GRAFF PAY PER VIEW INC /DE/, DEF 14A, 1996-06-21

GRAFF PAY PER VIEW INC /DE/
DEF 14A, 1996-06-21
CABLE & OTHER PAY TELEVISION SERVICES

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Commission file No. 0-21150

SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant

Filed by a Party other than the Registrant

Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14(a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

Graff Pay-Per View Inc.
(Name of Registrant as Specified in Its Charter)
_________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2)of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
_________________________________________________
(2) Aggregate number of securities to which transaction applies:
_________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was determined):
_________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________________
(5) Total fee paid:
_________________________________________________
[X] Fee paid previously with preliminary materials.
________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_________________________________________________
(2) Form, Schedule or Registration Statement No.:
_________________________________________________
(3) Filing Party:
_________________________________________________
(4) Date Filed:
_________________________________________________

<PAGE>

GRAFF PAY-PER-VIEW INC.
536 Broadway
New York, New York 10012
-------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 23, 1996

------------------

The Annual Meeting of the Stockholders (the "Annual Meeting") of GRAFF
PAY-PER VIEW INC. (the "Company") will be held on Tuesday, July 23, 1996 at
10:00 a.m., at the Penn Club, 30 West 44th Street, New York, New York 10036
in the 10th Floor Banquet Room for the following purposes:

1. To elect six Directors of the Company to serve for the ensuing
year (Proposal 1);

2. To approve the amendment of the Company's Certificate of Incorporation
to change the Company's name from Graff Pay-Per-View Inc. to Spice
Entertainment Companies, Inc. (Proposal 2);

3. To approve the Company's 1995 Restricted Stock Incentive Plan
(Proposal 3);

4. To approve the amendments to the Company's 1994 and 1995 Employees'
Stock Option Plans (Proposal 4);

5. To ratify the appointment of Coopers & Lybrand L.L.P. as the
Company's independent auditors for the fiscal year ended
December 31, 1996 (Proposal 5); and

6. To transact such other business as may properly be brought before
the Meeting.

All stockholders of record on May 30, 1996 are cordially invited to attend
the meeting in person. However to assure your representation at the meeting, you
are urged to mark, sign, date and return the enclosed Proxy as promptly as
possible in the enclosed postage-prepaid envelope. Any stockholder attending
the Annual Meeting may vote in person even if he or she returned a proxy.

BY ORDER OF THE BOARD OF DIRECTORS

DANIEL J. BARSKY
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY

New York, New York
June 24, 1996

<PAGE>

GRAFF PAY-PER-VIEW INC.

- --------------------------------------------------------------------------------
PROXY STATEMENT

FOR 1996 ANNUAL MEETING OF STOCKHOLDERS

PROCEDURAL MATTERS

GENERAL

This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Graff Pay-Per-View Inc.
(the "Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on July 23, 1996 at 10:00 A.M., local time, and at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the
Penn Club, 30 West 44th Street, New York, New York 10036 in the Banquet Room.
The telephone number at the Penn Club is (212) 764-3550. The Company's
headquarters are located at 536 Broadway, 7th Floor, New York, New York 10012,
and the telephone number at that location is (212) 941-1434.

These proxy solicitation materials were mailed on or about June 24,
1996, together with the Company's 1995 Annual Report on Form 10-K/A-1, to all
stockholders entitled to vote at the Annual Meeting.

VOTING AT THE ANNUAL MEETING AND RECORD DATE

Only holders of record of the Company's Common Stock at the close of
business on May 30, 1996 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting. Such stockholders are entitled to cast one vote for
each share of Common Stock held as of the Record Date and to vote on all matters
properly submitted for the vote of stockholders at the Annual Meeting. As of the
Record Date, 11,339,928 shares of the Company's Common Stock were issued and
outstanding. For information regarding security ownership by management and by
the beneficial owners of more than 5% of the Company's Common Stock, see "Share
Ownership By Directors, Nominees, Principal Stockholders And Management."

QUORUM; REQUIRED VOTE

The presence, in person or by proxy, of the holders of a majority of
the shares of Common Stock outstanding as of the Record Date is necessary to
constitute a quorum at the Annual Meeting. A majority of the votes duly cast is
required for the election of directors, to ratify the appointment of auditors
and to approve Proposals 3 and 4. A majority of the outstanding shares is
required to approve Proposal 2.

Abstentions and broker non-votes will be included for purposes of
determining whether a quorum of shares is present at the Annual Meeting. In
determining whether a proposal which requires a majority of the duly cast shares
has been approved, abstentions of shares that are entitled to vote are treated
as present in person or represented by proxy, but not as voting for such
proposal and hence have the same effect as votes against such proposal. Broker
non-votes of shares entitled to vote are not treated as present in person or
represented by proxy for purposes of voting on such proposal and hence have no
effect on the vote for such proposals. Abstentions and broker non-votes are
treated as having not voted for Proposal 2, which requires a majority of the
outstanding shares for approval and hence have the same effect as a negative
vote for Proposal 2.

PROXIES

All shares entitled to vote and represented by properly executed
proxies received prior to the Annual Meeting will be voted at the Annual Meeting
in accordance with the instructions indicated on those proxies if not revoked
prior thereto. If no instructions are indicated on a properly executed proxy,
the shares represented by that proxy will be voted as recommended by the Board
of Directors. If any other matters are properly presented for consideration at
the Annual Meeting, the proxy holders will have discretion to vote on those
matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. A proxy may be revoked (i) by
delivering a written notice of revocation or a duly executed proxy to the
Secretary of the Company bearing a date later than the prior proxy relating to
the same shares or (ii) by attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not of itself revoke a proxy).
Any written notice of revocation or subsequent proxy must be received by the
Secretary of the Company prior to the taking of the vote at the Annual Meeting.

EXPENSES OF SOLICITATION

All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. The Company may
reimburse brokerage firms, custodians, nominees, fiduciaries and other persons
representing beneficial owners of Common Stock for their reasonable expenses in
forwarding solicitation material to such beneficial owners. Authorized
directors, officers and employees of the Company may also solicit proxies in
person or by telephone, telegram, letter or facsimile. Such authorized
directors, officers and employees will not be additionally compensated, but
they may be reimbursed for reasonable out-of-pocket expenses in connection
with such solicitation.

<PAGE>

PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS

Stockholders may present proper proposals for inclusion in the
Company's proxy materials for consideration at the next annual meeting of its
stockholders by submitting their proposals to the Secretary of the Company in a
timely matter. In order to be included in the Company's proxy materials for the
1997 Annual Meeting, stockholder proposals must be received by the Secretary of
the Company no later than March 18, 1997, and must otherwise comply with the
requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").

<PAGE>

PROPOSAL 1
ELECTION OF DIRECTORS

GENERAL

A board of six directors will be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the nominees named below, regardless of whether any other names are
placed in nomination by anyone other than one of the proxy holders. If any of
the nominees is unable or declines to serve as a director at the Annual Meeting,
the proxy holders will vote in their discretion for a substitute nominee or will
vote for a fewer number of directors as may be prescribed by the Board of
Directors in accordance with the Company's by-laws. It is expected that all
nominees will be available to serve as Board members. The term of office of each
person elected as director will continue until the next Annual Meeting of
Stockholders or until his or her successor has been elected and qualified.

Two of the directors are required to be nominated pursuant to the
terms of agreements with the Company. Under the terms of the Separation
Agreement between the Company and Mr.Nolan (the "Nolan Separation Agreement"),
the Company is obligated, except in certain circumstances, to nominate him as
a director until December 31, 1998. Under the terms of Mr. Spector's employment
agreement, the Company is obligated, except in certain circumstances, to
nominate Mr. Spector as a director while he is employed by the Company.
Mr. Spector's employment agreement extends through August 31, 1998.

Certain information regarding the beneficial ownership of Common Stock
of each such director is set forth below at "Share Ownership By Principal
Stockholders, Directors, Nominees And Management."

INFORMATION REGARDING NOMINEES FOR DIRECTORS

The following table sets forth the name, age and certain other
information regarding the nominees for directors.

<TABLE>
<CAPTION>
Name Age Principal Occupation and Business Experience

<S> <C> <C>
J. Roger Faherty 57 CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER AND
DIRECTOR. J. Roger Faherty has been Chairman of the Board and a
Director of the Company since December 1991. In 1991 he was
elected as the Company's Chief Executive Officer. From 1988 to
1991 he was a consultant to investment bankers. Beginning in
March 1990 and until joining the Company in December 1991, he
was a consultant to the Company.

Edward M. Spector 61 CHIEF OPERATING OFFICER, PRESIDENT AND DIRECTOR. Edward M.
Spector became a Director on September 1, 1995 and was elected
as the Company's Chief Operating Officer and President on
November 17, 1995. In 1984, Mr. Spector formed Spector
Entertainment Group, Inc. ("SEG") and has been SEG'S Chairman
and Chief Executive Officer since its inception. Since
September 1, 1995, SEG has been a wholly-owned subsidiary of the
Company. Mr. Spector has over 25 years of experience in the
telecommunications and pari-mutuel wagering industries.

Leland H. Nolan 49 DIRECTOR. Leland H. Nolan has been a Director of the Company
since 1988 and from that time and until the end of 1995, held
various executive positions, most recently as Vice Chairman,
International Initiatives. Prior to joining the Company, he was
Chairman of the Board of Orange Entertainment Company, a video
production and distribution company.

Dean Ericson 49 DIRECTOR. Dean Ericson was elected a Director of the Company on
January 24, 1994. Mr. Ericson is co-founder and President,
since 1987, of Media Management Services, Inc., a Denver-based
consulting practice providing technology and business
development services to selected media and telecommunications
companies. He was formerly Vice President of New Business
Development, Director of Pay Television, and Manager of Special
Markets at American Television and Communications Corporation.

Christopher Yates 54 Christopher Yates is a nominee to the Board of Directors. He
has been the Chief Executive Officer of The Home Video Channel,
Ltd. ("HVC") since HVC's 1989 formation. Since the end of
1994, HVC has been a wholly-owned subsidiary of the Company.
Prior to 1989, he was the Chief Executive of Cabletel
Communications Ltd. which was owned by the Ladbrook Group PLC
and Comcast Communications Inc. and operated a fully interactive
cable system in West London. Mr. Yates is also a founding
member of the Cable Television Association in the U.K. and has
served in various capacities with that organization.

Rudy S. Miller 49 Rudy R. Miller is a nominee to the Board of Directors. Mr.
Miller has served as Chairman, President and Chief Executive
Officer of Miller Management Corp., a financial consulting firm,
since 1972 and of Miller Capital Corp., a venture capital,
financial services and investor relations firm, since 1993. Mr.
Miller was Chairman, President and Chief Executive Officer of
StatesWest Airlines, Inc. from 1986 to 1993. That company
petitioned for protection under Chapter 11 of the U.S.
Bankruptcy Code in December 1992 and was dismissed by the
Bankruptcy Count in September 1994. Mr. Miller was also a
member of the board of directors of American West Airlines from
1982 to 1986.

</TABLE>

COMMITTEES; BOARD MEETINGS

The Board of Directors of the Company held five meetings during the
year ended December 31, 1995. Each Director attended all of the meetings during
the year ended December 31, 1995 except for Mr. Spector who joined the Board of
Directors on September 1, 1995. Mr. Spector attended each of the three Board
meetings held thereafter.

In January, 1994, the Board of Directors of the Company elected an
Audit Committee, a Compensation Committee and a Stock Option Committee. The
Audit Committee is responsible for reviewing the activities of the Company's
independent auditors (including fees, services and scope of audit), monitoring
the efficacy of the Company's internal accounting controls, reviewing the
Company's accounting procedures and policies and reviewing the Company's
budgeting and forecasting. The Audit Committee met once during 1995 and
delivered a report to the Board.

The Compensation Committee is responsible for reviewing and
establishing the compensation policy for the Company. The Compensation Committee
met twice during 1995, and delivered two reports to the Board, one of which was
a joint report with the Stock Option Committee.

The Stock Option Committee is responsible for administering the
Company's four employee stock option plans and for reviewing and implementing
all matters with respect to the plans including granting options and setting
vesting schedules and exercise prices. The Stock Option Committee also met twice
during 1995 and delivered two reports to the Board, one of which was a joint
report with the Compensation Committee.

The members of each committee are currently Messrs. Small and Ericson, who
are non-employee Company Directors. Messrs. Small and Ericson attended all
committee meetings during 1995. Mr. Small is not standing for reelection as
a member of the Board of Directors.

.
DIRECTOR'S COMPENSATION

The Company pays $1,000 per meeting, plus expenses and $250 per
telephone conference to non-officer directors serving on its Board of Directors.
The Company pays no additional compensation for officer-directors serving on its
Board of Directors.

THE BOARD RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.

<PAGE>

PROPOSAL 2

AMENDMENT OF CERTIFICATE OF INCORPORATION TO CHANGE NAME OF THE COMPANY TO
SPICE ENTERTAINMENT COMPANIES, INC.

The Board has approved and recommends stockholder approval of an amendment
of the Certificate of Incorporation to change the Company's name from GRAFF
PAY-PER-VIEW INC. to SPICE ENTERTAINMENT COMPANIES, INC.

The Board believes that the Company's current name should be changed
to SPICE ENTERTAINMENT COMPANIES, INC. to take advantage of the strong brand
identity which the Company has developed in the SPICE brand name. SPICE and
its companion pay-per-view network, THE ADAM & EVE CHANNEL, are the leading
adult pay-per view television networks in North America and account for
approximately one-half of the Company's revenues. The Company is most
frequently associated with the SPICE brand name. The Company intends to focus
on its core adult entertainment business and to further develop and exploit the
recognition and awareness of the SPICE brand name.

The reference in the Company's existing name to "pay-per-view" does not
adequately describe all of its businesses which now include owning and operating
domestic and European pay-per-view and premium television networks, providing
telecommunications and television production services to the pari-mutuel
wagering industry, licensing and distributing entertainment programming and
deploying advanced video delivery systems. The Company is also expanding into
new media such as CYBERSPICE, its web site on the Internet. A broader name
dovetails with the restructuring of the Company's organizational structure into
functional groups. A change in the Company's name will be the initial step in
this organizational restructuring.

The affirmative vote of a majority of all outstanding shares of the
Company's Common Stock is required to approve the amendment of the Company's
Certificate of Incorporation to change the Company's name.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
CHANGE OF THE COMPANY'S NAME TO SPICE ENTERTAINMENT COMPANIES, INC.

<PAGE>

PROPOSAL 3

ADOPTION OF 1995 RESTRICTED STOCK INCENTIVE PLAN

On May 12, 1995, the Compensation Committee of the Board of Directors
approved and the Board of Directors adopted the 1995 Restricted Stock Incentive
Plan (the "Restricted Stock Plan"), subject to the approval by the Company's
stockholders. The purpose of the Restricted Stock Plan is to provide incentives
for those key members of management who make significant contributions to the
successful operation of the Company, and to limit the financial expense to the
Company for long-term incentive awards. The Compensation Committee has awarded,
subject to stockholder approval of the Restricted Stock Plan, 177,000 shares of
restricted Common Stock under the Restricted Stock Plan.

SUMMARY OF THE PLAN

The following description of the Restricted Stock Plan is qualified in
its entirety by reference to the Restricted Stock Plan, a copy of which is
attached as Exhibit 1.

Participation in the Restricted Stock Plan is limited to employees of
the Company who are key members of management in the opinion of the Compensation
Committee. Five persons (each a "Recipient") have been selected to participate
in the Restricted Stock Plan. An aggregate of 177,000 shares of restricted
Common Stock ("Restricted Shares") were awarded to the Recipients, including
44,000 Restricted Shares awarded to Philip Callaghan which have been canceled as
a result of the termination of his employment by the Company. The number of
Restricted Shares awarded to each Recipient was based on the Recipient's salary
and the market value of the Common Stock.

The Restricted Shares may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with the terms of the
Restricted Stock Plan. The certificates representing the Restricted Shares are
issued with a restrictive legend which indicates that the Restricted Shares are
subject to the Restricted Stock Plan.

Recipients will receive dividends, if any, as declared and paid by the
Company, commencing with receipt of the Restricted Shares. Recipients may vote
the Restricted Shares on matters which come before the holders of Common Stock.

The Restricted Shares vest and the restrictions on transferability
lapse in one installment after five years of continuous employment. If a
Recipient's employment is terminated because of death or permanent disability,
the restrictions lapse as to a pro rata portion of such Recipient's Restricted
Shares, based on the period of time elapsed since the date of grant and the five
year period. Restricted Shares which are returned to the Company will not be
reissued.

The restrictions on the Restricted Shares also lapse if there is a
"change in control" of the Company. A change in control will be deemed to have
occurred if an employee's employment by the Company is terminated after the
occurrence of one of the following: (i) a majority of the Company's Common Stock
is acquired by a person or group of persons acting in concert during any twelve
month period; (ii) at least 25% of the Company's Common Stock is acquired by a
person or group of persons acting in concert during any twelve month period and
a majority of the member of the Company's Board of Directors are replaced by
directors not endorsed by the prior board members or (iii) substantially all of
the Company's assets are acquired by a person or group of persons acting in
concert during any twelve month period.

The Compensation Committee has full power and authority to construe,
interpret and administer the Restricted Stock Plan.

Subject to stockholder approval, the Recipients, the number of
Restricted Shares awarded and the market value thereof are as follows:

=========================== =================== =================
Recipient(1) Restricted Shares Market Value(2)
=========================== =================== =================
<S> <C> <C>
Steven Saril 40,000 $185,000
Richard Kirby 36,000 $166,500
Barry Goldberg 30,000 $138,750
Daniel Barsky 27,000 $124,875
=========================== =================== =================
</TABLE>

1) The Compensation Committee had also awarded 44,000 Restricted Shares to
Philip Callaghan, subject to stockholder approval of the Restricted Stock
Plan. The Company elected not to renew Mr. Callaghan's employment
agreement and his employment by the Company terminated on June 15, 1996 at
which point the 44,000 Restricted Shares were canceled. Under the terms of
the Severance of Employment Agreement between the Company and Mr.
Callaghan, if the Company elects to rehire Mr. Callaghan during the nine
months he is receiving severance payments, Mr. Callaghan's Restricted
Shares will be reissued. If Mr. Callaghan is not rehired, the Company
will not reissue the Restricted Shares previously held by Mr. Callaghan.

2) Fair market value of Restricted Shares on December 29, 1995 (the last
trading day in 1995) based on the closing price for the Common Stock
as reported on The Nasdaq National Market.

-------------
The foregoing (including the 44,000 Restricted Shares issued to Mr. Callaghan
which have been canceled) constitutes all of the Restricted Shares authorized
under the Restricted Stock Plan.

The Company has been advised that the federal income taxes consequences
of an award of Restricted Shares under the Restricted Stock Plan are as follows:

A Recipient of Restricted Shares will generally not recognize taxable
income in the year received, nor will the Company be entitled to a deduction at
that time. When the restrictions lapse (generally, after the fifth year of
continuous employment), the Recipient will recognize ordinary income in an
amount equal to the fair market value of the Restricted Shares at that time. The
Recipient will have a tax basis in the Restricted Shares equal to the amount of
ordinary income recognized and his holding period will start on the date the
restrictions lapse. If a Recipient then sells the Restricted Shares, any
difference between the sales price and his tax basis will be capital gain or
loss, as the case may be, if the Recipient held the Restricted Shares as a
capital asset. Under current law, such capital gain or loss will be long term or
short term depending upon whether the Recipient has held the Restricted Shares
for more than one year. Under current rules, an individual's net long term
capital gains are subject to tax at a maximum rate of 28%. The Company will be
entitled to a deduction in an amount equal to the income recognized by the
Recipient. The Company must properly withhold income tax on the amount of
such income.

A Recipient may elect within 30 days of receipt of Restricted Shares to
be currently taxed on the fair market value of the Restricted Shares at the time
of receipt, determined without regard to restrictions on the Restricted Shares'
transferability. In that event, the Company's deduction will be available in the
year of grant in an amount equal to the income recognized by the Recipient. The
Recipient's tax basis in the Restricted Shares will be equal to the ordinary
income recognized and his holding period will start on the date of grant. If a
Recipient making such an election subsequently forfeits the Restricted Shares,
no refund will be available to the Recipient for the taxes previously paid nor
will l the Company have any obligation to reimburse the Recipient.

BOARD RECOMMENDATION

The approval of the holders of a majority of the outstanding shares of
the Common Stock present at the Annual Meeting, in person or by proxy, is
required for adoption of the Restricted Stock Plan. The Board recommends
ratification of the Restricted Stock Plan and the grant of the Restricted Shares
under the Restricted Stock Plan. The Board believes that the Restricted Stock
Plan will facilitate retaining and motivating management employees of high
caliber and potential and incentives their continued employment by the Company.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
ADOPTION OF THE RESTRICTED STOCK PLAN.

<PAGE>

PROPOSAL 4

AMENDMENT OF 1994 AND 1995 EMPLOYEES' STOCK OPTION PLANS

The Company's Board of Directors has amended, subject to approval of
the Company's stockholders, the 1994 Employees' Stock Option Plan (the "1994
Plan") and the 1995 Employees' Stock Option Plan (the "1995 Plan") (the 1994
Plan and the 1995 Plan are collectively referred to as the "Plans"), to: (i)
authorize the grant of nonqualified options under the Plans to non-employee
service providers to the Company, including consultants and non-employee
directors ("Non-employee Grantees"), (ii) provide that for nonqualified options
granted to Non-Employee Grantees and to former employees who held such options
when their employment was terminated ("Former Employees"), such options may be
exercisable for such period of time as determined by the Stock Option Committee
in its discretion without regard to whether such Non-employee Grantee or Former
Employee is continuing to render services to the Company and (iii) permit the
Stock Option Committee to vest options of Former Employees which are not vested
on the date their employment by the Company is terminated and to retroactively
amend the option agreements of Former Employees to extend the period of
exercisability for such period of time as determined by the Stock Option
Committee in its discretion without regard to whether such Former Employee is
continuing to render services to the Company.

BACKGROUND FOR AMENDMENTS

Prior to their amendment, the Plans provided that options could be
granted only to Company employees and were exercisable by an employee only while
employed by the Company and for 90 days thereafter. The principal purpose of the
amendments to the Plans is to permit the Company to grant nonqualified options
to non-employee service providers to the Company. Because it is likely that many
non-employee service providers will provide services for a limited period of
time and options must be granted with an exercise price equal to no less than
market value on the date of grant, options granted to non-employee service
providers must be exercisable for a period of time greater than 90 days after
the services are rendered to have value to a prospective non-employee service
provider to the Company.

The Company has terminated several employees as part of its year end
restructuring. Due to the decline in the market price of the Common Stock, most
of these Former Employees held options with an exercise price in excess of the
exercise price of their options. The Company has extended, subject to
stockholder approval of the amendments to the Plans, the exercise period for
such options as part of the package of severance benefits for certain of these
Former Employees.

The Company is also contractually obligated to seek stockholder
approval for the amendments with respect to the 1994 Plan under the terms of the
two Separation Agreements (the "Separation Agreements") between the Company and
Messrs. Graff and Nolan who resigned as Company officers as part of the
Company's restructuring undertaken at the end of 1995. Under the terms of the
Nolan Separation Agreement, Mr. Nolan will be nominated as a Director of
the Company, except in certain circumstances, at the 1996 Annual Shareholders'
Meeting and thereafter until 1998 and will provide consulting services for
no compensation for 5 years after ceasing to be a Company director. Under the
terms of Mr. Graff's Separation Agreement (the "Graff Separation Agreement"),
as amended, Mr. Graff determined not to stand for reelection to the Board
of Directors. He will serve as a consultant for a period of time which
extends for the duration of time he would have been nominated as a Director and
for five years thereafter. The Company is also obligated, among other things,
to amend the option agreements for their options issued under the 1992
Employees' Stock Option Plan (the "1992 Plan") and the 1993 Employees' Stock
Option Plan ("1993 Plan") to clarify that such options will remain exercisable
during the period while they are Company directors or consultants.

Absent such amendments, Messrs. Graff's and Nolan's options would have
been exercisable for only 90 days after their employment terminated. By amending
their option agreements under the 1992 and 1993 Plans and by amending the 1994
Plan, Messrs. Graff and Nolan will able to exercise their options under the
plans for at least five years from the date of their Separation Agreements and
up to ten years from the date of original grant. Mr. Graff holds options under
the 1994 Plan, the 1993 Plan and the 1992 Plan to acquire, respectively, 25,000,
100,000 and 328,331 shares of Common Stock. Mr. Nolan holds options under the
1994 Plan, the 1993 Plan and the 1992 Plan to acquire, respectively, 25,000,
100,000 and 577,916 shares of Common Stock. Under the Graff Separation
Agreement, the Company is obligated to grant Mr. Graff options to acquire
249,585 shares of Common Stock with an exercise price of $3.875 in replacement
of the options he previously exercised and which exercise was rescinded in
December, 1995.

The Company has similar obligations under the Severance of Employment
Agreement with Philip Callaghan dated April 9, 1996 (the "Severance Agreement")
with respect to options held by Mr. Callaghan. Mr. Callaghan was the Company's
Chief Financial Officer until May 3, 1996 and holds options under the 1994 Plan
and the 1993 Plan to acquire, respectively, 11,000 and 100,000 shares of Common
Stock.

DESCRIPTION OF THE AMENDMENTS

The following description of the Amended 1994 Employees' Stock Option
Plan and the Amended 1995 Employees' Stock Option Plan (collectively, the
"Amended Plans") is qualified in its entirety by reference to the Amended Plans,
copies of which are attached as Exhibit 2 and 3. As at May 1, 1996, options to
acquire 704,004 shares of Common Stock have been granted and are outstanding
under the 1994 Plan and no options have been granted under the 1995 Plan.

The permissible grantees under the Amended Plans have been expanded to
include non-employee service providers to the Company, including directors and
consultants ("Non-employee Grantees"). Options granted to Non-employee Grantees
cannot be incentive stock options ("ISO"). The principal difference between
ISO's and non-ISO's is the federal income tax treatment. In general, an ISO
holder does not recognize taxable income upon exercise of an ISO but rather
recognizes taxable income when the stock received upon exercise is sold. An
non-ISO holder recognizes taxable income when the option is exercised.

The Stock Option Committee is granted discretion to determine the
exercise period for options granted to Non-employee Grantees and to Former
Employees holding options when their employment by the Company was terminated up
to a maximum of 10 years following the date of grant without regard to whether
such Non-employee Grantee or Former Employee is continuing to render services to
the Company. The Stock Option Committee is also granted the discretion to vest
options of Former Employees which were not vested on the date their employment
by the Company was terminated and to retroactively amend the option agreements
of Former Employees to extend the period of exercisability following the
termination of their employment without regard to whether such Former Employee
is continuing to render services to the Company.

BOARD RECOMMENDATION

The Plans were initially adopted with a view to attracting and
retaining qualified employees. The Plans do not, however, afford the Company
with the flexibility to grant options to non-employee service providers to the
Company, such as consultants. The Board believes that it is in the Company's
best interests to have this flexibility to incentivize such service providers
and to permit the Company to compensate such persons with consideration other
than cash.

By agreeing, among other things, to extend the exercisability of
Messrs. Graff's and Nolan's options, the Company was able to reduce its
obligation to make severance payments to each of them by approximately $1.1
million over the severance payments provided for in their employment agreements
in addition to other cost savings in excess of $2 million. The Company was also
able to reduce its cash outlays for severance for several other employees by
agreeing, subject to stockholder approval, to extend the exercise periods of
their options following the termination of their employment.

The approval of the holders of a majority of the outstanding shares of
Common Stock present at the Annual Meeting, in person or by proxy, is required
for approval of the amendments to the Plans.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
AMENDMENTS TO THE AMENDED PLANS.

<PAGE>

PROPOSAL 5

APPROVAL OF AUDITORS

The Board has appointed the firm of Coopers & Lybrand L.L.P.,
independent public accountants, to audit the Company's financial statements for
the fiscal year ended December 31, 1996, and recommends that stockholders vote
for ratification of this appointment. Coopers & Lybrand L.L.P. has served as the
Company's independent auditors since 1990 and has reported to the Company that
none of its members has any direct financial interest or material indirect
interest financial interest in the Company.

Representatives of Coopers & Lybrand L.L.P. will be present at the
meeting to make a statement if they desire to do so, and are expected to be
available to respond to appropriate questions.

THE BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

<PAGE>

MANAGEMENT

SHARE OWNERSHIP BY DIRECTORS, NOMINEES, PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth the beneficial ownership of Common Stock
of the Company as of May 30, 1996 for the following (i) each person or entity
known by the Company to be the beneficial owners of more than 5% of the
outstanding shares; (ii) each of the Company's current directors and nominees,
(iii) each of the executive officers named in the Summary Compensation Table;
and (iv) all directors and executive officers of the Company as a group.

SHARES OWNED SHARES PERCENTAGE
(NOT INCLUDING BENEFICIALLY OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER1 OPTIONS) OWNED2 OUTSTANDING2
------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
J. Roger Faherty3,4 295,506 906,239 7.6%
Mark Graff 5 381,150 706,298 6.1%
Leland H. Nolan6,7 292,276 867,009 7.3%
Edward M. Spector8 666,000 666,000 5.8%
Richard Christopher Yates9 10 371,411 376,161 3.3%
Dean Ericson11 30,000 *
Marvin Small12 25,000 40,000 *
Philip Callaghan13 151,250 1.3%
Steven Saril14 61,567 260,067 2.3%
Rudy S. Miller *
All Directors and Executive Officers, as a 2,234,250 4,277,489 31.9%
group (14 persons)
================================================= ================= ================= =================
</TABLE>

* Less than 1%.

1) The business address of such persons, for purposes hereof, is c/o Graff
Pay-Per-View Inc., 536 Broadway 7th Floor, New York, New York 10012.

2) Assumes exercise of options exercisable within sixty days owned by such
person and the exercise of no other options or warrants.

3) Mr. Faherty disclaims beneficial ownership of the (i) 334,844 shares
and 5,750 shares issuable upon exercise of outstanding options owned
by his wife and (ii) 22,200 shares owned by his children.

4) Includes 610,733 shares issuable upon exercise of outstanding options.

5) Includes 325,148 shares issuable upon exercise of outstanding options.
Under the Graff Separation Agreement, the Company is obligated to grant
Mr. Graff options to acquire 249,585 shares of Common Stock with an
exercise price of $3.875 in replacement of the options he previously
exercised and which exercise was rescinded in December, 1995.

6) Mr. Nolan disclaims beneficial ownership of the (i) 4,638 shares owned
by his children and (ii) 26,313 of shares issuable upon exercise of
outstanding options owned by his wife.

7) Includes 574,733 shares issuable upon exercise of outstanding options.

8) Includes 666,000 shares owned by the Spector Revocable Family Trust of
which Mr. Spector is a co-trustee and a beneficiary. Mr. Spector does not
own any shares of Common Stock directly and disclaims beneficial
ownership of the 85,340 shares of Common Stock owned by his children. See
"Certain Transactions" for additional shares of common Stock which Mr.
Spector may receive in conjunction with a reciprocal put and call which
is part of the Company's acquisition of a Spector affiliate.

9) Mr. Yates disclaims beneficial ownership of 900 shares issuable upon
exercise of outstanding options owned by his son.

10) Includes 4,750 shares issuable upon exercise of options.

11) Includes 30,000 shares issuable upon exercise of outstanding options.

12) Includes 15,000 shares issuable upon exercise of outstanding options.

13) Includes 151,250 shares issuable upon exercise of options. Mr. Callaghan
is no longer an employee.

14) Includes 40,000 Restricted Shares and 198,500 shares issuable upon
exercise of outstanding options.

EXECUTIVE OFFICERS

The biographies of Mr. Faherty, the Chief Executive Officer, and
Edward M. Spector, the President and Chief Operating Officer, are set forth
in "PROPOSAL 1, ELECTION OF DIRECTORS."

Mr. Enholm was appointed as the Company's Executive Vice
President and Chief Financial Officer on May 20, 1996. Mr. Enholm has
been SEG's Chief Financial Officer since June, 1994. Between 1991 and
1994, he was a self-employed consultant. From 1984 to 1991 he was Executive
Vice President and Chief Financial Officer of The Geneva Companies.

Mr. Saril has been an executive officer of the Company since 1989 and
is currently its Senior Vice President of Sales and Marketing. Between 1979 and
1989, he was a Director of National Accounts for Showtime Networks, Inc., an
operator of cable movie networks.

Mr. Kirby has been an executive officer of the Company since 1988
and is currently its Senior Vice President of Network Operations. Between 1985
and 1988, Mr. Kirby was Vice President of Operations for Reiss Media, which
operates Request Television.

Mr. Barsky has been an executive officer of the Company since 1995 and
is currently its Senior Vice President and General Counsel and Secretary. Prior
to joining the Company, he was a partner in Dornbush Mensch Mandelstam &
Schaeffer, which acted as the Company's legal counsel from 1989 to 1994.

Mr. Eric M. Spector became Senior Vice President of Business
Development in November 1995. Mr. Spector has been a Director and Executive
Vice President of SEG since 1991. Prior to joining SEG, he was an associate
at the law firm of Brobeck, Phleger and Harrison practicing corporate law.
He is the son of Mr. Edward M. Spector.

Mr. McDonald became a Senior Vice President of New Media and Direct
Markets on May 22, 1996. Mr.McDonald became a consultant to the Company in
May of 1995 and an employee at the beginning of 1996. Prior to joining the
Company and since 1990, he was Chairman of the Summit Investment Group,
a private investment group. Prior to that he was President of National Media
Corporation, a New York Stock Exchange listed company involved principally
in the direct marketing business.

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal years ended December 31,
1995, 1994 and 1993, compensation paid by the Company for services in all
capacities to the Chief Executive Officer and the four most highly compensated
executive officers during 1995.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM COMPENSATION

Other Annual Securities
Compensa- Restricted Underlying All Other
Name and Salary tion Stock Awards Options Compensation
Principal Position Year ($) ($) ($) (#) 12 ($)
-------------------- ---- ------ ------------- -------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
J. Roger Faherty 1995 421,539 64,574 1 8 19,909
Chairman and Chief 1994 400,000 75,161 1 8 12,432
Executive Officer 1993 337,884 71,397 8 13,180

Mark Graff* 1995 421,539 45,776 2 25,000 9 7,615
Vice Chairman, 1994 400,000 38,431 2 0 8,169
Domestic Initiatives 1993 337,884 32,772 2 100,000 4,818

Leland H. Nolan* 1995 421,539 46,995 3 8 9,765
Vice Chairman 1994 400,000 49,687 3 8 16,959
International 1993 337,884 57,656 3 8 9,658
Initiatives

Philip Callaghan* 1995 220,000 21,865 4 379,500 6 10 2,200
Executive Vice 1994 177,115 23,256 4 0
President and 1993 125,769 10
Chief Financial
Officer

Steve Saril 1995 193,462 17,017 5 2,200
345,000 7 11
Senior Vice President 1994 177,500 23,256 5
11
Sales & Marketing 1993 158,894
</TABLE>

* No longer a Company employee.

1) Mr. Faherty's other annual compensation included a Company provided leased
automobile and payments of auto operating expenses amounting to $14,400,
$24,115 and $15,713, in 1995, 1994 and 1993, respectively, and deferred
compensation amounting to $36,566 each year in 1995, 1994 and 1993.

2) Mr. Graff's other annual compensation included a Company provided leased
automobile and payment of auto operating expenses amounting to $27,854,
$22,801 and $14,381 in 1995, 1994 and 1993, respectively and deferred
compensation amounting to $9,092 each year in 1995, 1994 and 1993.
Mr. Graff resigned as an executive officer effective December 31, 1995.

3) Mr. Nolan's other annual compensation included a Company provided leased
automobile and payment of auto operating expenses amounting to $14,716,
$11,051 and $14,585 in 1995, 1994 and 1993, respectively and deferred
compensation amounting to $26,013, $26,013 and $26,013 for 1995, 1994
and 1993. Mr. Nolan resigned as an executive officer effective
December 31, 1995.

4) Mr. Callaghan's other annual compensation consists of auto operating
expenses amounting to $8,500 in 1995 and $12,000 in 1994 and premiums paid
on a long-term disability policy amounting to $6,548 in 1995 and $4,002 in
1994 and Company paid medical benefits of $6,817 in 1995 and $7,254 in
1994. The Company elected not to renew Mr. Callaghan `s employment
agreement and his employment by the Company terminated on June 15, 1996
pursuant to the terms of the Severance Agreement.

5) Mr. Saril's other annual compensation consists of auto operating expenses
amounting to $8,500 in 1995 and $12,000 in 1994 and premiums paid on a
long-term disability policy amounting to $2,241 in 1995 and $2,060 in 1994
and Company paid medical benefits of $6,276 in 1995 and $7,254 in 1994.

6) Mr. Callaghan, subject to stockholder approval, received 44,000
Restricted Shares on May 12, 1995 at a market value of $8.63 per share. On
January 2, 1996, the Restricted Shares had a market value of
$220,000. Mr. Callaghan's employment with the Company terminated on May 16,
1996. Under the terms of the Severance Agreement, his Restricted Shares
were canceled but will be reissued if Mr. Callaghan is rehired by the
Company during the nine month period that the Company is paying him
severance.

7) Mr. Saril, subject to stockholder approval, received 40,000
Restricted Shares on May 12, 1995 at a market value of $8.63 per share.

8) Messrs. Faherty and Nolan's securities underlying options include 249,585
options granted in December 1995 in replacement of the identical number of
options which were granted in 1991, exercised in April 1995 and whose
exercise was rescinded in December, 1995. Each of Messrs. Faherty and Nolan
were also granted 25,000 options in May 1995 under the 1994 Employee Stock
Option Plan. Pursuant to a repricing of options, these 25,000 options were
canceled and replaced by a like amount of options in December 1995. As part
of this repricing, 100,000 options previously granted to Messrs. Faherty
and Nolan in 1993 under the 1993 Employer Stock Options were canceled and
replaced by a like amount of options in December 1995. Mr. Faherty was also
granted 36,000 options in 1993 under the 1992 Stock Option Plan. Refer to
the ten year option repricing schedule for additional details.

9) Mr. Graff exercised options to acquire 249,585 shares of the Company's
Common Stock in April 1995. In December 1995, Mr. Graff rescinded the
exercise of these options.

10) Mr. Callaghan's securities underlying options include 11,000 options
granted in May 1995 under the 1994 Stock Option Plan. Pursuant to a
repricing of options, these options were canceled and replaced by an
identical number of options in December 1995. As part of this repricing,
100,000 options previously granted to Mr. Callaghan in 1994 were canceled
and replaced by an identical number of options in December 1995. Under the
terms of the Severance Agreement, Mr. Callaghan will render consulting
services to the Company for three years following the termination of his
employment which occurred on May 16, 1996. Mr. Callaghan's options will
remain exercisable, subject to stockholder approval of Proposal 4,
while he is rendering consulting services to the Company and for 90 days
thereafter.

11) Mr. Saril's securities underlying options include 10,000 options granted in
May, 1995 under the 1994 Stock Option Plan. Pursuant to a repricing of
options, these options were canceled and replaced by an identical number of
options in December 1995. As part of this repricing, 50,000 options
previously granted to Mr. Saril in 1994 were canceled and replaced by an
identical number of options in December 1995.

12) All other compensation consists of premiums paid on Company provided life
insurance policies and/or employer contributions to Company's 401(k) Plan.

EMPLOYMENT AGREEMENTS

Mr. Faherty is employed by the Company as its Chairman and Chief
Executive Officer pursuant to an Employment Agreement effective January 11, 1992
which was amended effective as of January 1, 1996. Under the most recent
amendment to the agreement, Mr. Faherty's base salary was decreased from
$420,000 to $350,000, with any adjustments determined annually. The agreement
has a six year term, subject to automatic renewal for additional five year terms
if not terminated each year. Under the most recent amendment, the agreement
provides for loans from the Company of up to $215,000 exclusive of accrued
interest. The loan has a maturity date of December 31, 1996 and bears interest
at the same rate the Company is paying its principal lender. The agreement also
provides for annual retirement benefits of not less than $100,000 (implemented
by the deferred compensation agreement described below) and provides for other
benefits including reimbursement for automobile costs. Mr. Faherty has waived
his rights to a reimbursement for automobile costs.

On October 1, 1992, the Company entered into deferred compensation
agreements with Messrs. Faherty, Graff and Nolan. Under the agreements the
Company is obligated to provide for retirement benefits at or after reaching the
age of 65 and also provide for early retirement benefits. Upon retirement each
executive will receive from the Company a total of 180 monthly payments which
will provide a benefit of $100,000 per annum. Upon early retirement the
executive will receive maximum benefits of $95,000 or a minimum of $50,000
annually upon retirement on or after age 55 but before the age of 65. Upon the
death of the executive prior to the age of 65, but after the age of 55, the
executive's beneficiary will receive maximum annual benefits of $95,000 or a
minimum benefit of $50,000 payable monthly. Because of the termination of
Messrs. Graff and Nolan's employment before age 55, the Company is no longer
obligated to provide them with retirement benefits.

Mr. Spector is employed by the Company as a Director and Senior
Executive Officer of SEG pursuant to an employment agreement effective September
1, 1995 and expiring on August 31, 1998. He is currently serving as President
and Chief Operating Officer of the Company. The agreement provides for a base
salary of $350,000, with annual increases of not less than 5%. The parties have
agreed to negotiate in good faith an extension to the employment agreement
during the third year of employment. During the term of employment, he shall be
nominated as a member of the Board of Directors of the Company if he, his family
members, and affiliated trusts own an aggregate of at least 400,000 shares of
the Company's Common Stock.

Effective January 1, 1996, Messrs. Graff and Nolan resigned as
executive officers of the Company and entered into Separation Agreements which
terminated their Employment Agreements. Each of Messrs. Graff and Nolan will
receive severance of $350,000 per annum payable in equal installments during
the period January 1, 1996 through December 31, 1998. In both cases, the
severance was less than that provided for in their employment agreements. In
the event the Company completes financing in excess of $20 million, each
individual may require prepayment of their severance payments. Both
individuals have loans outstanding with the Company which are required to be
repaid during 1997 in equal monthly installments.

Mr. Callaghan was employed by the Company as its Executive Vice
President and Chief Financial Officer pursuant to an employment agreement
effective September 1, 1993, for a three-year term. This agreement was
terminated on May 16, 1996 and Mr. Callaghan and the Company entered into a
Severance of Employment Agreement which provides for, among other things, nine
months of severance.

Each of the employment and separation agreements described above
prohibits the executive from competing with the Company for a specified period
after termination of employment.

OPTION REPRICINGS, GRANTS AND EXERCISES

In April 1995, Messrs. Faherty, Nolan and Graff, executive officers,
each exercised 249,585 options to acquire Common Stock at $0.8333 per share to
generate a tax deduction for the Company. The exercise price was paid by
delivery of promissory notes. In November 1995 when it was clear that the
Company would suffer a loss for 1995 and did not need the tax deduction, the
Stock Option Committee granted the executive officers the right to rescind the
option exercised. The rescission resulted in the return to the Company of the
Common Stock purchased upon exercise of the options and cancellation of the
promissory notes issued upon exercise of the options. The options were returned
to Messrs. Faherty and Nolan under the same terms and conditions except such
options have an exercise price of $3.875 per share. The exercise price of the
replacement options was more than $3.00 greater than the exercise price of the
original options. Under the Graff Separation Agreement, the options exercised
by Mr. Graff will be returned to him in June, 1996 under the same terms and
conditions except such options will have an exercise price of $3.875.

<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION
UNDERLYING STOCK AT PRICE AT NEW REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE
REPRICED REPRICING REPRICING PRICE OF
NAME DATE (#) ($) ($) ($) REPRICING (YEARS)
- ----------------------- --------- ------------ ----------- ---------- --------- -----------------

<S> <C> <C> <C> <C> <C> <C>
J. Roger Faherty 12-11-95 36,000 3.875 5.000 3.875 7.1
Chairman and Chief 12-11-95 100,000 3.875 9.000 3.875 7.5
Executive Officer 12-11-95 25,000 3.875 8.625 3.875 9.5

Leland H. Nolan*
Vice Chairman
International 12-11-95 100,000 3.875 9.000 3.875 7.5
Initiatives 12-11-95 25,000 3.875 8.625 3.875 9.5

Philip Callaghan*
Executive Vice President 12-11-95 100,000 3.875 8.000 3.875 7.7
and Chief Financial 12-11-95 11,000 3.875 8.625 3.875 9.5
Officer

Steven Saril
Senior Vice President, 12-11-95 50,000 3.875 7.750 3.875 8.0
Sales and Marketing 12-11-95 10,000 3.875 8.625 3.875 9.5

</TABLE>

* No longer a Company employee.

<PAGE>

The following table sets forth stock options that the Company granted
or repriced to the named executive officers during 1995.

Potential Realizable
Value
at Assumed Annual
Rates
of Stock Price
Appreciation for
Option
Individual Grants Term
- -----------------------------------------------------------------------------------------------------------------

Number of % of Total
Shares of Options
Common Stock Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price 5% 10%
Name Granted (#) Year ($/Sh) Expiration Date ($) ($)
- --------------------- --------------- ------------- ------------ ----------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Roger Faherty 1 249,585 2 17.30 3.875 02/21/02 339,499 773,632
36,000 5 2.50 3.875 02/01/03 57,558 134,427
100,000 5 6.93 3.875 06/16/03 169,855 400,720
25,000 3 1.73 3.875 05/12/05 60,924 154,394

Mark Graff 25,000 3 1.73 8.625 05/12/05 135,605 343,651

Leland H. Nolan 1 249,585 2 17.30 3.875 02/21/02 339,499 773,632
100,000 5 6.93 3.875 06/16/03 169,855 400,720
25,000 3 1.73 3.875 05/12/05 60,924 154,394

Philip Callaghan 1 11,000 3 0.76 3.875 05/12/05 26,807 67,933
100,000 4 6.93 3.875 10/01/03 196,772 476,791

Steven Saril 10,000 3 0.69 3.875 05/12/05 24,370 61,758
50,000 4 3.47 3.875 01/26/04 121,848 308,788

</TABLE>

1) Does not include options to purchase Common Stock that were granted and
subsequently canceled in 1995 as part of a repricing of options.

2) In April 1995, Messrs. Faherty, Nolan and Graff, executive officers, each
exercised options to purchase 249,585 shares of Common Stock at $.8333 per
share. In December, 1995, the Company allowed the three executive officers
to rescind the exercise of the original options. On December 11, 1995, the
Company returned to Messrs. Faherty and Nolan the options previously
exercised by them with options with the same terms except the exercise
price of such options was $3.875 per share. The Graff Separation
Agreement requires that the Company issue to Mr Graff options to purchase
249,585 shares of Common Stock with an exercise price of $3.875, in
replacement of the options previously exercised.

3) Such options are exercisable in four equal annual installments commencing
May 13, 1996, one year after the effective date of the grant. The options
were granted on May 12, 1995 as part of the 1994 Employee Stock Option
Plan and repriced on December 11, 1995 at $3.875. Refer to the ten year
option repricing schedule for additional details on repricing.

4) The options were granted in September, 1993 and repriced at $3.875 on
December 11, 1995. The options are all currently exercisable.

5) Such options were granted in 1993 and are currently exercisable.
Thirty-six thousand (36,000) to Mr. Faherty from the 1992 plan and 100,000
to each of Messrs. Faherty and Nolan from the 1993 Plan, all of which were
repriced in December, 1995.

6) The options were granted in 1994 and repriced at $3.875 on
December 11, 1995. The options are all currently exercisable.

The following table sets forth the aggregate option exercises in the
last fiscal year and the year end option values.

Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at FY-End (#) at FY-End ($)
------------------- ---------------------
Shares Acquired
on Exercise Value Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable(1)
- ----------------------- ---------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
J. Roger Faherty 2 None None 461,716 2,308,580
277,200 1,386,000
Mark Graff 2 None None 176,131 880,655
277,200 1,386,000
Leland H. Nolan 2 None None 425,716 1,128,580
277,200 1,386,000
Philip Callaghan None None 112,000 560,000
11,000 55,000
Steven Saril None None 146,000 730,000
10,000 50,000
</TABLE>

1) Based on the last trade price on January 2, 1996 of $5.00 quoted by The
Nasdaq National Market.

401(K) TAX DEFERRED SAVINGS PLAN

Effective January 1, 1993, all qualified employees, including the
executive officers, are eligible to participate in the Company's 401(k) Tax
Deferred Savings Plan (the "401(k) Plan"). Under the 401(k) Plan, each employee
may, at his or her option, elect to defer (and contribute to the Plan) up to 15%
of his or her salary. At its discretion, the Company may elect to contribute a
percentage of the contributions of the employees. Contributions to the 401(k)
Plan shall be invested as determined by the Plan trustees, Messrs. Faherty,
Spector and Barsky. The trustees have retained Nationwide Services Company to
invest the 401(k) Plan funds.

COMPENSATION AND STOCK OPTION COMMITTEE REPORT

Marvin Small and Dean Ericson, non-employee directors of the Company,
are the Compensation and Stock Option Committees' (the "Committees") members.
Mr. Small has determined not to stand for reelection to the Board at the 1996
Annual Stockholders' meeting. The Committees establish the Company's
compensation policy and believe that executive compensation should:

provide motivation to achieve strategic goals by tying executive
compensation to Company performance;

provide compensation reasonably comparable to that offered by other
companies in the same industry as the Company and of similar size and
profitability to attract qualified executives; and

provide long term incentives to tie the executive to the long term
interests of the Company's stockholders.

In early 1995, the Compensation Committee received a recommendation for
a compensation program for key executives and employees based on the foregoing
principles. The proposal recommended annual grants of stock options to key
executives and employees, performance-based cash bonuses tied to the performance
of the key executives and the price of the Company's Common Stock and the grant
of restricted stock to key executives which provides for vesting after five
years of continuous employment. The proposal was adopted in large part by the
Compensation Committee, subject to stockholders' approval for the restricted
stock grant.

As a result of the Company's financial position and performance during
the second half of 1995, the Committees determined that there would be no year
end salary adjustments for the Chief Executive Officer, J. Roger Faherty, the
Vice Chairmen Mark Graff and Leland Nolan and the Chief Financial Officer,
Philip Callaghan. The Committees later determined to reduce Mr. Faherty's salary
and the Committees accepted the resignations of Messrs. Graff and Nolan as
officers. Messrs. Graff and Nolan entered into Separation Agreements which
terminated their employment agreements and provide significantly less severance
than that provided for in their employment agreements. The Committee also
eliminated executive prerequisites and established a schedule for the repayment
of loans previously made by the Company to Messrs. Faherty, Nolan and Graff.

The Committees also endorsed the termination of the employment of
several executives who had worked in the Company's international, hotel/motel,
television and movie production and other initiatives as part of the
Company-wide restructuring and adopted other cost saving measures designed to
reduce the Company's cash outlays for salary and other employee benefits. The
Committees has also instituted a hiring freeze.

Due to the decline in the market price of the Company's Common Stock in
the second half of 1995, the exercise price of most employee options exceeded
the market price of the stock. To maintain the incentive of options granted to
employees, the Stock Option Committee elected to reprice options held by all
persons who were active employees or consultants on November 17, 1995. The
repricing took effect on December 11, 1995. The options repriced under the 1992
Stock Option Plan included 36,000 options granted to Mr. Faherty. The options
repriced under the 1993 Plan included 100,000 options granted to Mr. Callaghan
and 100,000 options issued to each of Messrs. Faherty and Nolan. The options
repriced under the 1994 Plan included 11,000 options granted to Mr. Callaghan
and 25,000 options issued to each of Messrs. Faherty and Nolan. Mr. Graff's
options were not repriced.

The Committees have elected to not make any determinations as to
compensation programs for 1996 until the affects of the executive terminations
and the restructuring can be analyzed and the Company's position is stabilized.
Once this occurs, the Committees will again review the Company's compensation
programs to assure such programs are consistent with the overriding objective of
increasing stockholder value.

MARCH 29, 1996 MARVIN SMALL
DEAN ERICSON

<PAGE>

PERFORMANCE GRAPH

The graph below compares the cumulative total stockholder
return on the Common Stock for the period from August 31, 1992 to December 31,
1995 with the cumulative total return on the Nasdaq Stock Market-United States
Index and a peer group1 of comparable companies (the "Peer Group") selected by
the Company over the same period (assuming the investment of $100 in the Common
Stock, the Nasdaq Stock Market-United States Index and the Peer Group on August
31, 1992 and the reinvestment of all dividends).

[GRAPHIC OMITTED]
The following table is an Edgar representation of the data points used in
the printed graphic presentation:

CUMULATIVE TOTAL RETURN
SUMMARY

-------------------------------------
9/92 1992 1993 1994 1995

GRAFF PAY-PER-VIEW INC. 100 242 325 450 185

PEER GROUP 100 119 229 172 386

NASDAQ STOCK MRKT - UNITED 100 118 136 133 188
STATES

- --------
1 The peer group comprises those companies which compete against the Company in
the interactive television and pay-per-view industries. None of the companies in
the peer group is fully comparable with the Company's business. The returns of
each company have been weighted according to their respective stock market
capitalization for purposes of arriving at a peer group average. The members of
the peer group are as follows: Macromedia, Inc., Hypermedia Communications,
Lodgenet Entertainment Corp., Interfilm Inc., Iwerks Entertainment Inc.,
Creative Program Tech Venture, Videotron Group Ltd., Actv Inc., NTN
Communications Inc., Interactive Network Inc., Playboy Enterprises Inc., and Spi
Holding Inc.

<PAGE>

MISCELLANEOUS

COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION

Since 1994, recommendations relating to executive compensation have
been made by the Company's Compensation Committee to the Board of Directors. The
Compensation Committee members are Messrs. Small and Ericson, non-employee
Directors of the Company. Mr. Small is not standing for reelection as member of
the Board of Directors.

FILINGS WITH SECURITIES AND EXCHANGE COMMISSION

Section 16(a) of the Securities Exchange Act of 1934 requires that
officers, directors and 10% stockholders of the Company file reports of their
ownership with the Securities and Exchange Commission. No officer or director
was late with their filings, other than Messrs. Small, Ericson, Faherty, Graff
and Nolan and Mr. Eric M. Spector.

CERTAIN TRANSACTIONS

Messrs. Graff, Faherty and Nolan each exercised options to acquire
249,585 shares of Common Stock in April 1995. As provided for in the options,
each of the three individuals paid the exercise price in excess of the par value
of $205,491 by a note bearing interest at 6.69%, compounded semi-annually and
due on December 31, 1995. In November 1995, when it was clear that the Company
would suffer a loss for 1995 and did not need the tax deduction, the Stock
Option Committee granted the executive officers the right to rescind the option
exercised. The rescission resulted in the return to the Company of the Common
Stock purchased upon exercise of the options and cancellation of the promissory
notes issued upon exercise of the options. The options were returned to Messrs.
Faherty and Nolan under the same terms and conditions except such options have
an exercise price of $3.875 per share.

On August 31, 1995, the Company acquired, by merger, SEG in exchange
for 700,000 shares of Common Stock. The Spector Family Trust, of which Mr.
Spector is a trustee and beneficiary, and Mr. Spector's children were the sole
SEG shareholders prior to the merger. As part of this transaction, the former
SEG shareholders granted the Company an option to acquire all the outstanding
stock of United Transactive Services, Inc. ("UTI") for a formula determined
number of Company shares. The UTI shareholders may put the UTI shares to the
Company in certain circumstances for a minimum of 100,000 shares of Common
Stock.

OTHER MATTERS

The Board of Directors know of no other matters to be submitted to the
Meeting. If any other matters properly come before the Meeting, then the persons
named in the enclosed form of proxy will vote the shares they represent in such
manner as the Board my recommend.

THE BOARD OF DIRECTORS

New York, New York

Dated: June 21, 1996

<PAGE>

EXHIBIT 1

GRAFF PAY-PER-VIEW INC.

1995 RESTRICTED STOCK INCENTIVE PLAN

1. PURPOSE

The purpose of the Graff Pay-Per-View Inc. Restricted Stock Incentive Plan
("Plan") is to benefit Graff Pay-Per-View Inc. ("GPPV") and its majority-owned
subsidiaries and affiliated entities (collectively referred to as the
"Company"). The Plan provides for the award of shares of common stock, $.01 par
value, of GPPV (the "Common Stock") to those officers and key employees of the
Company who make substantial contributions to the Company by their ability,
loyalty, industry and invention. The Company intends that the Plan will thereby
facilitate securing, retaining and motivating management employees of high
caliber and potential.

2. ADMINISTRATION

The Plan will be administered by the Company's Compensation Committee
("Committee"), whose current members are Marvin Small and Dean Ericson, both of
whom are nonemployee directors of the Company and therefore ineligible to
personally receive an award under the Plan or any other similar plan of the
Company. Without limiting the foregoing, the Committee shall have full and final
discretion to interpret the provisions of the Plan; to decide all questions of
fact arising from its application; to adopt rules governing its execution and
administration; to determine the employees to whom awards will be made under the
Plan; to determine the size and terms of each such award; to determine the time
when awards will be granted; and to make all other determinations necessary or
advisable for the administration of the Plan.

3. EXPENSES TO ADMINISTER PLAN

All costs and expenses incurred in the operation and administration of this Plan
will be borne by the Company.

4. SHARES SUBJECT TO PLAN

The shares that will be issued under the Plan will not exceed in the aggregate
177,000 shares of Common Stock. Such shares may be authorized and unissued
shares or treasury shares. Except as otherwise provided herein any shares which
are awarded and subsequently forfeited will again be available under the Plan.

<PAGE>

5. PARTICIPANTS

Participants will be selected by the Committee, after considering
recommendations by Company officers, from among those key employees whose
decisions, actions and counsel significantly impact the profitability of the
Company. Directors of the Company who are not otherwise officers or employees of
the Company will not be eligible to participate in the Plan.

6. AWARDS

Awards under the Plan will be in the form of shares of Common Stock, restricted
as to transfer and subject to forfeiture, and will be evidenced by restricted
stock agreements in such form and not inconsistent with the Plan as the
Committee will approve from time to time, which agreements will contain in
substance the following terms and conditions:

(A) RESTRICTION PERIOD

Excepting the conditions set forth in paragraphs (f) and (g) of this section,
shares awarded pursuant to the Plan will vest in five years from their issue
date. However, the Committee shall have the discretion to permit an acceleration
of the expiration of the applicable restriction periods with respect to any part
of all of the shares awarded to a participant, but in no event will the shares
awarded under the plan vest for a minimum period of one year following any
award.

(B) RESTRICTIONS UPON TRANSFER

Shares awarded under the Plan, and the right to vote such shares and to receive
dividends thereon, may not be sold, assigned, transferred, exchanged, pledged,
hypothecated, or otherwise encumbered, except as herein provided, during the
restriction period applicable to such shares. Notwithstanding the foregoing, and
except as otherwise provided in the Plan, the participant shall have all the
other rights of a stockholder including, but not limited to, the right to
receive dividends and the right to vote such shares.

Each certificate issued in respect of shares awarded to a participant will be
deposited with the Company, or its designee, and will bear the following legend:

"This certificate and the shares of stock represented hereby
are subject to the terms and conditions (including risk of
forfeiture and restrictions against transfer) contained in the
Graff Pay-Per-View Inc. 1995 Restricted Stock Incentive Plan
and in an agreement entered into between the registered owner
and Graff Pay-Per-View Inc. ("Agreement"). Release from such
terms and conditions will apply only in accordance with the
provisions of the Plan and Agreement, a copy of each of which
is on file in the office of the Secretary of Graff
Pay-Per-View Inc."

(D) LAPSE OF RESTRICTIONS

The Agreement will specify the terms and conditions upon which any restrictions
upon any shares awarded under the Plan shall lapse, as determined by the
Committee. Upon the lapse of such restrictions, shares of Common Stock, free of
any restrictive legend (other than any legend required under pertinent
securities laws, rules and regulations) will be issued to the participant or his
legal representative. The Committee may, in its sole discretion, and subject to
such terms and conditions as it deems appropriate, provide for the repurchase of
shares by the Company upon the lapse of restrictions thereon. The price to be
paid by the Company for the repurchase of any shares will be the fair market
value of the shares repurchased. Should it decide to repurchase any shares, the
Company shall notify the participant of the number of shares to be repurchased
not less than 15 days prior to the date on which restrictions lapse as to any
such shares. For purposes of the Plan, "fair market value" will be defined as
the closing price of GPPV's Common Stock if listed on a national securities
exchange including Nasdaq National Market or the mean between the closing bid
and offered prices on the Nasdaq Small Cap Market or any other market system, on
the last business day on which the stock was traded prior to the day
restrictions upon the repurchased shares lapsed.

(E) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS

If the Company terminates a participant's employment prior to the lapse of
restrictions applicable to any shares awarded to such participant, all shares
which are still subject to unlapsed restrictions shall be repurchased by the
Company at a price equal to the par value of such shares, and neither the
participant nor any successors, heirs, assigns or personal representatives of
such participant will thereafter have any further rights or interest in such
shares.

(F) EARLY TERMINATION OF RESTRICTIONS

Notwithstanding any restriction provided for in this Plan or any Agreement
hereunder, the restrictions on the shares will lapse on a prorated basis for any
shares awarded to a participant who dies or becomes disabled. The proration will
be determined by a fraction with a numerator equal to the number of full months
elapsed from the date of any award to the date at death or disability and a
denominator equal to the total number of months of the vesting period as
originally contemplated under the award.

<PAGE>

(G) CHANGE IN CONTROL

Notwithstanding anything to the contrary in the Plan or any Agreement hereunder,
if there is a Change in Control of GPPV, as hereinafter defined, all
restrictions on shares awarded under this Plan will lapse immediately and,
subject to paragraph 6(d) hereto, all such shares (other than any legend
required under pertinent securities laws, rules and regulations) will be issued
promptly to the participant or his legal representative. A "Change in Control"
will be deemed to have occurred only if the participant's employment by the
Company is terminated within 12 months of the occurrence of any of the
following: (i) a majority of GPPV's Common Stock is acquired by a person or
group of persons acting in concert during any 12 month period, (ii) at least 20
% of GPPV's Common Stock is acquired by a person or group of persons acting in
concert during any 12 month period and a majority of the members of GPPV's Board
of Directors are replaced by directors not endorsed by the prior Board members,
or (iii) substantially all of the Company's assets are acquired by a person or
group of persons acting in concert during any 12 month period.

7. GENERAL RESTRICTIONS

If at any time the Committee determines that (i) the listing, registration or
qualification of the shares of Common Stock subject or related to any securities
exchange or under any state or federal law; (ii) the consent or approval of any
government regulatory body; or (iii) an agreement by an award recipient with
respect to the disposition of shares of Common Stock, is desirable as a
condition of such award, such award may not be made until such matters are
attended to in a manner deemed acceptable by the Committee. Furthermore, each
award under the Plan will be subject to the participant's submission of an
investment letter deemed satisfactory by the Company and its counsel.

8. RIGHTS TO TERMINATE EMPLOYMENT

Nothing in the Plan or in any agreement entered into pursuant to the Plan will
confer upon any participant the right to continue in the employment of the
Company or affect any right which the Company may have to terminate the
employment of such participant.

9. WITHHOLDING

Whenever the Company proposes or is required to issue or transfer shares of
Common Stock under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy all federal,
state and/or local withholding tax requirements prior to the delivery of any
certificate(s) for such shares.

<PAGE>

10. NON-UNIFORM DETERMINATIONS

The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing of
such award, the terms and provisions of such awards and the agreements
evidencing same) need not be uniform and may be made selectively among persons
who receive, or are eligible to receive, awards under the Plan, whether or not
such persons are similarly situated.

11. ADJUSTMENTS

If there is any change in the outstanding Common Stock by reason of a stock
dividend or distribution, recapitalization, merger, consolidation, split-up,
combination, tender offer, exchange of shares or the like, the Committee shall
adjust the number of shares which may be issued under the Plan and in the
Committee's sole and absolute discretion, shall provide for the equitable
adjustment of any shares for the protection of, outstanding awards still subject
to restrictions under this Plan. If GPPV is reorganized, consolidated or merged
with another corporation, or if all or substantially all of the assets of GPPV
are sold or exchanged, the holder of any shares issued hereunder, which are
still subject to restrictions under this Plan, at the time of the occurrence of
such a corporate event, shall then be entitled to receive the same amount of
property, cash or securities as he would have been entitled to receive upon the
occurrence of such event as if such restrictions did not exist, provided,
however, that such property, cash or securities shall continue to be subject to
the same restrictions as provided under this Plan, it being understood that
unless otherwise specifically approved by the Committee, such change shall not
eliminate, alter or otherwise effect any of the restrictions hereunder, which
restrictions shall continue to apply to any such exchanged shares, property or
cash.

12. EFFECT ON OTHER PLANS

Participation in this Plan will not affect an employee's eligibility to
participate in any other benefit or incentive plan of the Company and awards
pursuant to this Plan will not be used in determining the benefits or level of
benefits, to be provided under any other plan of the Company, unless
specifically provided otherwise.

13. AMENDMENT

The Committee may discontinue or amend the Plan at any time, except that without
stockholder approval, the Committee may not increase the maximum number of
shares which may be issued under the Plan (other that increases pursuant to
paragraph 11 hereof) nor extend the duration of the Plan. The termination or any
modification or amendment of the Plan will not, without the consent of a
participant, affect his rights under an award previously granted.

14. EFFECTIVE DATE AND DURATION OF THE PLAN

The Plan will become effective when adopted by the Board of Directors, but no
shares awarded under the Plan will vest unless and until the Plan is approved by
the Company's stockholders. If such approval is not obtained within 18 months
after the date of the Board's adoption of the Plan, then any award previously
made under the Plan will terminate and no further awards will be made. Subject
to such limitation, restricted stock may be awarded under the Plan at any time
after the effective date and before the date fixed herein for termination of the
Plan. Unless sooner terminated in accordance with Section 6 hereof, the Plan
will terminate upon the earlier of (i) the tenth anniversary of the date of its
adoption by the Board of Directors or (ii) the date on which all shares
available for issuance under the Plan are issued pursuant thereto and fully
vested.

15. LIABILITY OF THE COMPANY

The Company's liability under this Plan and any sale made hereunder is limited
to the obligations set forth with respect to such sale and nothing in this Plan
will be construed to impose any liability on the Company in favor of the
purchaser with respect to any loss, cost, or expense which the purchaser may
incur in connection with, or arising out of, any transaction in connection
therewith.

EXHIBIT 2

GRAFF PAY-PER-VIEW INC.
1994 AMENDED EMPLOYEES' STOCK OPTION PLAN

1. THE PLAN. This 1994 Employees' Stock Option Plan (the "Plan") is
intended to encourage ownership of stock of Graff Pay-Per-View Inc. (the
"Corporation") by specified employees of the Corporation and its subsidiaries
and to provide additional incentive for them to promote the success of the
business of the Corporation.

2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 14
hereof, the total number of shares of Common Stock, par value $.01 per share, of
the Corporation (the "Stock") which may be issued pursuant to Incentive Stock
Options (as hereinafter defined) and non-incentive stock options granted under
the Plan (the "Options") shall be 750,000. Such shares of Stock may be, in whole
or in part, either authorized and unissued shares or treasury shares as the
Board of Directors of the Corporation (the "Board") shall from time to time
determine. If an Option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares covered thereby shall (unless the
Plan shall have been terminated) again be available for Options under the Plan.

3. ADMINISTRATION OF THE PLAN. The Plan shall be administered in all
respects by a committee (the "Committee") composed of at least two non-employee
members of the Board who are designated by the Board, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission, as the same (or any successor regulation
thereto) may be in effect from time to time, which Committee shall have plenary
authority, in its discretion, to determine the employees of the Corporation and
its subsidiaries and the Additional Grantees (as that term is defined in section
4 hereof) to whom Options shall be granted ("Optionees"), the number of shares
to be subject to each Option (subject to the provisions of Paragraph 2) and the
terms of each Option. The Committee shall also have plenary authority, subject
to the express provisions of the Plan, to interpret the Plan, to prescribe,
amend and rescind any rules and regulations relating to the Plan and to take
such other action in connection with the Plan as it deems necessary or
advisable. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted thereunder shall be final, and
no member of the Board shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted thereunder.

4. PERSONS ELIGIBLE FOR OPTIONS. All employees of the Corporation or its
subsidiaries, including all employees who are also directors of the Corporation,
shall be eligible for Options. In making the determination as to employees to
whom Options shall be granted and as to the number of shares to be covered by
such Options, the Committee shall take into account the duties of the respective
employees, their present and potential contributions to the success of the
Corporation and such other factors as it shall deem relevant in connection with
accomplishing the purposes of the Plan. In addition, non-employee service
providers to the Company, including consultants and non-employee directors
("Additional Grantees"), shall be eligible for Options. Except as otherwise
provided for in this Section 4 and in Section 16 hereof, the terms and
provisions of this Plan shall be applicable to Options granted to the Additional
Grantees. In making the determination as to Additional Grantees to whom Options
shall be granted and as to the number of shares to be covered by such Options,
the Committee shall take into account the services provided by such Additional
Grantee and his or her duties, their present and potential contributions to the
success of the Corporation and such other factors as it shall deem relevant in
connection with accomplishing the purposes of the Plan.

5. TERM OF PLAN. The Plan shall terminate on, and no Options shall be
granted after, March 20, 2004, provided that the Board may at any time terminate
the Plan prior thereto.

6. MAXIMUM OPTION GRANT. With respect to Options which are intended to
qualify as Incentive Stock Options, the aggregate fair market value (determined
as of the time the Option is granted) of the Stock with respect to which
Incentive Stock Options granted to any employee (whether under this Plan or
under any other stock option plan of the Corporation) become exercisable for the
first time in any year may not exceed $100,000. The number of shares of Stock
for which any employee may be granted Options under the Plan not treated as
Incentive Stock Options shall be unlimited.

7. OPTION PRICE. Each Option shall state the option price, which shall be,
in the case of Incentive Stock Options, not less than 100% of the fair market
value of the Stock on the date of the granting of the Option, nor less than 110%
in the case of an Incentive Stock Option granted to an individual who, at the
time the Option is granted, is a 10% Holder (as hereinafter defined). The fair
market value of shares of Stock shall be determined by the Committee and shall
be the mean between the high bid and low asked prices of the Stock on the date
of the granting of the Option as reported by the National Quotation Bureau, Inc.
or any similar organization.

8. TERM OF OPTIONS. The term of each Option shall be for a maximum of ten
years from the date of granting thereof, and a maximum of five years in the case
of an Incentive Stock Option granted to a 10% Holder, but may be for a lesser
period or be subject to earlier termination as hereinafter provided.

9. EXERCISE OF OPTIONS.

(a) An Option may be exercised from time to time as to any part or all
of the Stock to which the Optionee shall then be entitled subject to any vesting
schedule which may be set by the Committee at the time such Option is granted;
provided, however, that an Option may not be exercised (i) as to less than 100
Shares at any time (or for the remaining Shares then purchasable under the
Option, if less than 100 Shares), (ii) in the case of an Optionee who is, at
time of grant of the Options, subject to Section 16 of the Securities and
Exchange Act of 1934, as amended, prior to the expiration of six months from
date of grant except in the case of the death or disability of the Optionee,
(iii) unless the Optionee shall have been in the continuous employ of the
Corporation or its subsidiaries from the date of the granting of the Option to
the date of its exercise, except as provided in Paragraphs 13 and 14, (iv) after
termination of Optionee's service by reason of his or her dishonesty or wrongful
conduct, and (v) until such Optionee executes and delivers, in form satisfactory
to the Committee, a written representation to the effect that he or she is
acquiring the stock for investment and not with the intent of distributing the
same (unless such stock shall be appropriately registered under the Securities
Act of 1933 or exempt from registration).

(b) The purchase price of the Stock issuable upon exercise of an Option
shall be paid in full at the time of the exercise thereof (i) in cash or
certified or bank check, (ii) by the transfer to the Corporation of shares of
its Stock with a fair market value (as determined by the Committee) equal to the
purchase price of the Stock issuable upon exercise of such Option, or (iii) by
the surrender to the Corporation of Options with a fair market value (as
determined by the Committee) equal to the purchase price of the Stock issuable
upon exercise of such Option, or (iv) with the approval of the Committee in its
sole discretion, in cash or by certified or bank check a sum equal at least to
the par value of the Stock, with the remainder of the purchase price satisfied
by the issuance of an interest-bearing promissory note or notes, in a form and
having terms, including rate of interest, satisfactory to the Committee in its
sole discretion.

(c) The holder of an Option shall not have any rights as a stockholder
with respect to the Stock issuable upon exercise of an Option until certificates
for such Stock shall have been delivered to him after the exercise of the
Option.

10. NON-TRANSFERABILITY OF OPTIONS. An Option shall not be transferable
otherwise than by will or the laws of descent and distribution and is
exercisable during the lifetime of the employee only by him or his guardian or
legal representative.

12. FORM OF OPTION. Each Option granted pursuant to the Plan shall be
evidenced by an agreement (the "Option Agreement") which shall clearly identify
the status of the Options granted thereunder (I.E., whether an Incentive Stock
Option or non-incentive stock option) and which shall be in such form as the
Committee shall from time to time approve. The Option Agreement shall comply in
all respects with the terms and conditions of the Plan and may contain such
additional provisions, including, without limitation, restrictions upon the
exercise of the Option, as the Committee shall deem advisable.

13. TERMINATION OF EMPLOYMENT. In the event that the employment of an
Optionee shall be terminated (otherwise than by reason of death), such Option
shall be exercisable (to the extent that such Option was exercisable at the time
of termination of his employment) at any time prior to the expiration of a
period of time not exceeding three months after such termination, but not more
than ten years (five years in the case of an Incentive Stock Option granted to a
10% Holder) after the date on which such Option shall have been granted. Nothing
in the Plan or in the Option Agreement shall confer upon the Optionee any right
to be continued in the employ of the Corporation or its subsidiaries or
interfere in any way with the right of the Corporation or any subsidiary to
terminate or otherwise modify the terms of Optionee's employment, provided,
however, that a change in Optionee's duties or position shall not affect such
Optionee's Option so long as such Optionee is still an employee of the
Corporation or its subsidiaries.

14. DEATH OF OPTIONEE. In the event of the death of an Optionee, any
unexercised portion of this Option shall be exercisable (to the extent that such
Option was exercisable at the time of his death) at any time prior to the
expiration of a period not exceeding three months after his death (or, in the
case of an Option which is not an Incentive Stock Option, three months after the
appointment and qualification of Optionees legal representative) but not more
than ten years (five years in the case of an Incentive Stock Option granted to a
10% Holder) after the date on which such Option shall have been granted and only
by such person or persons to whom such deceased Optionee's rights shall pass
under such Optionee's will or by the laws of descent and distribution.

15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes in
the outstanding Stock of the Corporation by reason of stock dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or exchanges
of shares, separations, reorganizations or liquidations, the number and class of
shares or the amount of cash or other assets or securities available upon the
exercise of any Option granted hereunder, the exercise price therefor, the
maximum number of Shares as to which Options may be granted to an employee and
the total number of shares which may be issued upon exercise of Options under
this Plan shall be correspondingly adjusted, to the end that the Optionee's
proportionate interest in the Corporation, any successor thereto or in the cash,
assets or other securities into which Shares are converted or exchanged, and the
cost thereof, shall be maintained to the same extent, as near as may be
practicable, as immediately before the occurrence of any such event. All
references in this Plan to "Stock" from and after the occurrence of such event
shall be deemed for all purposes of this Plan to refer to such other class of
shares of shares or securities issuable upon the exercise of Options granted
pursuant hereto.

<PAGE>

16. SPECIAL PROVISIONS FOR OPTIONS GRANTED TO ADDITIONAL GRANTEES AND TO
FORMER EMPLOYEES.

(a) The provisions of this Section 16 shall be applicable only to
Options granted to Additional Grantees and to options held by former employees
of the Company on the date their employment by the Company is terminated
("Former Employees") and to the extent inconsistent with any other provision of
this Plan, this Section 16 shall control.

(b) Only non-Incentive Stock Options may be granted to an
Additional Grantee or held by a Former Employee.

(c) The Committee shall, in its reasonable discretion, determine the
period of time during which an Option granted to an Additional Grantee or Former
Employee shall be exercisable up to a maximum of 10 years from the date of
grant. In making the determination as to the period of exercisability for
Options granted to Additional Grantees and Former Employees, the Committee shall
take into account the services provided by such Additional Grantee or Former
Employee and his or her duties, their past, present and potential contributions
to the success of the Corporation and such other factors as it shall deem
relevant in connection with accomplishing the purposes of the Plan.

(d) The Committee may, in its reasonable discretion, (i) vest options
of Former Employees which are not vested on the date their employment by the
Company terminates and (ii) retroactively amend the terms of options granted to
Former Employees to provide for the continued exercisability of such options for
such period of time as the Committee may reasonably determine in its discretion
2222without regard to whether such or Former Employee is continuing to render
services to the Company.

(e) The Option Agreement which evidences an Option granted to an
Additional Grantee or Former Employee shall indicate that it is a non-Incentive
Stock Option and which is subject to the terms and provisions of the Plan as
modified by this Section 16.

17. SHAREHOLDER APPROVAL. This Plan is subject to and no Options shall be
exercisable hereunder until after the approval of this Plan by the holders of a
majority of the Stock of the Corporation voting at a duly held meeting of the
stockholders of the Corporation within twelve months after the date of the
adoption of the Plan by the Board.

18. AMENDMENT OF THE PLAN. The Board shall have complete power and
authority to modify or amend the Plan (including the form of Option Agreement)
from time to time in such respects as it shall deem advisable; provided,
however, that the Board shall not, without the approval of the votes represented
by a majority of the votes represented by the outstanding common voting equity
of the Corporation present or represented at a meeting duly held in accordance
with the applicable laws of the Corporation's jurisdiction of incorporation and
entitled to vote at a meeting of stockholders or by the written consent of
shareholders owning stock representing a majority of the votes of the
Corporation's outstanding stock, (i) increase the maximum number of shares which
in the aggregate are subject to Options under the Plan (except as provided by
Paragraph 14), (ii) extend the term of the Plan or the period during which
Options may be granted or exercised, (iii) reduce the Option price, in the case
of Incentive Stock Options, below 100% (110% in the case of an Incentive Stock
Opti2222on granted to a 10% Holder) of the fair market value of the Stock
issuance upon exercise of Options at the time of the granting thereof, other
than tochange the manner of determining the fair market value thereof,
(iv) materially increase the benefits accruing to participants under the Plan,
or (v) modify the requirements as to eligibility for participation in the
Plan. No termination or amendment of the Plan shall, without the consent of
the individual Optionee, adversely affect the rights of such Optionee under
an Option theretofore granted to him or under such Optionee's Option Agreement.

19. TAXES. The Corporation may make such provisions as it may deem
appropriate for the withholding of any taxes which it determines is required in
connection with any Options granted under the Plan. The Corporation may further
require notification from the Optionees upon any disposition of Stock acquired
pursuant to the exercise of Options granted hereunder.

20. CODE REFERENCES AND DEFINITIONS. Whenever reference is made in this
Plan to a section of the Internal Revenue Code (Code"), the reference shall be
to said section as it is now in force or as it may hereafter be amended by any
amendment which is applicable to this Plan. The term "subsidiary" shall have the
meaning given to the term "subsidiary corporation" by Code Section 425(f). The
terms "Incentive Stock Option" and "ISO" shall have the meanings given to them
by Code Section 422. The term "10% Holder" shall mean any person who, for
purpose of Code Section 422 owns more than 10% of the total combined voting
power of all classes of stock of the employer corporation or of any subsidiary
corporation.

EXHIBIT 3
GRAFF PAY-PER-VIEW INC.
1995 AMENDED EMPLOYEES' STOCK OPTION PLAN

1. THE PLAN. This 1995 Employees' Stock Option Plan (the "Plan") is
intended to encourage ownership of stock of Graff Pay-Per-View Inc. (the
"Corporation") by specified employees of the Corporation and its subsidiaries
and to provide additional incentive for them to promote the success of the
business of the Corporation.

2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 14
hereof, the total number of shares of Common Stock, par value $.01 per share, of
the Corporation (the "Stock") which may be issued pursuant to Incentive Stock
Options (as hereinafter defined) and non-incentive stock options granted under
the Plan (the "Options") shall be 400,000. Such shares of Stock may be, in whole
or in part, either authorized and unissued shares or treasury shares as the
Board of Directors of the Corporation (the "Board") shall from time to time
determine. If an Option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares covered thereby shall (unless the
Plan shall have been terminated) again be available for Options under the Plan.

3. ADMINISTRATION OF THE PLAN. The Plan shall be administered in all
respects by a committee (the "Committee") composed of at least two non-employee
members of the Board who are designated by the Board, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission, as the same (or any successor regulation
thereto) may be in effect from time to time, which Committee shall have plenary
authority, in its discretion, to determine the employees of the Corporation and
its subsidiaries and the Additional Grantees (as that term is defined in Section
4 hereof) to whom Options shall be granted ("Optionees"), the number of shares
to be subject to each Option (subject to the provisions of Paragraph 2) and the
terms of each Option. The Committee shall also have plenary authority, subject
to the express provisions of the Plan, to interpret the Plan, to prescribe,
amend and rescind any rules and regulations relating to the Plan and to take
such other action in connection with the Plan as it deems necessary or
advisable. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted thereunder shall be final, and
no member of the Board shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted thereunder.

5. TERM OF PLAN. The Plan shall terminate on, and no Options shall be
granted after, March 30, 2005, provided that the Board may at any time terminate
the Plan prior thereto.

9. EXERCISE OF OPTIONS.

<PAGE>

16. SPECIAL PROVISIONS FOR OPTIONS GRANTED TO ADDITIONAL GRANTEES AND
TO FORMER EMPLOYEES.

(b) Only non-Incentive Stock Options may be granted to an
Additional Grantee or held by a Former Employee.

(d) The Committee may, in its reasonable discretion, (i) vest options
of Former Employees which are not vested on the date their employment by the
Company terminates and (ii) retroactively amend the terms of options granted to
Former Employees to provide for the continued exercisability of such options for
such period of time as the Committee may reasonably determine in its discretion
without regard to whether such or Former Employee is continuing to render
services to the Company.

18. AMENDMENT OF THE PLAN. The Board shall have complete power and
authority to modify or amend the Plan (including the form of Option Agreement)
from time to time in such respects as it shall deem advisable; provided,
however, that the Board shall not, without the approval of the votes represented
by a majority of the votes represented by the outstanding common voting equity
of the Corporation present or represented at a meeting duly held in accordance
with the applicable laws of the Corporation's jurisdiction of incorporation and
entitled to vote at a meeting of stockholders or by the written consent of
shareholders owning stock representing a majority of the votes of the
Corporation's outstanding stock, (i) increase the maximum number of shares which
in the aggregate are subject to Options under the Plan (except as provided by
Paragraph 14), (ii) extend the term of the Plan or the period during which
Options may be granted or exercised, (iii) reduce the Option price, in the case
of Incentive Stock Options, below 100% (110% in the case of an Incentive Stock
Option granted to a 10% Holder) of the fair market value of the Stock issuance
upon exercise of Options at the time of the granting thereof, other than to
change the manner of determining the fair market value thereof, (iv) materially
increase the benefits accruing to participants under the Plan, or (v) modify the
requirements as to eligibility for participation in the Plan. No termination or
amendment of the Plan shall, without the consent of the individual Optionee,
adversely affect the rights of such Optionee under an Option theretofore granted
to him or under such Optionee's Option Agreement.

GRAFF PAY-PER-VIEW INC.
ANNUAL MEETING OF STOCKHOLDERS
HELD JULY 16, 1996

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints J. Roger Faherty and Edward M. Spector as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them, and each of them, to represent and vote, as designated below, all the
shares of Common Stock of Graff Pay-Per-View Inc. ("Company") held of record
by the undersigned on May 30, 1996 at the Annual Meeting of Stockholders to be
held on July 16, 1996 or any adjournment thereof. (Please mark boxes in blue
or black ink.)

1. To elect seven Directors to serve for the ensuing year.

You may withhold your vote for any nominee by lining through or otherwise
striking out the name of any nominee.

J. Roger Faherty Edward M. Spector Mark Graff Leland H. Nolan
Dean Ericson Richard Christopher Yates Rudy S. Miller