FILED PURSUANT TO RULE NO. 424(b)(1)
REGISTRATION NO. 333-94875
PROSPECTUS
2,596,131 Shares of Common Stock
FIDELITY HOLDINGS, INC.
Common Stock ($.01 par value)
This Prospectus covers the offer and sale of an estimated 2,596,131 shares
of the common stock of the Company. The common stock is being offered and sold
by certain of our shareholders. As part of private placements occurring in
December 1999, February 2000 and March 2000, the Company issued (1) 581,375
shares of common stock, (2) warrants and (3) adjustable warrants. An aggregate
of 581,375 shares of common stock are issuable upon exercise of the warrants and
an indeterminate number of shares estimated at 1,146,066 have been deemed
issuable pursuant to adjustable warrants. Some or all of the selling
shareholders expect to sell their shares.
The selling shareholders may without limitation offer their shares of
common stock for sale through public or private transactions, on or off the
United States exchanges, at prevailing market prices, or at privately negotiated
prices. See "Plan of Distribution." The Company will bear all expenses in
connection with the preparation of this Prospectus.
THE PROCEEDS AND DETERMINING THE OFFERING PRICE
All proceeds from the sale of the common stock under this Prospectus will
go to the selling shareholders. The Company will not receive any proceeds from
sales of the common stock offered by the selling shareholders. The Company will,
however, receive the exercise price of the warrants at the time of exercise.
Our common stock is currently traded on the Nasdaq National Market under
the symbol "FDHG." On June 14, 2000, the last reported sales price of a share of
Fidelity common stock on the Nasdaq National Market was $ 2.875 per share.
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 5 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 15, 2000.
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TABLE OF CONTENTS
Page
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Where You Can Find More Information ................................. 2
Prospectus Summary .................................................. 4
Risk Factors ........................................................ 5
Use of Proceeds ..................................................... 22
Selling Shareholders ................................................ 22
Plan of Distribution ................................................ 24
Legal Matters ....................................................... 26
Experts ............................................................. 26
THIS PROSPECTUS IS A PART OF A REGISTRATION STATEMENT WE FILED WITH THE
SEC. YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THE DOCUMENT.
WHERE CAN YOU FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy the documents we file at the
SEC's public reference room in Washington, D.C., New York, New York and Chicago,
Illinois. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public at no cost from the SEC's Website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 (the "Exchange Act"):
(1) The Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999, including all matters incorporated by reference therein.
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(2) The Quarterly Report on Form 10-Q and Amended Form on 10Q-A for the
quarter ended March 31, 2000, including all matters incorporated by
reference therein.
(3) Current Report on Form 8-K filed February 16, 2000;
(4) Definitive Schedule 14A Proxy Statement filed on July 16, 1999;
(5) Current Report on Form 8-K filed May 12, 2000; and
(6) Current Report on Form 8-K filed May 22, 2000.
Item (4) above does not give effect to a three-for-two stock split in the form
of a stock dividend effected by Fidelity Holdings in January 2000.
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PROSPECTUS SUMMARY
The following summarizes the business and operations of Fidelity Holdings,
Inc. (referred to in this Prospectus as "we", "us", "Fidelity" or the
"Company"). This summary highlights certain information about us that is
included and incorporated by reference in this Prospectus. This summary is not
complete and does not contain all of the information about us or all of the
information that you should consider before investing in our common stock. You
should read the entire Prospectus carefully, including the information under the
caption "Risk Factors" and the information in the financial statements and the
notes to the financial statements that are incorporated by reference in this
Prospectus. The securities offered by this Prospectus involve a high degree of
risk. See "Risk Factors." Except as otherwise noted, all information in this
Prospectus reflects a three-for-two stock split in the form of a stock dividend
effected in January 2000.
The Company
Fidelity Holdings, Inc. ("we" or the "Company") historically has operated
as a holding company, We derive our revenues solely from our operating
subsidiaries. Our first full year of operations was 1996. Our operating
subsidiaries have been grouped into two divisions: Automotive and Technology.
Unless otherwise indicated, all references to the "Company" or "we" include
reference to the subsidiaries of the Company.
The Automotive Division operates through the Major Dealer Group ("Major
Dealer Group"), a leading consolidator of automobile dealerships in the New York
metropolitan area which operates through nine retail automobile franchises. The
leasing operations are included in the Automotive Division and consist of
providing leases and other financing. Such activities are directed primarily
toward the automotive vehicle market.
The Technology Division, headed by Computer Business Services, Inc.
("CBS"), has operated through voice processing and computer telephony technology
divisions. Through CBS, we provide a broad range of telecommunications services.
Included in CBS's telecommunications product lines are (i) its proprietary
software which enables consumers to place long-distance telephone calls at
discounted rates and (ii) a variety of sophisticated interactive voice response
applications. This division also developed, and presently markets and sells, a
proprietary computer software system that provides multi-lingual accounting and
business management applications. Additionally, the Technology Division, through
our IG2, Inc. subsidiary, is developing a sophisticated, technological, leading
edge network, the IG2(R) Network, that is seeking to take advantage of the
convergence of data, voice and multi-media. We have qualified IG2, Inc. as a
CLEC in all of our planned jurisdictions and have incurred substantial
expenditures in connection with the IG2(R) Network's development. Also included
in the Technology Division is our plastics and utility products operations,
which currently consist of a development-stage company. Our proprietary
prototypes include a line of spa and bath fixtures for use in whirlpool baths,
spas, tubs and swimming pools and a light-weight, structurally strong,
prefabricated conduit for underground electrical cables. As these products are
still under development, no commercial sales have as yet been made.
We were incorporated in the State of Nevada in November 1995. Our address
is 80-02 Kew Gardens Road, Suite 5000, Kew Gardens, New York 11415 and our
telephone number is (718) 520-6500. Our Web site is www.fdhg.com. Information
contained on our Website is not a part of this Prospectus.
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RECENT DEVELOPMENTS
On May 10, 2000, our Board of Directors authorized the repurchase of up to
1,000,000 shares of our outstanding common stock. We intend to repurchase shares
depending on market conditions and the price per share.
RISK FACTORS
The following factors should be reviewed carefully, in conjunction with
the other information in this Prospectus and our consolidated financial
statements. These factors, among others, could cause actual results to differ
materially from those currently anticipated and contained in forward-looking
statements made in this Prospectus and presented elsewhere by our management
from time to time. See "Note Regarding Forward-Looking Statements."
Automobile manufacturers exercise significant control over our operations and we
are dependent on them to operate our business.
Like other franchised new vehicle dealers, we are significantly dependent
upon our relationships with, and the success of, the manufacturers with which we
have franchised dealerships. We are also dependent on the manufacturers to
provide us with an inventory of new vehicles. The most popular vehicles tend to
provide Major Dealer Group with the highest profit margin and are the most
difficult to obtain from the manufacturers. In order to obtain sufficient
quantities of these vehicles, we may be required to purchase a larger number of
less desirable makes and models than we would otherwise purchase. Sales of less
desirable makes and models may result in lower profit margins than sales of more
popular vehicles. If we are unable to obtain sufficient quantities of the most
popular makes and models, our profitability may be adversely affected.
As is typical of franchised new vehicle dealers, the success of our
franchises depends to a great extent on the success of the respective
manufacturers. Our success will therefore be linked to many factors affecting
the manufacturers such as:
o financial condition;
o marketing strategy;
o vehicle demand;
o production capabilities;
o management;
o events such as labor strikes; and
o negative publicity.
Our franchise agreements contain geographic and other restrictions which could
limit our future growth.
Our franchise agreements with the manufacturers, like those of other
franchised new vehicle dealers, do not grant us the exclusive right to sell that
manufacturer's vehicles within a given geographical area. Accordingly, a
manufacturer could grant another dealer a franchise to start a new dealership or
permit an existing dealer to relocate to a geographic location that would be
directly competitive with us. Such an event could have a material adverse effect
on our business, financial condition and results of operations.
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Historically, manufacturers have exercised significant control over
dealerships through the terms and conditions of the franchise agreements
pursuant to which the Major Dealer Group dealerships operate. These franchise
agreements restrict dealerships to specific locations and retain for the
manufacturers approval rights over changes in the dealerships' ownership and
management. Our ability to expand through the acquisition of new dealerships
requires the consent of the manufacturers. To date, Major Dealer Group's
acquisitions have been approved and Major Dealer Group has not been materially
adversely affected by other limitations imposed by the manufacturers. However,
there can be no assurance that in the future we will be able to obtain necessary
approvals on acceptable terms or that Major Dealer Group will not be materially
adversely affected by other limitations.
The franchise agreements between Major Dealer Group and the manufacturers
are for fixed terms with no renewal obligation on the part of the manufacturers
and permit the manufacturers to terminate the agreements for a variety of
causes. The franchise agreements between Fidelity and the manufacturers have
similar provisions. We believe that we have been and continue to be in material
compliance with the terms of our franchise agreements. While none of the
manufacturers has terminated or failed to renew our franchise agreements, any
such termination or failure to renew could have a material adverse effect on
Fidelity and our business, financial condition and results of operations.
The automobile industry is a mature industry with limited growth potential in
new vehicle sales and automobile sales are cyclical and subject to downturns.
The United States automobile industry is generally considered to be a
mature industry in which minimal growth is expected in unit sales of new
vehicles. In addition, the market for automobiles, particularly new vehicles, is
subject to substantial cyclical variation and has experienced significant
downturns characterized by oversupply and weak demand. Many factors affect the
automobile industry, including:
o general and local economic conditions;
o taxes;
o consumer confidence;
o interest rates;
o credit availability; and
o the level of personal discretionary income.
A material decrease in vehicle sales from the historical level of vehicle
sales achieved by Major Dealer Group would materially adversely affect our
business, financial condition and results of operations.
Our automobile operations are geographically concentrated and subject to local
economic conditions.
All of the Major Dealer Group dealerships we have acquired are located in
the New York metropolitan area. While we may pursue acquisitions outside of the
New York metropolitan area, we expect that our automotive operations will be
concentrated in the New York metropolitan area for the foreseeable future. As a
result, our results of operations will depend substantially on general economic
conditions and consumer spending habits and preferences in the New York
metropolitan area, as well as
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various other factors, such as tax rates and applicable state and local
regulation. There can be no assurance that we will be able to expand
geographically or that any such expansion will adequately insulate us from the
adverse effects of local or regional economic conditions.
Our future operating results will be directly related to the availability and
cost of capital to us.
The principal sources of financing for new and used automobile inventories
have historically been lines of credit from banks and other financial
institutions and from cash generated from operations. There can be no assurance
that we will be able to continue to obtain capital for our current or expanded
operations on terms and conditions that are acceptable to us.
Our strategy of growth through the acquisition of additional dealerships
will require substantial capital. Our expansion and new acquisitions may involve
cash, the need to incur debt or the need to issue equity securities, which could
have a dilutive effect on our then outstanding capital stock. We may seek to
obtain funds through borrowings from institutions or by the public or private
sale of our securities. There can be no assurance that we will be able to obtain
capital to finance our growth on terms and conditions acceptable to us.
Risks associated with expansion may hinder our ability to increase revenues and
earnings.
Our future growth will depend, in part, on our ability to acquire
additional automobile dealerships. In pursuing a strategy of acquiring
additional dealerships, we will face risks commonly encountered with growth
through acquisitions. These risks include:
o incurring significantly higher capital expenditures and
operating expenses;
o failing to assimilate the operations and personnel of the
acquired dealerships;
o disrupting our ongoing business;
o dissipating our limited management resources;
o failing to maintain uniform standards, controls and policies;
and
o impairing relationships with employees and customers as a
result of changes in management.
There can be no assurance that we will be successful in overcoming these
risks or any other problems encountered with such acquisitions. In addition,
acquiring additional dealerships, as we intend, will have a significant impact
on our financial condition and could cause substantial fluctuations in our
quarterly and annual operating results. Acquisitions could result in significant
goodwill and intangible assets, which are likely to result in substantial
amortization charges to Fidelity that would reduce stated earnings, if any.
There is an uncertainty of market acceptance risk in our plastics and utility
products operations.
There can be no assurance that the products being developed by our
plastics and utility products operations, even if developed, will attain a
sufficient level of market acceptance for those operations to become profitable.
In addition, with respect to our spa and bath fixtures and related installation
method, although we have received indications from several manufacturers and
producers of whirlpool baths, spas and tubs that they will purchase our
fixtures, they are not obligated to do so. No assurance can be given that such
manufacturers and producers will make these purchases initially, or if they do,
that they will be sufficiently satisfied with our fixtures to continue making
these purchases.
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Our computer telephony technology operations are difficult to evaluate because
our subsidiary, IG2, Inc., has a limited operating history.
Because IG2, Inc. has a limited operating history to date, there is
minimal operating and financial data about its business upon which to base an
evaluation of its current or future performance. You should consider the risks,
expenses and difficulties we may encounter, including those frequently
encountered by developmental stage companies in new and rapidly evolving
markets. The success of IG2, Inc. will depend, in large degree, on our ability
to:
o deploy an effective network infrastructure;
o establish collocation and interconnection arrangements with
regional Bell operating companies, or RBOCs, and other
incumbent local exchange carriers, or ILECs;
o develop our billing and operational support systems;
o raise additional capital;
o rapidly expand digital subscriber line, or DSL, service within
the United States;
o attract and retain customers; and
o attract and retain qualified personnel.
If we fail to manage these activities successfully, it would materially
adversely affect IG2, Inc.'s business, financial condition and results of
operations.
Because the DSL market is new and evolving, we cannot predict the size of the
market.
The market for high-speed data networking services using copper telephone
lines is in the early stages of development. We cannot accurately predict the
rate at which this market will grow, if at all, or whether new or increased
competition will result in market saturation. The security, reliability, ease,
cost of access and quality of service relating to the use of DSL technology for
Internet and local area network access are unresolved and may impact the growth
of these services. To be successful, IG2, Inc. must develop and market services
that are widely accepted by businesses at profitable prices. If the market for
our DSL services fails to develop, grows more slowly than anticipated or becomes
saturated with competitors, these events could adversely affect our business,
financial condition and results of operations.
IG2, Inc.'s operations and prospects will be subject to a number of risks
common to the developing high-speed data networking services industry including:
o DSL technology may not operate as expected on incumbent local
carrier networks and may interfere with or be affected by
other transport technologies;
o The data networking industry is undergoing rapid technological
changes, and new technologies may be superior to the
technology IG2, Inc. uses;
o IG2, Inc.'s failure to achieve or sustain market acceptance at
desired pricing levels could impair its ability to achieve
profitability or positive cash flow;
o IG2, Inc. will be dependent on ILECs, and others for copper
telephone lines, collocation space and transmission
facilities, and the ILECs reluctance to cooperate with IG2,
Inc. or inability to provide the services or facilities it
needs could adversely affect its business;
o IG2, Inc. will be unable to control the terms and conditions
under which it gains access to the ILECs collocation and
transmission facilities;
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o IG2, Inc. will be unable to control the terms or timing of
extending its interconnection agreements;
o IG2, Inc.'s arrangements with the ILECs will be subject to
review and revision by various regulatory entities;
o IG2, Inc. may not be successful in completing the upgrade of
its network or achieving competitive transmission speeds;
o IG2, Inc. will depend on peering relationships that may be
adversely modified in the future;
o A system failure or breach of security could cause delays or
interruptions of service to IG2, Inc.'s customers; and
o IG2, Inc. will depend on third parties to provide equipment
which is critical to providing its DSL and web hosting
services.
The loss of key personnel and our limited management and personnel resources
could adversely affect our operations and growth.
Our future success will depend to a significant extent on key personnel
and on the continued services of our senior management and other key personnel,
particularly Bruce Bendell, our Chairman, and Doron Cohen, our President and
Chief Executive Officer. The loss of the services of these, or certain other key
employees, would likely have a material adverse effect on our business. The
consulting agreement with Mr. Bendell and employment agreement with Mr. Cohen
both expired on December 31, 1998 and are in the process of being renegotiated.
Messrs. Bendell and Cohen are currently employed at will. We do not maintain
"key person" life insurance for any of our personnel. Our future success will
depend on our continuing ability to attract, retain and motivate other highly
skilled employees. Competition for such personnel in our industry is intense. We
may be unable to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business,
financial condition and operations will be adversely affected.
Potential conflicts of interest between Fidelity and its management personnel
could adversely affect our future performance.
We have entered into, or contemplate that we may enter into, several
transactions with our Chairman and controlling stockholder, Bruce Bendell,
and/or his brother Harold Bendell, a senior executive of Major Dealer Group.
Such transactions include the following:
- In 1996, we acquired Major Fleet from the Bendell brothers. In exchange,
the Bendell brothers received (a) shares of the Company's 1996-MAJOR Series of
Convertible Preferred Stock, (b) warrants that carry registration rights and (c)
the right to manage the operations of Major Dealer Group's vehicle leasing
activities pursuant to a management agreement.
- We acquired Major Auto from Bruce and Harold Bendell in May 1998. Bruce
and Harold Bendell received shares of Fidelity's 1997A-MAJOR AUTOMOTIVE GROUP
Series of Preferred Stock in that transaction and Bruce Bendell has a proxy to
vote the 50 shares of the 1997A-MAJOR AUTOMOTIVE GROUP Series of Preferred Stock
owned by Harold Bendell for a seven-year period which commenced on January 7,
1998. These shares allow the Bendell brothers to elect a majority of the
directors of Major Auto. The Bendell brothers are also parties to a management
agreement with Major Auto that gives them control over its day-to-day
operations. Should the Board of Directors of Major Auto and Fidelity disagree as
to a particular course of action, the Board of Directors of Major Auto will be
able to take that action over the objection of Fidelity. Conflicts could arise
between the Board of
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Directors of Fidelity and the Board of Directors of Major Auto as to the
appropriate course of action to be taken in the future. The Management Agreement
does prohibit certain actions from being taken without the prior approval of
Fidelity's Board of Directors, including:
o disposition of any of the Major Auto dealerships;
o acquisition of new dealerships; and
o Fidelity incurring liability for Major Auto indebtedness.
Should either of the Bendell brothers cease managing the dealerships, the
management agreement provides that ownership of his 1997A-MAJOR AUTOMOTIVE GROUP
Series of Preferred Stock shares and his management rights under the management
agreement will be automatically transferred to the other, and should both
brothers cease managing the dealerships for any reason, the shares and
management rights will be automatically transferred to a successor manager
designated in a successor addendum to each dealership agreement or, failing such
designation, to a successor manager designated by Fidelity (subject to approval
by the applicable manufacturers).
- We and Mr. Bendell are currently nearing completion of a transaction
concerning our acquisition of Major of the 5 Towns, a dealership majority-owned
by Mr. Bendell.
These transactions may involve situations in which Bruce Bendell's
interests as a director and shareholder of the Company conflict with his or his
brother Harold Bendell's interests as Major Auto's counterpart. Major Auto
supplies used vehicles to other dealerships in which the Bendells have an
interest. Such vehicles are charged to the other dealerships at amounts
sufficient to cover all of Major Auto's costs and expenses in connection with
the transactions.
The markets in which we operate are highly competitive, and we may not be able
to compete effectively, especially against established industry competitors with
significantly greater financial resources.
Automotive Division
The automobile dealership business is highly competitive. Our competitors
include:
o automobile dealers;
o private sellers of used vehicles;
o used vehicle dealers;
o other franchised dealers;
o service center chains; and
o independent service and repair shops.
Gross profit margins on the sale of new vehicles have been decreasing over
the past two decades and the used car market faces increasing competition from
independent leasing companies and from used vehicle "superstores" that may have
inventories that are larger and more varied than Major Auto's. Some of Major
Auto's competitors may be larger, have access to greater financial resources and
be capable of operating on smaller gross margins than Major Auto. There can be
no assurance that we will continue to compete effectively or that manufacturers
will not modify the historical automobile franchise system in a manner that
increases competition among dealers or market and sell their vehicles through
other distribution channels.
Technology Division
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The markets in which the Technology Division sells its products or intends
to sell its products are highly competitive. There are at present no significant
barriers to entry into such markets. Many of the producers of products that
presently compete with or may in the future compete with our products, as well
as companies wishing to enter the market in which our products compete, have
well established reputations, customer relationships and marketing and
distribution networks. Many of these companies also have greater financial,
technical, manufacturing, marketing, management and research and development
resources than do we. They may be more successful than we are in manufacturing
and marketing their products and they may be able to use their greater resources
to leverage existing relationships to obtain a competitive advantage over us.
There can be no assurance that we will continue to compete effectively.
The market for IG2, Inc.'s data networking solutions and Web hosting
services is rapidly evolving and intensely competitive. Many of its competitors
are offering, or may soon offer, technologies and services that will directly
compete with some or all of IG2, Inc.'s planned service offerings. IG2, Inc.'s
competitors use technologies for local access connections that include DSL,
wireless data systems, cable modems and ISDN technologies. Some of these
technologies may provide performance advantages in some respects over DSL and
other technologies using existing copper telephone wires.
IG2, Inc. expects to face competition for its DSL and leased line services
from ILECs, alternative DSL providers, competitive local exchange carriers,
Internet service providers, wireless and cable companies. In the Boston, New
York, Philadelphia and Washington, D.C. metropolitan areas, IG2, Inc. expects to
compete directly against other DSL providers such as Covad Communications Group,
Inc., Network Access Solutions Corporation, NorthPoint Communications Group Inc.
and Rhythms NetConnections, Inc. It also expects to compete with cable companies
in the New England area for telecommuting and work-at-home applications.
ILECs are both essential suppliers of facilities and services for DSL and
other Internet connectivity services and significant competitors that pose a
significant risk to the success of IG2, Inc.'s business. ILECs have existing
networks in local areas and across the major metropolitan areas in IG2, Inc.'s
target market, currently provide basic telephony service to substantially all of
the customers that they hope to serve and have their own Internet service
provider businesses. Absent oversight by federal and state regulators, ILECs
have the ability to benefit their own DSL operations by providing them with
essential service inputs, such as copper telephone lines, transmission
facilities and collocation on more favorable terms than those provided to IG2,
Inc. ILECs are deploying DSL services in selected markets and could deploy DSL
services on a widespread basis which could have a material adverse effect.
IG2, Inc. expects to compete in the Web hosting and collocation segment of
its business with a variety of companies, including AboveNet Communications
Inc., Concentric Network Corporation, Digex Incorporated, Exodus Communications,
Inc., GTE Internetworking, Level 3 Communications, Inc. and NaviSite, Inc.
Many of IG2, Inc.'s potential competitors, as well as a number of its
potential new competitors, have longer operating histories, greater name
recognition and substantially greater financial, technical and marketing
resources. Some of its potential competitors may have the financial resources to
withstand substantial price competition. Moreover, IG2, Inc.'s competitors may
be able to negotiate contracts with potential and current technical employees as
well as suppliers of telecommunications products and services which are more
favorable than contracts negotiated by IG2, Inc.
In addition, we may face increasing competition with respect our Talkie(R)
Power Web Line Machine as a result of deregulation in foreign countries which
could result in competition from other service providers with large, established
customer bases or close ties to governmental authorities in their home countries
and decreased prices for direct-dialed international calls. Customers could
become unwilling to use our services, which would adversely affect our ability
to derive revenues from our Talkie(R) Power Web Line Machines.
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Government regulation and environmental regulation compliance costs may
adversely affect our profitability.
Automotive Division
Our operations are subject to various Federal, state and local laws and
regulations including those relating to local licensing and consumer protection.
While we believe that we maintain all requisite licenses and permits and that we
are in substantial compliance with all applicable laws and regulations, there
can be no assurance that we will be able to continue to maintain all requisite
licenses and permits or to comply with applicable laws and regulations, and our
failure to do so could have a material adverse effect on our business, financial
condition and results of operations. In addition, the adoption of any new laws
or regulations and the cost to us of complying with any new laws or regulations,
could have a material adverse effect on our business, financial condition and
results of operations.
In addition, as with automobile dealerships generally, and parts and
service operations in particular, Major Auto's business involves the use,
handling and contracting for recycling or disposal of hazardous or toxic
substances or wastes, including environmentally sensitive materials such as:
o motor oil;
o waste motor oil and filters;
o transmission fluid;
o antifreeze;
o freon;
o waste paint and lacquer thinner;
o batteries;
o solvents;
o lubricants;
o degreasing agents; and
o gasoline and diesel fuels.
Accordingly, we are subject to Federal, state and local environmental laws
governing health, environmental quality, and remediation of contamination at
facilities Major Auto operates or to which it sends hazardous or toxic
substances or wastes for treatment, recycling or disposal. We believe that we
are in material compliance with all environmental laws and that such compliance
will not have a material adverse effect on our business, financial condition or
results of operations. However, environmental laws are complex and subject to
frequent change. There can be no assurance that compliance with amended, new or
more stringent laws, stricter interpretations of existing laws or the future
discovery of environmentally hazardous conditions will not require material
expenditures by us.
Technology Division
Because many of the facilities and services IG2, Inc. will need in order
to provide DSL are subject to regulation at the federal, state and local levels,
changes in applicable laws or regulations could have an adverse impact on its
business. For example, the FCC and state telecommunications regulators help
determine the terms under which collocation space will be provided. The FCC also
oversees the terms under which IG2, Inc. will gain access to an ILEC incumbent
local exchange carrier's copper telephone lines and transport facilities that it
will need in order to provide DSL services. Future federal or state regulations
and legislation may be less favorable to IG2, Inc. than current regulations and
legislation and could have a material adverse effect on its business, financial
condition or results of operations. In addition, IG2, Inc. may choose to expend
significant resources to participate in regulatory proceedings at the federal or
state level without achieving favorable results. IG2, Inc. expects ILECs and
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other incumbent local carriers to pursue litigation in courts, institute
administrative proceedings with the FCC and state telecommunications regulators
and lobby the U.S. Congress in an effort to affect the applicable laws and
regulations in a manner that would be more favorable to them and may be against
IG2, Inc.'s interests. Any changes in IG2, Inc.'s regulatory environment could
create greater competitive advantages for all or some of its competitors or
could make it easier for additional parties to provide DSL services.
IG2, Inc. will be subject to FCC and state regulation for its
interconnection arrangements with the incumbent local carriers in its markets,
but the scope of this regulation is uncertain because it is the subject of
ongoing court and administrative proceedings. Several parties have brought court
challenges to the FCC's interconnection rules, including the rules that
establish the terms under which a competitive telecommunications company may use
portions of an incumbent local carrier's network and that define the particular
network elements to which IG2, Inc. will be entitled. Although the Supreme Court
recently held that the FCC has the authority to adopt interconnection rules and
specifically upheld several of these rules, the Supreme Court also reversed and
remanded the FCC's specification of the network elements it will be entitled to
obtain from ILECs and other incumbent local carriers. The FCC is conducting a
proceeding to re-specify those elements and may not require the continued
availability of elements IG2, Inc. will need. Other rules are still being
considered by the courts and the FCC. If a rule that is beneficial to IG2,
Inc.'s business is struck down by the courts, it could harm its ability to
compete. In particular, the courts have not yet resolved the lawfulness of the
methodology that the FCC established to determine the price that competitive
telecommunications companies would have to pay incumbent local carriers for use
of the incumbent local carriers' networks. The courts may determine that the
FCC's pricing rules are unlawful, which would require the FCC to establish a new
pricing methodology. If this occurs, the new pricing methodology that the FCC
adopts may result in IG2, Inc.'s having to pay a higher price to incumbent local
carriers to use a portion of their networks in providing its services, and this
could have a material adverse effect on its business, financial condition and
results of operations.
The FCC issued a decision that an incumbent local carrier's data services
are subject to unbundling and resale requirements. The FCC is still considering
alternative corporate structures for the incumbent local carriers that would
allow them to compete more directly with DSL providers like IG2, Inc. on an
unregulated basis. This issue is still pending before the FCC. An FCC decision
in favor of the incumbent local carriers could have a material adverse effect on
IG2, Inc.'s business, financial condition and results of operations. Although
the FCC recently adopted new rules designed to provide greater access to central
office space at less cost, these new rules potentially could benefit IG2, Inc.'s
competitors to a greater extent than they benefit it, which could harm its
competitiveness.
A January 1999 decision by the U.S. Supreme Court has raised questions
about whether IG2, Inc. will be able to obtain the network elements from the
ILECs necessary to provide DSL in the future. In that decision, the Supreme
Court invalidated an FCC rule which defines the particular elements of an
incumbent local carrier's network that must be provided to competitors like IG2,
Inc., and it sent the matter back to the FCC with instructions to consider
further the question of which elements of an incumbent local carrier's network
must be provided to competitors. The FCC recently initiated a proceeding to
establish which network elements are required to be provided by incumbent
carriers to competitors. The FCC has stated that it plans to issue a new
decision on this matter later this year. IG2, Inc. would be adversely affected
if the FCC were to specify a set of elements that does not include the elements
that it will need to provide its services.
Recently, various ILECs have requested the FCC grant them regulatory
relief in the provision of data transmission services, including DSL services,
which would allow the ILECs to compete more directly with DSL providers such as
IG2, Inc. In response, the FCC issued a decision that data services generally
are telecommunications services that, when provided by ILECs, are subject to the
FCC's interconnection rules, including the rule requiring that an ILEC's data
services be subject to unbundling
- 13 -
<PAGE>
and resale requirements. This issue is still pending before the FCC, and we
cannot be certain that the FCC will not reconsider its decision. Moreover,
although the FCC recently adopted new rules designed to provide greater access
to central office space at less cost, these new rules may benefit our
competitors to a greater extent than they benefit us, which could harm our
competitiveness. Additionally, since the FCC issued its decision, various ILECs
have again asked the FCC for regulatory relief with respect to their provision
of data transmission services. The FCC has not yet resolved these later
requests. We would expect that an FCC decision in favor of the ILECs could have
a material adverse effect on IG2's business, prospects, financial condition and
results of operations.
We face risks in our international operations.
We intend to expand our new and used vehicle purchasing service to foreign
markets through licensing our technology, business processes and tradenames and
by establishing relationships with vehicle dealers and strategic partners
located in certain foreign markets.
By expanding our operations to various other countries, we may become
subject to laws or treaties that regulate the marketing, distribution and sale
of motor vehicles. In addition, the laws of other countries may impose
licensing, bonding or similar requirements on us as a condition to doing
business therein. In addition, there are certain risks inherent in doing
business in international markets, such as:
o changes in political conditions;
o regulatory requirements;
o potentially weaker intellectual property protections;
o tariffs and other trade barriers;
o fluctuations in currency exchange rates;
o potentially adverse tax consequences;
o difficulties in managing or overseeing foreign operations;
o seasonal reductions in business activities during summer
months in Europe and other areas; and
o educating consumers and dealers who may be unfamiliar with the
benefits of online marketing and commerce.
One or more of such factors may have a material adverse effect on our
current or future international operations and, consequently, on our business,
results of operations and financial condition.
Our Talkie(R) Power Web Line Machine and Talkie-Globe(R) system are used
to provide services to foreign countries. These products are subject to the
risks associated with international operations enumerated above, as well as:
o difficulty in accounts receivable collection;
o longer payment cycles;
o difficulty in maintaining and repairing equipment abroad; and
o possible confiscation of equipment and potentially adverse tax
consequences.
The realization of these risks by purchasers of our Talkie(R) products
could adversely affect our ability to sell our Talkie(R) products and could
reduce our income therefrom.
Government-owned monopolies operate the telephone systems of many of the
countries to which our Talkie(R) Power Web Line Machine is used to provide
telephone services. While we are not aware that any such action is contemplated
by any of these entities, there can be no assurance that in the future one or
more of them will not adopt regulations limiting or prohibiting us from
providing such services. The effect of such regulation could be to reduce our
ability to operate the Talkie(R) Power Web Line Machine profitably.
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<PAGE>
We may be unable to protect our intellectual property. We have no protection to
the "Major" name.
The success of our Technology Division depends in part upon the strength
of our patents and our ability to operate without infringing the proprietary
rights of others. To protect our intellectual property we have:
o registered the name "Talkie(R)" as a trademark in Canada;
o registered the names "Talkie(R)," "Talkie-Globe(R)" and
"IG2(R)" as trademarks in the United States Patent and
Trademark Office;
o filed applications in the United States Patent and Trademark
Office for the names "BCS" "IG2 Networks," "IG2
Communications," "Knock-Out 112," "NAICS" and "Browse N Talk"
as trademarks;
o acquired two United States patents, issued in June 1993 and
May 1994, respectively, relating to the armored conduit
technology and a Canadian patent application relating to such
technology;
o obtained two United States patents and filed two additional
United States patent applications relating to the spa and bath
fixtures and related installation method;
o filed one application relating to the spa and bath fixtures
and related installation method in Canada and the European
Patent Office (listing six countries) and filed another
application relating to the spa and bath fixtures and related
installation method under the Patent Cooperation Treaty
designating Australia, Canada, China, Japan and the European
Patent Office (up to eighteen countries) as recipient
countries. Under such treaty, we will have the option to
individually file separate applications in the designated
countries at an appropriate future date;
o obtained one U.S. patent issued November 1999 relating to a
head cover with an eye spraying capability;
o obtained at least a partial interest in one U.S. patent issued
March 1999 to a long life storage battery with a magnetic
field source and an acid based heat source, and filed a
further U.S. patent application related to the same
technology;
o filed three U.S. patent applications in the last year relating
to a fire extinguishing agent, a sludge treatment and
fertilizer, and treatment agent; and
o filed a provisional U.S. patent application relating to the
control of Internet protocol traffic in a wide-or
local-area-network (LAN or WAN).
There can be no assurance that we will choose to file such separate
applications, that any of our applications for patents or trademarks will be
granted or that we will maintain issued patents, patent applications or
trademarks. Nor can there be any assurance that any patents that issue from such
applications or our issued patents will not be challenged and, if challenged,
will be upheld. Nor can there be any assurance that issued patents will provide
us with a significant competitive advantage.
Moreover, we may be required to defend a claim of infringement or to
institute litigation to prevent infringement. The costs of such litigation, even
if we are successful, can be substantial and may be beyond our financial
capability. If we were unsuccessful in our defense of an infringement claim, we
could be liable for substantial damages and could be enjoined from manufacturing
or selling the infringing product or required to obtain a license which may not
be available on acceptable terms or at all.
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<PAGE>
In addition, we have no federally or state registered trademark on the
Major name. Future use of the Major name by a third party could have a negative
impact on our business.
We face risks in connection with legal proceedings in which we are involved.
We and our wholly-owned subsidiaries, Computer Business Sciences and Info
Systems, are plaintiffs in a legal action against Michael Marom and M.M.
Telecom, Corp. The plaintiffs claim damages of $5,000,000 for breach of
contract, libel, slander, disparagement, violation of copyright laws, fraud and
misrepresentation. The defendants have counterclaimed for damages of $50,000,000
for breach of contract and violation of the Lanham Act. While we believe that
the our asserted claims have merit and that we have substantial defenses to the
asserted counterclaims, a judgment against us with respect to this action could
have a material adverse effect on our financial condition.
A legal action has been commenced against us in Federal District Court in
Nevada in connection with a dispute regarding ownership of 360,000 shares of our
common stock. While we believe that we have substantial defenses to the asserted
claims and intend to vigorously defend this suit, a judgment against us with
respect to this action could have a material adverse effect on financial
condition.
We are dependent on changing technology to keep our products competitive.
The computer and telecommunications industries are undergoing rapid
technological changes. The success of the Technology Division will depend upon
our ability to understand and utilize changing technology to keep our products
competitive. Failure to develop and introduce new products or enhancements to
our existing products in a timely fashion could result in product obsolescence,
diminished market acceptance of our products and a loss of business, which could
have a material adverse effect on our business, financial condition and results
of operations.
We face risks associated with the sale of automobiles over the Internet
-Competition
Our Internet vehicle purchasing services compete against a variety of
Internet and traditional vehicle purchasing services and automotive brokers. The
market for Internet-based commercial services is new, and competition among
commercial Web sites is expected to increase significantly in the future. The
Internet is characterized by minimal barriers to entry, and new competitors can
launch new Web sites at relatively low cost. To compete successfully over the
Internet, we must significantly increase awareness of our services and brand
name.
We compete with other entities which maintain similar commercial Web
sites, including:
o Autoweb.com;
o Autobytel.com;
o Carsdirect.com;
o Cendant Membership Service, Inc.'s Auto Vantage; and
o Microsoft Corporation's Carpoint and Stoneage Corporation.
AutoNation, Inc., a large consolidator of dealers, has announced its
intention to launch a Web site for marketing vehicles. We also compete
indirectly against vehicle brokerage firms and affinity programs offered by
several companies, including Costco Wholesale Corporation and Wal-Mart Stores,
Inc. In addition, all major vehicle manufacturers have their own Web sites and
many have recently launched or announced plans to launch online buying services.
We also compete with vehicle insurers, lenders and lessors as well as other
dealers that are not part of our network. Such companies may already maintain or
may introduce Web sites which compete with ours.
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<PAGE>
We cannot assure you that we can compete successfully against current or
future competitors, many of which have substantially more capital, existing
brand recognition, resources and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Web
site traffic or loss of market share or otherwise may materially and adversely
affect our business, results of operations and financial condition.
- The Internet industry is characterized by rapid technological change.
Rapid technological developments, evolving industry standards and consumer
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Our future success will significantly depend on our ability to
continually improve the vehicle purchasing experience, the addition of new and
useful services and content to our Web site, and the performance, features and
reliability of our Web site. In addition, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes in
our technology and could fundamentally affect the nature, viability and
measurability of Internet-based advertising, which could adversely affect our
business, results of operations and financial condition.
- We could face liability for information retrieved from or transmitted
over the Internet and liability for products sold over the Internet.
We could be exposed to liability with respect to third-party information
that may be accessible through our Web site, or content and materials that may
be posted by consumers through our www.majorworld.com site. Such claims might
assert, among other things, that, by directly or indirectly providing links to
Web sites operated by third parties, we should be liable for copyright or
trademark infringement or other wrongful actions by such third parties through
such Web sites. It is also possible that, if any third-party content information
provided on our Web site contains errors, consumers could make claims against us
for losses incurred in reliance on such information.
We also may enter into agreements with other companies under which any
revenue that results from the purchase of services through direct links to or
from our Web site is shared. Such arrangements may expose us to additional legal
risks and uncertainties, including local, state, federal and foreign government
regulation and potential liabilities to consumers of these services, even if we
do not provide the services ourselves. We cannot assure you that any
indemnification provided to us in our agreements with these parties, if
available, will be adequate.
Even to the extent such claims do not result in liability to us, we could
incur significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our system could require us to implement measures to reduce
our exposure to such liability, which might require the expenditure of
substantial resources or limit the attractiveness of our services to consumers,
member dealers, automotive-related vendors and others.
Our general liability insurance and our communications liability insurance
may not cover all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on our business, results of
operations and financial condition.
- We face risks associated with security breaches involving confidential
information transmitted via the Internet.
- 17 -
<PAGE>
We rely on technology licensed from third parties that is designed to
facilitate the secure transmission of confidential information. Nevertheless,
our computer infrastructure is potentially vulnerable to physical or electronic
computer break-ins, viruses and similar disruptive problems. A party who is able
to circumvent our security measures could misappropriate proprietary
information, jeopardize the confidential nature of information transmitted over
the Internet or cause interruptions in our operations. Concerns over the
security of Internet transactions and the privacy of users could also inhibit
the growth of the Internet in general, particularly as a means of conducting
commercial transactions. To the extent that our activities or those of third
party contractors involve the storage and transmission of proprietary
information (such as personal financial information), security breaches could
expose us to a risk of financial loss, litigation and other liabilities. Our
insurance does not currently protect against such losses. Any such security
breach could have a material adverse effect on our business, results of
operations and financial condition.
- Major Auto and IG2, Inc. face risks associated with government
regulation and legal uncertainties associated with the Internet.
There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal insurance
licensing laws, motor vehicle dealer laws or related consumer protection or
product liability laws apply to aspects of our business. As we introduce new
services and expand our operations to other countries, we will need to comply
with additional licensing and regulatory requirements.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including, but not
limited to:
o online content;
o user privacy;
o taxation;
o access charges;
o liability for third-party activities; and
o jurisdiction.
Additionally, it is uncertain as to how existing laws will be applied to
the Internet. The adoption of new laws or the application of existing laws may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase our cost of doing business or otherwise have a
material adverse effect on our business, results of operations and financial
condition.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new state
and local taxes on Internet commerce. However, we cannot assure you that future
laws imposing taxes or other regulations on commerce over the Internet would not
substantially impair the growth of e-commerce and as a result have a material
adverse effect on our business, results of operations and financial condition.
Concentration of voting power and anti-takeover provisions in our charter
documents may reduce stockholder value in any potential change of control of the
Company.
Mr. Doron Cohen is the beneficial owner of approximately 20.5% and Mr.
Bruce Bendell is the beneficial owner of approximately 31.2% of our common stock
(in both instances giving effect to Mr. Bendell's right to vote his 1997 Major
Series Preferred Stock as our common stock on an "as converted" basis.) This
concentration of voting power will severely limit the ability of other of our
stockholders to
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<PAGE>
elect directors or influence other corporate decisions and may, among other
things, have the effect of delaying or preventing a change in control of the
Company or preventing our stockholders from realizing a premium on the sale of
their shares upon an acquisition of the Company.
Our Board of Directors has the authority to issue shares of preferred
stock and to determine the price, rights, preferences and privileges, including
voting rights, of those shares without any further action by our stockholders.
The rights of holders of our common stock will be subject to and may be
adversely affected by the rights of the holders of any preferred stock. Any
future designation and issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire control of us. We are also
subject to the provisions of the Nevada General Corporation Law regulating
business combinations, takeovers and control share acquisitions, which also
might hinder or delay a change in control of us. Anti-takeover provisions that
could be included in the preferred stock when designated and issued and the
Nevada statutes can have a depressive effect on the market price of our common
stock and can prevent the our stockholders from realizing a premium on the sale
of their shares by discouraging takeover and tender offer bids. In addition,
under our dealer agreement with General Motors, we may be at risk of losing the
Chevrolet franchise if any person or entity acquires 20% or more of our voting
stock without the approval of General Motors.
Future sales of our common stock may depress our stock price.
Future sales of shares of common stock by existing shareholders under Rule
144 of the Securities Act or through the exercise of outstanding registration
rights or the issuance of shares of common stock upon the exercise of options or
warrants or the conversion of our outstanding Preferred Stock could materially
adversely affect the market price of the common stock and could materially
impair our future ability to raise capital through an offering of equity
securities. A substantial number of shares of common stock are available for
sale under Rule 144 in the public market or will become available for sale in
the near future and no predictions can be made as to the effect, if any, that
market sales of such shares or the availability of such shares for future sale
will have on the market price of the common stock prevailing from time to time.
Holders of our outstanding options and warrants are likely to exercise
them when, in all likelihood, we could obtain additional capital on terms more
favorable than those provided in the options and warrants. Our ability to obtain
additional financing may also be adversely affected by our obligation to
register shares of common stock under the Securities Act. Castle Trust and
Management Services Limited, as Trustee under the Millennium Trust created under
that certain Deed of Settlement dated October 2, 1996, the principal beneficiary
of which is Bruce Bendell, has the right (on an unlimited number of occasions)
to require us to register all or any portion of the common stock, aggregating
738,918 shares, into which the 125,000 shares of our 1996-MAJOR Series of
convertible preferred stock has been converted (the "1996 Demand Shares"). In
addition, Bruce Bendell has the right to require us (on an unlimited number of
occasions) to register all or any portion of the 112,500 shares of common stock
underlying a warrant held by him (the "Warrant Demand Shares"). Further, if we
register any shares of common stock, we will have to offer to include the 1996
Demand Shares, the Warrant Demand Shares and the shares of common stock (a
minimum of 4,050,000 shares) into which the 1997-MAJOR Series of Convertible
Preferred Stock (the "1997 Major Preferred"), issued to Bruce Bendell in the
Major Auto Acquisition, is convertible. In October 1999 Mr. Bendell converted
400,000 shares of 1997 Major Preferred into 1,800,000 shares of common stock.
We may be required to issue additional shares to recent investors pursuant to
certain adjustable warrants without receiving additional payment, which could
result in dilution to our shareholders.
In connection with the sale of shares of our common stock on December 8,
1999 and February 8, 2000 to three investors, who are selling shareholders
hereunder, we may be required to issue adjustment shares to them for no
additional consideration pursuant to certain adjustable warrants. Declines in
the
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<PAGE>
market price of our common stock could result in the issuance of a significant
number of adjustment shares. This could have a substantial dilutive effect on
our common stock. The number of adjustment shares to be issued depends on the
average of the lowest 10 days closing bid prices for our common stock during
each of the three consecutive 40 day periods after the date of this Prospectus.
If the price of our common stock should decline to below $7.4167 per share in
the first instance and $10.00 per share in the other, at our option, we may
either issue additional shares or pay a cash amount in lieu of issuance of such
additional shares. If, under certain conditions and for certain periods the
average price of our stock exceeds $25.50 per share in the first instance and
$22.50 per share in the other, no additional shares may be required to be
issued. The following table sets forth the number of adjustment shares that we
would be required to issue to the investors if the relevant average closing bid
prices were at different levels, including if the relevant average closing bid
prices were $3.00 per share, the closing price of our common stock on May 24,
2000. See "Selling Shareholders."
Average Closing Bid Price
Average Closing Bid As a Percentage Of
Price Per Share 5/24/00 Closing Price Total Adjustment Shares
--------------- ---------------------- -----------------------
$ 3.00 100% 393,587 (1)
$ 2.25 75% 393,587 (2)
$ 1.50 50% 393,587 (3)
$ 0.75 25% 393,587 (4)
(1) Represents the maximum number of shares Fidelity is obligated to issue
if we elected to pay $5,275,121 in cash in lieu of the further issuance of an
additional 1,758,374 shares. Each such cash payment and issuance of shares
represents the difference between $3.00 and $7.4167 in the first instance and
between $3.00 and $10.00 in the second.
(2) Represents the maximum number of shares Fidelity is obligated to issue
if we elected to pay $5,968,841 in cash in lieu of the further issuance of an
additional 2,652,818 shares. Each such cash payment and issuance of shares
represents the difference between $2.25 and $7.4167 in the first instance and
between $2.25 and $10.00 in the second.
(3) Represents the maximum number of shares Fidelity is obligated to issue
if we elected to pay $6,662,561 in cash in lieu of the further issuance of an
additional 4,441,707 shares. Each such cash payment and issuance of shares
represents the difference between $1.50 and $7.4167 in the first instance and
between $1.50 and $10.00 in the second.
(4) Represents the maximum number of shares Fidelity is obligated to issue
if we elected to pay $7,356,280 in cash in lieu of the further issuance of an
additional 9,808,374 shares. Each such cash payment and issuance of shares
represents the difference between $0.75 and $7.4167 in the first instance and
between $0.75 and $10.00 in the second.
We have never paid cash dividends on our common stock.
We have never paid cash dividends on our common stock. We intend to retain
any future earnings to finance our growth. In addition, dividends on common
stock are subject to the preferences for dividends on the preferred stock. Any
future dividends will depend upon our earnings, if any, our financial
requirements, and other factors.
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<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. We use forward-looking statements in our description of our plans and
objectives for future operations, assumptions underlying these plans and
objectives. Forward-looking terminology includes the words "may," "expects,"
"believes," "anticipates," "intends," "projects," or similar terms, variations
of such terms or the negative of such terms. These forward-looking statements
are based on management's current expectations and are subject to factors and
uncertainties which could cause actual results to differ materially from those
described in such forward-looking statements. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this Prospectus to reflect any change in
our expectations or any changes in events, conditions or circumstances on which
any forward-looking statement is based. Factors which could cause such results
to differ materially from those described in the forward-looking statements
include those set forth under "Risk Factors."
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the
account of the selling shareholders identified in this Prospectus. See "Selling
Shareholders." All net proceeds from the sale of the common stock will go to the
shareholders who offer and sell their shares of common stock. We will not
receive any part of the proceeds from such sales of common stock. We will
receive proceeds upon the exercise of the warrants. The maximum proceeds from
the exercise of the warrants aggregates $8,110,814. Because, the proceeds, if
any, from the exercise of the adjustable warrants is dependent on the future
prices of the Company's common stock and, under certain circumstances, future
decision by the Company, it is not possible at this time to determine the amount
of any such proceeds. We will use any such net proceeds for general corporate
purposes.
SELLING SHAREHOLDERS
The following list of selling shareholders includes (1) the number of
shares of common stock currently owned by each selling shareholder, (2) the
number of shares being offered for resale hereby by each selling shareholder;
and (3) the number and percentage of shares of common stock to be held by each
selling shareholder after the completion of this offering. Except as otherwise
indicated in the footnotes to such table, no such selling shareholder has been
an officer, director or employee of the Company for the past three years. The
registration of the shares does not necessarily mean that the selling
shareholders will sell all or any of the shares.
The selling shareholders provided us with all information with respect to
their share ownership. Because the selling shareholders may sell all, part or
none of their shares, we are unable to estimate the number of shares that will
be held by any selling shareholders upon resale of shares of common stock being
registered hereby. See "Plan of Distribution."
The terms of the warrants issued to certain selling shareholders prohibit
the holders thereof from exercising such warrants to the extent that such
exercise would result in the holders, together with any affiliates thereof,
beneficially owning in excess of 4.999% of the outstanding shares of common
stock, following such exercise. Such restrictions may be waived by the each
holder of the respective warrants as to itself upon not less than 61 days'
notice to the Company.
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<PAGE>
Pursuant to Rule 416 under the Securities Act, selling shareholders may
also offer and sell shares issued with respect to the warrants, debentures and
preferred stock as a result of (1) stock splits, stock dividends or similar
transactions and (2) the effect of anti-dilution provisions contained in the
underlying documents.
<TABLE>
<CAPTION>
Name Shares Beneficially Owned Prior Shares Beneficially Owned After
---- to the Offering (1) Shares to be Offering(3)
------------------------------- Sold in the -------------------------------
Number Percent Offering(2) Number Percent
------ ------- ----------- ------ -------
<S> <C> <C> <C> <C> <C>
Strong River Investments Inc. 454,250(4) 1.8 836,272(7) 0 0
Montrose Investments Ltd 177,125(5) * 559,147(7) 0 0
Augusta Street LLC 354,250(6) 1.4 736,272(7) 0 0
International Securities 24,256(8) * 24,256 0 0
Corporation
Mark Bergman 100,000(9) * 100,000(9) 0 0
Arthur Picon 45,363(10) * 45,363 0 0
Scott Picon 20,813(10) * 20,813 0 0
Frank M. Graziadei 71,333(11) * 71,333 0 0
Gabry, Inc. 25,550(11) * 25,550 0 0
HBK Master Fund L.P. 177,125(12) * 177,125 0 0
</TABLE>
* Less than one percent
(1) Beneficial ownership is determined in accordance with SEC rules and
generally include voting or investment power with respect to securities.
Shares of common stock subject to options, warrants and convertible
preferred stock currently exercisable or convertible, or exercisable or
convertible within sixty (60) days, are counted as outstanding for
computing the percentage of the person holding such options or warrants
but are not counted as outstanding for computing the percentage of any
other person.
(2) Except under certain circumstances, none of the selling shareholders,
except for International Securities Corporation, may exercise warrants to
the extent that such exercise would cause the selling shareholder to
beneficially own more than 4.99% of the total outstanding common stock of
the Company. Therefore, the number of shares listed here and which a
selling shareholder may sell pursuant to this Prospectus may exceed the
number of shares such selling shareholder may beneficially own as
determined pursuant to Section 13(d) of the Securities Exchange Act of
1934, as amended.
(3) Assumes that all of the shares held by the selling shareholders and being
offered under this Prospectus are sold and that the selling shareholders
acquire no additional shares of common stock before the completion of this
offering. The actual number of shares of common stock offered hereby is
subject to change and could be materially greater or less than the
estimated amount indicated, depending upon a number of factors, including
whether the number of shares
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of common stock outstanding have been adjusted to account for any stock
dividend, stock split and similar transactions or adjustment.
(4) Represents an aggregate of 227,125 shares of Common Stock purchased in
December 1999, February 2000 and March 2000 private placements, described
below, and an aggregate of 227,125 shares of Common Stock issuable upon
exercise of warrants issued in connection therewith.
(5) Represents an aggregate of 177,125 shares of Common Stock purchased in
December 1999 and February 2000 private placements, described below.
(6) Represents an aggregate of 177,125 shares of Common Stock purchased in
December 1999 and February 2000 private placements, described below, and
an aggregate of 177,125 shares of Common Stock issuable upon exercise of
warrants issued in connection therewith.
(7) Represents the shares indicated as beneficially owned by the selling
shareholders as well as shares issuable to the selling shareholder
pursuant to certain adjustable warrants. Since the number of shares
issuable upon exercise of such adjustable warrants depends in part upon
the market price of the common stock prior to issuance, the actual number
of shares that will be issued and, consequently, offered for sale under
this registration statement, cannot be determined at this time. In order
to provide a cushion for any fluctuations in the market price of the
Common Stock, Fidelity has contractually agreed to include herein the
number of shares of Common Stock as would be issuable upon exercise in
full of the adjustable warrants assuming the market price at each vesting
date thereunder were $3.25 for the December 1999 private placement shares
and $7.46875 for the February 2000 private placement shares. Fidelity has
the option, if the relevant average market price per share at a vesting
date is below $7.41667 in the case of the December 1999 private placement
and $10.00 in the case of the February 2000 private placement, of paying
cash in lieu of issuing shares for any adjustment below $7.41667 and
$10.00, respectively. In the event that the relevant average market price
were $3.25 and $7.46875, respectively, and Fidelity exercised this option,
the shares to be sold in this Offering would be 131,196 for each of Strong
River Investments, Inc., Montrose Investments Ltd. and Augusta Street LLC.
(8) Represents shares of common stock received as compensation in connection
with June 1999, December 1999 and February 2000 private placements.
(9) Represents shares underlying options received as part of financial
consultant services performed for the Company.
(10) Represents shares issued in connection with the acquisition of the Compass
Lincoln Mercury dealership.
(11) Represents shares issued in connection with the acquisition of the
Hempstead Mazda dealership.
(12) Represents shares issuable upon exercise of warrants transferred from
Montrose Investments Ltd.
Sales to selling shareholders
In December 1999, February 2000 and March 2000, we entered into securities
purchase agreements with certain of the selling shareholders. The agreements
provided for the sale in private placements of an
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aggregate of $20.0 million of our common stock. The agreements also provided for
the issuance of warrants to the selling shareholders, including certain
adjustable warrants.
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this Prospectus.
The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such
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sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Littman Krooks Roth & Ball P.C., New York, New York.
EXPERTS
Our consolidated balance sheets as of December 31, 1998 and 1999 and our
consolidated statements of operations, of shareholders' equity and of cash flows
for the years ended December 31, 1998 and 1999 incorporated by reference in this
Prospectus, have been incorporated herein in reliance on the report by BDO
Seidman LLP, independent accountants, given on the authority of that firm as
experts on accounting and auditing.
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<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
2,596,131 - SHARES
FIDELITY HOLDINGS, INC.
COMMON STOCK
PROSPECTUS
June 15, 2000
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