damages arise out of or are based upon an untrue statement or
omission made in any preliminary prospectus if (i) the Purchaser failed to send
or deliver a copy of the final prospectus with or prior to the delivery of
written confirmation of the sale by the Purchaser to the Person asserting the
claim from which such Damages arise, and (ii) the final prospectus would have
corrected such untrue statement or alleged untrue statement or such omission or
alleged omission; provided further, however, that the Company shall not be
liable in any such case to the extent that any such Damages arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in any prospectus if (x) such untrue statement or omission or
alleged omission is corrected in an amendment or supplement to such prospectus,
and (y) having previously been furnished by or on behalf of the Company with
copies of such prospectus as so amended or supplemented, the Purchaser
thereafter fails to deliver such prospectus as so amended or supplemented prior
to or concurrently with the sale of a Registrable Security to the Person
asserting the claim from which such Damages arise. The Company also agrees to
indemnify any Underwriters of the Registrable Securities, their officers and
directors and each Person or entity who controls such Underwriters on customary
terms.
SECTION 4.2. Indemnification by the Purchaser. The Purchaser agrees to
indemnify and hold harmless the Company, its partners, Affiliates, officers,
directors, employees and duly authorized agents and each Person or entity, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, together with the partners, Affiliates,
officers, directors, employees and duly authorized agents of such controlling
Person, to the same extent as the foregoing indemnity from the Company to the
Purchaser, but only with reference to information related to the Purchaser or
its plan of distribution, furnished in writing by the Purchaser or on the
Purchaser's behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its partners, Affiliates, officers, directors, employees
or duly authorized agents or any such controlling Person or its partners,
Affiliates, officers, directors, employees or duly authorized agents, in respect
of which indemnity may be sought against the Purchaser, the Purchaser shall have
the rights and duties given to the Company, and the Company or its partners,
Affiliates, officers, directors, employees or duly authorized agents, or such
controlling
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Person, or its partners, Affiliates, officers, directors, employees or duly
authorized agents, shall have the comparable rights and duties given to the
Purchasers by Section 4.1. The Purchaser also agrees to indemnify and hold
harmless any Underwriters of the Registrable Securities with reference to the
same information as to which it agrees to indemnify the Company referenced
above, their officers and directors and each Person who controls such
Underwriters on customary terms. The Company shall be entitled to receive
indemnities on customary terms from Underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such persons specifically for inclusion in any
prospectus or registration statement.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly after
receipt by any person or entity in respect of which indemnity may be sought
pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim
or the commencement of any action, the Indemnified Party shall, if a claim in
respect thereof is to be made against the person or entity against whom such
indemnity may be sought (an "Indemnifying Party"), notify the Indemnifying Party
in writing of the claim or the commencement of such action; in the event an
Indemnified Party shall fail to give such notice as provided in this Section 4.3
and the Indemnifying Party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, the indemnification provided for in Section
4.1 or 4.2 shall be reduced to the extent of any actual prejudice resulting from
such failure to so notify the Indemnifying Party; provided, that the failure to
notify the Indemnifying Party shall not relieve it from any liability which it
may have to an Indemnified Party otherwise than under Section 4.1 or 4.2. If any
such claim or action shall be brought against an Indemnified Party, and it shall
notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled
to participate therein, and, to the extent that it wishes, jointly with any
other similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its controlling persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless
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(i) the Indemnifying Party and the Indemnified Party shall have mutually agreed
to the retention of such counsel or (ii) in the reasonable judgment of the
Company and such Indemnified Party, representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicts of interest
between them, it being understood, however, that the Indemnifying Party shall
not, in connection with any one such claim or action or separate but
substantially similar or related claims or actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Indemnified Parties, or for fees
and expenses that are not reasonable. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding. Whether or not the defense of any claim or action
is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.
SECTION 4.4. Contribution. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages (i) as between the Company and the
Purchaser on the one hand and the Underwriters on the other, in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Purchaser on the one hand and the Underwriters on the other from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and the Purchaser
on the one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such Damages, as well as any other
relevant equitable considerations, and (ii) as between the Company on the one
hand and the Purchaser on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Purchaser in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Purchaser
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Purchaser bear to the
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total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company and the Purchaser on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Purchaser or by the Underwriters. The relative
fault of the Company on the one hand and of the Purchaser on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4.4, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and the Purchaser shall in no event be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of the Purchaser were offered to the public (less
underwriting discounts and commissions) exceeds the amount of any damages which
the Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
ARTICLE V
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MISCELLANEOUS
SECTION 5.1. Term. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate on such date as there shall be
no Registrable Securities; provided, however, that the provisions of Article IV
hereof shall survive any termination of this Agreement.
SECTION 5.2. Rule 144. The Company covenants that it will file all
reports required to be filed by it under the Securities Act and the Exchange Act
and that it will take such further action as holders of Registrable Securities
may reasonably request, all to the extent required from time to time to enable
the Purchaser to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission.
If at any time the Company is not required to file such reports, it will, upon
the request of any holder of Registrable Securities, make publicly available
other information so long as necessary to permit sales pursuant to Rule 144.
Upon the request of the Purchaser, the Company will deliver to the Purchaser a
written statement as to whether it has complied with such requirements.
SECTION 5.3. Restrictions on Sale by the Company and Others. If, and to
the extent, reasonably requested by the managing Underwriter or Underwriters in
the case of an underwritten public offering, which includes Registrable
Securities as contemplated by Section 2.1, the Company agrees and it shall use
its best efforts to cause its affiliates to agree not to effect any public sale
or distribution of any securities similar to those being registered in
accordance with Section 2.1 hereof, or any securities convertible into or
exchangeable or exercisable for such securities, during the thirty (30) days
prior to, and during the period beginning on the effective date of any
registration statement (except as part of such registration statement) until all
of the Registrable Securities offered thereunder have been sold pursuant to such
underwritten public offering, provided, however, that such period shall not
exceed ninety (90) days.
SECTION 5.4. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought. The
provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained the
written consent of the holders of a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, the waiver of any provision hereof
with respect to a matter that relates exclusively to the rights of
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holders of Registrable Securities whose securities are being sold pursuant to a
registration statement and does not directly or indirectly affect the rights of
other holders of Registrable Securities may be given by holders of at least a
majority of the Registrable Securities being sold by such holders; provided that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
No course of dealing between or among any Person having any interest in this
Agreement will be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any person under or by reason of
this Agreement.
SECTION 5.5. Successors and Assigns; Entire Agreement. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. The Purchaser
may assign its rights under this Agreement to any subsequent holder of Notes or
Conversion Shares, provided that the Company shall have the right to require any
holder of Notes or Registrable Securities to execute a counterpart of this
Agreement as a condition to such holder's claim to any rights hereunder. This
Agreement, together with the Subscription Agreement and the Notes sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
SECTION 5.6. Separability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION 5.7. Notices. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (i) if to the
Company, to: HMG Worldwide Corporation, 475 Tenth Avenue, New York, New York
10018-1199, Attention: Chief Financial Officer, Facsimile No.: (212) 564-3395;
with copies (which shall not constitute notice) to: Parker Duryee Rosoff & Haft,
529 Fifth Avenue, New York, New York 10017, Attention: Herbert Kozlov, Esq.,
Facsimile No.: (212) 972-9487;
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and (ii) if to the Purchaser: [address] Attention: [name of signatory] Facsimile
No.: [fax #], with copies (which shall not constitute notice) to: [address,
Att:, & Fax # of legal representatives] Notice shall be deemed given on the date
of service or transmission if personally served or transmitted by telegram,
telex or facsimile. Notice otherwise sent as provided herein shall be deemed
given on the third business day following the date mailed or on the second
business day following delivery of such notice by a reputable air courier
service.
SECTION 5.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
SECTION 5.9. Headings. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
SECTION 5.10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
SECTION 5.11. Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
SECTION 5.12. Remedies. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
HMG WORLDWIDE CORPORATION
By:----------------------------------
Name: Robert V. Cuddihy, Jr.
Title: Chief Operating Officer
and Chief
Financial Officer
[-------------------]
By:---------------------------------
Name:
Title:
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