Document:

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

                             FIDELITY HOLDINGS, INC.

                               ADJUSTABLE WARRANT

Warrant No. [ ]                                          Dated: February 8, 2000

      Fidelity Holdings, Inc., a Nevada corporation (the "Company"), hereby
certifies that, for value received, [ ], or its registered assigns ("Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company
up to the total number of shares of Common Stock, $.01 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") calculated pursuant to Section 3 of this Warrant
at an exercise price equal to $.01 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at the times set forth herein
through and including the Third Vesting Period Expiration Date (as defined in
Section 3(a)(iii) hereof) (the "Expiration Date"), and subject to the following
terms and conditions (certain terms used herein are defined in Exhibit A
attached hereto):

      1. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.

      2. Registration of Transfers and Exchanges.

            (a) The Company shall register the transfer of any portion of this
      Warrant in the Warrant Register, upon surrender of this Warrant, with the
      Form of Assignment attached hereto duly completed and signed, to the
      Transfer Agent or to the Company

<PAGE>

      at the address specified in Section 13. Upon any such registration or
      transfer, a new warrant to purchase Common Stock, in substantially the
      form of this Warrant (any such new warrant, a "New Warrant"), evidencing
      the portion of this Warrant so transferred shall be issued to the
      transferee and a New Warrant evidencing the remaining portion of this
      Warrant not so transferred, if any, shall be issued to the transferring
      Holder. The acceptance of the New Warrant by the transferee thereof shall
      be deemed the acceptance of such transferee of all of the rights and
      obligations of a holder of a Warrant.

            (b) This Warrant is exchangeable, upon the surrender hereof by the
      Holder to the office of the Company at the address specified in Section 13
      for one or more New Warrants, evidencing in the aggregate the right to
      purchase the number of Warrant Shares which may then be purchased
      hereunder. Any such New Warrant will be dated the date of such exchange.

            3. Duration, Vesting and Exercise of Warrant.

            (a) The vesting of the Warrant Shares which the Holder is permitted
      to acquire pursuant to this Warrant shall occur on the dates set forth
      below in this Section 3(a). On each such date, this Warrant shall vest
      with respect to a number of Warrant Shares calculated pursuant to Section
      3(b) below. Warrant Shares that have vested on a Vesting Date (as defined
      below) may be acquired by the Holder at any time and from time to time
      only during the forty (40) Trading Days following such Vesting Date, upon
      exercise of this Warrant, provided, that each such forty (40) Trading Day
      period shall be extended by the number of days during such period which
      the Holder is for any reason unable to use the Underlying Shares
      Registration Statement or the prospectus thereunder in order to sell
      securities thereunder.

                  (i) The first vesting date (the "First Vesting Date") shall be
            the fortieth (40th) Trading Day following the Effectiveness Date,
            provided, that if the Effectiveness Date shall not have occurred
            prior to the Effectiveness Required Date, then at the option of the
            Holder (exercisable by notice delivered to the Company no later than
            three (3) Trading Days following the Effectiveness Required Date),
            the First Vesting Date shall occur on the (30th) Trading Day
            following the Effectiveness Required Date (the Warrant Shares with
            respect to which this Warrant is exercisable on the First Vesting
            Date are called the "First Reset Warrant Shares");

                  (ii) The second vesting date (the "Second Vesting Date") shall
            be the fortieth (40th) Trading Day following the First Vesting Date
            (the Warrant Shares with respect to which this Warrant is
            exercisable on the Second Vesting Date are called the "Second Reset
            Warrant Shares"); and

                                      -2-
<PAGE>

                  (iii) The third vesting date (the "Third Vesting Date," and
            together with the First Vesting Date and the Second Vesting Date,
            the "Vesting Dates") shall be the fortieth (40th) Trading Day (such
            forty (40) Trading Period, as extended pursuant to the last sentence
            of Section 3(a), the "Third Vesting Date Expiration Date") following
            the Second Vesting Date (the Warrant Shares with respect to which
            this Warrant is exercisable on the Third Vesting Date are called the
            "Third Reset Warrant Shares").

            (b) Except as otherwise set forth in this Warrant, this Warrant
      shall vest and become exercisable on each Vesting Date with respect to the
      number of Warrant Shares calculated in accordance with the following
      formula:

    (Applicable Share Number) x [(Purchase Price x 1.15) - Adjustment Price]
    ------------------------------------------------------------------------
                                Adjustment Price

      If the number calculated in accordance with the foregoing formula is zero
or a negative number, the Holder shall not be obligated to transfer any shares
of Common Stock to the Company. On each Vesting Date, the Company shall send a
notice to the Holder setting forth in reasonable detail its calculation of the
number of Warrant Shares which shall vest and be exercisable on such Vesting
Date. Notwithstanding anything to the contrary set forth herein, if, on any
Trading Day occurring after the Effectiveness Date during which (1) for the
immediately preceding fifteen (15) Trading Days there was an effective
Underlying Shares Registration Statement pursuant to which the Holder was
permitted to resell Underlying Shares and (2) the average of the Per Share
Market Values for the fifteen (15) Trading Days immediately preceding such date
equaled or exceeded $22.50 (the "Threshold Price"), then this Warrant shall not
vest for any Warrant Shares with respect to any Vesting Date that would occur
after the expiration of such fifteen (15) Trading Day period, provided, that the
application of this sentence shall have no effect on the vesting of Warrant
Shares in respect of a Vesting Date unless all of the Trading Days used to
calculate such fifteen (15) Trading Day average occurred prior to the 15th
Trading Day immediately preceding such Vesting Date, but shall terminate vesting
rights with respect to subsequent Vesting Dates, if any.

            (c) The vesting of the Warrant Shares in accordance with this
      Section 3 shall not be affected by any failure by the Company to cause the
      Underlying Shares Registration Statement declared effective by the
      Commission or maintain the effectiveness of the Underlying Shares
      Registration Statement after it has been declared effective by the
      Commission.

            (d) Notwithstanding anything herein to the contrary, if on any
      Vesting Date the Adjustment Price shall be less than $10.00 (such an
      Adjustment Price, the "Floor Price"), then on such Vesting Date: (i) this
      Warrant shall vest with respect to the Warrant Shares pursuant to Section
      3(a) and (b) hereof, provided, that the Adjustment Price pursuant to the
      formula set forth in Section 3(b) shall, exclusively for purposes of this
      Section 3(d)(i), equal the Floor Price (such number of Warrant

                                      -3-
<PAGE>

      Shares, the "Initial Shares") and (ii) with respect to the Warrant Shares
      whose vesting would result in a vesting of Warrant Shares in excess of the
      Initial Shares, the Company will have the option to elect by written
      notice (the "Notice") delivered to the Holder no later than twenty (20)
      Trading Days prior to the applicable Vesting Date to either (x) pay to the
      Holder, in cash (the "Cash Payment"), within three (3) Trading Days from
      the Vesting Date at issue, an amount equal to the product obtained by
      multiplying (A) the applicable Adjustment Price and (B) the difference
      between the number of Warrant Shares which would have otherwise vested on
      such Vesting Date pursuant to Section 3(a) and (b) hereof and the Initial
      Shares (such number of Warrant Shares, the "Subsequent Shares") or (y)
      allow this Warrant to vest with respect to the Subsequent Shares. A
      failure by the Company to deliver the Notice to the Holder pursuant to the
      terms of this Section shall constitute an election by the Company to allow
      this Warrant to vest as to the Subsequent Shares pursuant to the terms
      hereof. If the Company shall fail to pay the Cash Payment in full to the
      Holder by the third (3rd) Trading Day from the Vesting Date at issue,
      then, at the election of the Holder, the Company shall either (x) pay to
      the Holder $5,000 per day until the Cash Payment and all additional
      payments due hereunder are paid in full, or (y) allow this Warrant to vest
      with respect to the Subsequent Shares.

            (e) Notwithstanding the foregoing provisions of this Section 3, at
      any time within ten (10) Trading Days following the occurrence of any of
      the following events (each, an "Event"), the Holder shall have the option
      to elect by notice ("Vesting Notice") to the Company to have this Warrant
      vest with respect to those Warrant Shares that have not yet already
      vested:

                  (i) The occurrence of a Change of Control Transaction;

                  (ii) Immediately prior to an assignment by the Company for the
            benefit of creditors or commencement of a voluntary case under the
            Federal Bankruptcy Code, or an entering into of an order for relief
            in an involuntary case under the Federal Bankruptcy Code, or
            adoption by the Company of a plan of liquidation or dissolution;

                  (iii) Five (5) Business Days prior to the proposed
            consummation with respect to the Company of a "Rule 13e-3
            transaction" as defined in Rule 13e-3 under the Exchange Act (or, if
            necessary, such earlier date as the Company shall determine in good
            faith to be required in order for the Holder to be able to
            participate in such transaction), it being agreed that the Holder
            will receive actual notice of the 13e-3 Statement filed with the
            Commission on the date filed and actual notice of the date of
            acceleration hereunder no later than such date, and that if such
            transaction is not consummated, and this Warrant has been exercised,
            then the Holder (and to the extent that this Warrant would not but
            for this paragraph be exercisable, the Company) shall be entitled to
            declare

                                      -4-
<PAGE>

            the exercise null and void and the Holder shall, upon return of the
            Warrant Shares to the Company, be entitled to receive a refund of
            the Exercise Price and warrants identical to this Warrant, and such
            acceleration shall become void ab initio, and the Warrants shall (as
            to any remaining unexercised portion thereof) remain in full force
            and effect in accordance with the terms hereof;

                  (iv) For any period of three (3) Trading Days (which need not
            be consecutive Trading Days) commencing on or after the date of
            issuance of this Warrant, there shall be no closing bid price on the
            Common Stock on the Nasdaq or a Subsequent Market;

                  (v) The Common Stock fails to be listed or quoted for trading
            on the Nasdaq or a Subsequent Market or for a period of three (3)
            Trading Days (which need not be consecutive Trading Days);

                  (vi) A holder of Registrable Securities (as defined in the
            Registration Rights Agreement) is not permitted to sell Registrable
            Securities under an Underlying Shares Registration Statement for any
            reason for five (5) or more days (whether or not consecutive); or

                  (vii) The Company shall fail or default in the timely
            performance of any material obligation under the Transaction
            Documents and such failure or default shall continue uncured for a
            period of five (5) Business Days after the date on which notice of
            such failure or default is first given to the Company (it being
            understood that no prior notice need be provided in the case of
            defaults which cannot reasonably be cured within a 5-day period);
            provided that no such failure or default shall be considered to have
            occurred for purposes of this clause (vii) for a failure of an
            Underlying Shares Registration Statement to be declared effective
            until the 150th day after the issuance of this Warrant.

            In the event the Holder delivers a Vesting Notice, this Warrant
shall vest with respect to the number of Warrant Shares calculated in accordance
with the formula set forth on Section 3(b); provided, however that for purposes
of such calculation, (i) the "Applicable Share Number" shall be deemed to mean
(A) 100% of the number of shares of Common Stock purchased by the Holder
pursuant to the Purchase Agreement (such number, the "Holder Purchased Shares"),
if the Event occurred prior to the First Vesting Date, (B) 66% of the Holder
Purchased Shares, if the Event occurred on or after the First Vesting Date but
prior to the Second Vesting Date and (C) 33% of the Holder Purchased Shares if
the Event occurred on or after the Second Vesting Date but prior to the Third
Vesting Date; and (ii) the "Adjustment Price" shall be deemed to mean the
average of the ten (10) lowest Per Share Market Values (which need not occur on
consecutive Trading Days) during the forty (40) Trading Days immediately
preceding the date on which the Event occurred.

                                      -5-
<PAGE>

            (f) Subject to Sections 3(a) and (b), this Warrant shall be
      exercisable by the registered Holder on any Business Day before 6:30 P.M.,
      New York City time, at any time and from time to time on or after the date
      hereof to and including the Expiration Date. At 6:30 P.M., New York City
      time on the Expiration Date, the portion of this Warrant not exercised
      prior thereto shall be and become void and of no value.

                  (g) Subject to Sections 3(a) and (b), this Warrant shall be
            exercisable, either in its entirety or, from time to time, for a
            portion of the number of Warrant Shares. If less than all of the
            Warrant Shares which may be purchased under this Warrant are
            exercised at any time, the Company shall issue or cause to be
            issued, at its expense, a New Warrant evidencing the right to
            purchase the remaining number of Warrant Shares for which no
            exercise has been evidenced by this Warrant.

      4. Delivery of Warrant Shares.

            (a) Subject to Sections 2(b), 7 and 11, upon surrender of this
      Warrant, with the Form of Election to Purchase attached hereto duly
      completed and signed, to the Company at its address for notice set forth
      in Section 13 and upon payment of the Exercise Price multiplied by the
      number of Warrant Shares that the Holder intends to purchase hereunder, in
      the manner provided hereunder, all as specified by the Holder in the Form
      of Election to Purchase, the Company shall promptly (but in no event later
      than three (3) Trading Days after the Date of Exercise (as defined
      herein)) issue or cause to be issued and cause to be delivered to or upon
      the written order of the Holder and in such name or names as the Holder
      may designate, a certificate for the Warrant Shares issuable upon such
      exercise, free of restrictive legends, except in the event that both an
      Underlying Shares Registration Statement is not then effective and the
      Warrant Shares are not freely transferable without volume restrictions
      pursuant to Rule 144(k) promulgated under the Securities Act of 1933, as
      amended (the "Securities Act"). Any person so designated by the Holder to
      receive Warrant Shares shall be deemed to have become holder of record of
      such Warrant Shares as of the Date of Exercise of this Warrant.

                  A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.

            (b) If the Company fails to deliver to the Holder certificate or
      certificates representing the Warrant Shares pursuant to Section 4(a) by
      the third (3rd) Trading Day after the Date of Exercise, the Company shall
      pay to such Holder, in cash, as liquidated damages and not as a penalty,
      $5,000 for each day after such third (3rd) Trading Day until such
      certificates are delivered. Nothing herein shall limit the

                                      -6-
<PAGE>

      Holder's right to pursue actual damages for the Company's failure to
      deliver certificates representing shares of Common Stock upon exercise
      within the period specified herein and the Holder shall have the right to
      pursue all remedies available to it at law or in equity including, without
      limitation, a decree of specific performance and/or injunctive relief. The
      exercise of any such rights shall not prohibit the Holder from seeking to
      enforce damages pursuant to any other Section hereof or under applicable
      law. The Company shall, upon request of the Holder, if available, use its
      best efforts to deliver Warrant Shares hereunder electronically through
      the Depository Trust Corporation or another established clearing
      corporation performing similar functions.

            (c) In addition to any other rights available to the Holder, if the
      Company fails to deliver to the Holder certificate or certificates
      representing the Warrant Shares pursuant to Section 4(a) by the third
      (3rd) Trading Day after the Date of Exercise, and if after such third
      (3rd) Trading Day the Holder purchases (in an open market transaction or
      otherwise) shares of Common Stock to deliver in satisfaction of a sale by
      the Holder of the Warrant Shares which the Holder was entitled to receive
      upon such exercise (a "Buy-In"), then the Company shall pay (1) in cash to
      the Holder (in addition to any remedies available to or elected by the
      Holder) the amount by which (x) the Holder's total purchase price
      (including brokerage commissions, if any) for the shares of Common Stock
      so purchased exceeds (y) the product of (A) the number of Warrant Shares
      that the Company was required to deliver pursuant to Section 4(b) to the
      Holder in connection with the exercise at issue and (B) the Per Share
      Market Value at the time of the sale giving rise to such purchase
      obligation and (2) deliver to the Holder the number of shares of Common
      Stock that would have been issued had the Company timely complied with its
      exercise and delivery obligations under Section 4(b). For example, if the
      Holder purchases Common Stock having a total purchase price of $11,000 to
      cover a Buy-In with respect to an attempted exercise of shares of Common
      Stock with a market price on the date of exercise in the amount of
      $10,000, under clause (1) of the immediately preceding sentence the
      Company shall be required to pay the Holder $1,000. The Holder shall
      provide the Company written notice indicating the amounts payable to the
      Holder in respect of the Buy-In. Notwithstanding anything contained herein
      to the contrary, if the Holder requires the Company to make payment in
      respect of a Buy-In for the failure to timely deliver certificates
      hereunder and the Company timely pays in full such payment, the Company
      shall not be required to pay such Holder liquidated damages under Section
      4(b) in respect of the certificates resulting in such Buy-In.

            (d) The Company's obligations to issue and deliver Warrant Shares in
      accordance with the terms hereof are absolute and unconditional,
      irrespective of any action or inaction by the Holder to enforce the same,
      any waiver or consent with respect to any provision hereof, the recovery
      of any judgment against any Person or any action to enforce the same, or
      any setoff, counterclaim, recoupment, limitation or termination,

                                      -7-
<PAGE>

      or any breach or alleged breach by the Holder or any other Person of any
      obligation to the Company or any violation or alleged violation of law by
      the Holder or any other Person, and irrespective of any other circumstance
      which might otherwise limit such obligation of the Company to the Holder
      in connection with the issuance of Warrant Shares. If the Company breaches
      its obligations under this Warrant, then, in addition to any other
      liabilities the Company may have hereunder and under applicable law, the
      Company shall pay or reimburse the Holder on demand for all costs of
      collection and enforcement (including reasonable attorneys fees and
      expenses).

      5. Piggyback Registration Rights. The Holder shall be entitled to the
piggyback registration rights afforded to a holder pursuant to Section 6(f) of
that certain Registration Rights Agreement dated as of the date hereof, among
the Company and the signatories thereto.

      6. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
reasonable satisfaction of the Company that such tax has been paid. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

      7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

      8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price

                                      -8-
<PAGE>

in accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.

      9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9. Upon each such adjustment of the Exercise
Price pursuant to this Section 9, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.

            (a) If the Company, at any time while this Warrant is outstanding,
      (i) shall pay a stock dividend or otherwise make a distribution or
      distributions on shares of its Common Stock or on any other class of
      capital stock payable in shares of Common Stock, (ii) subdivide
      outstanding shares of Common Stock into a larger number of shares, or
      (iii) combine outstanding shares of Common Stock into a smaller number of
      shares, the Exercise Price shall be multiplied by a fraction of which the
      numerator shall be the number of shares of Common Stock outstanding before
      such event and of which the denominator shall be the number of shares of
      Common Stock outstanding after such event. Any adjustment made pursuant to
      this Section shall become effective immediately after the record date for
      the determination of stockholders entitled to receive such dividend or
      distribution and shall become effective immediately after the effective
      date in the case of a subdivision or combination, and shall apply to
      successive subdivisions and combinations.

            (b) In case of any reclassification of the Common Stock, or any
      compulsory share exchange pursuant to which the Common Stock is converted
      into other securities, cash or property, the Holder shall have the right
      thereafter to exercise this Warrant only for the shares of stock and other
      securities, cash and property receivable upon or deemed to be held by
      holders of Common Stock following such reclassification or share exchange,
      and the Holder shall be entitled upon such event to receive such amount of
      securities, cash or property as equals the number of Warrant Shares such
      Holder would have been entitled to had the Holder exercised this Warrant
      in full immediately prior to such reclassification or share exchange. This
      provision shall similarly apply to successive reclassifications or share
      exchanges.

            (c) If the Company, at any time while this Warrant is outstanding,
      shall distribute to all holders of Common Stock (and not to holders of
      this Warrant) evidences of its indebtedness or assets or rights or
      warrants to subscribe for or purchase any security (excluding those
      referred to in Sections 9(a), (b) and (d)) (collectively, "Assets"), then
      in each such case, the Holder shall be entitled to receive, for each
      Warrant Share with respect to which this Warrant is exercised after the
      record date fixed for determination of stockholders entitled to

                                      -9-
<PAGE>

      receive such distribution, the Assets received by all holders of Common
      Stock with respect to one share of Common Stock.

            (d) If, within 90 Trading Days of any Vesting Date, the Company or
      any subsidiary thereof shall issue or cause to be issued rights, warrants,
      debt or other securities entitling the holder thereof to acquire, or shall
      otherwise sell or distribute shares of Common Stock or other securities,
      other than (i) issuances pursuant to any exercise or conversion of any
      warrants, options, subscriptions, convertible notes, convertible
      debentures, convertible preferred stock or other convertible securities
      issued and outstanding on the Closing Date (as defined in the Purchase
      Agreement) and set forth on Schedule 2.1(c) to the Purchase Agreement in
      accordance with the terms of such securities as of such date; (ii)
      issuances pursuant to any grant or exercise of any stock or options which
      may hereafter be granted or exercised under any employee benefit plan of
      the Company now existing or to be implemented in the future, or upon grant
      or exercise of any stock or options to or by any officer, director or
      employee, whether or not under a plan, so long as the issuance of such
      stock or options is approved by a majority of the non-employee members of
      the Board of Directors of the Company or a majority of the members of a
      committee of non-employee directors established for such purpose; (iii)
      issuances pursuant to any Closing Warrants (as defined in the Purchase
      Agreement) issued pursuant to the Purchase Agreement; (iv) securities
      issued in connection with an underwritten public offering of the Company;
      (v) securities issued in connection with any merger, acquisition or
      consolidation, or purchase of assets or business from another person, so
      long as the Company is the surviving corporation and that such transaction
      is not primarily for the purpose of raising capital, or (vi) in connection
      with the issuance of Common Stock, not in excess of 1% of the Common Stock
      issued and outstanding on the original issue date of this Warrant, upon
      the exercise of warrants or other rights granted to any bank other
      commercial financing institution, for a consideration per share less than
      both (x) the market price at the time of such issuance or distribution and
      (y) an Adjustment Price previously used in calculating the vesting of
      Warrant Shares on previous Vesting Date (such an issuance, a "Discounted
      Issuance"), then the Adjustment Price previously used in calculating the
      vesting of Warrant Shares on any previous Vesting Date (if greater than
      such issuance price) shall equal the consideration per share at which such
      Discounted Issuance was

                                      -10-
<PAGE>

      made and the Company shall, within ten (10) Trading Days of such
      Discounted Issuance, issue to the Holder a number of shares of Common
      Stock equal to the difference between the number of Warrant Shares vested
      on any previous applicable Vesting Date based on the Adjusted Price then
      in effect and the number of Warrant Shares which would have vested on such
      previous Vesting Dates based on the imputed Adjustment Price pursuant to
      the Discounted Issuance. Such adjustment shall be made successively
      whenever such an issuance is made.

            (e) In case of any (1) merger or consolidation of the Company with
      or into another Person, or (2) sale by the Company of more than one-half
      of the assets of the Company (on a book value basis) in one or a series of
      related transactions, or (3) tender or other offer or exchange (whether by
      the Company or another Person) pursuant to which holders of Common Stock
      are permitted to tender or exchange their shares for other securities,
      stock, cash or property of the Company or another Person; then the Holder
      shall have the right thereafter to (A) exercise this Warrant for the
      shares of stock and other securities, cash and property receivable upon or
      deemed to be held by holders of Common Stock following such merger,
      consolidation or sale, and the Holder shall be entitled upon such event or
      series of related events to receive such amount of securities, cash and
      property as the shares of Common Stock for which this Warrant could have
      been exercised immediately prior to such merger, consolidation or sales
      would have been entitled, (B) in the case of a merger or consolidation,
      require the surviving entity to issue to the Holder a warrant entitling
      the Holder to acquire shares of such entity's common stock, which warrant
      shall have terms identical (including with respect to exercise) to the
      terms of this Warrant and shall be entitled to all of the rights and
      privileges set forth herein and the agreements pursuant to which this
      Warrant was issued (including, without limitation, as such rights relate
      to the acquisition, transferability, registration and listing of such
      shares of stock other securities issuable upon exercise thereof), or (C)
      in the event of an exchange or tender offer or other transaction
      contemplated by clause (3) of this Section, tender or exchange this
      Warrant for such securities, stock, cash and other property receivable
      upon or deemed to be held by holders of Common Stock that have tendered or
      exchanged their shares of Common Stock following such tender or exchange,
      and the Holder shall be entitled upon such exchange or tender to receive
      such amount of securities, cash and property as the shares of Common Stock
      for which this Warrant could have been exercised immediately prior to such
      tender or exchange would have been entitled as would have been issued. In
      the case of clause (B), the exercise price applicable for the newly issued
      warrant shall be based upon the amount of securities, cash and property
      that each share of Common Stock would receive in such transaction and the
      Exercise Price immediately prior to the effectiveness or closing date for
      such transaction. The terms of any such merger, sale, consolidation,
      tender or exchange shall include such terms so as continue to give the

                                      -11-
<PAGE>

      Holder the right to receive the securities, cash and property set forth in
      this Section upon any conversion or redemption following such event. This
      provision shall similarly apply to successive such events.

            (f) For the purposes of this Section 9, the following clauses shall
      also be applicable:

                  (i) Record Date. In case the Company shall take a record of
            the holders of its Common Stock for the purpose of entitling them
            (A) to receive a dividend or other distribution payable in Common
            Stock or in securities convertible or exchangeable into shares of
            Common Stock, or (B) to subscribe for or purchase Common Stock or
            securities convertible or exchangeable into shares of Common Stock,
            then such record date shall be deemed to be the date of the issue or
            sale of the shares of Common Stock deemed to have been issued or
            sold upon the declaration of such dividend or the making of such
            other distribution or the date of the granting of such right of
            subscription or purchase, as the case may be.

                  (ii) Treasury Shares. The number of shares of Common Stock
            outstanding at any given time shall not include shares owned or held
            by or for the account of the Company, and the disposition of any
            such shares shall be considered an issue or sale of Common Stock.

            (g) All calculations under this Section shall be made to the nearest
      1/100th of a share.

            (h) If:

                  (i) the Company shall declare a dividend (or any other
            distribution) on its Common Stock; or

                  (ii) the Company shall declare a special nonrecurring cash
            dividend on or a redemption of its Common Stock; or

                  (iii) the Company shall authorize the granting to all holders
            of the Common Stock rights or warrants to subscribe for or purchase
            any shares of capital stock of any class or of any rights; or

                  (iv) the approval of any stockholders of the Company shall be
            required in connection with any reclassification of the Common Stock
            of the Company, any consolidation or merger to which the Company is
            a party, any sale or transfer of all or substantially all of the
            assets of the Company, or any

                                      -12-
<PAGE>

      compulsory share exchange whereby the Common Stock is converted into other
      securities, cash or property; or

                  (v) the Company shall authorize the voluntary dissolution,
            liquidation or winding up of the affairs of the Company,

then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.

      10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
one of the following manners:

            (a) Cash Exercise. The Holder shall deliver immediately available
      funds; or

            (b) Cashless Exercise. The Holder shall surrender this Warrant to
      the Company together with a notice of cashless exercise, in which event
      the Company shall issue to the Holder the number of Warrant Shares
      determined as follows:

                        X = Y (A-B)/A

     where:
                        X = the number of Warrant Shares to be issued to the
                        Holder.

                        Y = the number of Warrant Shares with respect to which
                        this Warrant is being exercised.

                        A = the average of the closing sale prices of the Common
                        Stock on the principal market or exchange in which the
                        Common Stock is then listed or traded, as reported by
                        Bloomberg Information Systems, Inc. (or any successor to
                        its function of reporting stock prices), for the five
                        (5) trading days immediately prior to (but not
                        including) the Date of Exercise.

                                      -13-
<PAGE>

                        B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.

      11. Certain Exercise Restrictions.

                  (a) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act of 1934 (the "Exchange Act") and the rules promulgated thereunder)
in excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares of Common Stock issuable upon such exercise and held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of an exercise hereunder, unless the exercise at issue would result in the
issuance of shares of Common Stock in excess of 4.999% of the then outstanding
shares of Common Stock without regard to any other shares of Common Stock which
may be beneficially owned by the Holder or an affiliate thereof, the Holder
shall have the authority and obligation to determine whether the restriction
contained in this Section will limit any particular exercise hereunder and to
the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of this Warrant is
exercisable shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Form of Election to Purchase for a number of Warrant
Shares that would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
exercise for the maximum portion of this Warrant permitted to be exercised on
such Date of Exercise in accordance with the periods described herein and
disregard the balance of such Form of Election to Purchase, as if never
delivered The provisions of this Section may be waived by a Holder (but only as
to itself and not to any other Holder) upon not less than 61 days' prior notice
to the Company. Other Holders shall be unaffected by any such waiver.

                  (b) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares of Common
Stock issuable upon such exercise and held by such Holder after application of
this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of an exercise
hereunder, unless the exercise at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares of Common Stock which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular exercise hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of

                                      -14-
<PAGE>

which portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the Holder of
this fact and shall honor the exercise for the maximum portion of this Warrant
permitted to be exercised on such Date of Exercise in accordance with the
periods described herein and disregard the balance of such Form of Election to
Purchase, as if never delivered The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
61 days' prior notice to the Company. Other Holders shall be unaffected by any
such waiver.

                  (c) If the Company Stock is then listed for trading on the
Nasdaq or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue, upon
exercise of this Warrant, in excess of a number of shares of Common Stock (the
"Issuable Maximum") equal to 879,683 shares of Common Stock less 1/3 of the
number of shares of Common Stock previously issued or issuable upon exercise of
any of the Company's adjustable warrants dated June 24, 1999 and numbered SR-1,
BH-1 and AS-1 (the "Prior Adjustable Warrants") and the Company's adjustable
warrants dated December 8, 1999 and numbered SR-2, A S-2 and M-2. The 879,683
shares of Common Stock equals 19.999% of the number of shares of Common Stock
outstanding immediately prior to the issuance of the Prior Adjustable Warrants
multiplied by the quotient obtained by dividing (x) the number of shares of
Common Stock issued and sold to the original Holder on the Closing Date by (y)
the number of shares of Common Stock issued and sold by the Company on the
Closing Date. If on any Date of Exercise (A) the Company Stock is listed for
trading on the Nasdaq or the Nasdaq SmallCap Market, (B) the Exercise Price then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon exercise in full of this Warrant, together with any shares
of Common Stock previously issued upon exercise of this Warrant, would equal or
exceed the Issuable Maximum, and (C) the Company shall not have previously
obtained the vote of shareholders, if any, as may be required by the applicable
rules and regulations of the Nasdaq Stock Market to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof (the "Shareholder Approval"), then the Company shall issue to the Holder
a number of shares of Common Stock equal to the Issuable Maximum and, with
respect to the shares whose issuance would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum (the "Excess Warrant Shares"),
the Holder shall have the option to require the Company to either (1) use its
best efforts to obtain the Shareholder Approval applicable to such issuance as
soon as possible, but, in any event, no later than 60 days after such request or
(2) pay to the Holder an amount in cash equal to the product of (x) the Excess
Warrant Shares multiplied by (y) the closing sales price of the Common Stock on
(a) the date such Shareholder Approval was required to have been obtained or (b)
the Date of Exercise giving rise to the obligation to seek Shareholder Approval
(whichever is greater) (such amount, the "Cash Payment"). If the Holder shall
require the Company to use its best efforts to obtain the Shareholder Approval
pursuant to the immediately preceding sentence and the Company shall have failed
to obtain such Shareholder Approval on or prior to the 60th day following such
request (such date, the "Target Date"), the Company shall pay to the Holder the
Cash Payment no later than the 5th day following the Target Date. If the Company
fails to pay the Cash Payment in full pursuant to this Section within seven (7)
days after the date payable, the Company will pay interest on such

                                      -15-
<PAGE>

amount at a rate of 18% per annum, or such lesser maximum amount that is
permitted to be paid by applicable law, to the Holder, accruing daily from the
date payable until such amount, plus all such interest thereon, is paid in full.
The Company and the Holder understand and agree that shares of Common Stock
issued upon exercise of the Warrant and then held by the Holder or an Affiliate
thereof may not cast votes or be deemed outstanding for purposes of any vote to
obtain the Shareholder Approval.

      12. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.

      13. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
with next day delivery specified thereon, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to 80-02 Kew Gardens Road, Suite
5000, Kew Gardens, New York 11415, facsimile number (718) 793-2455, attention
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 13.

      14. Warrant Agent.

            (a) The Company shall serve as warrant agent under this Warrant.
      Upon thirty (30) days' notice to the Holder, the Company may appoint a new
      warrant agent.

            (b) Any corporation into which the Company or any new warrant agent
      may be merged or any corporation resulting from any consolidation to which
      the Company or any new warrant agent shall be a party or any corporation
      to which the Company or any new warrant agent transfers substantially all
      of its corporate trust or shareholders services business shall be a
      successor warrant agent under this Warrant without any further act. Any
      such successor warrant agent shall promptly cause

                                      -16-
<PAGE>

      notice of its succession as warrant agent to be mailed (by first class
      mail, postage prepaid) to the Holder at the Holder's last address as shown
      on the Warrant Register.

      15. Miscellaneous.

            (a) This Warrant shall be binding on and inure to the benefit of the
      parties hereto and their respective successors and permitted assigns. This
      Warrant may be amended only in writing signed by the Company and the
      Holder and their successors and assigns.

            (b) Subject to Section 15(a), above, nothing in this Warrant shall
      be construed to give to any person or corporation other than the Company
      and the Holder any legal or equitable right, remedy or cause under this
      Warrant. This Warrant shall inure to the sole and exclusive benefit of the
      Company and the Holder.

            (c) This Warrant shall be governed by and construed and enforced in
      accordance with the internal laws of the State of New York without regard
      to the principles of conflicts of law thereof.

            (d) The headings herein are for convenience only, do not constitute
      a part of this Warrant and shall not be deemed to limit or affect any of
      the provisions hereof.

            (e) In case any one or more of the provisions of this Warrant shall
      be invalid or unenforceable in any respect, the validity and
      enforceability of the remaining terms and provisions of this Warrant shall
      not in any way be affected or impaired thereby and the parties will
      attempt in good faith to agree upon a valid and enforceable provision
      which shall be a commercially reasonable substitute therefor, and upon so
      agreeing, shall incorporate such substitute provision in this Warrant.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS]

                                      -17-
<PAGE>

            IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.

                                    FIDELITY HOLDINGS, INC.

                                    By: /s/ Doron Cohen
                                        ---------------

                                    Name: Doron Cohen

                                    Title: President and CEO

<PAGE>

                          FORM OF ELECTION TO PURCHASE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

To Fidelity Holdings, Inc.:

      In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of Fidelity
Holdings, Inc. and, if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

      The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of

                                          PLEASE INSERT SOCIAL SECURITY OR
                                          TAX IDENTIFICATION NUMBER

                                          ______________________________________

________________________________________________________________________________
                        (Please print name and address)

      If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:

________________________________________________________________________________
                        (Please print name and address)

________________________________________________________________________________

________________________________________________________________________________

Dated:____________, ____                  Name of Holder:

                                          (Print)_______________________________

                                          (By:)_________________________________
                                          (Name:)
                                          (Title:)
                                          (Signature must conform in all
                                          respects to name of holder as
                                          specified on the face of the Warrant)

<PAGE>

                               FORM OF ASSIGNMENT

           [To be completed and signed only upon transfer of Warrant]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Fidelity Holdings,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Fidelity Holdings, Inc. with full power
of substitution in the premises.

Dated:

____________, ____

                              __________________________________________________
                              (Signature must conform in all respects to name of
                              holder as specified on the face of the Warrant)

                              __________________________________________________
                              Address of Transferee

                              __________________________________________________

                              __________________________________________________

In the presence of:

__________________________

<PAGE>

                                                                       Exhibit A

            (i) "Adjustment Price" means the average of the ten (10) lowest Per
      Share Market Values (which need not occur on consecutive Trading Days)
      during the forty (40) Trading Days immediately preceding either a (i)
      Vesting Date or (ii) Trading Day, as applicable.

            (ii) "Applicable Share Number" means (i) with respect to the First
      Vesting Date, 34% of the number of shares of Common Stock purchased by the
      Holder pursuant to the Purchase Agreement and (ii) with respect to each of
      the Second Vesting Date and the Third Vesting Date, 33% of the number of
      shares of Common Stock purchased by the Holder pursuant to the Purchase
      Agreement.

            (iii) "Business Day" means any day except Saturday, Sunday and any
      day which shall be a federal legal holiday or a day on which banking
      institutions in the State of New York are authorized or required by law or
      other governmental action to close.

            (iv) "Change of Control Transaction" means the occurrence of any of
      (1) an acquisition after the date hereof by an individual or legal entity
      or "group" (as described in Rule 13d-5(b)(1) promulgated under the
      Exchange Act) of effective control (whether through legal or beneficial
      ownership of capital stock of the Company, by contract or otherwise) of in
      excess of 33.33% of the voting securities of the Company, (2) a
      replacement at one time or over time of more than one-half of the members
      of the Board which is not approved by a majority of those individuals who
      are members of the Board on the date of issuance of this Warrant (or by
      those individuals who are serving as members of the Board on any date
      whose nomination to the Board was approved by a majority of the members of
      the Board who are members on the date of issuance of this Warrant), (3)
      the merger of the Company with or into another entity where the directors
      comprising the Board immediately prior to such transaction (or the first
      to occur of any series of related transactions) do not comprise a majority
      of the members of the board of directors of the surviving company
      immediately following such transaction, (4) the merger of the Company with
      or into another entity where the shareholders of the Company immediately
      prior to such transaction (or the first to occur of any series of related
      transactions) do not collectively own in excess of 66.66% of the
      outstanding voting securities of the surviving company immediately
      following such transaction, (5) the sale of all or substantially all of
      the assets of the Company in one or a series of related transactions, (6)
      the merger by the Company with or into another entity where the voting
      securities of the surviving company are not listed or quoted for trading
      on the Nasdaq or on a Subsequent Market, or (7) the execution by the
      Company of an agreement providing for any of the events set forth above in
      (1) - (6).

            (v) "Commission" means the Securities and Exchange Commission.

            (vi) "Effectiveness Date" means the date the Underlying Shares
      Registration Statement is declared effective by the Commission.

<PAGE>

            (vii) "Effectiveness Required Date" means the 120th day following
      the date of issuance of this Warrant.

            (viii) "Nasdaq" means the Nasdaq National Market.

            (ix) "Per Share Market Value" means on any particular date (a) the
      closing bid price per share of the Common Stock on such date on the Nasdaq
      or on any Subsequent Market, or if there is no such price on such date,
      then the closing bid price on the Nasdaq or on such Subsequent Market on
      the date nearest preceding such date, or (b) if the Common Stock is not
      then listed or quoted on the Nasdaq or a Subsequent Market, the closing
      bid price for a share of Common Stock in the over- the-counter market, as
      reported by the National Quotation Bureau Incorporated or similar
      organization or agency succeeding to its functions of reporting prices) at
      the close of business on such date, or (c) if the Common Stock is not then
      reported by the National Quotation Bureau Incorporated (or similar
      organization or agency succeeding to its functions of reporting prices),
      then the average of the "Pink Sheet" quotes for the relevant conversion
      period, as determined in good faith by the Holder, or (d) if the Common
      Stock is not then publicly traded the fair market value of a share of
      Common Stock as determined by an appraiser selected in good faith by the
      Holders of a majority of the applicable Warrant Shares.

            (x) "Purchase Agreement" means the Securities Purchase Agreement
      dated as of the date hereof, between the Company and the original Holder
      hereof.

            (xi) "Purchase Price" means $15.00.

            (xii) "Securities" shall have the meaning set forth in the Purchase
      Agreement.

            (xiii) "Subsequent Market" shall mean any of the New York Stock
      Exchange, Inc., American Stock Exchange, Inc. or Nasdaq SmallCap Market.

            (xiv) "Trading Day" means (a) a day on which the Common Stock is
      traded on the Nasdaq or on the Subsequent Market on which the Common Stock
      is then listed or quoted, as the case may be, or (b) if the Common Stock s
      not listed on the Nasdaq or on a Subsequent Market, a day on which the
      Common Stock is traded in the over-the-counter market, as reported by the
      OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
      Bulletin Board, a day on which the Common Stock is quoted in the
      over-the-counter market as reported by the National Quotation Bureau
      Incorporated (or any similar organization or agency succeeding its
      functions of reporting prices); provided, however, that in the event that
      the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
      hereof, then Trading Day shall mean a Business Day.

            (xv) "Transaction Documents" shall have the meaning set forth in the
      Purchase Agreement.

<PAGE>

            (xvi) "Underlying Shares Registration Statement" means a
      registration statement meeting the requirements set forth in the
      Registration Rights Agreement dated as of the date hereof between the
      Company and the original Holder hereof (the "Registration Rights
      Agreement") and covering the resale of the Registrable Securities by the
      selling stockholders thereunder.================================================================================

                          SECURITIES PURCHASE AGREEMENT

                                     Between

                             FIDELITY HOLDINGS, INC.

                                       and

                         THE INVESTORS SIGNATORY HERETO

                          Dated as of February 8, 2000

================================================================================

<PAGE>

      SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 8,
2000, between Fidelity Holdings, Inc., a Nevada corporation (the "Company"), and
the investors signatory hereto (each such investor is a "Purchaser" and all such
investors are, collectively, the "Purchasers").

      WHEREAS, pursuant to that certain Letter Agreement, dated June 24, 1999
between the Company and the Purchasers (the "Letter Agreement"), the parties
thereto have agreed, subject to certain conditions set forth therein, that the
Purchasers shall, severally and not jointly, purchase from the Company, and the
Company shall sell to the Purchasers, the First Additional Securities (as
defined in the Letter Agreement) for an aggregate purchase price of $7,000,000;

      WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as
of December 8, 1999 between the Company and each of the Purchasers, each of the
Purchasers waived the conditions precedent specified in the Letter Agreement to
its respective obligation to purchase a portion of the First Additional
Securities equal to three-sevenths (3/7) of the First Additional Securities and
purchased its pro-rata portion of three-sevenths (3/7) of the First Additional
Securities for an aggregate purchase price of $3,000,000 and the Company sold to
the Purchasers three- sevenths (3/7) of the First Additional Securities for an
aggregate purchase price of $3,000,000; and

      WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and each of the
Purchasers, severally and not jointly, desires to purchase from the Company
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"), and certain other securities of the Company as more fully described in
this Agreement, the sum of which shall constitute the remaining four-sevenths
(4/7) of the First Additional Securities.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:

                                    ARTICLE I
                                PURCHASE AND SALE

      1.1 The Closing.

            (a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers, severally and not jointly, shall purchase 266,667 shares of Common
Stock (the "Shares") for an aggregate purchase price of $4,000,000. The closing
of the purchase and sale of the Shares (the "Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution

<PAGE>

hereof or such later date as the parties shall agree. The date of the Closing is
hereinafter referred to as the "Closing Date."

                  (ii) At the Closing Date, the parties shall deliver or shall
cause to be delivered the following: (A) the Company shall deliver to each
Purchaser (1) a stock certificate representing the number of Shares indicated
below such Purchaser's name on the signature page to this Agreement, registered
in the name of such Purchaser, (2) a Common Stock purchase warrant, in the form
of Exhibit A, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire shares of Common Stock upon the terms
set forth therein (collectively, the "Adjustable Warrants"), (3) a Common Stock
purchase warrant, in the form of Exhibit D, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right at any time and
from time to time thereafter through the fifth anniversary of the Closing Date
to acquire the number of shares of Common Stock indicated below such Purchaser's
name on the signature page to this Agreement at an exercise price per share
(subject to adjustment as provided therein) of $16.00 (collectively, the
"Closing Warrants" and together with the Adjustable Warrants, the "Warrants"),
(4) the legal opinion of Littman Krooks Roth & Ball P.C., outside counsel to the
Company, substantially in the form of Exhibit C, and (5) all other documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement, including (i) an executed
Registration Rights Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit B (the "Registration Rights Agreement"), and
(ii) the Irrevocable Transfer Agent Instructions, in the form of Exhibit E,
delivered to and acknowledged by the Company's transfer agent (the "Transfer
Agent Instructions"); and (B) each Purchaser shall deliver (1) the purchase
price indicated below such Purchaser's name on the signature page to this
Agreement in United States dollars in immediately available funds by wire
transfer to an account designated prior to the Closing Date in writing by the
Company for such purpose, and (2) all documents, instruments and writings
required to have been delivered at or prior to the Closing Date by such
Purchaser pursuant to this Agreement, including an executed Registration Rights
Agreement.

            1.2 Certain Defined Terms. For purposes of this Agreement,"Trading
Day" and "Per Share Market Value" shall have the meanings set forth in Exhibit A
and "Business Day" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
governmental action to close.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

      2.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers:

            (a) Organization and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries other than as set forth in Schedule

                                      -2-
<PAGE>

2.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries is an
entity, duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Securities (as defined
below) or any of this Agreement, the Registration Rights Agreement or the
Warrants (collectively, the "Transaction Documents"), (y) be reasonably expected
to have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "Material Adverse Effect").

            (b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company and no further corporate action is required by the
Company other than the obtaining of the Required Approvals (as hereinafter
defined). Each of the Transaction Documents has been duly executed by the
Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective articles of incorporation,
by-laws or other charter or organizational documents.

            (c) Capitalization. The number of authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). Except as
disclosed in Schedule 2.1(c), no securities of the Company or any Subsidiary are
entitled to preemptive or similar rights, nor is any holder of securities of the
Company or any Subsidiary entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company or any Subsidiary by virtue
of any of the Transaction Documents. Except as disclosed in Schedule 2.1(c),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, except as
a result of the purchase and sale of the Securities, or rights or obligations
convertible into or exchangeable for, or giving any Person (as defined below)
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in the SEC
Reports (as defined below) or Schedule 2.1(c), no Person or group of related
Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
has the right to acquire by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of 5% of the Common Stock. A

                                      -3-
<PAGE>

"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

            (d) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the terms hereof and the
Warrants, shall have been duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "Liens"). The Company has reserved a number of duly
authorized shares of Common Stock that is not less than the sum of (i) the
maximum number of Underlying Shares (as defined below) issuable upon exercise of
the Adjustable Warrants, assuming that the Per Share Market Value utilized to
determine the number of such Underlying Shares is 50% of the average Per Share
Market Value on the Trading Day immediately preceding the Closing Date and (ii)
the number of Underlying Shares issuable upon exercise in full of the Closing
Warrants (such number of shares of Common Stock as contemplated in clauses (i)
and (ii), the "Initial Minimum"). All such authorized shares of Common Stock
shall be duly reserved for issuance to the holders of the Shares and the
Warrants. The shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as the "Underlying Shares." The Shares, the Warrants and the
Underlying Shares are collectively referred to herein as, the "Securities."

            (e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's articles of
incorporation, bylaws or other charter documents (each as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below) and except as set forth in Schedule 2.1(e), conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, indenture or instrument (evidencing a Company or
Subsidiary debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected, except in the case of each of
clauses (ii) and (iii), as could not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, could not reasonably be expected to
have or result in a Material Adverse Effect.

            (f) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.11, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the

                                      -4-
<PAGE>

requirements set forth in the Registration Rights Agreement and covering the
resale of the Shares and the Underlying Shares by the Purchasers (the
"Underlying Shares Registration Statement"), (iii) the application(s) to the
Nasdaq National Market ("NASDAQ") for the listing of the Shares and the
Underlying Shares with the NASDAQ (and with any other national securities
exchange of market on which the Common Stock is then listed), (vi) applicable
Blue Sky filings, and (v) in all other cases where the failure to obtain such
consent, waiver, authorization or order, or to give such notice or make such
filing or registration could not have or result in, individually or in the
aggregate, a Material Adverse Effect (collectively, the "Required Approvals").
The Company has either (i) filed with the NASDAQ an additional shares listing
application for the listing of the Underlying Shares for trading on the NASDAQ
for such number of shares of Common Stock as would be issuable upon exercise of
the Warrants assuming the Per Share Market Value on the date of exercise of the
Warrants equaled 50% of the Per Share Market Value on the date of the filing of
such application or (ii) received a telephonic waiver from the NASDAQ from the
obligation to file such application.

            (g) Litigation; Proceedings. Except as set forth in the SEC Reports,
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any of their respective properties before
or by any court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, individually or in the aggregate, be
reasonably expected to have or result in a Material Adverse Effect.

            (h) No Default or Violation. Neither the Company nor any Subsidiary
(i) except as set forth in Schedule 2.1(h), is in default under or in violation
of (and no event has occurred which has not been waived which, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, reasonably be expected to
have or result in a Material Adverse Effect.

            (i) Private Offering. Assuming the accuracy of the representations
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on its
behalf has taken or, to the knowledge of the Company, is contemplating taking
any action which could subject the offering, issuance or sale of the Securities
to the registration requirements of the Securities Act including soliciting any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.

            (j) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials being collectively referred to herein as

                                      -5-
<PAGE>

the "SEC Reports" and, together with the Schedules to this Agreement the
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Reports to the
extent required. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. Except as set
forth on Schedule 2.1(j) or except as specifically disclosed in the SEC Reports,
since April 16, 1999 (a) there has been no event, occurrence or development that
has had or that could reasonably be expected to have or result in a Material
Adverse Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (c) the Company has not
altered its method of accounting or the identity of its auditors and (d) the
Company has not declared or made any payment or distribution of cash or other
property to its stockholders or officers or directors (other than in compliance
with existing Company stock or stock option plans) with respect to its capital
stock, or purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock. The Company last filed audited financial statements
with the Commission on April 16, 1999, and has not received any comments from
the Commission in respect thereof.

            (k) Investment Company. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.

            (l) Certain Fees. Except for certain fees payable by the Company to
International Securities Corporation, and its Affiliates, no fees or commissions
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, or bank or other Person with respect
to the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any such fees or with respect to any claims made by
or on behalf of other Persons (including, without limitation, the Persons
specified in Section 2.1(r)) for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the Purchasers, their
employees, officers, directors, agents, and partners, and its respective
Affiliates, from and against all claims,

                                      -6-
<PAGE>

losses, damages, costs (including the costs of preparation and attorney's fees)
and expenses suffered in respect of any such claimed or existing fees, as such
fees and expenses are incurred; provided, that, if it shall be shown that a
Purchaser is responsible for Purchaser Fees (as hereinafter defined) in
accordance with Section 2.2(i), then the Company will have no indemnity
obligation to such Purchaser or its Affiliates, employees, directors or agents
under this Section with respect to claims made by such Person for such Purchaser
Fees and the provisions of Section 2.2(i) shall apply thereto.

            (m) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.

            (n) Listing and Maintenance Requirements Compliance. The Company has
not, in the two years preceding the date hereof, received notice (written or
oral) from the NASDAQ or any other stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is currently in compliance
with all such maintenance requirements and no fact or circumstances currently
exist which could reasonably be expected to result in noncompliance with such
maintenance requirements in the foreseeable future.

            (o) Patents and Trademarks. The Company and its Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "Intellectual Property Rights") which are necessary or
material for use in connection with their respective business, and which the
failure to so have would have a Material Adverse Effect. To the best knowledge
of the Company all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.

            (p) Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, except where the failure to possess
such permits could not, individually or in the aggregate, have or result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.

            (q) Title. Except as set forth in Schedule 2.1(q), the Company and
the Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.

                                      -7-
<PAGE>

            (r) Disclosure. The Company confirms that, except for the
transactions contemplated by this Agreement, the termination of the Company's
arrangement with Zanett Securities Corporation and Coleman and Company
Securities, Inc. to provide the Company with investment banking services, it has
not provided the Purchasers or their agents or counsel with any information that
constitutes or might constitute material non-public information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

      2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:

            (a) Organization; Authority. Such Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The purchase by
such Purchaser of the Securities hereunder has been duly authorized by all
necessary action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms.

            (b) Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable federal and state securities laws or under an exemption from such
registration. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any amount of time. By
executing this Agreement, such Purchaser further represents that such Purchaser
does not presently have any contract, undertaking, agreement or arrangement with
any Person to sell or transfer to such Person or to any third person, with
respect to any of the Securities.

            (c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and at each exercise date
under the Warrants, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.

            (d) Experience of Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities,

                                      -8-
<PAGE>

and has so evaluated the merits and risks of such investment. Such Purchaser is
not relying on the Company or any of its employees or agents with respect to the
legal, tax, economic and related considerations of an investment in the
Securities. Such Purchaser is knowledgeable about investment considerations in
development-stage companies.

            (e) Ability of Purchaser to Bear Risk of Investment. Such Purchaser
is able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment. Such
Purchaser's overall commitment to investments which are not readily marketable
is not excessive in view of its net worth and financial circumstances and the
purchase of the Securities will not cause such commitment to become excessive.

            (f) Access to Information. Such Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, proper ties, management
and prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.

            (g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

            (h) Reliance. Such Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance. Such Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, such Purchaser must hold the Securities indefinitely
unless they are registered with the Commission and qualified by applicable state
authorities, or an exemption from such registration and qualification
requirements is available. Such Purchaser acknowledges that the Company has no
obligation to register or qualify the Securities for resale except as set forth
in the Registration Rights Agreement. Such Purchaser further acknowledges that
if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the

                                      -9-
<PAGE>

\Securities, and on requirements relating to the Company which are outside of
such Purchaser's control, and which the Company may be under no obligation and
may not be able to satisfy.

            (i) Certain Fees. Such Purchaser has not entered into (a) any
written agreement or written understanding pursuant to which such Purchaser has
agreed, directly or indirectly, to pay fees or commissions to any placement
agent, finder, investment banker or bank or broker with respect to the
transactions contemplated by this Agreement or (b) any agreement or
understanding pursuant to which it agreed, directly or indirectly, to pay fees
or commissions to any placement agent, finder, investment banker or bank or
broker, in connection with the introduction of another Purchaser to the
transactions contemplated by this Agreement (collectively, "Purchaser Fees").
The Company shall not be responsible for the payment of any Purchaser Fees, and
such Purchaser shall indemnify and hold harmless the Company, its employees,
officers, directors, agents, and partners, and its respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
Purchaser Fees.

            The Company acknowledges and agrees that no Purchaser makes or has
made representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.

                                   ARTICLE III
                         OTHER AGREEMENTS OF THE PARTIES

      3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act, and in compliance with any
applicable federal and state securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act.
Notwithstanding the foregoing, the Company, without requiring a legal opinion as
described in the immediately preceding sentence, hereby consents to and agrees
to register on the books of the Company and with any transfer agent for the
securities of the Company any transfer of Securities by a Purchaser to an
Affiliate of such Purchaser or to one or more funds or managed accounts under
common management with such Purchaser, and any transfer among any such
Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement (including, without limitation, that the provisions of Section
2.2 hereof shall apply to such transferee) and shall have the rights of the
Purchaser under this Agreement and the Registration Rights Agreement.

                                      -10-
<PAGE>

            (b) The Purchasers agree to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:

            [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
      SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND
      EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
      UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
      SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
      SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
      TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

            Underlying Shares shall not contain the legend set forth above nor
any other legend if the exercise of Warrants or other issuances of Underlying
Shares as contemplated by the Warrants occurs at any time while an Underlying
Shares Registration Statement is effective under the Securities Act and provided
that the conditions set forth in the Transfer Agent Instructions have been
satisfied or in the event there is not an effective Registration Statement at
such time if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company shall cause its counsel to issue the
legal opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the day that such Registration Statement is declared effective
by the Commission. The Company agrees that, in the event any Shares or
Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three (3) Trading Days after request therefor by a
Purchaser and the surrender by such Purchaser of the certificate representing
the Shares or Underlying Shares, provide such Purchaser with a certificate or
certificates representing such Shares or Underlying Shares, free from such
legend at such time as such legend would not have been required under this
Section 3.1(b) had such issuance occurred on the date of such request and that
the conditions set forth in the Transfer Agent Instructions have been satisfied.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.

      3.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of Underlying Shares upon exercise of the Warrants pursuant to the terms
thereof, will result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligation to issue Underlying Shares upon
exercise of the Warrants pursuant to the terms thereof, is, subject to the
limitations set forth in the Warrants, unconditional and absolute regardless of
the effect of any such dilution.

      3.3 Furnishing of Information. As long as the Purchasers own Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. So long as the Purchasers own Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make

                                      -11-
<PAGE>

publicly available in accordance with Rule 144(c) promulgated under the
Securities Act such information as is required for the Purchasers to sell the
Securities under Rule 144 promulgated under the Securities Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of any such Person, the
Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.

      3.4 Integration. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of the Nasdaq Stock Market.

      3.5 Increase in Authorized Shares. If on any date the Company would be, if
a notice of exercise were to be delivered on such date, precluded from issuing
200% of the number of Underlying Shares as would then be issuable upon exercise
in full of the Warrants (the "Current Required Minimum") due to the
unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly (and in any case, within 45 Business Days from such date) prepare and
mail to the stockholders of the Company proxy materials requesting authorization
to amend the Company's articles of incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue to at least such
number of shares as reasonably requested by the Purchasers in order to provide
for such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its issuance, exercise and reservation of shares
obligations as set forth in this Agreement and the Warrants (the sum of (x) the
number of shares of Common Stock then outstanding plus all shares of Common
Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments other than the Warrants, and (y) the Current Required
Minimum, shall be a reasonable number). In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60th day after
delivery of the proxy materials relating to such meeting and the 105th day after
request by the holders of the Warrants to issue the number of Underlying Shares
in accordance with the terms hereof) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's articles of incorporation to evidence such increase.

      3.6 Reservation and Listing of Underlying Shares. (a) The Company shall
(i) in the time and manner required by the NASDAQ (subject to any waiver
received from NASDAQ) and such other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed for
trading but in any event no later than two (2) Trading Days following the
Closing Date, prepare and file with the NASDAQ (and such other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed for trading) an

                                      -12-
<PAGE>

additional shares listing application covering a number of shares of Common
Stock which is not less than the Initial Minimum, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing in the NASDAQ or
on any other primary national securities exchange or market or trading or
quotation facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon. If the
number of Underlying Shares issuable upon exercise of the then unexercised
portion of the Warrants exceeds 85% of the number of Underlying Shares
previously listed on account thereof with NASDAQ (and any such other required
exchanges), then the Company shall take the necessary actions to immediately
list a number of Underlying Shares as equals no less than the then Current
Required Minimum.

            (b) The Company shall maintain a reserve of shares of Common Stock
for issuance upon exercise in full of the Warrants in accordance with the
Warrants, in such amount as may be required to fulfill its obligations in full
under the Warrants, which reserve shall equal no less than the then Current
Required Minimum.

      3.7 Exercise Procedures. The Transfer Agent Instructions and Form of
Election to Purchase under the Warrants set forth the totality of the procedures
with respect to the exercise of the Warrants, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchasers to exercise the Warrants.

      3.8 Notice of Breaches. Each of the Company and the Purchasers shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained therein to be incorrect or breached as of
the Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.

      3.9 Exercise Obligations of the Company. The Company shall honor exercises
of the Warrants and shall deliver Underlying Shares in accordance with the
respective terms, conditions and time periods set forth in the Warrants.

      3.10 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly (including through one or more Affiliates,
other than principal stockholders of the Company), without the prior written
consent of the Purchasers, issue or offer to issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock in a transaction intended to be
exempt or not subject to registration under the Securities Act ("Common Stock
Equivalents"), at a price per share less than the then market price of the
Common Stock at the time of the original issuance of such Common Stock or Common
Stock Equivalent (if the holder of the Common Stock or Common Stock Equivalent
so issued shall, at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, receive or be entitled to acquire shares of Common

                                      -13-
<PAGE>

Stock at a price per share less than the market price of the Common Stock
measured at the date of the original issuance of such originally issued Common
Stock or Common Stock Equivalent, then such issuance shall be deemed to have
occurred for less than the then such market value and such issuance shall be
subject to the right of first refusal set forth in this Section) (any such
issuance, a "Subsequent Placement") for a period from the Closing Date to the
180th day following the first date that the Underlying Shares Registration
Statement is first declared effective by the Commission, except (i) the grant or
exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to be implemented
in the future, or upon grant or exercise of any stock or options to or by an
officer, director, employee, agent, consultant whether or not under a plan, so
long as the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, (ii) shares of Common Stock issued upon exercise of any currently
outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in Schedule 2.1(c)
but not with respect to any amendment or modification thereof, (iii) shares of
Common Stock issuable upon exercise of the Warrants in accordance with the terms
thereof, (iv) securities issued in connection with an underwritten public
offering of the Company, (v) securities issued in connection with any merger,
acquisition or consolidation, or purchase of assets or business from another
person, so long as the Company is the surviving corporation and that such
transaction is not primarily for the purpose of raising capital, and (vi) in
connection with the issuance of Common Stock, not in excess of 1% of the Common
Stock issued and outstanding on the Closing Date, upon the exercise of warrants
or other rights granted to any bank other commercial financing institution,
unless (A) the Company delivers to the Purchasers a written notice (the
"Subsequent Placement Notice") of its intention effect such Subsequent
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
effected (which, by its execution and delivery of this Agreement each Purchaser
hereby agrees to keep confidential), and attached to which shall be a term sheet
or similar document relating thereto and (B) the Purchasers shall not have
notified the Company by 5:30 p.m. (New York City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Placement Notice of its
willingness to cause the Purchasers to provide (or to cause their sole designee
to provide), subject to completion of mutually acceptable documentation (which
completion of documentation shall be expedited in good faith by the parties
thereto) , financing to the Company on the same terms set forth in the
Subsequent Placement Notice. If the Purchasers shall fail to notify the Company
of their intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Placement substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Placement Notice; provided, that the Company shall provide the Purchasers with a
second Subsequent Placement Notice, and the Purchasers shall again have the
right of first refusal set forth above in this paragraph (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Business Days after the date the Purchasers notify the
Company of their unwillingness to provide such financing. If the Purchasers
shall indicate a willingness to provide financing in excess of the amount set
forth in the Subsequent Placement Notice, then each Purchaser shall be entitled
to provide financing pursuant to such Subsequent Placement Notice up to an
amount equal to such Purchaser's pro rata portion of the aggregate

                                      -14-
<PAGE>

amount of Securities purchased by the Purchasers under this Agreement, but the
Company shall not be required to accept financing from the Purchasers in an
amount in excess of the amount set forth in the Subsequent Placement Notice.
Notwithstanding anything herein to the contrary, the rights under this Section
3.10(a) shall cease to be available with respect to any Purchaser on the date,
if any, on which such Purchaser ceases to own a minimum of 20% of the sum of (i)
the Shares purchased by it, (ii) the shares of Common Stock then issuable upon
exercise of the Closing Warrant issued to it and (iii) the shares of Common
Stock which have then vested pursuant to the Adjustment Warrant issued to it.

            (b) Except for (w) Shares, (x) Underlying Shares, (y) other
"Registrable Securities" (as such term is defined in the Registration Rights
Agreement) to be registered, and securities of the Company set forth in to
Schedule 6(b) of the Registration's Rights Agreement to be registered, in the
Underlying Shares Registration Statement in accordance with the Registration
Rights Agreement, and (z) Common Stock permitted to be issued pursuant to
paragraph (a)(i) - (vi) of Section 3.10(a), the Company shall not, for a period
of not less than 90 Trading Days after the date that the Underlying Shares
Registration Statement is declared effective by the Commission, without the
prior written consent of the Purchasers (i) issue or sell any of its or any of
its Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) except in the case of a bona fide
underwritten public offering of the Company's securities, file a registration
statement for the issuance or resale of any securities of the Company, provided,
that any adjustment relating to the Warrants shall apply in the case of a bona
fide underwritten public offering of the Company's securities. Any Trading Days
that a Purchaser is unable to sell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.

      3.11 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) file with the Commission a Current Report on Form 8-K disclosing the
transactions contemplated hereby within ten (10) Business Days after the Closing
Date, and (ii) timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the Securities
Act and provide a copy thereof to the Purchasers promptly after the filing
thereof. The Company shall, no less than two (2) Business Days prior to the
filing of any disclosure required by clauses (i) and (ii) above, provide a copy
thereof to the Purchasers. No such filing or disclosure may be made that
mentions the Purchasers by name without the prior consent of the Purchasers.
Such filings shall be subject to Section 4.11 hereof.

      3.12 Transfer of Intellectual Property Rights. Except as set forth in
Schedule 3.12 and in connection with the sale of all or substantially all of the
assets of the Company, the Company shall not transfer, sell or otherwise dispose
of any Intellectual Property Rights, or allow any of the Intellectual Property
Rights to become subject to any Liens, or fail to renew such Intellectual
Property Rights (if renewable and it would otherwise lapse if not renewed),
without the prior written consent of the Purchasers.

      3.13 Use of Proceeds. The Company shall use the net proceeds from the sale
of Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt, to redeem any Company equity
or equity-equivalent securities or to settle any outstanding

                                      -15-
<PAGE>

litigation, except as set forth in Schedule 3.13. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.

      3.14 Limitations on Short Sales. Each Purchaser agrees that it will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the Third Vesting Date (as defined in the
Adjustable Warrants). For purposes of this Section 3.14, a "Short Sale" by a
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by the Purchaser. For purposes of determining
whether there is an equivalent offsetting long position in Common Stock held by
a Purchaser, Warrant Shares that have not yet been issued on exercise of the
Warrants or vested pursuant to such Warrants shall be deemed to be held long by
such Purchaser and the number of Warrant Shares then held by such Purchaser on
any particular date of computation shall be equal to the sum of (i) the number
of Warrant Shares then issuable upon exercise of the Closing Warrant held by
such Purchaser and (ii) the number of Warrant Shares issuable pursuant to the
Adjustable Warrant held by such Purchaser on the next Vesting Date (as defined
in the Adjustable Warrants) calculated as if such Vesting Date occurred on the
date of computation (whether or not then a Vesting Date) (e.g. using the lowest
ten (10) Per Share Market Values during the forty (40) Trading Days immediately
preceding such computation date), provided, that on and after the Third Vesting
Date, such number shall equal the number of Warrant Shares that have vested on
such Third Vesting Date. Each Purchaser agrees that it will not, directly or
indirectly, individually or through any Affiliate, engage in any transaction
which would be in violation of Regulation M promulgated under the Exchange Act
with respect to transactions in the Underlying Shares.

      3.15 Reimbursement. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with

                                      -16-
<PAGE>

or as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the applicable
Purchaser or entity in connection with the transactions contemplated by this
Agreement.

      3.16 First Additional Securities. The Company and each Purchaser agree
that, as of the Closing Date, the Company and each of the Purchasers shall have
discharged their respective obligations with respect to the acquisition or sale
(as the case may be) of the entire First Additional Securities.

                                   ARTICLE IV
                                  MISCELLANEOUS

            4.1 Fees and Expenses. At the Closing the Company shall reimburse
the Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $20,000 for the preparation and negotiation of the Transaction
Documents. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.

            4.2 Entire Agreement; Amendments. The Transaction Documents,
together with the Exhibits and Schedules thereto, and the Transfer Agent
Instructions contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.

            4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:

                                      -17-
<PAGE>

      If to the Company:  Fidelity Holdings, Inc.
                          80-02 Kew Gardens Road, Suite 5000
                          Kew Gardens, New York 11415
                          Facsimile No.: (718) 793-2455
                          Attn: Doron Cohen, President

      With copies to:     Littman Krooks Roth & Ball P.C.
                          655 Third Avenue
                          New York, New York 10017-5617
                          Attn: Mitchell C. Littman, Esq. and
                          James J. Quinlan, Esq.
                          Facsimile No.: (212) 490-2990

      If to a Purchaser:  To the address set forth under such Purchaser's name
                          on the signature pages hereto.

            4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.

            4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

            4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company.

            4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

            4.8 Governing Law. The corporate laws of the State of Nevada shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the

                                      -18-
<PAGE>

enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.

            4.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
exercise of the Warrants.

            4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

            4.11 Publicity. The Company and the Purchasers shall consult with
each other in issuing any press releases or otherwise making public statements
or filings and other communications with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement, filing
or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of a Purchaser, or include the name of a Purchaser in
any filing with the Commission, or any regulatory agency, trading facility or
stock market without the prior written consent of such Purchaser, except to the
extent such disclosure (but not any disclosure as to the controlling Persons
thereof) is required by law, in which case the Company shall provide such
Purchaser with prior notice of such disclosure.

            4.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.

            4.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and

                                      -19-
<PAGE>

hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.

            4.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.

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                             SIGNATURE PAGE FOLLOWS]

                                      -20-
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                               FIDELITY HOLDINGS, INC.

                               By: /s/ Doron Cohen
                                   ---------------
                                   Name: Doron Cohen
                                   Title: President and CEO

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES FOR INVESTORS FOLLOW]

<PAGE>

                               STRONG RIVER INVESTMENTS, INC.

                               By: /s/ Kenneth L. Henderson
                                   ------------------------
                                   Name: Kenneth L. Henderson
                                   Title: Attorney-in-fact

                               Purchase Price for Shares
                               to be acquired at Closing:             $1,333,333

                               Shares to be acquired
                               at Closing:                                88,889

                               Warrant Shares to be acquired
                               at Closing:                                88,889

                               Address for Notice:

                               Strong River Investments, Inc.
                               c/o Gonzalez-Ruiz & Aleman (BVI) Limited
                               Wickhams Cay I, Vanterpool Plaza
                               P.O. Box 873
                               Road Town, Tortolla. BVI

                               With copies to:

                               Robinson Silverman Pearce Aronsohn & Berman LLP
                               1290 Avenue of the Americas
                               New York, NY  10104
                               Facsimile No.:  (212) 541-4630
                               Attn: Kenneth L. Henderson, Esq. and
                                     Eric L. Cohen. Esq.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES FOR INVESTORS FOLLOW]

<PAGE>

                               MONTROSE INVESTMENTS LTD.

                               By: /s/ Kevin O'Neal
                                   ----------------
                                   Name: Kevin O'Neal
                                   Title: Authorized Signatory

                               Purchase Price for Shares
                               to be acquired at Closing:             $1,333,333

                               Shares to be acquired
                               at Closing:                                88,889

                               Warrant Shares to be acquired
                               at Closing:                                88,889

                               Address for Notice:

                               Montrose Investments Ltd.
                               300 Crescent Court, Suite 700
                               Dallas, TX 75201
                               Facsimile: (214) 758-1221
                               Attn: Will Rose and Kim Rozman

                               With copies to:

                               Robinson Silverman Pearce Aronsohn &
                                  Berman LLP
                               1290 Avenue of the Americas
                               New York, NY  10104
                               Facsimile No.:  (212) 541-4630
                               Attn: Kenneth L. Henderson, Esq. and
                                     Eric L. Cohen. Esq.

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                      SIGNATURE PAGES FOR INVESTORS FOLLOW]

<PAGE>

                               AUGUSTA STREET LLC

                               By: Navigator Management Ltd.
                                   Director

                                   By: /s/ David Sims
                                       --------------
                                       Name: David Sims
                                       Title: President

                               Purchase Price for Shares
                               to be acquired at Closing:             $1,333,334

                               Shares to be acquired
                               at Closing:                                88,889

                               Warrant Shares to be acquired
                               at Closing:                                88,889

                               Address for Notice:

                               Augusta Street LLC
                               c/o Citco Trustees (Cayman) Limited
                               Commercial Centre
                               P.O. Box 31106 SMB
                               Grand Cayman
                               Cayman Islands
                               British West Indies
                               Facsimile No.: (345) 945-7566

<PAGE>

                               With copies to:

                               Krieger & Prager, Esqs.
                               39 Broadway
                               New York, NY 10006
                               Facsimile No.:  (212) 363-2999
                               Attn: Samuel L. Krieger, Esq

                                     -and-

                               Southridge Capital Management LLC
                               Executive Pavillon
                               90 Grove Street
                               Ridgefield, CT 06877
                               Facsimile No.: (203) 431-8301
                               Attn: Henry Sargent, Esq.

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