<PAGE>
EXHIBIT A
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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 March 15, 2003 (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 March 15, 2000 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>
- REVERSE OF NOTE -
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
1. ISSUANCE. This Note is one of a duly authorized issue of Notes of the Company
designated as its 7% Convertible Notes Due March 15, 2003 in an aggregate
principal amount of $1,500,000. This Note (together with the other Notes issued
as of the date of execution of this Note) amends and restates in its entirety
the Notes of similar tenor originally issued by the Company dated March 15,
2000.
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 4(a) below. Interest on this Note will accrue from
March 15, 2000 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 March 15, 2003; 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 (as hereinafter defined) 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.
-A2-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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) $9.60 (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 Notes
(including shares of Common Stock that (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 (as defined below) is 2,595,000 (subject to adjustment for stock
splits, stock dividends, reclassification or other similar events). In the event
there is more than one Holder of Notes, the unused portion of the Maximum Share
Issuance shall be allocated on a pro rata basis among the Holders based upon the
aggregate outstanding principal amount of Notes. As of the date on which the
Maximum Share Issuance has occurred in respect of a Holder's entire position of
Notes (and, accordingly, such Holder is unable to convert its remaining
principal amount of the Notes held by such Holder), the interest rate shall
permanently increase to 15% per annum and shall be payable in arrears in cash on
the last calendar day of each subsequent month (regardless of whether the
allocable Maximum Share Issuance applicable to such Holder's Notes subsequently
increases as a result of conversions by other Holders or otherwise).
-A3-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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 and other
securities convertible into Common Stock held by the Holder or its affiliates),
shall not exceed 4.9% of the total outstanding shares of Common Stock as of such
date. In addition, notwithstanding any other provision of this Section 4, during
any consecutive 61- day period no Holder (together with its affiliates) may (x)
convert its Notes and other securities convertible into Common Stock into a
number of shares of Common Stock exceeding 9.9% of the Corporation's issued and
outstanding shares of Common Stock as of the first day of such 61-day period or
sell shares of Common Stock (whether acquired upon conversion of the Notes or
other securities convertible into Common Stock or otherwise in excess of 9.9% of
the Company's issued and outstanding shares of Common Stock as of the first day
of such 61-day period) (the "9.9% Limitation"). Notwithstanding any other
provision of this Notes, the foregoing limitations on conversion may not be
waived, amended or modified. The Company shall have no obligation to monitor
compliance with the foregoing limitations on conversion.
(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 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
-A4-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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. Notwithstanding the foregoing, in the event, the Holder
delivers to the Company a Notice of Conversion with respect to all or a portion
of this Note, which Notice of Conversion specifies a Conversion Price of less
than $2.50 (subject to adjustment in the same manner that the Maximum Conversion
Price is subject to adjustment pursuant to Section 4(d) hereof), the period for
the Company to cause the Transfer Agent to comply with the foregoing
requirements of this paragraph shall be extended to the later to occur of (a)
three (3) business days after delivery to the Company of this Note or (b) three
(3) business days after the expiration of the two business day period
contemplated by Section 13 hereof during which the Company shall have the right
to give notice of its election to redeem the portion of this Note with respect
to which such Notice of Conversion has been given; provided, however, that, in
the event following the giving of such notice of the Company's election to
redeem the portion of this Note with respect to which such Notice of Conversion
has been given, the Holder (as contemplated by such Section 13) gives timely
written notice of the Holder's election to convert such portion of this Note at
a Conversion Price of $2.50 (subject to adjustment in the same manner that the
Maximum Conversion Price is subject to adjustment pursuant to Section 4(d)
hereof), the period for the Company to cause the Transfer Agent to comply with
the foregoing requirements of this paragraph shall be extended to the later to
occur of (a) three (3) business days after delivery to the Company of this Note
or (b) three (3) business days after the delivery to the Company of such written
notice of the Holder to so convert.
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
-A5-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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, a number of shares of
Common Stock equal to the Maximum Share Issuance.
(d) Adjustment to Fixed Conversion Price and the Variable Conversion
Price.
(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,
and if applicable, 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
-A6-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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 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
-A7-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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 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:
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<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
(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, including without
limitation, pursuant to Section 13 hereof;
(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, 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:
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<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
(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 (including, subsequent to the
effectiveness of the initial Registration Statement pursuant to the Registration
Rights Agreement, the shares of Common Stock issuable upon conversion of the
Notes) 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
(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".
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<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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 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
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<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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
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 the date of
original issuance of the Notes, upon delivery by the Holder to the Company of a
Notice of Conversion with respect to all or a portion of this Note, which Notice
of Conversion specifies a Conversion Price of less than $2.50 (subject to
adjustment in the same manner that the Maximum Conversion Price is subject to
adjustment pursuant to Section 4(d) hereof), the Company shall have the right,
provided that written notice is given to the Holder by the close of business on
the second business day following the receipt by the Company of such Notice of
Conversion, to redeem the entire principal amount of this Note with respect to
which such Notice of Conversion was so received, provided that
-A12-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
(i) the Holder shall not have elected, by written notice given by the Holder to
the Company by the close of business on the third business day after having
received timely notice of the Company's election to redeem the portion of this
Note with respect to which such Notice of Conversion was so received, to convert
such portion of this Note at a Conversion Price of $2.50 (subject to adjustment
in the same manner that the Maximum Conversion Price is subject to adjustment
pursuant to Section 4(d) hereof), (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 110%
of the aggregate principal amount of, plus accrued and unpaid interest on, the
portion of the Note being redeemed through the date of redemption and shall be
payable, no later than 21 calendar days following the date of receipt by the
Company of the applicable Notice of Conversion.
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 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.
-A13-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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.
-A14-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
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>
-A15-
<PAGE>
HMG WORLDWIDE CORPORATION - NOTICE OF CONVERSION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
(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 Accrued Interest
(assuming interest payable
in shares of Common Stock) [Name of Holder]
By:
-----------------------
Name:
Title:
-A16-
<PAGE>
HMG WORLDWIDE CORPORATION
7% CONVERTIBLE NOTE DUE MARCH 15, 2003
================================================================================
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)
-A17-
