SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998 or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________
Commission File Number: 0-29182
FIDELITY HOLDINGS, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
Nevada 11-3292094
---------------------------- -------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
80-02 Kew Gardens Road, Suite 5000
Kew Gardens, New York 11415
---------------------------
(Address of principal executive offices)
(718) 520-6500
--------------
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes |X| No |_|
<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: The number of shares of the
registrant's common stock outstanding as of November 3, 1998 was 7,575,600.
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDELITY HOLDINGS, INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS September 30, 1998 (UNAUDITED)
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPT. 30, DECEMBER 31,
1998 1997
UNAUDITED AUDITED
--------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,086,819 $ 217,191
Net Investment in direct financing leases, current 1,859,771 1,644,575
Notes receivable - officer shareholder 150,500 148,400
Accounts receivable 5,667,757 1,650,919
Inventories 12,603,254 164,661
Due from related parties 1,058,772 --
Other current assets 1,941,875 375,172
----------- -----------
Total current assets 24,368,748 4,200,918
Net investment in direct financing leases,
net of current portion 1,020,673 687,106
Property and equipment, net 5,156,377 1,236,513
Goodwill 5,087,440 2,738,911
Other intangible assets - patents, customer lists,
favorable lease and franchise value 6,349,151 428,571
Other assets 965,357 109,324
----------- -----------
Total assets $42,947,746 $ 9,401,343
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $13,260,611 $ 150,000
Accounts payable and accrued expenses 3,499,940 839,307
Current maturities of long-term debt 596,777 575,185
Customer deposits 333,892 --
Deferred revenue 24,396 72,570
Due to affiliates -- 143,926
----------- -----------
Total current liabilities 17,715,616 1,780,988
Long-term debt, less current maturities 8,780,511 427,387
Income taxes deferred 1,011,000 583,000
Other 160,972 85,233
----------- -----------
Total liabilities 27,668,099 2,876,608
Commitments
Stockholders' equity
Preferred stock, .01 par value;
2,000,000 shares authorized,
250,000 shares issued and outstanding
in 1998 and 1997 2,500 2,500
Preferred stock, .01 par value;
1997 Major, 900,000 shares issued and
outstanding in 1998 none in 1997 9,000 --
Common stock, .01 par value
50,000,000 shares authorized,
7,574,600 shares issued and
outstanding in 1998 and
6,895,700 in 1997 75,746 68,957
Additional paid in capital 13,242,951 5,414,293
Cumulative translation adjustment 389 297
Retained earnings 1,949,061 1,038,688
----------- -----------
Total stockholders' equity 15,279,647 6,524,735
----------- -----------
Total liabilities and stockholders' equity $42,947,746 $ 9,401,343
=========== ===========
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30, THREE MONTHS ENDED SEPT. 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products $ 887,031 $ 2,752,256 $ 313,798 $ 764,228
Automobile dealerships 62,683,363 -- 36,575,156 --
Leasing income 743,820 776,671 364,788 287,043
------------ ------------ ------------ ------------
Total revenues 64,314,214 3,528,927 37,253,742 1,051,271
------------ ------------ ------------ ------------
Operating expenses:
Cost of products sold
Computer products 469,727 622,398 165,547 195,619
Automobile dealerships 54,323,663 -- 31,296,696 --
Selling, general and administrative expense --
Computer products 987,294 1,276,557 688,247 509,425
Automobile dealerships 5,637,825 -- 3,829,115 --
Leasing 418,974 528,653 32,245 164,077
Amortization of intangible assets 484,914 234,366 238,539 78,132
------------ ------------ ------------ ------------
62,322,397 2,661,974 36,250,389 947,253
------------ ------------ ------------ ------------
Operating income 1,991,817 866,953 1,003,353 104,018
Other income (expense)
Interest expense (657,144) (105,505) (317,592) (31,781)
Interest income 3,700 10,922 300 450
Income on joint venture 53,668 -- 1,613
------------ ------------ ------------ ------------
Income before provision for income taxes 1,338,373 826,038 686,061 74,300
Provision for income taxes 428,000 267,000 238,000 24,000
------------ ------------ ------------ ------------
Net income $ 910,373 $ 559,038 $ 448,061 $ 50,300
============ ============ ============ ============
Earnings per share
Basic $ 0.13 $ 0.09 $ 0.06 $ 0.01
============ ============ ============ ============
Diluted 0.10 0.08 0.05 0.01
============ ============ ============ ============
Shares used in computing earnings per share:
Basic 7,149,082 6,351,700 7,353,611 6,351,700
------------ ------------ ------------ ------------
Diluted 9,449,082 6,851,700 9,653,611 6,851,700
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
1997 MAJOR 1996 MAJOR
Preferred Stock Preferred Stock Common Stock
--------------- --------------- --------------------- Additional
Paid in
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1996 -- -- 250,000 $ 2,500 6,279,200 $ 62,792 $ 4,509,108
Issuance of Common
Stock pursuant to exercise
of warrants -- -- -- -- 523,000 5,230 648,520
Effect of stock compensation
charge -- -- -- -- 93,500 935 256,665
Net income -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- --
Balance
----------------------------------- -------- ---------- -------- -----------
December 31, 1997 -- -- 250,000 2,500 6,895,700 68,957 5,414,293
Net income -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- --
Issuance of 1997 Preferred
stock for the acquisition of
Major Automotive Group 900,000 9,000 -- -- -- -- 5,991,000
Issuance of Common Stock
for compensation and security
deposit -- -- -- -- 678,900 6,789 1,837,658
Balance
-------------------------------------------------------------------------------------
September 30, 1998 900,000 $ 9,000 250,000 $ 2,500 7,574,600 $ 75,746 $13,242,951
=====================================================================================
</TABLE>
Currency Total
Retained Translation Stockholders'
Earnings Adjustment Equity
-------- ---------- ------
Balance
December 31, 1996 $ 669,549 $ 264 $ 5,244,213
Issuance of Common
Stock pursuant to exercise
of warrants -- -- 653,750
Effect of stock compensation
charge -- -- 257,600
Net income 369,139 -- 369,139
Translation adjustment -- 33 33
Balance
----------- -------- -----------
December 31, 1997 1,038,688 297 6,524,735
Net income 910,373 -- 910,373
Translation adjustment -- 92 92
Issuance of 1997 Preferred
stock for the acquisition of
Major Automotive Group -- -- 6,000,000
Issuance of Common Stock
for compensation and security
deposit -- -- 1,844,447
Balance
---------------------- -----------
September 30, 1998 $ 1,949,061 $ 389 $15,279,647
====================== ===========
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 910,373 $ 559,038 $ 448,061 $ 50,300
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Non cash charges 126,007 83,502 126,007 41,502
Amortization of intangible assets 484,914 234,366 238,539 119,964
Depreciation 376,120 384,722 130,822 (35,000)
Deferred income taxes 428,000 (149,000) 238,000 78,132
(Increase) decrease in assets:
Net investment in direct financing leases (548,763) 215,674 (326,541) 81,603
Notes receivable (2,100) 2,659 -- --
Accounts receivable 1,535,270 (1,138,502) 4,859,030 (512,139)
Inventories 5,815,999 991,509 661,201 49,938
Other assets (690,155) (78,641) (561,165) (34,375)
Increase (decrease) in liabilities:
Notes, accounts payable and accrued expenses (8,751,462) (159,668) (5,074,074) (197,012)
Customer deposits (386,392) -- (366,751) --
Deferred revenue (48,174) (7,615) (19,150) (6,707)
Due to affiliates (143,926) (1,277,704) -- (18,798)
----------- ----------- ----------- -----------
Net Cash provided (used) by operating activities (894,289) (339,660) 353,979 (382,592)
----------- ----------- ----------- -----------
Cash flows from investing activities:
(Increase) Decrease in property and equipment 228,102 (465,644) (186,597) (51,981)
Acquisition of Major Auto Group net of cash acquired (6,838,901) -- -- --
----------- ----------- ----------- -----------
Net cash used in investing activities (6,610,799) (465,644) (186,597) (51,981)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds (payments) from long-term debt-net 8,374,716 (236,118) (469,656) (51,341)
Proceeds from issuance of common stock
for exercise of warrants -- 653,750 -- --
----------- ----------- ----------- -----------
Net cash provided by financing activities 8,374,716 417,632 (469,656) (51,341)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 869,628 (387,672) (302,274) (485,914)
Cash and cash equivalents, beginning of period 217,191 574,486 1,389,093 672,728
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,086,819 $ 186,814 $ 1,086,819 $ 186,814
=========== =========== =========== ===========
</TABLE>
<PAGE>
FIDELITY HOLDINGS INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
September 30, 1998
1. Basis of Presentation
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the Company's financial position and
its results of operations and cash flows as of the dates and for the periods
indicated.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed consolidated financial statements should be
read in conjunction with the audited December 31, 1997 financial statements and
related notes included in the Company's Annual Report on Form 10KSB. The results
of operations for the nine months are not necessarily indicative of the
operating results for the full year.
2. Major Auto Group
On May 14, 1998, the Company acquired the Major Automotive Group, comprised of
five franchise automobile dealers. The acquisition which was accounted for as a
purchase pursuant to Accounting Principles Board Opinion Number 16, was
accomplished by payment of $7,000,000 in cash, the incurrence of $500,000 in
merger- related expenses and the issuance of 900,000 shares of the Company's
Convertible Preferred Stock ("1997-MAJOR Preferred"). Such shares are
convertible, by their terms, into 1,800,000 shares of the Company's Common
Stock. Such common shares were valued at $3.33 per share at the time the
transaction was agreed to. The valuation was based on fair market value of the
Company's freely trading shares and considered such factors as restrictions and
blockage. The number of shares was determined, in accordance with the
acquisition agreement, as the greater of (i) 1,800,000 shares and (ii) that
number of shares of Common Stock that had a market value of $6,000,000.
Together, the cash payment plus the 1997-Major Preferred stock and the merger
related expenses, represent a purchase price of approximately $14 million. The
assets and liabilities of Major were recorded at their historical book value.
The real property, acquired from the principals of Major as part of the
transaction, was recorded at its actual cash cost of $3.4 million.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion below contains, in addition to historical information,
forward-looking statements that involve risks and uncertainty. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements.
The Company
On May 14, 1998, the Company, a holding company whose primary purpose is the
regional consolidation of the retail automotive industry, acquired, from a
related party, the Major Automotive Group of dealerships ("Major Auto") and
related real estate for approximately $14 million in cash and stock.
Additionally, as a holding company, Fidelity Holdings, Inc. is involved in the
acquisition and development of synergistic technological and telecommunications
businesses and seeks to capitalize on other opportunities.
As a result of the acquisition of Major Auto, which comprises the Company's
Automotive division, the Company is one of the largest volume retailers in New
York City of new and used vehicles. The Automotive division consists of the
following Major Auto dealerships, all of which are located in Queens, New York:
(i) Chevrolet; (ii) Chrysler and Plymouth; (iii) Dodge; (iv) Jeep; and (v)
Subaru. The acquisition was accounted for as a purchase. Accordingly, the
consolidated results of operations of the Company include the results from Major
Auto only since the date of acquisition on May 14, 1998.
Results of Operations - Nine-Month Period Ended September 30, 1998 and 1997
Revenues. Revenues for the nine-month period ended September 30, 1998 increased
approximately $60.8 million or 1,700% over the comparable prior period to
$64,314,214. Revenue for the comparable period in 1997 was $3,528,927. The
primary source of the increase in revenues was the approximate $62.7 million
generated by Major Auto since May 14, 1998. This increase was offset, in part,
primarily by the decrease in revenues from the Computer Telephony and
Telecommunications division. The revenues of this division decreased
$(1,865,225) or (67.8%). This is a result of the Company's modified business
plan, which is to discontinue sales to Master Agents and acquire the territorial
rights and equipment of its existing Master Agents. Accordingly, the Company
stopped selling to Master Agents during the third quarter of 1997 and has
reached general agreement with its existing Master Agents and is concluding
definitive contractual arrangements to acquire their territorial rights and
equipment. The Company expects to utilize these assets in its development of new
technological telephony applications.
Cost of Sales. The net cost of sales increase for the nine months ended
September 30, 1998 of approximately $54.2 million or 8,700% is primarily
attributable to the automotive division which had a cost of sales of $54,323,663
since its acquisition on May 14, 1998. This was partially offset by a decrease
in cost of sales in the Computer Telephony and Telecommunications division. The
cost of sales in that division in the 1998 period was $469,727 compared with
$622,398 in the comparable 1997 period. This decrease of $(152,671), or (24.5%),
is consistent with the decrease in revenues related to the higher margin
products sold by this division.
Gross profit. Gross profit showed a net increase of $6,647,146, or 312.1%, to
$8,777,004 in the nine months ended September 30, 1998 from $2,129,858 in the
corresponding prior year's period. In the 1997 period, all of the gross profit
was generated by the Computer Telephony and Telecommunications division. The
gross profit from the Automotive division accounted for $8,359,700 of the 1998
net increase. This Automotive division increase was partially offset by a
decrease in the gross profit for the Computer Telephony and Telecommunications
division in the 1998 nine-month period of $(1,712,554), or (80.4%) to $417,304.
Gross profit as a percentage of sales in the Automotive division was 13.8% since
the acquisition of Major Auto on May 14, 1998. Gross profit as a percentage of
sales in the Computer Telephony and Telecommunications division decreased to
47.0% in the 1998 first three quarters, compared with gross profit of 77.4% in
the comparable prior period. This, again, is the result of the curtailment of
higher gross profit sales to Master Agents that commenced in the third quarter
of 1997.
Selling, general and administrative expense. Selling, general and administrative
expenses ("SG&A") increased a total of $5,238,883, or 290.2%, to $7,044,093 in
the nine months ended September 30, 1998 from $1,805,210 from the
<PAGE>
comparable period in 1997. Of this net increase, $5,637,825 relates to the
Company's Automotive division acquired on May 14, 1998, a decrease of $(289,263)
relates to the Computer Telephony and Telecommunications division and a decrease
of $(109,679) is from the Leasing division. SG&A for the Computer Telephony and
Telecommunications division decreased from $1,276,557 for the first nine months
of 1997 to $987,294 for the nine months ended September 30, 1998, a decrease of
(22.7%). This decrease is reflective of the reduced level of activity associated
with the Company's Master Agents in the first three quarters of 1998. The
decrease of $(109,679), or (20.7%) in SG&A to $418,974 for the Leasing division
in the first three quarters of 1998 from $528,653 in the comparable prior period
is reflective of both operating efficiencies and a reduced level of activities.
Interest expense. Interest expense increased by $551,639 to $657,144 in the
first nine months of 1998, from interest expense of $105,505 incurred in the
comparable period in 1997. This is primarily related to the floor plan interest
in the Company's Automotive division of $281,763 and interest incurred in
financing the acquisition of Major Auto amounting to $291,764, partially offset
by a decrease in the Leasing division's interest cost as a result of decreased
activity in that division.
Income on joint venture. The joint venture with Nissko Telecom showed no gain or
loss during the 1998 period, compared with income of $53,668 in the comparable
prior period.
Results of Operations - Three-Month Period Ended September 30, 1998 and 1997
Revenues. Revenues for the three-month period ended September 30, 1998 increased
approximately $36.2 million or more than 3,000% to $37,253,742. Revenue for the
comparable period in 1997 was $1,051,271. The primary source of the increase in
revenues was the $36,575,156 generated by Major Auto in the 1998 third quarter.
This was offset, in part, by the decrease in revenues from the Computer
Telephony and Telecommunications division. The revenues of this division
decreased $(450,430), or (58.9%). This resulted from the Company's planned
curtailment of sales to Master Agents. Revenues for the Leasing division
increased by $77,745, or 27.1%, to $364,788 in the current quarter from $287,043
in the prior year's comparable quarter.
Cost of Sales. The net cost of sales increase for the three months ended
September 30, 1998 of almost $31.3 million, or almost 16,000%, is primarily
attributable to the Automotive division which had a cost of goods sold of
$31,296,696 in the 1998 third quarter. This increase was partially offset by a
decrease in cost of sales in the Computer Telephony and Telecommunications
division. The cost of sales in that division in the three-month 1998 period was
$165,547, compared with $195,619 in the comparable 1997 period. This decrease of
$(30,072), or (15.4%), is consistent with the decrease in revenues related to
the higher margin products sold by this division.
Gross profit. Gross profit showed a net increase of $4,858,102, or 854.4%, to
$5,426,711 in the three months ended September 30, 1998 from $568,609 in the
corresponding prior year's period. In the 1997 period, all of the gross profit
was generated by the Computer Telephony and Telecommunications division. The
gross profit from the Automotive division accounted for $5,278,460 of the 1998
net increase. This Automotive division increase was partially offset by a
decrease in the gross profit for the Computer Telephony and Telecommunications
division in the 1998 third quarter period of $(420,358), or (73.9%) to $148,251.
Gross profit as a percentage of sales in the Automotive division was 14.4% in
the three months ended September 30, 1998. Gross profit as a percentage of sales
in the Computer Telephony and Telecommunications division decreased to 47.2% in
the 1998 third quarter, compared with gross profit of 74.4% in the comparable
prior period. This, again, is the result of the curtailment of higher gross
profit sales to Master Agents that began in the third quarter of 1997.
Selling general and administrative expense. SG&A expenses increased a net total
of $3,876,105 or 575.5%, to $4,549,607 in the three months ended September 30,
1998 from $673,502 for the comparable period in 1997. Of this net increase,
$3,829,115 relates to the Company's Automotive division; an increase of $178,822
relates to the Computer Telephony and Telecommunications division and a decrease
of $(131,832) is from the Leasing division. SG&A for the Computer Telephony and
Telecommunications division increased from $509,425 for the third quarter of
1997 to $688,247 for the three months ended September 30, 1998, an increase of
35.1%. This increase is reflective of the higher level of corporate
administrative expenditures associated with a much larger corporation following
the merger with Major Auto, as well as the costs associated with the NASDAQ
listing in the third quarter of 1998. The decrease in the
<PAGE>
Leasing division's SG&A expense of $(131,832), or (80.3%) to $32,245 in the
third quarter of 1998 from $164,077 in the comparable prior period is reflective
of reduced personnel and operating efficiencies in that division.
Interest expense. Interest expense increased by $285,811 to $317,592 in the
third quarter of 1998, compared with interest expense of $31,781 incurred in the
comparable period in 1997. This increase is primarily related to the floor plan
interest of the Major Auto Group and the interest incurred on the financing of
that acquisition, aggregating $285,738.
Income on joint venture. The joint venture with Nissko Telecom showed no gain or
loss during the 1998 period, compared with income of $1,613 in the comparable
prior period.
Assets, Liquidity and Capital Resources - September 30, 1998
Primarily as a result of the acquisition of Major Auto, the Company's total
assets increased to approximately $42.9 million at September 30, 1998 from
approximately $9.4 million at December 31, 1997. For the same reason,
stockholders' equity increased to approximately $15.3 million from $6.5 million
at December 31, 1997.
The Company's primary source of liquidity for the nine months ended September
30, 1998 was $2,325,414 from its net income of $910,373, as adjusted by non-cash
charges which aggregated $1,415,041. This net increase in cash was partially
offset by the net effect of (a) a decrease in liabilities of $9,329,954
(primarily related to Major Auto's floor plan notes), less (b) the net decrease
of assets of $6,110,251 (primarily from the decrease in the Automotive
division's inventory of $5,815,999 and a decrease in accounts receivable of
$1,535,270, following the acquisition of Major Auto), as partially offset by
decreases in financing leases and other assets of $548,763 and 690,155,
respectively. The combination of record new and used cars sales for Major Auto
during this period, coupled with a strike at General Motors, which restricted
the Company's ability to obtain replacement cars for inventory during May and
June were the primary reasons for the significant inventory and floor planning
decreases and an initial related increase in accounts receivable. The changeover
in model years at the end of the summer kept inventory low, but the Automotive
division receivables that had built up were substantially collected by the end
of the period. The net result of all of the foregoing was a use of cash in
operating activities of $894,289.
The Company's investing activities had a net use of cash of $6,610,799. The most
significant component of this use was the acquisition of Major Auto, which used
net cash of $6,838,901. This use was partially offset by a decrease in property,
plant and equipment aggregating $228,102. All of this was more than offset by
net cash provided by financing activities, which aggregated $8,374,716, from the
net proceeds of long-term debt. The primary sources of such debt were (1) the
loan of $7,500,000 from a third-party which was used to acquire Major Auto and
its related real estate and (2) the proceeds of $600,000 from the sale of
convertible, subordinated debentures to a limited number of accredited
investors.
The foregoing activities, i.e., operating, investing and financing, resulted in
a net cash increase of $869,628 for the nine months ended September 30, 1998.
The Company believes that the cash generated from existing operations and its
new Automotive division, together with existing cash, available credit from its
current lenders, including banks and floor planning, and the completion of its
debenture offering, as well as future securities offerings will be sufficient to
finance its current operations, planned expansion and internal growth for at
least the next twenty-four months.
Year 2000 Issue
The Company recognizes the need to ensure its operations will not be adversely
impacted by the inability of the Company's systems to process data having dates
on or after January 1, 2000 ("Year 2000"). The Company is currently addressing
the risk with respect to the availability and integrity of its financial systems
and operating systems. While the Company believes its planning efforts are
adequate to address the Year 2000 concerns, there can be no assurance that the
systems of other companies on which the Company's operations rely are, or will
be made, compliant on a timely basis and will not have a material effect on the
Company. However, all such significant systems are being evaluated for
<PAGE>
compliance. The cost of the Company's Year 2000 compliance effort is not
expected to be material to the Company's results of operations or financial
position.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any litigation other than as previously
reported.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As part of its strategy to expand its automotive operations abroad, on
October 1, 1998 the Company entered into a consulting agreement with Clemont
Invesments Ltd. ("Clemont"), a consulting firm which provides business advisory
services regarding the establishment in Europe of branches or operations of U.S.
based companies. In consideration for its services, Clemont will receive, over a
three to five year period (i) 54,000 shares of Company common stock in
connection with the performance of certain consulting services, (ii) 79,500
shares of Company common stock in connection with providing the Company with
certain business contacts, and (iii) 54,000 shares of Company common stock in
connection with compliance with certain restrictive covenants contained in the
Consulting Agreement (collectively, the "Shares"). The Company has the right to
repurchase the Shares under certain circumstances at a price of up to $4.00 per
share (the "Repurchase Price"). As an inducement to Clemont to enter the
Consulting Agreement, Clemont executed a put agreement with Bruce Bendell,
Chairman, President and CEO of the Company on October 1, 1998 pursuant to which
Mr. Bendell agreed, under certain conditions, to take on the obligation to
purchase the Shares from Clemont at the Repurchase Price, during the consulting
agreement period, less any shares repurchased by the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.59. Consulting Agreement among Fidelity Holdings, Inc., Major
Automotive Group Inc. and Clemont Investors Ltd., dated October 1, 1998
Exhibit 27. Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIDELITY HOLDINGS, INC.
Date: November 13, 1998 /s/ Bruce Bendel
-----------------------------------------
Bruce Bendell, President/CEO
Exhibit 10.59 EXECUTION COPY
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, made as of the 1st day of October, 1998, by and
between:
FIDELITY HOLDINGS, INC., a Delaware corporation having its executive
office at 80-02 Kew Gardens Road, Kew Gardens, New York 11415 (hereinafter
referred to as "COMPANY") and its subsidiary, MAJOR AUTOMOTIVE GROUP, INC.
(hereinafter "MAJOR")
AND
CLEMONT INVESTMENTS LTD., a Gibraltar corporation having its principal
office at 292A Main Street, Gibraltar (hereinafter referred to as "CONSULTANT").
WITNESSETH THAT:
WHEREAS, COMPANY, through its wholly-owned subsidiary and division, Major
Acquisition, Inc. (a/k/a "Major Automotive Group" and/or "Major Automotive
Group, Inc.", is engaged in the business of selling and marketing automobiles,
trucks, and other vehicles (the "Automotive Business") and has sought, and is
seeking, to expand its Automotive Business in Russia and Eastern Europe;
WHEREAS, CONSULTANT is organized, inter alia to provide business advisory
services regarding the establishment in Europe of branches or operations of
U.S.-based companies, and as the result of activities in anticipation of this
Consulting Agreement has developed various contacts, arrangements,
relationships, etc. relating to the Automotive Business, and such experience and
knowledge may be highly useful to MAJOR and its management;
WHEREAS, as the result of activities performed in anticipation of this
Consulting Agreement relating to the Automotive Business, CONSULTANT has
developed a list of potential contacts, clients, customers, strategic partners,
and other businesses or entities who or which may be desirous of entering into
business relations with MAJOR (the "LIST") which LIST MAJOR desires to acquire;
WHEREAS, CONSULTANT believes that the prior experience and business
backgrounds and contacts of its management, employees and affiliates can be of
value to the COMPANY and the COMPANY recognizes the benefits accruing to itself
from CONSULTANT's association with the COMPANY and has agreed to employ
CONSULTANT as a consultant to COMPANY on the herein terms and conditions,
intending the CONSULTANT to rely on COMPANY's agreement thereto;
WHEREAS, COMPANY desires to retain the on-going contacts which CONSULTANT
may develop as the result of the performance of services hereunder and retain
solely the benefits which may be derived from the efforts of CONSULTANT on
behalf of COMPANY by having the
<PAGE>
exclusive right to the consulting and advisory services of CONSULTANT relating
to automotive industry and COMPANY's Automotive Business and to restrict
CONSULTANT with respect to its activities relating to the Automotive Business;
WHEREAS, the parties have agreed upon the terms of such arrangements and
desire a written, formal contract to evidence their understandings;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
forebearances contained herein, and intending to be legally bound, the parties
have agreed as follows:
I
SUMMARY
1. SUMMARY OF AGREEMENT. This Agreement is divided into four (4) parts:
Part II: Consulting Services to MAJOR regarding the Automotive Business;
Part III: Conveyance of the LIST;
Part IV: Exclusivity/Restrictive Covenants; and
Part V: Miscellaneous provisions applicable to all Parts.
II
CONSULTING AGREEMENT
2. CONSULTING EMPLOYMENT. For the term provided in Paragraph 3 following,
COMPANY hereby employs CONSULTANT as a consultant and advisor, and CONSULTANT
hereby accepts that employment, upon the terms and conditions hereinafter set
forth in this Part II and Part IV below. CONSULTANT is an independent contractor
without authority, either as principal or agent, to bind, commit or obligate the
COMPANY or MAJOR in any way with any third parties. As an independent
contractor: CONSULTANT shall be responsible for payment of its own taxes and the
filing of its own tax reports and returns; the payment of wages, salaries and
compensation to its employees, consultants, and agents; the withholding and
payment of payroll taxes and related charges; and the carrying of all required
insurance, including workmen's compensation.
3. TERM. (a) This Consulting Agreement shall become effective upon
execution, except that the consulting services shall commence on January 1,
1999, or sooner at the option of the COMPANY with written notice to CONSULTANT.
(b) Part II of this Consulting Agreement shall continue and exist for a period
of three (3) years from the effective date. Part IV of this Consulting Agreement
shall continue and exist for the periods specified in the Paragraphs thereof.
4. COMPENSATION-BASE AND HARDSHIP. (a) For the basic services rendered
2
<PAGE>
under this Part II of this Consulting Agreement (i.e., for regular consulting
and advisory services), COMPANY shall pay CONSULTANT a base fee in the form of
Fifty-four Thousand (54,000) shares of the COMPANY's Common Stock. Such shares
shall be issued immediately, in the name of CONSULTANT, upon the execution of
this Agreement as thirty-six (36) certificates for 1,500 shares each, so as to
establish CONSULTANT as a shareholder as of the date of issuance as to all
54,000 shares. However, CONSULTANT shall not be deemed vested with ownership of
such shares until delivered to CONSULTANT as provided herein. The certificates
shall be held in escrow by Robert Salad, Esq. who shall deliver a certificate
for 1,500 shares to CONSULTANT monthly, in advance, for the services to be
rendered for that month, commencing on January 1, 1999 for the services to be
rendered in the month of January, 1998 (or sooner at the COMPANY'S option as
provided in Section 3 hereof). CONSULTANT shall not be entitled to vote any of
the 54,000 shares, including the shares held in escrow pending delivery of such
shares to CONSULTANT as provided herein until such shares are vested. Any
dividends declared and or paid with respect to delivered and vested shares shall
be paid directly to CONSULTANT. Any dividends declared or paid with respect to
undelivered, unvested and escrowed shares shall be paid to Robert Salad, Esq.
and shall also be held in escrow pending delivery and shall follow the delivery;
i.e., proportionately delivered to CONSULTANT as the shares are delivered.
(b) The parties acknowledge that in negotiating this fee and its equal
installment payment they recognized that the consulting and advisory services
will probably not be performed in equal monthly segments, but may be substantial
during the early portion of the term and less thereafter as MAJOR's
relationships and communications lines are established. Thus, part of the
compensation for earlier services will be deferred and the lessening or
termination of services shall not constitute a breach or termination hereof, but
the level fee shall continue. Furthermore, in view of MAJOR's and COMPANY's
desire that CONSULTANT's services with respect to the automotive industry be
exclusively for the benefit of MAJOR, any failure by MAJOR to assign projects
shall not be deemed a breach of this Agreement by CONSULTANT.
(c) The parties recognize that the current political and economic climates of
Russia and Eastern Europe are unstable, subject to substantial inflation, and
involve the performance of on-site services under difficult, hardship, and
possibly hazardous, conditions. Accordingly, where performance of the services
will require actual travel to and presence in such areas, prior to the
performance of any services, the parties shall establish a level of additional
compensation, payable in cash or additional shares of COMPANY's Common Stock, as
compensation for operations under such conditions. Such additional compensation
shall take into consideration both the conditions applicable and the value of
the services, and shall be in addition to any costs as provided in Paragraph
8(a) below.
5. DUTIES. CONSULTANT shall perform consulting and advisory services for
MAJOR with respect to establishment and expansion of its Automotive Business in
Russia and Eastern Europe (the "Territory"). CONSULTANT shall have no
responsibility for, and shall not have any involvement in, matters affecting the
Company outside of the Territory unless otherwise directed in writing by the
President. CONSULTANT shall act, within and with respect to such Territory, as a
business consultant and advisor to MAJOR, performing services as MAJOR shall
3
<PAGE>
request or direct, including but not limited to:
(a) As MAJOR shall request or direct in writing, CONSULTANT shall seek to make
MAJOR and its Automotive Business known to the financial and business community
in Russia and Eastern Europe and to the financial community interested in or
capable of financing MAJOR's dealerships and distributorships or consumer
purchases, as well as the business and financial media and the public generally.
(b) As MAJOR shall request or direct in writing, CONSULTANT shall assist in
contacting, establishing communication with, and introducing MAJOR's executives
to, financial institutions and investors potentially interested in (i) securing
a franchise or entering into a relationship with MAJOR for the establishment of
a dealership or distributorship, or (ii) providing floor plan financing to MAJOR
or one of its importers, dealers or distributors, or (iii) providing consumer
financing for the purchase of automobiles, trucks or other motor vehicles from
MAJOR, or one of its dealers or distributors.
(c) As MAJOR shall request or direct in writing, CONSULTANT shall serve as a
liaison between MAJOR and the Russian and Eastern European automotive industry
and relevant government agencies, and CONSULTANT shall provide such analyses of
the Russian and European automotive markets as MAJOR may request.
(d) As MAJOR shall request or direct in writing, advise MAJOR with respect to
its and its dealers and distributors sales and marketing arrangements and plans,
including: specific marketing and sales focuses by country or region; public
relations and advertising programs, media selection, industry trade shows, and
expenditures therefor; employment of import brokers, transportation companies,
sales representatives and distributors; pricing and sales terms; product feature
emphasis; product bundling and un-bundling; licensing, franchise, dealership and
distributorship agreements; and other factors relating to MAJOR's Automotive
Business.
(e) As MAJOR shall request or direct in writing, assist MAJOR in finding,
recruiting, hiring, compensating and retaining dealers, distributors, and sales
and marketing personnel.
(f) As MAJOR shall request or direct in writing, assist COMPANY in analyzing
business and product strengths and weaknesses, advising on competition and the
current automotive markets in the various countries, devising and revising a
business plan for the geographic areas.
(g) As MAJOR shall request or direct in writing, assist MAJOR in securing
capital financing, both debt and equity financing, for its Automotive Business.
(h) As MAJOR shall request or direct in writing, assist MAJOR in establishing an
acquisition strategy within the geographical areas, introduce MAJOR to potential
dealership and distributorship acquisition candidates and assist MAJOR to
identify, contact, analyze and negotiate with potential dealership and
distributorship acquisition candidates.
4
<PAGE>
(i) As MAJOR shall request or direct in writing, assist MAJOR in securing trade
name and product exposure and advise with respect to securing media coverage and
exposure.
(j) CONSULTANT shall perform such other consulting and advisory duties as
MAJOR's Management may reasonably request in writing, consistent with the
foregoing duties.
Notwithstanding the foregoing, CONSULTANT shall cause its employees to
devote up to fifty (50%) percent of their business time and attention to the
COMPANY's matters, if so requested in writing.
6. EXTENT AND PLACE OF SERVICES. CONSULTANT shall devote such adequate,
reasonable, and proper time, attention, and energies to the business of MAJOR as
shall be necessary or consistent with the performance of its duties hereunder.
It is understood that, except as provided by Paragraph 10 in Part IV below,
CONSULTANT has and/or may have other employment or consulting arrangements and
that this engagement is neither exclusive nor full-time. The consulting and
advisory services of CONSULTANT shall be performed off-shore, i.e., outside of
the United States.
7. WORKING FACILITIES. CONSULTANT shall provide its services from its own
offices the cost for which offices shall be at CONSULTANT's own expense. MAJOR
shall provide such local and regional site offices and such personnel support as
may be mutually agreed upon from time to time.
8. EXPENSES. (a) CONSULTANT, in providing the foregoing services, shall
advise MAJOR in advance of the performance of such services, of the costs
anticipated to be incurred in the performance of such services and shall
establish with MAJOR a costs budget. MAJOR shall be responsible for all budgeted
costs of providing the services including, but not limited to, out-of-pocket
expenses for travel, entertainment, postage, express delivery and messenger
service, telephone/ facsimile charges, as well as compensation to third party
vendors, consultants, advisors, and agents. Such costs shall be in addition to
any additional compensation as provided in Paragraphs 4(a) and 4(c) above.
(b) Except for costs budgeted as provided above, CONSULTANT is not authorized to
incur expenses on behalf of, or chargeable to, COMPANY, with respect to the
business travel of its management, employees or affiliates, including
transportation, lodging, food, entertainment, etc. except within such guidelines
as may be established form time to time by the Board of Directors of COMPANY, or
as specially agreed upon, in advance, for any specific project. COMPANY shall
reimburse CONSULTANT for authorized expenses within such guidelines or prior
agreement upon presentation by CONSULTANT, from time to time, of an itemized
account of such expenditures in such form as COMPANY may require, together with
receipts or other proofs of the expenditures as may be required.
5
<PAGE>
III
CONVEYANCE OF LIST
9. CONVEYANCE OF THE LIST. (a) Prior to the execution of this Agreement,
COMPANY has examined the LIST, is aware of its contents, and accepts such LIST
hereunder with the specific understanding that CONSULTANT makes no
representation or warranty that any such persons or entities listed shall enter
into any business arrangement with COMPANY, and it shall be the responsibility
of COMPANY to further contact such persons and entities, negotiate with them,
and reach any agreement or relationship.
(b) CONSULTANT represents and warrants:
(i) although compiled by its affiliates, officers, directors, agents and/or
consultants, CONSULTANT is the owner of such LIST and has the authority to
convey such LIST to MAJOR;
(ii) such LIST contains the names and addresses of each and every contact,
potential client, potential customer, potential strategic partner, and other
businesses which may be interested in entering into a business relationship with
MAJOR pertaining to its Automotive Business, and CONSULTANT has not withheld the
names and addresses of any potential contacts, clients, customers, strategic
partners, or business contacts which could be useful to MAJOR with respect to
its Automotive Business.
(iii) CONSULTANT has not previously conveyed, or disclosed, the names and
addresses on such LIST to any other of its consulting clients, has not entered
into any other agreement or understanding for the conveyance or disclosure of
such LIST, such LIST was not compiled by reason of funding or a contractual
commitment from any other consulting client, and there are no liens, claims,
encumbrances or charges of any kind pertaining to such LIST.
(iv) Upon the conveyance of such LIST hereunder, CONSULTANT shall treat such
LIST as the exclusive property of MAJOR and shall not itself use, or use,
disclose, or convey any of the names and addresses on such LIST for its own
benefit or for the benefit of any person or entity, whether or not a consulting
client.
(b) CONSULTANT, on behalf of itself, its affiliates, shareholders, officers,
directors, employees, agents and consultants, hereby conveys, sells, transfer
and assigns all of its right, title and interest in and to the LIST to MAJOR,
free and clear or any liens, claims, encumbrances and charges, of any kind
whatsoever.
(c) In consideration for the conveyance of the LIST to MAJOR, COMPANY shall
issue to CONSULTANT, upon the execution hereof, Seventy-nine Thousand Five
Hundred (79,500) shares of its Common Stock. Such issuance shall be in full and
complete payment of the LIST, there shall be no further compensation due to
CONSULTANT in the event that COMPANY and/or MAJOR shall negotiate any agreement
or develop any relationship with any named person or entity, and such
6
<PAGE>
shares shall be deemed earned by CONSULTANT upon conveyance of the LIST and
without the required performance of any future services with respect thereto.
IV
EXCLUSIVITY OF CONSULTING SERVICES
AND
RESTRICTIVE COVENANTS
10. EXCLUSIVITY. CONSULTANT, on behalf of itself, its officers, directors,
employees and agents, agrees that, during the term of the three years of
consulting services provided in Part II above, and for a period of two (2) years
thereafter, or for a period to December 31, 2003, it shall not, directly or
indirectly, consult for, and provide advisory services to, or provide any
information to, any person or entity engaged in the Automotive Business.
CONSULTANT shall not, directly or indirectly, contact, solicit, or direct any
person, firm or corporation, to contact any other person or entity engaged in
the automotive industry for the purpose of providing consulting or advisory
services, or information, that are the same as or similar to, any services or
information provided to MAJOR by CONSULTANT hereunder.
11. NON-DISCLOSURE OF INFORMATION. CONSULTANT recognizes and acknowledges
that, during the course of its employment hereunder, it will have access to
valuable proprietary information relating to MAJOR and its Automotive Business,
a substantial portion of which may be developed or created by CONSULTANT in the
performance of its services hereunder, and that such information constitutes
unique assets of the business of MAJOR and the COMPANY. To the extent that such
proprietary information is developed by CONSULTANT pursuant to the performance
of its consulting services under Part II above, CONSULTANT hereby assigns to
MAJOR, without further consideration to CONSULTANT, the entire right title and
interest in and to the such work product and in and to all proprietary rights
therein or based thereon, and CONSULTANT agrees that the work product shall be
deemed to be a "work made for hire". Neither CONSULTANT not any of its
affiliates, employees, officers, directors, agents and consultant will, during
or after CONSULTANT's employment, personally use or disclose all, or any part
of, such proprietary information to any person, firm, corporation, association,
agency, or other entity except as properly required in the conduct of the
business of MAJOR and/or the COMPANY, or except as authorized in writing by
MAJOR, publish, disclose or authorize anyone else to publish or disclose, any
secret or confidential matter relating to any aspect of the business of MAJOR
with which CONSULTANT'S service may in any way acquaint CONSULTANT. In the event
of a breach, or threatened breach, by CONSULTANT, of the provisions of this
Paragraph, COMPANY and/or MAJOR shall be entitled to a preliminary, temporary
and permanent injunction restraining CONSULTANT from disclosing in whole or in
part, any such proprietary information and/or form rendering any services to any
person, firm, corporation, association, agency, or other entity to whom such
information, in whole or in part, has been disclosed or is threatened to be
disclosed. Furthermore, nothing herein shall be construed as prohibiting COMPANY
and/or MAJOR from pursuing any other equitable or legal remedies available to it
for such breach or threatened breach, including the recovery or damages from
CONSULTANT.
7
<PAGE>
12. NONSOLICITATION COVENANT. During the term of this Agreement and for a
period of two (2) years after the termination of this Agreement CONSULTANT shall
not solicit, directly or indirectly, by any means, any of the MAJOR's customers,
prospective customers, or employees, either for itself or any other person or
entity.
13. NON-COMPETITION COVENANT. During the term of this Agreement and for a
period of two (2) years after the termination of this Agreement CONSULTANT shall
not, directly or indirectly, engage in or carry on in any manner (including,
without limitation, as principal, shareholder [other than a passive investor
with less than a five percent (5%) interest] , partner, lender, agent, employee,
consultant, or investor [other than a passive investor with less than a five
percent (5%) interest], trustee, or through the agency of any corporation,
partnerships, limited liability company or association) any business in
competition with MAJOR or its Automotive Business.
14. CONSIDERATION. (a) In consideration for the foregoing covenants of
exclusivity, non-disclosure, nonsolicitation and non-competition, COMPANY shall
pay CONSULTANT a fee of Fifty-four Thousand (54,000) shares of the COMPANY's
Common Stock. Such shares shall be issued, in the name of CONSULTANT,
immediately upon the execution of this Agreement as thirty-six (36) certificates
for 1,500 shares each, so as to establish CONSULTANT as a shareholder as of the
date of issuance as to all 54,000 shares. However, CONSULTANT shall not be
deemed vested with ownership of such shares until delivered to CONSULTANT as
provided herein. The certificates shall be held in escrow by Robert Salad, Esq.
who shall deliver a certificate for 1,500 shares to CONSULTANT monthly,
commencing on January 1, 1999 (or sooner at the COMPANY'S option as provided in
Section 3 hereof). CONSULTANT shall not be entitled to vote all 54,000 shares,
including all shares held in escrow, pending delivery of such shares to
CONSULTANT as provided herein until such shares are vested. Any dividends
declared and or paid with respect to delivered and vested shares shall be paid
directly to CONSULTANT. Any dividends declared or paid with respect to
undelivered, unvested and escrowed shares shall be paid to Robert Salad, Esq.
and shall also be held in escrow pending disposition and shall follow the
disposition; i.e., proportionately delivered to CONSULTANT as the shares are
delivered.
(b) In addition to the foregoing, any shares allocated as fee compensation for
the performance of consulting and advisory services under Part II which COMPANY
shall not consider to have been "earned" by the performance of actual consulting
and advisory services shall be deemed additional consideration for the
exclusivity covenant.
PART V
MISCELLANEOUS
15. ISSUANCE FOR INVESTMENT PURPOSES/CALL. (a) CONSULTANT acknowledges
that the shares being issued pursuant to this Consulting Agreement are being
issued pursuant to the exemption provided by Section 4(2) of the Securities Act
of 1933, as amended, and have not been registered with the Securities and
Exchange Commission or any state securities
8
<PAGE>
commission or agency. CONSULTANT represents and warrants that it is acquiring
such shares for investment and not, directly or indirectly, with a view to, or
for resale in connection with, and distribution of the shares. The certificates
for all of the shares being issued pursuant to this Consulting Agreement shall
bear a legend on the face thereof indicating that such shares have not been
registered under the Securities Act of 1933 and are restricted as to further
transfer as provided by Section 4(2) and the rules and regulations thereunder.
All of the shares issued hereunder shall be issued as "restricted shares" as set
forth above.
(b) COMPANY is hereby granted the right, by CONSULTANT, to call and redeem
(repurchase) the shares being issued hereunder. On or before the fifteenth
(15th) day of each month, commencing January 1, 1999 (or sooner at the COMPANY'S
option as provided in Section 3 hereof) and continuing for the thirty-six month
term of Part II, time being of the essence of this provision, COMPANY may
deliver written notice to CONSULTANT of its intent to repurchase up to Five
Thousand Two Hundred Eight (5,208) shares of the total 187,500 shares being
issued hereunder to the extent such shares are available (have not been sold by
CONSULTANT) at the time of the Call. The Call (redemption and repurchase) price
shall be the higher of:
(i) Four Dollars ($4.00) per share; and
(ii) Eighty-five percent (85%) of the average closing bid price of the
COMPANY's Common Stock on the NASDAQ Bulletin Board, Small-Cap Market or
National Market, as the case may be, during the twenty (20) trading days
immediately preceding the date of the Call.
To exercise the Call, the COMPANY shall contemporaneously deliver, time being of
the essence of this provision, a copy of its notice, together with a bank
cashier's check, Bank Secretary's or Treasurer's check, or its certified check,
in the full amount of the redemption price, to Robert Salad, Esq., the Escrow
Agent. The Escrow Agent shall promptly advise CONSULTANT of the receipt of such
funds and CONSULTANT shall deliver to the Escrow Agent certificates for
sufficient shares to meet the Call, together with a blank stock power with
Medallion guarantee. The Escrow Agent shall send such certificate(s) and power
to the COMPANY's transfer agent with instructions to transfer 5,208 shares to
the COMPANY and return the balance, in the name of CONSULTANT, to the Escrow
Agent for return to the CONSULTANT.
16. MUTUAL COVENANT NOT TO SUE/CROSS-INDEMNIFICATION. (a) Except for
specific breaches of this Agreement, or in the event of fraud, gross negligence,
or malfeasance, the parties hereby covenant that neither shall sue the other for
any loss, claim, damage, or liability arising out of the performance of the
consulting services contemplated herein.
(b) Each party hereby indemnifies the other against, and agrees to hold the
other harmless from, any losses, claims, damages, or liabilities arising out of
the performance of the consulting services, except insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon specific breaches of this Agreement or fraud, gross negligence,
or malfeasance.
17. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by such other party.
9
<PAGE>
18. BENEFIT. The rights and obligations of COMPANY and/or MAJOR under this
Agreement shall inure to the benefit of, and shall be binding upon, their
successors and assigns. The protection of Part IV shall inure to the benefit of
COMPANY, MAJOR and any successors and assigns.
19. LIMITATION OF LIABILITY OF CONSULTANT. The liability of CONSULTANT to
the COMPANY and/or MAJOR in the event of a breach of this Agreement by the
CONSULTANT shall be limited to the shares issued to CONSULTANT pursuant to Part
II for its services hereunder.
20. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified mail to
the principal office of the other party.
21. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and may be modified only by agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
22. APPLICABLE LAW/VENUE AND JURISDICTION. This Agreement shall be
governed for all purposes by the laws of Gibraltar, without giving effect to the
conflict of laws principles thereof. In the event of any litigation with respect
to the interpretation of this Consulting Agreement, or a claimed breach of this
Consulting Agreement, or for any other matter arising out of this Consulting
Agreement, directly or indirectly, venue and jurisdiction shall be exclusively
vested in the courts of Gibraltar having jurisdiction over the subject matter
and each of the parties hereby waives any claim to venue or jurisdiction in any
other place or court and irrevocably submit to the jurisdiction of any court
sitting in Gibraltar.
23. COUNTERPARTS/FACSIMILE. This Agreement may be executed in any number
of identical counterparts, each of which, when so executed and delivered shall
be deemed to be an original and all of which taken together shall constitute but
one and the same instrument. This Agreement may be executed by facsimile and
such facsimile signatures shall be deemed to be originals.
24. ASSIGNMENT/DELEGATION. Except for delegation of duties to officers,
directors, employees, agents and consultants, CONSULTANT shall not delegate it
duties hereunder to any other entity. Subject to any applicable securities laws,
rules and regulations, CONSULTANT may assign or anticipate its receipt of any
shares hereunder, prior to delivery by the Escrow Agent, subject to the
provisions of Paragraph 15 above. COMPANY nay not assign its rights hereunder to
any party other than MAJOR.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto set their hands and seals as of the day and year hereinabove
written.
FIDELITY HOLDINGS, INC.
ATTEST:
By: /s/ Bruce Bendell
----------------------------------
Bruce Bendell, Chairman
/s/ Christine Feiner
- -------------------------
Secretary
MAJOR AUTOMOTIVE GROUP, INC.
ATTEST:
By: /s/ Bruce Bendell
----------------------------------
Bruce Bendell, Chairman
/s/ Christine Feiner
- -------------------------
Secretary
CLEMONT INVESTMENTS LTD.
ATTEST:
By: /s/ Robert Salad
----------------------------------
- -------------------------
Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
RELATED FOOTNOTES OF FIDELITY HOLDINGS, INC. AND SUBSIDIARIES AS OF AND FOR THE
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND FOOTNOTES.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,086,819 1,086,819
<SECURITIES> 0 0
<RECEIVABLES> 6,726,509 6,726,509
<ALLOWANCES> 0 0
<INVENTORY> 12,603,254 12,603,254
<CURRENT-ASSETS> 24,368,748 24,368,748
<PP&E> 5,930,778 5,930,778
<DEPRECIATION> (843,338) (843,338)
<TOTAL-ASSETS> 42,947,746 42,947,746
<CURRENT-LIABILITIES> 17,715,616 17,715,616
<BONDS> 8,840,188 8,840,188
0 0
11,500 11,500
<COMMON> 75,746 75,746
<OTHER-SE> 15,192,401 15,192,401
<TOTAL-LIABILITY-AND-EQUITY> 42,947,746 42,947,746
<SALES> 64,314,214 37,253,742
<TOTAL-REVENUES> 64,317,914 37,254,192
<CGS> 54,793,390 31,462,243
<TOTAL-COSTS> 62,322,397 36,250,389
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 657,144 317,592
<INCOME-PRETAX> 1,338,373 686,061
<INCOME-TAX> 428,000 238,000
<INCOME-CONTINUING> 910,373 448,061
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 910,373 448,061
<EPS-PRIMARY> .13 .06
<EPS-DILUTED> .10 .05
</TABLE>
