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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996
REGISTRATION STATEMENT NO. 333-12445
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
ACTV, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 4894 94-2907258
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
1270 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(212) 262-2570
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive offices)
WILLIAM C. SAMUELS
PRESIDENT
ACTV, INC.
1270 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(212) 262-2570
(Name, address, including zip code and telephone number, including area code,
of agent for service)
------------------
Copies To:
JAY M. KAPLOWITZ, ESQ.
GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
575 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 752-9700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and from
time to time.
------------------
If the securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
Title of Amount Being Proposed Maximum Proposed Amount of
Securities To Registered(1) Offering Price Per Maximum Registration
Be Registered Security(2) Aggregate Fee
Offering Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock, par
value $.10 per
share 7,572,709 $ 3.8125 $28,870,953.06 $9,955.48
===============================================================================================================
Total
Registration $9,955.48
Fee
===============================================================================================================
</TABLE>
(1) Pursuant to Rule 415, the Registration Statement relates to an
indeterminate number of shares of Common Stock which have either been
issued or are issuable upon the exercise of options, warrants, SARs
and upon the conversion of convertible preferred stock of two of the
Company's wholly-owned susidiaries.
(2) Pursuant to Rule 457, estimated solely for the purpose of calculating
the registration fee, based upon the last reported sales price of the
Registrant's Common Stock of the same class as quoted by the National
Association of Securities Dealers Automated Quotation System on
September 17, 1996.
* THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
(ii)
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
PROSPECTUS
ACTV, INC.
7,572,709 SHARES OF COMMON STOCK
(1) 5,026,983 SHARES ISSUABLE BY THE COMPANY UPON THE EXERCISE OF
OPTIONS, WARRANTS, PURSUANT TO SARS, UPON CONVERSION OF
CONVERTIBLE PREFERRED STOCK
(2) 2,545,726 SHARES OFFERED BY SELLING SECURITY HOLDERS
All of the shares of Common Stock (the "Security Holders' Shares"), par value
$.10 per share, of ACTV, Inc., a Delaware corporation (the "Company"), offered
hereby are being offered by the selling security holders named herein under the
caption "Selling Security Holders" (the "Selling Security Holders"). Such shares
may be sold by the Selling Security Holders who have acquired or will acquire
such shares from the Company (i) upon the exercise of currently exercisable
options, warrants and pursuant to SARs, (ii) upon issuance to consultants, and
(iii) upon conversion or otherwise in respect of 400,000 shares
of 5% convertible preferred stock (the "Convertible Preferred Stock") of ACTV
Holdings, Inc. and ACTV Financing, Inc., two wholly-owned subsidiaries of the
Company (the "Wholly-Owned Subsidiaries"), issued in connection with private
placements by the Wholly-Owned Subsidiaries in August, 1996 (the "August 1996
Private Placements"). The number of shares of common stock issuable upon
conversion of the Convertible Preferred Stock is subject to adjustment and could
be more or less than the estimated amount depending upon factors which cannot
be predicted by the Company at this time, including, among others, the future
market price of the common stock. If, however, the market price referred to
below were used to determine the number of shares issuable as of the first date
on which the Convertible Preferred Stock may be converted, the Company would be
obligated to issue a total of approximately 3,322,259 shares of common stock if
all shares of Convertible Preferred Stock were converted on such date. The
Company will not receive any of the proceeds from sales of Selling Security
Holders' Shares, but will receive the exercise price upon the exercise of the
options or warrants described above. See "SELLING SECURITY HOLDERS" and "PLAN
OF DISTRIBUTION."
The Company has agreed with the Selling Security Holders to register the Selling
Security Holders' shares offered hereby. The Company has also agreed to pay
certain fees and expenses incident to such registration. It is estimated that
the fees and expenses payable by the Company in connection with the registration
of the Selling Security Holders' shares will be approximately $ .
The Company's Common Stock is traded on the over-the-counter market on the
NASDAQ SmallCap Market ("NASDAQ") and on the Boston Stock Exchange ("BSE"). On
September 17, 1996, the last reported sale price of the common stock on NASDAQ
was $3.8125.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996
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The Security Holders' Shares that may be offered from time to time by Selling
Security Holders may be sold through ordinary brokerage transactions in the
over-the-counter market or on the Boston Stock Exchange, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices.
The Selling Security Holders each may be deemed to be "an underwriter", as
defined in the Securities Act of 1933 (the "Securities Act"). If any
broker-dealers are used by the Selling Security Holders, any commissions paid to
broker-dealers and, if broker-dealers purchase any shares of Common Stock as
principals, any profits received by such broker-dealers on the resales of the
shares of Common Stock may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Security Holders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the securities offered
by the Selling Security Holders will be borne by the Company. All brokerage
commissions, if any, attributable to the sale of the securities offered by the
Selling Security Holders will be borne by the Selling Security Holders. See
"SELLING SECURITY HOLDERS" and "PLAN OF DISTRIBUTION."
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained or incorporated by
reference in this Prospectus in connection with the offer contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. Neither the delivery of
this Prospectus nor any sale hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation.
Under the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations thereunder, any person engaged in a distribution of the securities
offered by this Prospectus may not simultaneously engage in market-making
activities with respect to shares of the Common Stock during the applicable
"cooling off" period (two or nine days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Security Holders will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation, Rule
10b-5, in connection with transactions in the securities, which provisions may
limit the timing of purchases and sales of the securities by the Selling
Security Holders.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission ("Commission")
a registration statement on Form S-3 (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") under the
Securities Act, for the registration of the securities offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement. For further information with respect to the Company
and the securities offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules filed therewith, which may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, NW, Washington, DC, 20549, and copies of the material contained therein
may be obtained from the Commission upon payment of applicable copying charges.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the reporting and other informational requirements of
the Exchange Act and, in accordance therewith, files reports, proxy statements,
and other information with the Commission. Such reports, proxy statements, and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at the offices of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511, and at 7 World Trade Center,
New York, New York, 10048. Copies of such materials can also be obtained by
written request to the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC, 20549, at prescribed rates.
The Company's Common Stock is listed on NASDAQ and the BSE at the offices of
NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or the offices of the BSE at
1 Boston Place, Boston, Massachusetts, 02108, and the Company's periodic
reports, proxy statements, and other information can be inspected at NASDAQ and
the BSE at the offices of NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or
the offices of the BSE at 1 Boston Place, Boston, Massachusetts, 02108.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Registration Statement on Form S-1 (File No.
33-34618), which was declared effective on May 4, 1990.
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(2) Annual Report on Form 10-K for year ended December 31, 1995.
(3) Annual Report on Form 10-K/A-1 for year ended December 31, 1995.
(4) Post-Effective Amendment No. 1 to The Company's Registration
Statement on Form S-1 (File No. 33-63879), which was declared
effective on March 20, 1996.
(5) Quarterly Report on Form 10-Q for quarterly period ended March 31,
1996.
(6) Quarterly Report on Form 10-Q for quarterly period ended June 30,
1996.
In addition to the foregoing, all documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment indicating that all of the securities
offered hereunder have been sold or deregistering all securities then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. All information appearing in this
Prospectus is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference, except to the extent set forth in the immediately preceding
statement.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the oral or written request of such person, a copy
of any document incorporated in this Prospectus by reference, except exhibits to
such information, unless such exhibits are also expressly incorporated by
reference herein. Requests for such information should be directed to ACTV,
Inc., 1270 Avenue of the Americas, New York, New York 10020, Attention:
Secretary, telephone number (212) 262-2570.
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RISK FACTORS
The purchase of the securities being offered hereby involves a number of
significant risks that include, but may not be limited to, those described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this Offering
before making an investment decision.
1. OPERATING LOSSES TO DATE. The Company has operated at a loss through the date
of this Prospectus. The Company's net losses for the six months ended June 30,
1996 and 1995 (the "June 1996 period" and the "June 1995 period," respectively)
were $4,053,019 and $3,348,699, respectively. The June 1995 Period includes an
extraordinary gain of $94,117. The Company had net losses of $6,826,789 in the
fiscal year ended December 31, 1995 ("Fiscal 1995"), $4,465,240 in the fiscal
year ended December 31, 1994 ("Fiscal 1994"), and $4,156,955 in the fiscal year
ended December 31, 1993 ("Fiscal 1993"). Through June 30, 1996, the Company had
an accumulated deficit of approximately $34.4 million. To date, the Company has
had limited revenues, including revenues of $773,596 in the June 1996 period,
$1,311,860 in Fiscal 1995, $938,416 in Fiscal 1994, and $164,602 in Fiscal 1993.
The increase in revenues in Fiscal 1994 was partially the result of the
Company's including for the period March 11 to December 31 of Fiscal 1994 all
education sales, which were reported for Fiscal 1993 by ACTV Interactive, a
partnership in which ACTV held a 49% interest from July 14, 1992 to March 11,
1994. ACTV Interactive's gross sales were $839,165 in Fiscal 1993, compared with
$348,473 for the period from July 14, 1992, the partnership formation date, to
December 31, 1992. ACTV Interactive's results were accounted for under the
equity method of accounting.
There can be no assurance that the Company will generate significant revenues or
achieve profitability in the future.
2. UNPROVEN BUSINESS STRATEGY. Other than the activities of ACTV Interactive and
the Company's prior activities in the education market, the Company has not had
significant sales of the Programming Technology (as such term is hereinafter
defined). While ACTV has recently consummated its first sale of the new
distance learning technology, there can be no assurance that the results of this
project will support the continuation of the project or lead to other sales.
Also, while the Company has recently entered into agreements with a large
regional cable sports network, a national news service, other programmers, and
a cable operator to create a trial for a Los Angeles-based programming service,
which was launched in mid-1995, there can be no assurance that these
agreements will result in the development of a commercially successful
programming service. In addition, the Company is dependent on co-ventures or
licenses with third parties to produce ACTV Programs (as such term is
hereinafter defined) and the Company will be required to demonstrate a market
for such programs. There can be no assurance that co-venturers or licensees, or
ACTV's direct sales force will succeed in marketing the ACTV Programs.
See "BUSINESS - Entertainment."
Furthermore, the likelihood of the success of the Company must be considered in
light of the problems, costs, difficulties and delays encountered in connection
with the operation of a business, the operations of which consist of the
development and commercialization of new and unproven technologies, and the
competitive environment in which the Company operates.
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Accordingly, there can be no assurance that the Company will successfully market
the Programming Technology or operate on a profitable basis. See "BUSINESS."
3. POSSIBLE NEED FOR ADDITIONAL FINANCING. To date, the Company's capital
requirements to develop the Programming Technology, produce ACTV Programming,
develop marketing approaches and strategic alliances, and to cover costs of
selling and general and administrative expenses, have been significant,
resulting in an accumulated deficit as of June 30, 1996 of approximately $34.4
million.
In August 1996, the Company raised $10 million (before expenses and commissions
related to the fund raising) from the issuance by two wholly-owned subsidiaries
of the Company, ACTV Holdings, Inc. and ACTV Financing, Inc., of convertible
preferred shares to private investors. Pursuant to this transaction, the
subsidiaries issued preferred shares that are convertible into common shares of
ACTV, Inc. beginning January 1, 1997. The conversion price of the preferred
shares is at a discount to the market price for the ACTV, Inc. common shares at
the time of conversion. The percentage discount increases as the length of the
holding period prior to conversion increases, from a base of 14% for conversion
in January 1997 to a maximum of 30.375% for conversion in September 1997 or
thereafter. The $10 million financing consists of $4 million in immediately
available funds, with the remaining $6 million paid into an escrow account. The
escrow funds are to become available to the Company contingent upon the
satisfaction of certain conditions in the contracts with the holders of the
preferred stock.
The Company believes that it has sufficient resources to fund its operations for
the next twelve months, whether or not it receives the $6 million in escrowed
funds. However, if the Company does not receive these funds and does not obtain
additional financing, it may be required to reduce certain planned expenditures
in certain of the markets it is attempting to develop. If management's
assumptions regarding future events prove incorrect, the Company may be unable
to fund its operations, even at a reduced level, for the next twelve months.
4. PATENTS AND PROPRIETARY INFORMATION. The Company has obtained patents
covering certain aspects of the Programming Technology and has patents pending
with respect to other developments or enhancements thereof. However, there can
be no assurance (i) that patents applied for will be granted, (ii) that the
patents the Company owns or has rights to or that may be granted or obtained by
the Company in the future will be enforceable or will provide the Company with
meaningful protection from competition, (iii) that any products developed by the
Company will not infringe any patent or rights of others, or (iv) that the
Company will possess the financial resources necessary to enforce any patent
rights which it holds. See "BUSINESS -- Patents, Applications and Proprietary
Information."
The Company requires each of its employees, consultants and advisors to execute
a confidentiality and assignment of proprietary rights agreement upon the
commencement of employment or a consulting relationship with the Company. These
arrangements generally provide that all inventions, ideas and improvements made
or conceived by the individual arising out of the employment or consulting
relationship shall be the exclusive property of the Company. This information
shall be kept confidential and not disclosed to third parties except by consent
of the Company or in other specified circumstances. There can be no assurance,
however, that these arrangements will provide effective protection of the
Company's proprietary information
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in the event of unauthorized use or disclosure of such information.
5. TECHNOLOGICAL OBSOLESCENCE; RESEARCH AND DEVELOPMENT. The Company is engaged
in a field characterized by extensive research efforts and rapid, significant
technological change. There can be no assurance that research or development by
others will not render the Programming Technology obsolete or that the limited
research and development performed by the Company will continue or will be
successful. During the first six months of 1996, the Company expended
approximately $500,000 related to research and development projects, and
believes that it may be required to expend approximately $500,000 during the
remainder of 1996 to facilitate the completion of current research and
development projects. There can be no assurance that the new distance learning
system can be deployed on a timely basis, or that once deployed, it will
function satisfactorily. If the Company determines that additional research and
development is required, there can be no assurance that the Company will have
sufficient funds or access to additional funds to engage in substantial
additional research and development. See "BUSINESS -- Research and Development."
6. POSSIBLE SHORTAGE OF AVAILABLE CHANNELS FOR IN-HOME CABLE APPLICATIONS. In
order for the ACTV Programming Technology to be delivered over cable, DBS or
wireless cable systems for the in-home market, it must compete for channel space
on cable, DBS and wireless cable systems, many of which have limited available
channel capacity. Although a simpler form of individualization can be achieved
by the Company's using one channel of band-width, the more sophisticated
applications of ACTV Programming currently require three to four channels of
analog band-width. There is no assurance that cable, DBS and wireless operators
will devote a sufficient number of channels of band-width to the Programming
Technology in the future. Nor is there any assurance that the Company will be
able to expand, unless cable, DBS or wireless operators continue to upgrade and
increase their channel capacity by upgrading to digital systems. The digital
technologies recently deployed and those currently under development would
enable the Company to use the more complex applications of the Programming
Technology since channel capacity would be greatly enhanced. The Company
believes, although there can be no assurance, that the cable, DBS and wireless
cable industry is, in general, moving in the direction of increasing channel
capacity. The costs associated with such digital technology will result in
substantial additional costs to cable, DBS and wireless operators. However, the
Company's management cannot currently quantify such additional costs, which may
adversely affect the Company's future operations. See "BUSINESS."
7. DEPENDENCE UPON LICENSEES AND JOINT VENTURERS. The Company has adopted as a
business strategy the exploitation of the Programming Technology through
licensing, the arrangement of joint ventures and by means of a direct sales
force. While the Company has established a direct sales force of six salespeople
and eight distributors, and intends to increase its direct sales forces, the
Company will continue to be, in substantial part, dependent upon the ability of
its licensees and prospective joint venture partners to offer products and
services that are commercially viable. In addition, the Company, its licensees
or joint venture partners will need to provide individualized programming to
continue commercial cable operations, and they are dependent upon third parties
for such programming. The Company will be dependent upon its ability, and that
of its licensees and joint venture partners, to actively promote and distribute
the Programming Technology and the products. There is no assurance that the
Company's
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marketing strategy will be successful. Further, the Company may be adversely
affected by the financial and business considerations of its licensees and joint
venture partners.
The Company is engaged in an ongoing program designed to evaluate the
Programming Technology as applied to the cable television market. The results of
such programs cannot yet be determined. No assurance can be given that the
results of the evaluation will be positive or that one or more of the markets
which the Company is evaluating may prove to be viable for the Programming
Technology.
There is a possibility that in the structuring of future joint ventures and
license agreements that the licensees and joint venture partners may be granted
interests in the Company, and or any of its subsidiaries, in the form of equity
securities or options to acquire equity securities. See "BUSINESS -- Marketing
and Program Production."
8. DEPENDENCE UPON SUPPLIERS OF PROGRAMMING. The Company is dependent upon the
producers of linear programming that can be enhanced using the Programming
Technology to create individualized ACTV Programs. To date, the Company has
entered into agreements with thirteen such producers, but there can be no
assurance that such agreements will provide the Company with sufficient
programming appropriate for enhancement, that the Company will be able to
develop additional sources of programming, or that the enhanced programs can be
successfully marketed in an individualized format. See "BUSINESS - Marketing and
Program Production."
9. GOVERNMENT REGULATION. The Company believes that neither its present nor any
proposed commercial implementation of the ACTV Programming Technology on
distance learning networks, closed circuit television systems, cable or DBS will
require governmental license or approval. Certain broadcast applications may
require governmental approval. No assurance can be given that applicable laws
will not change. In the event such approval were to be required, there can be no
assurance that the Company would be able to obtain such approval or the licenses
required for the further implementation of the ACTV Programming Technology. See
"BUSINESS - Government Regulation."
10. DEPENDENCE UPON KEY PERSONNEL. The Company has been largely dependent upon
the efforts of William C. Samuels in his roles as Chairman of the Board,
President, Chief Executive Officer and Director of the Company, David Reese as
Executive Vice President, President of ACTV Entertainment and a Director of the
Company, and Bruce Crowley, Executive Vice President, President of ACTV
Interactive, Inc. and a Director of the Company. The Company has entered into
five-year employment agreements with Mr. Samuels and Mr. Reese. The Company
currently does not maintain "key employee" insurance on the lives of Messrs.
Samuels, Reese or Crowley and there can be no assurance that such insurance
would be available at an acceptable cost to the Company, should it seek to
acquire such insurance in the future.
In order to compete in a marketplace with rapidly changing and expanding
technology, the Company requires employees not only with extensive management
experience, but also with certain technical abilities to direct the Company's
continuing research and development efforts. While the Company believes that it
currently employs such personnel, and that other persons could be retained in
such capacities, there can be no assurance that if the Company were
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required to replace such personnel, it could readily do so, or that, even if
such qualified replacements were retained, the development of the Company's
business would not be delayed. See "BUSINESS -- Research and Development."
11. COMPETITION. The Programming Technology competes with many other forms of
entertainment, education and information dissemination, many of which are
significantly more established, including the standard television industry, the
movie industry, cable television, programming services and other forms of
entertainment. There can be no assurance that products and services
incorporating the Programming Technology will ever be established in the
marketplace in a significant enough manner to make the Company profitable.
In addition, the Programming Technology may compete with other technologies
described as interactive television, some of which may be developed or promoted
by companies with resources significantly greater than the Company's. See
"BUSINESS -- Competition."
12. DEPENDENCE ON EQUIPMENT SUPPLIERS. The Company does not intend itself to
manufacture set-top converters, video servers, or other interactive devices.
Currently, in the entertainment market, the Videoway terminal manufactured
through LGV (as such term is hereinafter defined) is the only ACTV compatible
analog set-top converter available to potential distributors of ACTV
Programming. The Company has granted a license to General Instrument Corporation
to manufacture a digital set-top terminal incorporating the Company's
Programming Technology, which is expected to be available in the first half of
1997. The Company intends to grant licenses similar to those granted to LGV and
General Instrument Corporation to other manufacturers that are selected by the
future distributors of ACTV Programming. All of the ACTV classroom and distance
learning systems that incorporate the Programming Technology and are sold by
ACTV in the education market are manufactured by KDI Precision Products, Inc.
("KDI"). While the Company believes that KDI can produce sufficient systems to
meet the anticipated needs of ACTV in the education marketplace, in the event
that KDI were unable to supply the systems, there can be no assurance that the
Company could produce sufficient systems or obtain sufficient systems from
another manufacturer at an acceptable price. The inability of ACTV to obtain
systems would have a material adverse effect on the education business of the
Company. Similarly, the entertainment business could be materially affected if
General Instrument's new digital set-top terminal is either late in its delivery
to the market or is not widely adopted. There is no assurance that the Company
will be successful in developing additional manufacturing licenses for the
entertainment and education markets; the failure of the Company to do so would
have a material adverse effect on the business of the Company. See "BUSINESS -
Set Top Converters, Terminals and Other Interactive Devices."
13. NO ASSURANCE OF PUBLIC MARKET FOR SECURITIES. Although the Company's Common
Stock is quoted on NASDAQ and listed on the Boston Stock Exchange, there can be
no assurance that the Company will be able to maintain such quotation or
listing, or that, if maintained, a significant public market will be sustained.
For continued listing on NASDAQ, the Company is required to maintain a minimum
stockholders' equity of $1,000,000 and assets of $2,000,000. The Boston Stock
Exchange's maintenance criteria require the Company to have total assets of at
least $1,000,000 and total stockholders' equity of at least $500,000. At June
30, 1996, the Company had stockholders' equity of $4,858,366 and assets of
$6,676,200. The Company has continued to operate at a loss through the date of
this Prospectus.
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In the event the Common Stock were delisted from NASDAQ, trading, if any, would
be conducted on the Boston Stock Exchange and in the over-the-counter market on
the NASD's electronic bulletin board, in what are commonly referred to as the
"pink sheets." As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the Company's
securities. In addition, the Common Stock would be subject to Rules 15g1-15g6
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally, a person with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with his or her spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, these rules may
affect the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in the Offering to sell their securities in the
secondary market.
The Commission has also recently adopted regulations that define a "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the regulations require the delivery, prior to the transaction, of a disclosure
schedule prepared by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
While many NASDAQ-listed securities are covered by the definition of penny
stock, transactions in a NASDAQ-listed security are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),
(ii) transactions in which the customer is an institutional accredited investor,
or (iii) transactions that are not recommended by the broker-dealer. In
addition, transactions in a NASDAQ security directly with a NASDAQ market-maker
for such security are subject only to the sole market-maker disclosure, and the
disclosure with respect to commissions to be paid to the broker-dealer and the
registered representative.
Finally, all NASDAQ securities would be exempt from the recently-adopted
regulations regarding penny stocks if NASDAQ raised its requirements for
continued listing so that any issuer with less than $2,000,000 in net tangible
assets or stockholders' equity would be subject to delisting. These criteria are
more stringent than the current NASDAQ maintenance requirements.
14. EFFECT OF CONVERSION OF THE CONVERTIBLE PREFERRED STOCK; POTENTIAL COMMON
STOCK ADJUSTMENT. The Convertible Preferred Stock entitles the holders thereof
to convert such shares into shares of the Company's Common Stock. The exact
number of shares issuable upon conversion of all of the Convertible Preferred
Stock cannot currently be estimated, but, generally, such issuances of Common
Stock will vary depending upon the market price of the Common Stock at the time
of conversion as well as the period of time for which the holder holds
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the Convertible Preferred Stock. The holders of common stock will be diluted by
the conversion of the Convertible Preferred Stock and may be substantially
diluted depending on the future market price of the common stock and how long
the holder holds the Convertible Preferred Stock. Generally, the holder of the
Convertible Preferred Stock will receive a discount from the market price of the
Company's common stock as measured at the time the Convertible Preferred Stock
is converted. Therefore, the longer a holder waits to convert the Convertible
Preferred, the greater the discount.
15. NO DIVIDENDS. The Company has not paid any cash dividends on its Common
Stock since inception and does not intend to pay cash dividends on its Common
Stock for the foreseeable future. The Company has agreed with the holders of
the Convertible Preferred Stock not to pay dividends on its common stock so long
as any shares of said Convertible Preferred Stock is outstanding. The Company
intends to follow a policy of retaining earnings, if any, to finance the
development and expansion of its business.
16. PREFERRED STOCK AUTHORIZED. The Company's Board of Directors has the
authority, without further action of the stockholders, to issue shares of
preferred stock which have conversion, dividend, liquidation and voting rights
that could adversely affect holders of Common Stock or could be used to restrict
the Company's ability to merge with or sell its assets to a third party, thereby
preserving control of the Company by its present owners. Although the Company
has no present intention to issue any shares of preferred stock, there can be no
assurance that the Company will not do so in the future.
17. RULE 144 SALES. Of the shares of the Company's Common Stock presently
outstanding, approximately 3.0 million are "restricted securities" as that term
is defined by Rule 144 promulgated under the Securities Act and in the future
may be sold only in compliance with Rule 144 or pursuant to registration under
the Securities Act or pursuant to another exemption therefrom. For so long as
the Registration Statement of which the Concurrent Prospectus is a part is
current and effective, the shares being offered may be sold without regard to
the volume limitations, described below, set forth in Rule 144. Generally, under
Rule 144, each person having held restricted securities for a period of two
years may, every three months, sell in ordinary brokerage transactions an amount
of shares which does not exceed the greater of one percent (1%) of the Company's
then outstanding shares of Common Stock, or the average weekly volume of trading
of such shares of Common Stock as reported during the preceding four calendar
weeks. A person who has not been an affiliate of the Company for at least the
three months immediately proceeding the sale and who has beneficially owned
shares of the Common Stock for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described above.
Of the restricted shares, a substantial number have been held by non-affiliates
of the Company for more than three years or have been held by affiliates of the
Company for more than two years. Actual sales, or the prospect of sales by the
present stockholders of the Company or by future holders of restricted
securities under Rule 144, or otherwise, may, in the future, have a depressive
effect upon the price of the Company's shares of Common Stock in any market that
may develop therefor, and also could render difficult sales of the Company's
securities purchased by investors herein.
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18. CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS. The Company's
officers and directors own, of record, 3,579,896 outstanding shares of Common
Stock, assuming the exercise of all currently vested options and including
shares beneficially owned pursuant to voting trust agreements. William C.
Samuels, Chairman, President, Chief Executive Officer and a director of the
Company, pursuant to a voting agreement, has voting control of the 2,341,334
shares of Common Stock owned of record by the Post Company. In addition,
pursuant to a separate voting agreement, Mr. Samuels has voting control of the
shares owned by Dr. Freeman. Consequently, Mr. Samuels has voting control over
3,321,917 shares of Common Stock, or approximately 26.7% of the outstanding
shares of Common Stock, assuming issuance of 533,035 shares of Common Stock upon
exercise of options. Accordingly, Mr. Samuels could have substantial influence
over the affairs of the Company, including the election of directors.
19. POSSIBLE ACQUISITION OF CONTROL BY THE WASHINGTON POST COMPANY. Through
March 17, 1997 (subject to extension in certain circumstances), the Post Company
shall have the right to purchase from the Company, at a price which has not yet
been determined, the amount of shares of Common Stock necessary to bring its
percentage ownership of the total then outstanding shares of Common Stock to
51%. If the Post Company should choose to exercise its right, the purchase price
would be established after arms-length negotiations between the parties. In the
event that the parties fail to agree on a purchase price, the parties would seek
an outside appraisal. If such right is exercised, the ability, pursuant to
agreement, of William C. Samuels, Chairman, President and Chief Executive
Officer of the Company, to vote the shares owned of record by the Post Company
will terminate, and the Post Company will be able to control the affairs of the
Company.
20. OUTSTANDING OPTIONS AND WARRANTS. As of the date of this Prospectus, the
Company had granted options and warrants to purchase an aggregate of 3,006,218
shares of Common Stock that had not been exercised. Of the shares of Common
Stock subject to these unexercised options and warrants, 10,000 may be purchased
for less than $1.00; 12,000 may be purchased for between $1.00 and $1.99 per
share; 652,718 may be purchased for between $2.00 and $2.99 per share; 1,824,000
may be purchased for between $3.00 and $3.99 per share; 440,000 may be purchased
for between $4.00 and $4.99 per share; and 67,500 may be purchased for between
$5.00 to $5.99 per share. To the extent that the outstanding stock options and
warrants are exercised, dilution to the interests of the Company's stockholders
will occur. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be affected adversely, since the holders of the
outstanding options and warrants can be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the outstanding
options and warrants.
21. POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the Company's
securities may be highly volatile, as has been the case with the securities of
other companies engaged in high technology research and development. Factors
such as announcements by the Company or its competitors concerning technological
innovations, new commercial products or procedures, proposed government
regulations and developments or disputes relating to patents or proprietary
rights may have a significant impact on the market price of the Company's
securities.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Security Holders'
Shares offered hereby. All proceeds from the sale of the Security Holders'
Shares will be for the account of the Selling Security Holders described below.
See "Selling Security Holders."
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BUSINESS
GENERAL
ACTV, Inc. ("ACTV" or the "Company") has developed proprietary Programming
Technologies (the "Programming Technology") that individualize television
programming. ACTV's Programming Technology permits the delivery of
individualized television, which, in the Company's view, significantly enhances
the quality of most genres of television programming. ACTV's Programming
Technology provides instant and seamless changes in the live or prerecorded
video picture and/or audio and/or graphics in response to the various selections
supplied by each viewer. A specially prepared ACTV program (the "ACTV Program"
or "ACTV Programming") is like a linear TV program, except that it appears to be
individualized for each viewer. (Linear programs are standard television
programs that can be viewed only as created and do not offer the viewer the
option to make choices as to the content of the program or to respond to the
contents of the program in an individualized way.) There is no limit to the
number of viewers who can interact simultaneously with an ACTV Program.
ACTV's individualized programming is designed to work with both single and
multiple channels of 6MHz band-width and with different modes of transmission:
cable, direct broadcast satellite ("DBS"), wireless cable, broadcast systems and
distance learning networks. It is compatible with one-way analog systems as well
as the newer digital systems that have recently begun to be deployed.
ACTV's strategy is to generate revenues from the sale of ACTV Programming that
it either owns, has licensed or that has been created by a third party under a
license from ACTV, including fees paid by subscribers to premium cable networks
in which the Company has an ownership interest. The Company's mission is to
improve the quality of entertainment and education television programming.
The Company also believes that the Programming Technology can enhance the
quality of television advertising by enabling the advertiser to customize each
commercial for various audience segments. It is the Company's objective to seek
advertiser support for its individualized home entertainment networks.
The chief markets presently targeted by the Company for the ACTV Programming
Technology are in-home entertainment, education (with an emphasis on distance
learning), site-based entertainment and Internet applications. The Company seeks
to exploit these markets, principally in the U.S., through licensing the
Programming Technology, by creating joint venture relationships, and by direct
sales.
The Company has eleven subsidiaries, which include a national entertainment
company, a national education company, a three-dimensional company, and six
regional television networks: ACTV Entertainment, Inc., a New York corporation
("ACTV Entertainment") incorporated on March 9, 1988, ACTV Interactive, Inc., a
Delaware corporation incorporated on July 8, 1992, 3D Virtual, Inc., a Delaware
corporation incorporated on July 20, 1995, The Los Angeles Individualized
Television Network, Inc., a Delaware corporation incorporated on March 7, 1995,
The San Francisco Individualized Television Network, Inc., a Delaware
corporation incorporated on December 22, 1995, The Chicago Individualized
Television Network, Inc., a
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Delaware corporation incorporated on December 22, 1995, The New York
Individualized Television Network, Inc., a Delaware corporation incorporated on
December 22, 1995, The Atlanta Individualized Television Network, Inc., a
Delaware corporation incorporated on December 22, 1995, The Texas Individualized
Television Network, Inc., a Delaware corporation incorporated on July 31, 1996,
ACTV Holdings, Inc., a Delaware corporation incorporated on August 8, 1996, and
ACTV Financing, Inc., a Delaware corporation incorporated on August 8, 1996.
Unless otherwise indicated, all references in this Prospectus to the Company or
ACTV include ACTV and its eleven subsidiaries.
ACTV was incorporated under the laws of the State of Delaware on July 24, 1989.
The Company is the successor, by merger effective November 1, 1989, to ACTV,
Inc., a California corporation, organized on July 11, 1983. The Company's
executive offices are located at 1270 Avenue of the Americas, New York, New York
10020, telephone number (212) 262-2570.
ENTERTAINMENT
The Company anticipates that its individualized programming will be launched
through regional premium cable programming services that are
advertiser-supported, with monthly subscription prices comparable to other U.S.
premium channels.
In March 1995, the Company formed The Los Angeles Individualized Television
Network, Inc., one of its wholly-owned operating subsidiaries, to operate the
Company's individualized television trial in Southern California and the planned
regional television network that would roll-out to the potential 4.8 million
sports subscribers in the region that reaches from Los Angeles to San Diego and
Phoenix, if the trial is successful.
The trial, which marked the introduction of the Company's first U.S. regional
individualized network (the "Regional Network"), commenced in the Los Angeles
area in May 1995. The trial involves 1,000 cable subscribers and will run
throughout 1996 and may extend into 1997. The Regional Network enhances existing
programming and offers new individualized content.
Programming for the Regional Network is being provided to ACTV by Fox Sports
West (formerly Prime Sports West), a unit of Fox Sports Net, which is a joint
venture of TeleCommunications, Inc.'s ("TCI") Liberty Media and the News
Corporation. Fox Sports West has 4.8 million subscribers in the Southwest region
of the U.S. Fox Sports West is providing the Company with access to all its
regional sports programming at no cost to the Company. Similarly, Cable News
Network, Inc. ("CNN") provides, at no cost to the Company, access to Prime News,
Sports Tonight, Inside Politics and other selected shows. In addition, The Game
Show Network ("GSN"), a subsidiary of Sony Entertainment, Inc. ("Sony") provides
GSN programming, Viacom's Nickelodeon provides children's programming, and
Rainbow Programming's Much Music USA provides music programming, each at no cost
to the Company in return for consumer research, pursuant to agreements entered
into in November 1995, May 1996 and August, 1996, respectively. The cable
operator for the Regional Network is TCI of Ventura County.
In all cases, the Company is responsible for the incremental content,
transmission, delivery and master control costs incurred in connection with the
enhancement of the Fox Sports West, CNN,
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Sony, Nickelodeon and Much Music programming.
The Company entered into the arrangement with Fox Sports in February 1994, with
respect to the Regional Network. Assuming future commercialization of a regional
network in the footprint of Fox Sports West no later than December 31, 1996, Fox
Sports West would receive an exclusive in its footprint for sports programming
and the companies will pursue a business understanding of revenue sharing
anticipated to include a license fee paid to Fox Sports West for each
subscribing household on a monthly basis.
The Company entered into the agreement with CNN in August 1995 with respect to
the Regional Network. Upon commercialization, CNN and ACTV will negotiate a
royalty agreement and/or advertising split for use of CNN programming. In
addition, CNN shall receive protection until December 31, 1997 to become ACTV's
exclusive provider of national and international news. CNN will also be given
the opportunity to be an equity investor in any new regional networks created by
ACTV.
Regional Network viewers, in addition to sports, news, game shows and children's
programming, are able to individualize education programs produced by ACTV.
The Company plans, assuming a successful test phase, to direct initial marketing
of the Regional Network toward the cable operators in Fox Sports West's
footprint that are buying digital set-top boxes. In addition, expansion could
follow in other Fox Sports Net regional markets. The Company has established
five new wholly-owned subsidiaries that would serve as additional regional
individualized networks covering the San Francisco, Chicago, New York, Atlanta
and Texas regions in the event that the Company decides to expand and provide
the services provided by the Regional Network in other regions across the U.S.
To date, the five new wholly-owned subsidiaries have not engaged in any business
activities, nor does the Company have any present intention to launch their
activities. The Regional Network, and any expansion plans related thereto, is
part of the Company's plan to develop the entertainment division of its
business, which to date, does not generate any revenue for the Company. There
can be no assurance that the results predicted with respect to the Regional
Network will be realized, or if realized, will generate significant revenues for
the Company.
ACTV first introduced its individualized programming applications for
entertainment outside the United States through a 1987 license with Le Groupe
Videotron, Ltee. ("LGV"), the second largest Canadian cable/broadcast television
company. The license was modified in June 1993. See "Reorganization of ACTV
Entertainment LGV Agreements."
EDUCATION
ACTV's principal strategy in education is to become the leading individualized
programming technology in the developing field of distance learning, in which
ACTV Programming, both live and pre-recorded, can be transmitted simultaneously
to multiple sites in a satellite, fiber or microwave network.
ACTV is currently developing new two-way analog and digital programming
technologies for
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distance learning. This is a point-to-multipoint interactive broadcast system
that can deliver prerecorded interactive lessons or integrate interactive
segments into live distance learning lessons. By using a simple remote control,
the student is able to alter program content to suit specific needs and
interests. Students receive individualized responses to their input, and at the
end of the lesson, the classroom teacher receives a printout of the performance
of each class member.
ACTV's new distance learning system is being commercially introduced, with an
installation in Georgia, that the Company believes will represent one of the
industry's most advanced distance learning projects. ACTV and the State of
Georgia have entered into an agreement through which ACTV's distance learning
system and software will be integrated into the Georgia Statewide Academic and
Medical System ("GSAMS"), an existing fully interactive service providing audio,
video and data to classrooms.
In addition, 127 individualized television titles have been produced and
introduced into the kindergarten to 12th grade market. The programs focus on
reading, math, and vocational education. To date, programs have been sold to
approximately 300 different schools across the U.S., along with an ACTV
classroom system -- a terminal with compatible ACTV Programming functionality
that currently permits up to 24 students in a classroom to view single channel
ACTV Programs simultaneously. Education products are marketed through a direct
and distributor sales force.
Individualized programming is produced jointly through license agreements with
educational publishers, including Turner Educational Services, Inc. ("Turner"),
Phoenix, Bergwall, AIT, AIMS, Hasty Pudding and TakeOff.
In 1995, the Company also signed a distance learning agreement with General
Instrument Corporation ("GI"). ACTV's Programming Technology for distance
learning will be integrated with GI's DigiCipher(R) system. The new digital
system will be called "DigiCipher/ACTV Distance Learning System" and will allow
programming networks to develop individualized programming and distribute it
digitally to their customers.
The Company markets its products through its wholly owned subsidiary ACTV
Interactive, Inc., which was formed in 1992. Originally a joint venture general
partnership with the Washington Post Company (the "Post Company") , ACTV
Interactive became a wholly owned subsidiary of the Company in March 1994.
SITE-BASED ENTERTAINMENT AND INTERNET APPLICATIONS
In January 1995, the Company granted an exclusive license to Greenwich
Entertainment Group ("The Greenwich Group") for the use of its Programming
Technology in the theater environment, specifically in shopping malls, museums
and entertainment centers. In April 1996, the Company invested approximately
$250,000 in the Greenwich Group.
The Company will receive an 8% to 10% royalty of annual ticket sales per
theater, dependent upon each theater's volume. The Company will receive a
minimum royalty of $200,000 in 1996, $500,000 in 1997, $1,000,000 in 1998,
$1,250,000 in 1999 and $1,500,000 in the year
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2000 and thereafter. If the minimum is not paid, the Company has the right to
cancel its license as to future theaters or to require the Greenwich Group to
issue ACTV such number of The Greenwich Group shares of common stock equal to
the unpaid portion of the royalty payment divided by the most recent price per
share paid for a share of such common stock.
The first theater opened in the Mall of America in Minneapolis, Minnesota on
November 18, 1995. Recently, the Greenwich Group reached an agreement with
United Artists Theatre Circuit ("UA") to build one to five theaters within UA's
entertainment complexes. The first theater will be built in the Meadows Mall in
Denver, Colorado. The Greenwich Group will need to raise additional capital in
order to complete this project.
In July 1995, the Company established a new wholly-owned subsidiary, 3D Virtual,
Inc., to explore the commercial possibilities of integrating three-dimensional
("3D") technology and the Company's Programming Technology, using new technology
for which a patent is currently pending. Initial business activity for the
development of a prototype will be completed by the end of 1996.
In December 1995, the Company entered into a joint venture agreement with
EarthWeb, Inc., a developer of internet technologies and a pioneer in JAVA(TM)
language applications, to develop new joint internet software applications. The
first program being developed, HyperTV, will enable television producers to
launch web pages that directly correspond to their video content during a
broadcast.
ACTV PROGRAMMING TECHNOLOGY
The ACTV Programming Technology provides instant and seamless changes in the
live or prerecorded video picture and/or audio and/or graphics based on various
selections made by viewers. The program appears to be a standard TV program, as
if it were individualized for each viewer. Viewer selections are made through a
four button remote control, thereby limiting the viewer's number of choices when
inputting each response to four answers previously anticipated by the program's
creators.
ACTV's process of creating individualized television programming involves viewer
selection from a multiple number of frame-synchronized video, graphics, and/or
audio signals delivered at one time. The viewer sees and/or hears only one of
the signals at a given moment; the other signals are transparent. Using a remote
control, the viewer interacts with the television by making selections or
decisions called for by the specially prepared programming. In response to
viewer's inputs, the ACTV Programming Technology automatically switches at
pre-determined intervals among various segments of the multiple signals. In
one-way analog or digital transmission, this switching will occur in the
viewer's cable box, while with two way transmission, it may occur at the source
of the transmission. The viewer cannot detect when such a switch takes place
because it occurs instantly and with frame accuracy.
The results appear seamless and uninterrupted -- for the viewer the programming
is completely individualized. Although an individualized program and its
associated branches are taped in a normal linear fashion, the program, when
shown, has thousands of possible permutations and combinations available for
each viewer to experience. The particular version seen is based on
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each viewer's individually selected preferences and inputs. An unlimited number
of independent viewers can interact with an ACTV Program simultaneously.
The set-top's central processing unit ("CPU") receives digital information from
codes embedded into the video program material. It thus maintains "memory" on
the progress of the viewer and provides automatic branching. At appropriate
times during the program, the CPU will make branch switches automatically,
accumulate data, recall information, create graphics and/or implement a
pre-programmed set of instructions.
In single channel analog (6MHz of band-width) applications, ACTV's Programming
Technology can individualize audio and/or graphics, based on multiple signals.
When additional analog channels of band-width are available, video can be
individualized as well. In digital systems multiple video, audio and graphics
can be individualized in 6MHz of band-width.
To develop individualized programming the Company generally seeks to form joint
ventures or licensing agreements with producers of standard linear shows or with
networks that have rights to such shows. ACTV Programming can be created in a
number of ways: enhancing existing programs that have been produced in a
standard linear format, adding "piggy-back" branch alternatives during the
shooting of ongoing shows, or creating entirely original productions that are
solely for ACTV's purposes.
The cost of ACTV original productions has been on average approximately 20%
higher than a linear version of the same program of comparative length. However,
production costs are significantly lower than regular linear television shows
when existing material can be enhanced, or when productions are "piggy-backed."
Production costs vary significantly based upon the nature and type of
programming to be produced. An advantage of individualized programming is its
higher repeatability, as compared to standard programming, since an
individualized program's cost can be amortized over a greater number of
showings.
The types of entertainment programs that the Company plans to emphasize are
sports, news, education, game shows, children's programs and music. The Company
envisions that its in-home services will be supported by individualized
advertising. The programming focus for education is reading, math and vocational
education. Examples of ACTV Programming are:
1) Sports. Sporting events in the ACTV individualized format allow each viewer
in essence to become the director of the program by selecting close-ups, wide
angle shots, replays, statistics, player interviews and other features as may be
provided. ACTV's Programming Technology also allows the viewer to respond to
questions posed throughout the game. The system's memory records these responses
and winners may be offered promotional premiums, such as tickets to future
games.
2) News. In the first segment of a news program, viewers can choose between
in-depth follow-ups of headline stories. Later in the program, viewers can
choose segments on different categories of news (international, financial,
entertainment, politics, etc.).
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3) Children's Programs. ACTV's Programming Technology allows children to
participate in television programs by answering questions from the characters on
screen, giving the characters advice -- even changing the plot of the program.
In addition to this dialogue children can have with the characters, children can
also be asked to predict the outcome of events, or as with sports, see an event
from different angles.
4) Music. Viewers are able to select a particular music video they want to see,
or the order they want to see them. Viewers may also choose to see the lyrics of
a music video, or access other information about the musicians. In addition,
with live or prerecorded concert performances, viewers can select from up to
four camera angles in a manner similar to live sports broadcasting.
5) Game Shows. The Programming Technology allows game show viewers to actively
participate in the game. They can decide which celebrity team to play on, enter
their answers and receive individualized responses to their choices. The
system's memory ability keeps the viewers informed of their performance and
provides final results at the conclusion of the show. This provides advertisers
and sponsors with the opportunity to offer promotional premiums to viewers with
the best scores.
6) Advertising. ACTV's Programming Technology offers television advertisers
unique opportunities to target their message. Commercials can be targeted
demographically: men, women, boys and girls can all see different commercials
during the same commercial break. By asking the viewer basic questions at the
beginning of the program, the ACTV Programming Technology can recall this
information during a commercial break and, based upon such information, send the
viewer the appropriate advertisement. A second advantage for advertisers is the
concept of individualized commercials. For example, before a commercial break in
a sporting event, viewers are asked which type of car they would like to hear
about: sedan, truck, sport utility or luxury sedan. ACTV's Programming
Technology records this choice, then sends the appropriate commercial to each
viewer. This same choice can be recalled at a later commercial break to provide
additional information.
7) Live Distance Learning. Distance learning ("DL") networks typically involve a
teacher broadcasting a lesson to dozens or even hundreds of remote classroom
sites. ACTV's Programming Technology for DL allows the DL teacher to create
questions or offer choices relating to the lesson and pre-record individualized
responses. At selected points in the lesson, the DL teacher can initiate the
questions and interactions, with each student across the network receiving
individualized responses. In addition, the ACTV Programming Technology gives the
teacher immediate feedback on the students' responses, allowing the teacher to
pace the lesson accordingly. The system's memory component can recall each
student's performance throughout the entire semester, giving the teacher a
detailed accounting of their progress.
8) Educational Programming. Younger classroom students learn basic reading and
math skills, and older students learn vocational and career skills, in
pre-recorded individualized television programs using the ACTV Programming
Technology. Just as in the case of the DL programming, as the pre-recorded
television program progresses a teacher appears on screen and asks the students
questions about the material presented. Students respond to the questions, then
receive individualized feedback based on their answers. At the end of the
lesson, the
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classroom teacher receives a report detailing the results of the performance of
the entire class, as well as the performance of each individual student.
RESEARCH AND DEVELOPMENT
The Company is engaged in a field characterized by extensive research efforts
and rapid, significant technological change. During 1993, the Company began its
current research and development projects, relating primarily to the development
of a new analog/digital two-way distance learning system. There can be no
assurance that research or development by others will not render the Programming
Technology obsolete or that the research and development performed by the
Company and/or its licensees and joint venture partners will continue or will be
successful. The Company entered into a collaborative agreement in August, 1995
with The David Sarnoff Research Center ("Sarnoff") to investigate and
potentially develop digital applications of the Programming Technology.
Currently, the Company, Sarnoff, and General Instrument Corporation ("GI") are
working together to incorporate ACTV's programming technology into GIs new
MPEG-2 digital terminal.
The Company expended approximately $500,000 in the six months ended June 30,
1996 related to these research and development projects and may spend an
additional $500,000 during the remainder of 1996.
GOVERNMENT REGULATION
The Company believes, on the basis of its review of current legislation and
regulations that neither its present nor any proposed commercial implementation
of the ACTV Programming Technology on distance learning networks, closed circuit
television systems, cable or DBS will require governmental license or approval.
Certain broadcast applications may require governmental approval. No assurance
can be given that applicable laws will not change. In the event such approval
were to be required, there can be no assurance that the Company would be able to
obtain such approval or the licenses required for the further implementation of
the ACTV Programming Technology.
MARKETING AND PROGRAM PRODUCTION
The primary markets targeted by the Company for the ACTV Programming Technology
are in-home entertainment, education (with an emphasis on distance learning),
and site-based entertainment. The Company seeks to exploit these markets
principally in the U.S. through licensing the Programming Technology, by
creating joint venture relationships, and by direct sales. To date, the
Company's capital requirements to develop the Programming Technology, produce
ACTV Programming, develop marketing approaches and strategic alliances, and to
cover costs of sales and general and administrative expenses, have been
significant, resulting in an accumulated deficit as of June 30, 1996 of
approximately $34.4 million.
The Company will continue to implement a marketing program consisting of the
employment of sales and marketing personnel, contracting with sales and
marketing consultants, and the use of promotional efforts, including product
demonstrations and participation in trade shows and conferences. The Company
currently has two entertainment marketing executives, six
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educational sales people and eight educational distributors.
In entertainment, the Company has licensed the Programming Technology to LGV and
The Greenwich Group and continues to seek other licensees and joint venture
partners both in and outside the United States. Since 1993, ACTV has not been
active with LGV in Canada and Europe and no longer receives any royalty income
from the license. The Company is and will continue to be dependent upon the
ability of licensees and joint venture partners to offer products and services
that are commercially viable, and to actively promote and distribute the
Programming Technology.
The Greenwich Group has licensed the Programming Technology for use in the
theater environment, principally in shopping malls. The first children's theater
opened in the Mall of America in Minneapolis, Minnesota, on November 18, 1995,
and the second is in the process of being built in the Meadows Mall in Denver,
Colorado.
In March 1995, the Company formed The Los Angeles Individualized Television
Network, Inc., one of its wholly-owned operating subsidiaries, to operate the
Company's individualized television trial in Southern California and the planned
regional television network that would roll-out to the potential 4.8 million
sports subscribers in the region that reaches from Los Angeles to San Diego and
Phoenix, if the trial is successful.
The trial, which marked the introduction of the Company's first U.S. regional
individualized network (the "Regional Network"), commenced in the Los Angeles
area in May 1995. The trial involves 1,000 cable subscribers and will run
throughout 1996 and may extend into 1997. The Regional Network both enhances
existing programming and offers new individualized content.
Programming for the Regional Network is being provided to ACTV by Fox Sports
West, a unit of Fox Sports Net, CNN, GSN, Nickelodeon and Rainbow Programming's
Much Music USA. Fox Sports West has approximately 4.8 million subscribers in the
Southwest region of the U.S. The cable operator is TCI of Ventura County. See
"BUSINESS - Entertainment."
The Company has established five new wholly-owned subsidiaries which would serve
as additional regional individualized networks covering the San Francisco,
Chicago, New York, Atlanta and Texas regions in the event that the Company
decides to expand and provide the services provided by the Regional Network in
other regions across the U.S. To date, the five new wholly-owned subsidiaries
have not engaged in any business activities, nor does the Company have any
present intention to launch their activities. There can be no assurance that the
results predicted with respect to the Regional Network will be realized, or if
realized, will generate significant revenues for the Company.
The Company, its licensees or joint venture partners must produce and/or provide
individualized programming for the Company to continue commercial entertainment
operations in the U.S. For the most part, the Company, its licensees and joint
venture partners are dependent upon third parties as sources for the linear
programming that is to be enhanced into ACTV Programming. For the entertainment
market, all programming to date has been produced either through LGV or by the
Company itself.
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With respect to the education market, the Company has executed non-exclusive
agreements with seven entities to obtain linear programming that it can enhance
to create ACTV Programs. Linear programs are standard television programs that
can be viewed only as created and do not offer the viewer the option to make
choices as to the content of the program or to respond to the program in an
individualized way.
The Company has entered into agreements with Turner Educational Services, Inc.,
Phoenix Learning Group, Bergwall Productions, Inc., The Hasty Pudding Puppet
Co., AIMS Media, Agency for Instructional Technology ("AIT") and Takeoff/Video
Educational Excellence. Each of these agreements gives ACTV worldwide, perpetual
marketing rights (except for the AIT agreement, which limits the rights to 15
years) to the programming produced. The companies are to receive quarterly
royalties, based on the number of units of ACTV Programs sold.
There can be no assurance that the Company will be successful in reaching
agreements with licensees and joint venture partners, that the Company's
strategy of marketing the Programming Technology through its licensees and joint
venture partners will be successful, or that the methods that its licensees and
joint venture partners choose to market the Programming Technology will be
successful. Further, the Company may be adversely affected by the financial and
business considerations of its licensees and joint venture partners. Future
joint venture and license agreements may provide that the licensees and joint
venture partners will receive equity interest in the Company and/or its
subsidiaries.
SET-TOP CONVERTERS, TERMINALS, AND OTHER INTERACTIVE DEVICES
The Company does not intend to manufacture set-top converters, terminals, video
servers, or other interactive devices.
In the entertainment market, ACTV signed, on June 8, 1993, a 20-year,
non-exclusive, royalty-free manufacturing license with LGV. The Videoway
terminal manufactured through LGV is an analog ACTV-compatible set-top converter
available to potential distributors of ACTV Programming. In April 1996, ACTV and
General Instrument Corporation ("GI") signed a non-exclusive manufacturing
agreement for GI's MPEG-2 digital terminal. The digital terminals are scheduled
for delivery in mid-1997. The Company intends to grant licensees similar to
those granted to LGV and GI to other manufacturers that are selected by the
future distributors of ACTV Programming.
ACTV's Programming Technology can work with different modes of transmission
(cable, DBS and broadcast), and is compatible with commonly available one-way,
analog systems. In addition, it is compatible with the newer digital systems
that are just starting to be deployed. Therefore, there are many ways to design
a distribution system that is compatible with ACTV Programming functionality.
The Company believes that the incremental cost of adding ACTV Programming
functionality will not be significant in digital systems.
There can be no assurance that the Company will be successful in developing
additional manufacturing licenses.
In the education market, the Company entered into an arrangement in March 1995,
with General
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Instrument Corporation ("GI") pursuant to which ACTV's Programming Technology
for distance learning will be integrated with GI's DigiCipher system. The
DigiCipher is a digital decoder used by many distance learning networks that
distribute their television signal digitally and require that the signal be
decoded at their downlink sites. The new digital system will be called
"DigiCipher/ACTV Distance Learning System," and will allow programming networks
to develop individualized programming and distribute it digitally to their
customers. Under the arrangement, the companies will cooperate technically, each
paying its own costs, and GI would receive any revenues generated from the
DigiCipher decoder while the Company would receive any revenues generated from
the distance learning unit. At present, the Company and GI's concerted research
and technical work toward the development of the new digital system is in its
initial stage and will take most of the remainder of 1996 to complete. There can
be no assurance that the new digital system will be developed, or if developed,
that it will generate significant revenues for the Company.
The Company executed a non-exclusive agreement in June 1992 with KDI Precision
Products, Inc. ("KDI") to manufacture ACTV's classroom and distance learning
systems, with compatible ACTV Programming functionality. KDI sells the systems
to ACTV at prices and in accordance with a delivery schedule agreed upon from
time to time. KDI also is a distributor of components such as television
monitors, VCRs, remote controls, printers and cabinets used in conjunction with
the systems. The agreement is subject to automatic renewal for additional
one-year terms unless terminated by either party on six-months' written notice.
KDI is currently the only manufacturer of the classroom and distance learning
systems. The Company believes that KDI can produce sufficient systems to meet
the anticipated needs of ACTV in the education marketplace. In the event that
KDI were unable to supply the systems, there can be no assurance that the
Company could produce sufficient systems or obtain sufficient systems from
another manufacturer at an acceptable price. The inability of ACTV to obtain
systems would have a material adverse affect on the business of the Company.
CONSOLIDATION OF EDUCATIONAL PARTNERSHIP INTO ACTV
On July 14, 1992, ACTV Interactive, Inc. entered into a partnership agreement
with Post-Newsweek Education, Inc., a wholly-owned subsidiary of the Post
Company, pursuant to which ACTV Interactive was formed as a Delaware general
partnership, for the purpose of selling products and services incorporating the
ACTV Programming Technology to the education market. The Post Company received a
51% interest in ACTV Interactive; ACTV Interactive, Inc., a wholly-owned
subsidiary of the Company, received a 49% interest in ACTV Interactive.
In connection with the formation of the partnership, the Company entered into a
license agreement (the "License Agreement") with ACTV Interactive. Pursuant to
the License Agreement, ACTV Interactive was given licenses to exploit certain of
the Company's patents and related technology (collectively the "Patents") in the
creation and distribution of educational programming. The License Agreement
provided that the Company receive five percent (5%) of all revenues generated by
ACTV Interactive.
On March 11, 1994, the Company purchased the Post Company's full 51% interest in
ACTV Interactive for consideration of $4.5 million, consisting of $2.5 million
in cash at closing and
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a $2 million promissory note. The note was paid in full in October 1995. The
consideration paid by the Company for the Post Company's full 51% interest in
ACTV Interactive was determined after arms-length negotiations between the
parties. The Company and the Post Company agreed to the amount of such
consideration without receiving a valuation from a disinterested third party.
REORGANIZATION OF ACTV ENTERTAINMENT AND THE LGV AGREEMENTS
In March 1988, the Company formed ACTV Entertainment as an equal stockholder
with a subsidiary of LGV, Videotron Technologies Ltd. The Company granted to
ACTV Entertainment the exclusive right to use the Company's Programming
Technology in the United States DBS, cable and broadcast television markets.
On June 8, 1993, LGV withdrew from its ownership in ACTV Entertainment, and the
Company became the sole shareholder of ACTV Entertainment under the terms of an
agreement with the subsidiary of LGV, thereby settling all outstanding legal
disputes between the companies.
While ACTV gained full ownership and control of ACTV Entertainment in the
settlement, it did agree to give up the royalty income it was receiving from its
Videoway terminal license with LGV for Canada and Europe ($3.00 per user per
year). Simultaneously with the June 8, 1993 change in ownership of ACTV
Entertainment, the 1987 LGV exclusive foreign license for Canada, Europe and the
Soviet Union was renegotiated. The new license provides LGV with a 20-year,
non-exclusive, royalty-free license to manufacture its Videoway terminal with
compatible ACTV Programming functionality. Videoway is an analog cable converter
box capable of providing a variety of advanced services, including standard
cable tuning and decoding capabilities, access to videotext, closed-captioning,
data banks, video games, software downloading and electronic mail. LGV is not
currently producing ACTV Programming in Montreal and is in the process of
selling its London, England cable systems.
The modified license also allows LGV to produce ACTV Programming itself for a
certain number of potential Videoway subscribers in Canada (1,300,000), Europe
(500,000), and the United States (500,000). The license is subject to the
condition that neither LGV nor its sub-licensees receive any royalty or other
fees with respect to ACTV Programming, except for promotion and direct
production expenses paid by LGV. Any royalties from third parties will be paid
exclusively to ACTV.
The Company and LGV entered into their original agreement during the infancy of
the development of interactive television. LGV had developed its Videoway TV
set-top converter, which, among other things, enabled it to provide its
subscribers with interactive capabilities. The arrangement provided the Company
with an outlet for its ACTV Programming while providing LGV with interactive
product for its Videoway converter. As both companies developed, however, their
missions began to diverge: LGV wanted to market its Videoway converter in the
United States, and was less interested in the actual production of ACTV
Programming, while the Company was interested in expanding its programming
capacity and in making its ACTV Programming available for use with set-top
converters manufactured and distributed by others.
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The restructuring of the relationship with LGV enabled both companies to focus
on their respective goals, in that LGV now has the non-exclusive right to market
the Videoway converter in the United States, and the Company has control of ACTV
Programming development. See "Reorganization of ACTV Entertainment and the LGV
Agreements."
PATENTS, APPLICATIONS, AND PROPRIETARY TECHNOLOGY
The Company has sought to protect the proprietary features of the Programming
Technology it employs through patents, copyrights, confidentiality agreements,
and trade secrets both in the United States and overseas. As of the present
time, the United States Patent and Trademark Office has issued eleven patents,
with six additional patents pending, three of which name Dr. Michael Freeman,
the Company's Advanced Product Development Liaison, as an inventor thereof, and
two of which name Dr. Freeman and Gregory Harper, former President -- Technology
Consulting Group, and one of which named Richard Bennett, who is not affiliated
with the Company, as inventors thereof. The patents, which deal with different
aspects of the ACTV Programming Technology, expire at various dates from 1998 to
2013.
Corresponding patents for some of the above U.S. patents have been granted or
are pending in Canada, Japan, Australia and the European Patent Office. When a
patent is granted by the European Patent Office, and upon the filing of
appropriate translations, protection will be available in the designated
European countries. The Company believes such patents will strengthen its
competitive position in the aforementioned countries.
Dr. Freeman, Mr. Harper and Mr. Bennett have assigned to the Company all right,
title, and interest in and to the above U.S. patents and any corresponding
foreign patents or applications based thereon. In addition, Dr. Freeman has
agreed to assign to the Company the rights and title in and to all future
patents and applications, and any corresponding foreign patents or application
relating to the ACTV Programming Technology.
There can be no assurance that the patents held by the Company are enforceable,
particularly in view of the high cost of patent litigation, nor can there be any
assurance that the Company will derive any competitive advantages therefrom. To
the extent that patents are not issued for any other products developed by the
Company, the Company would be subject to more competition. The issuance of
patents may be insufficient to prevent competitors from essentially duplicating
the Company's products by designing around the patented aspects. In addition,
there can be no assurance that the Company's products will not infringe on
patents owned by others, licenses to which may not be available to the Company,
nor that competitors will not develop functionally similar products outside the
protection of any patents the Company has or may obtain.
The Company requires each of its employees, consultants and advisors to execute
a confidentiality and assignment of proprietary rights agreement upon the
commencement of employment or a consulting relationship with the Company. These
arrangements generally provide that all inventions, ideas, and improvements made
or conceived by the individual arising out of the employment or consulting
relationship shall be the exclusive property of the Company. This information
shall be kept confidential and not disclosed to third parties, except by consent
of the Company or in other specified circumstances. There can be no assurance,
however, that
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these agreements will provide effective protection for the Company's proprietary
information in the event of unauthorized use or disclosure of such information.
COMPETITION
The development of new television applications and services is highly
competitive. The Company competes within the television industry with many other
applications that are considered interactive. Moreover, the Company also
competes with other forms of entertainment and educational programming, many of
which are much more established, including standard television programming and
the growing CD-ROM market. Among the Company's competitors in both the area of
interactive television and in other media are companies that have greater
financial, technical and marketing resources than the Company.
At the present time, there are a number of different interactive television
applications that have been developed or are under development by others that
might be considered to be competitive with the Company's Programming Technology.
These other interactive applications in general are delivered via cable
television, or through play-along devices that are attached to the television.
To the best of the Company's knowledge, none of the point to multi-point systems
based on these technologies allows the viewer to affect what is seen on the
television in the same manner or to the extent of the ACTV Programming
Technology.
The new television applications can be classified into six primary categories:
(1) information and channel guide services, (2) transactional services, (3)
quantity/video-on-demand, (4) separate device play-along, (5) video games and
(6) individualized TV.
ACTV fits in the individualized TV category. Only individualized television
allows every television viewer to interact personally with and change the TV
program itself. Within the limits of the programmed choices, each sports fan can
watch the action the way he or she chooses, and each child receives individual
instructions based on his or her own response to the on-screen teacher.
ACTV's process of creating individualized television programming involves viewer
selection from a multiple number of frame-synchronized video, graphics, and/or
audio signals delivered at one time. The viewer sees and/or hears only one of
the signals at a given moment; the other signals are transparent. Using a remote
control, the viewer interacts with the television by making selections or
decisions called for by the specially-prepared programming. Based on a viewer's
inputs, the ACTV Programming Technology, which uses the set-top's CPU,
automatically switches at pre-determined intervals among various segments of the
multiple signals. The viewer cannot detect when such a switch takes place
because it occurs instantly and with frame accuracy.
The results appear seamless and uninterrupted -- for the viewer the programming
is completely individualized. Although an individualized program and its
associated branches are taped in a normal linear fashion, the program, when
shown, has thousands of possible segment combinations available for each viewer
to experience. The particular version one sees is based on individually selected
preferences and inputs. An unlimited number of independent viewers can interact
with an ACTV Program simultaneously. See "ACTV Programming Technology."
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A summary of each of the other new applications follows:
1) Information and Channel Guide Services This form of interactivity enables the
television to serve as a tool for information accessibility and retrieval. The
most immediate application is for channel guide services, which allow viewers to
easily determine the locations of programs in an expanded channel universe.
Information services include access to large external text and graphic
information databases.
2) Transactional Services This application allows the television viewer to
purchase merchandise displayed on-screen by pressing a button on his or her
remote control. Transactional services could be in the form of a home shopping
program or an addendum to a commercial. Through their television sets, viewers
may receive video, still pictures, text or audio about the selected products.
3) Quantity/Video on Demand Cable and DBS systems that incorporate digital
television delivery will be able to offer substantially more channels than their
analog predecessors. Programs transmitted digitally can be randomly accessed
through menu selection items. Extensive pay-per-view movies could be made
available, popular shows might be aired at many different starting times, and
the viewer could purchase, on an a la carte basis, television shows following
their initial air date on broadcast or cable TV.
4) Separate Device Play-Along This application allows viewers to play along with
television programs such as game shows or sporting events. The viewer has a
separate controller that receives information about the show in progress and
either displays it on the controller itself, or overlays television pictures
with text and/or graphics. Players can compete with the on-screen contestants
for prizes. Although the TV programming itself is unchanged, game players at
home see their results displayed on the play-along device's screen.
5) Video Games Interactive television services will allow a user to call up
video games through the cable TV box. Historically, video games have been
delivered on cartridges inserted into special-purpose terminals attached to a
television set.
Since the Company's business strategy depends in large part on its ability to
attract joint venture partners and/or licensees, the Programming Technology must
be more appealing to potential joint venture partners or licensees than other
technologies that currently exist, are now under development or may be developed
in the future.
EMPLOYEES
At June 30, 1996, the Company employed 28 full-time employees. The Company
believes that its relationships with its employees are generally satisfactory.
PROPERTY
The Company and its subsidiaries maintain their principal and executive offices
at Rockefeller Center, 1270 Avenue of the Americas, New York, New York, where
they lease approximately 6,300 square feet at a rent of approximately $17,400
per month pursuant to a lease that expires in
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January 2001. The lease may be terminated by the Company beginning in May 1999
by paying an early termination fee to the landlord. the Company maintains an
engineering staff and an editing studio at 1600 Broadway, New York, New York,
where it leases approximately 2,500 square feet at a rent of $3,450 per month,
pursuant to a lease that expires in December 1999. The lease agreement provides
for cancellation by either party with no penalty at the end of 1996. In
addition, the Company maintains offices at 9454 Wilshire Boulevard, Beverly
Hills, California, which are leased on a month-to-month basis for approximately
$1,350 per month by The Los Angeles Individualized Television Network, Inc. The
Company believes its current facilities are suitable and adequate, and that they
provide the productive capacity necessary for the performance of the operations
of the Company. None of the Company's properties is leased from affiliated
persons.
LEGAL PROCEEDINGS
In March 1988, LGV and the Company formed ACTV Entertainment, in which they were
to be equal stockholders, each owning 50 shares of Common Stock. The parties
also entered into a license agreement regarding the use of the Programming
Technology by LGV in Canada, Europe and the Soviet Union. LGV had pledged 28.5
of its shares to secure two $4,000,000 payments it was to have made upon the
occurrence of certain conditions. The parties had a dispute as to whether such
conditions had been met, the payments were not made, and ACTV foreclosed on the
28.5 shares. An arbitration was commenced and subsequently stayed, pending
settlement discussions between the parties. On June 8, 1993, the parties reached
a settlement pursuant to which ACTV became the sole stockholder of ACTV
Entertainment and the license agreement between the parties was modified. See
"-- Reorganization of ACTV Entertainment and the LGV Agreements."
In August, 1993, a lawsuit was commenced against the Company by Nolan Bushnell
in the United States District Court for the Southern District of New York,
seeking damages in the amount of $290,872, plus interest on such amount from
April 1986, arising out of an alleged payment by plaintiff of a guaranty of an
equipment lease of the Company. On April 25, 1994 the Company entered into a
Settlement Agreement with Nolan Bushnell and Catalyst Technologies, a sole
proprietorship owned by Mr. Bushnell, pursuant to which (a) the lawsuit
commenced by Mr. Bushnell in connection with his guaranty of an equipment lease
($290,872) was withdrawn, and (b) Mr. Bushnell and Catalyst Technologies
relinquished any and all right to receive payments from the Company out of a
repayment pool established pursuant to the terms of a 1985 agreement. The
obligations to Mr. Bushnell and Catalyst under the 1985 agreement were reflected
on the Company's books, as of December 31, 1993 at $121,333, plus accrued
interest thereon.
Pursuant to the terms of the Settlement Agreement, the Company paid $100,000 to
Mr. Bushnell and issued a promissory note in the principal amount of $190,000,
payable $100,000 on June 30, 1995 and $90,000 on June 30, 1996. Of the aggregate
settlement amount, $255,000 was paid by the Company in settlement of Mr.
Bushnell's claims in the lawsuit relating to his guaranty of the Company's
equipment lease, and the balance of $35,000 was in full and final settlement of
the claims of Mr. Bushnell and Catalyst Technologies for payments from the
repayment pool. In January 1995, the Company prepaid the $190,000 Note for a
discounted amount of $100,000 in full satisfaction of this obligation.
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There are no other pending material legal proceedings to which the Company is a
party.
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SELLING SECURITY HOLDERS
All of the Security Holders' Shares to which this Prospectus relates may be sold
by Selling Security Holders who have acquired or will acquire such shares from
the Company (i) upon the exercise of options and warrants, (ii) upon issuance to
consultants or (iii) upon issuance of common stock in connection with the
conversion of the Convertible Preferred Stock issued in connection with the
August 1996 Private Placements. The Company will not receive any of the proceeds
from sales of such shares by Selling Security Holders, but will receive the
exercise price upon the exercise of options or warrants by Selling Security
Holders.
All costs, expenses and fees in connection with the registration of the Security
Holders' Shares will be borne by the Company. All brokerage commissions, if any,
attributable to the sale of Security Holders' Shares by Selling Security Holders
will be borne by such Selling Security Holders.
The Selling Security Holders are offering hereby a total of 7,572,709 shares of
Common Stock. The following table sets forth the name of each person who is a
Selling Security Holder, the number of securities owned by each such person at
the time of this offering and the number of shares of Common Stock such person
will own after the completion of this offering. The following table assumes the
exercise of all options and warrants beneficially owned by each such security
holder.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering(1) After Offering(1)
-------------------- -----------------
Name of Selling Shares Included
Security Holder Shares % In This Offering Shares %
- ---------------- ------ - ---------------- ------ -
<S> <C> <C> <C> <C> <C>
Washington Post 2,341,334 19.69% 2,341,334 -- *
William C. Samuels 3,846,917(2) 32.35% 633,035(3) 872,548 5.16%
John Clarke 31,500 * 30,000(10) 1,500 *
Paul Mannion 30,000 * 30,000(10) -- *
David Reese 435,000 3.66% 105,000(4) 330,000 1.95%
Howard Squadron 77,767 * 50,000(5) 27,767 *
James Crook 58,294 * 55,000(6) 3,294 *
Bruce Crowley 301,000 2.53% 100,000(7) 201,000 1.19%
Gerard Klauer 35,000 * 35,000(8) -- *
Christopher Cline 52,685 * 52,285(9) 400 *
Convergence Industry 1,629 * 1,629 -- *
Richmont Consulting 25,000 * 25,000(10) -- *
CDV Telecom 31,187 * 31,187 -- *
Marty Klein 10,500 * 7,500(10) 3,000 *
Banca del Gottardo 250,000 2.10% 250,000(11) -- *
Brent Imai 50,000 * 50,000(7) -- *
Bob Becker 50,000 * 50,000(7) -- *
Richard Bennett 20,000 * 10,000(19) 10,000 *
Richard Barron 25,000 * 25,000(10) -- *
</TABLE>
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<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering(1) After Offering(1)
-------------------- -----------------
Name of Selling Shares Included
Security Holder Shares % In This Offering Shares %
- ---------------- ------ - ---------------- ------ -
<S> <C> <C> <C> <C> <C>
Malcom Klein 10,000 * 10,000(11) -- *
Comstar Computer 19,000 * 19,000 -- *
Craig Ullman 50,000 * 50,000(12) -- *
Ed Downe 50,000 * 25,000(13) 25,000 *
Jay Kaplowitz 27,000 * 25,000(13) 2,000 *
Nick Rhodes 25,000 * 25,000(14) -- *
Richard Hyman 25,000 * 25,000(7) -- *
Wall Street Consultants, Inc. 25,000 * 25,000(15) -- *
Wall St. Group 5,000 * 5,000 -- *
Barry Berman 10,833 * 10,833 -- *
Cynthia Baker 50,000 * 50,000(7) -- *
Mabel Phifer 5,000 * 5,000(8) -- *
Richard Aurelio 14,183 * 14,183(16) -- *
Eric Martinez 4,000 * 4,000(17) -- *
James Kearney 3,000 * 3,000(17) -- *
Linda Baldomir 8,000 * 8,000(18) -- *
ETR & Associates 2,000 * 2,000(8) -- *
John Posteraro 500 * 500(8) -- *
Pierre Rovira 458 * 458 -- *
Global Bermuda
Limited Partnership 233,195 * 233,195(20) -- *
Elliott Associates, L.P. 932,781 * 932,781(20) -- *
Grace Brothers, Ltd. 466,391 * 466,391(20) -- *
TCW Shared Opportunity
Fund II, L.P. 621,854 * 621,854(20) -- *
JMG Capital Partners, L.P. 77,732 * 77,732(20) -- *
Libra Investments, Inc. 464,979 * 214,979(21) -- *
Plymouth Partners, L.P. 77,732 * 77,732(20) -- *
Ravich Revocable Trust of 1989 137,247 * 137,247(22) -- *
Westgate International, L.P. 621,854 621,854(20)
TOTAL 7,572,709
</TABLE>
- ----------
* Indicates less than 1% of common shares outstanding.
(1) Gives effect to exercise of all of the options, warrants and Convertible
Preferred Stock for which the underlying shares of Common Stock are
being offered hereby and the sale of all of the shares of Common Stock
being offered by the Selling Security Holders.
(2) Includes 2,341,334 shares owned of record by the Post Company as to
which Mr. Samuels is the Voting Trustee pursuant to an agreement among
the Company, the Post Company and Mr. Samuels, as well as 206,598 shares
owned of record by Michael J. Freeman as to which Mr. Samuels is the
Voting Trustee pursuant to an agreement
32
<PAGE>
<PAGE>
between Mr. Samuels and Mr. Freeman. See "CERTAIN TRANSACTIONS" and
"PRINCIPAL STOCKHOLDERS."
(3) Mr. Samuels is Chairman of the Board, President, Chief Executive Officer
and a Director of the Company. Includes 120,000 shares owned by Mr.
Samuels, up to 513,035 shares of Common Stock issuable to Mr. Samuels
upon the exercise of stock options at $2.50 per share.
(4) Mr. Reese is Executive Vice President and a Director of the Company.
Consists of immediately exercisable options to purchase 55,317 shares of
the Company's Common Stock at an exercise price of $3.10 per share and
49,683 shares at an exercise price of $2.50 per share.
(5) Consists of options to purchase 25,000 shares of the Company's Common
Stock at an exercise price of $3.50 per share and 25,000 shares at an
exercise price of $2.50 per share.
(6) Consists of options to purchase 21,000 shares of the Company's Common
Stock at an exercise price of $2.50 per share, 20,000 shares at an
exercise price of $3.10 per share and 14,000 shares to be issued
pursuant to currently vested stock appreciation rights.
(7) Mr. Crowley is executive vice-president and director of the Company.
Consists of options to purchase shares of the Company's Common Stock at
$3.10 per share.
(8) Consists of options to purchase shares of the Company's Common Stock at
$5.50 per share.
(9) Consists of options to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $3.10 per share.
(10) Consists of options to purchase shares of the Company's Common Stock at
$4.00 per share.
(11) Consists of options to purchase shares of the Company's Common Stock at
$4.50 per share.
(12) Consists of options to purchase 25,000 shares of the Company's Common
Stock at an exercise price of $2.50 per share and 25,000 shares at $3.10
per share.
(13) Consists of options to purchase 25,000 shares of the Company's Common
Stock at $3.50 per share.
(14) Consists of options to purchase shares of the Company's Common Stock at
$5.00 per share.
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<PAGE>
(15) Consists of options to purchase shares of the Company's Common Stock at
$3.50 per share.
(16) Consists of options to purchase 1,500 shares of the Company's Common
Stock at an exercise price of $2.50 per share and 12,683 shares at an
exercise price of $3.10 per share.
(17) Consists of options to purchase shares of the Company's Common Stock at
$2.50 per share.
(18) Consists of options to purchase 3,000 shares of the Company's Common
Stock at an exercise price of $2.50 per share and 5,000 shares at an
exercise price of $3.10 per share.
(19) Consists of options to receive 10,000 shares of the Company's Common
Stock at no cost, such options having been issued in connection with an
acquisition by the Company of a patent from Mr. Bennett.
(20) Represents beneficial ownership of shares of the Company's common stock
issuable upon conversion of the Convertible Preferred Stock of the
Wholly-Owned Subsidiaries, which was issued in connection with the
August 1996 Private Placements, including shares issuable upon
conversion of the Convertible Preferred Stock issued in connection with
the 5% dividend on the Convertible Preferred Stock, assuming the last
reported sales price of $3.8125 per share of common stock on September
17, 1996 was used to determine the number of shares of Common Stock
issuable as of the first date on which the Convertible Preferred Stock
may be converted. The actual number of shares of Common Stock offered is
subject to adjustment and could be less or more than the indicated
amount depending upon factors that cannot be predicted by the Company
at this time, including, among others, application of the conversion
provisions based on market prices prevailing at the actual date of
conversion and whether or to what extent dividends are paid in Common
Stock. See "Risk Factors - Effect of Conversion of Convertible Preferred
Stock: Potential Common Stock Adjustments" and "Description of Capital
Stock."
(21) Represents beneficial ownership of shares of the Company's common stock
issuable upon conversion of the Convertible Preferred Stock of the
Wholly-Owned Subsidiaries which was issued in connection with the August
1996 Private Placements, including shares issuable upon conversion of
the Convertible Preferred Stock issued in connection with the 5%
dividend on the Convertible Preferred Stock, assuming the last reported
sales price of $3.8125 per share of common stock on September 17, 1996
was used to determine the number of shares of Common Stock issuable as
of the first date on which the Convertible Preferred Stock may be
converted. Also represents, assuming the same basis of conversion as
discussed in the preceding sentence, shares of the Company's Common
Stock issuable upon conversion of the shares underlying the
Underwriter's Warrants, which were issued to Libra Investments, Inc.
in connection with the August 1996 Private Placements. The actual number
of shares of Common Stock offered is subject to adjustment and could
be less or more than the indicated amount depending upon factors that
cannot be predicted by the Company at this time, including, among
others, application of the conversion provisions based on market prices
prevailing at the actual date of conversion and whether or to what
extent dividends are paid in common stock. See "Risk Factors--Effect of
Conversion of Convertible Preferred Stock: Potential Common Stock
Adjustments" and "Description of Capital Stock."
(22) Represents shares of the Company's Common Stock issuable upon
conversion of shares underlying the Underwriter's Warrants, which were
issued to Ravich Revocable Trust of 1989 in connection with the August
1996 Private Placements.
34
<PAGE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The total authorized capital stock of the Company consists of 35,000,000 shares
of Common Stock, par value $0.10 per share, and 1,000,000 shares of Preferred
Stock, par value $0.10 per share. The following descriptions of capital stock
are qualified in all respects by reference to the Restated Certificate of
Incorporation and By-Laws of the Company, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock will elect all directors and are entitled to one
vote for each share held of record. As of the date of this Prospectus,
11,892,105 shares of Common Stock were issued and outstanding. All shares of
Common Stock will participate equally in dividends, when and as declared by the
Board of Directors and in net assets on liquidation. The shares of Common Stock
will have no preference, conversion, exchange, preemptive or cumulative voting
rights.
PREFERRED STOCK
The Company is authorized by the Restated Certificate of Incorporation to issue
up to 1,000,000 shares of Preferred Stock, par value $0.10 per share, designated
as Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock. The Company is authorized to issue up to 666,667 shares of Series A
Convertible Preferred Stock and 333,333 Series B Convertible Preferred Stock.
None of the shares of Preferred Stock are issued and outstanding. Holders of
Preferred Stock will be entitled to voting rights equal to the number of shares
of Common Stock into which their shares are convertible. The holders of
Preferred Stock will be entitled to receive dividends, when and as declared by
the Board of Directors, and will have priority over holders of Common Stock as
to any declaration or payment of any dividend on the Common Stock. In the event
of liquidation, dissolution or winding up of the Company, the holders of
Preferred Stock will be entitled to receive a sum equal to the initial purchase
price of the Preferred Stock prior to any distribution to the holders of Common
Stock.
The shares of Preferred Stock are convertible into the number of whole shares of
Common Stock calculated by dividing (i) the number of shares of Preferred Stock
multiplied by the initial conversion price of the shares of Preferred Stock
being converted by (ii) the conversion price in effect at the time of
conversion. Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of the
Company more difficult or time consuming. For example, shares of Preferred Stock
could be issued with certain rights which might have the effect of diluting the
percentage of shares of Common Stock owned by a significant stockholder or may
result in the entrenchment of management. In addition, shares of Preferred Stock
could be issued to purchasers who might side with management in opposing a
takeover bid which the Board determines is not in the best interest of the
Company and its stockholders. This provision, therefore, may be viewed as having
possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices. Although the Board of Directors does not contemplate that the
issuance of shares of Preferred Stock will have the effect of discouraging
takeover proposals or similar transactions, and the Board of Directors does
35
<PAGE>
<PAGE>
not contemplate issuing Preferred Stock for such purpose, the actual voting and
conversion rights of such Preferred Stock could have such an effect.
OTHER DERIVATIVE SECURITIES
In connection with the 1996 Private Placements, the Company's wholly-owned
subsidiaries issued an aggregate of 400,000 shares of 5% Convertible Preferred
Stock at $25.00 per share and Underwriter's Warrants to purchase an aggregate of
36,000 shares of 5% Convertible Preferred Stock at $25.00 per share. Pursuant to
its terms, the Convertible Preferred Stock becomes convertible ratably over the
fourth through thirteenth month after issuance at discounts to the future market
price of Common Stock increasing from 14% to 30.375% over the same period. The
number of shares of Common Stock issuable is also subject to adjustment. See
"Risk Factors -- Effect of Convertible Preferred Stock; Adjustment to Common
Stock."
Each share of Convertible Preferred Stock is entitled to receive dividends,
payable quarterly, at the rate of 5% per annum. If the shareholders of the
Convertible Preferred Stock agree, the Company intends that any dividend payable
commencing more than 90 days after the date of issuance of the Convertible
Preferred Stock will be paid either (i) in cash or (ii) in shares of Common
Stock if such shares have been registered for resale under the Securities Act
(as provided for hereunder). If a dividend is paid in Common Stock, the shares
to be issued as a dividend would be valued at the trading price of the Common
Stock pursuant to a method to be agreed upon by the Company and the holders of
the Convertible Preferred Stock. Each share of Convertible Preferred Stock is
also entitled to a liquidation preference of $25.00 per share, plus any accrued
but unpaid dividends, in preference to any other class or series of capital
stock of the Company.
TRANSFER AGENT
The Company's transfer agent is Continental Stock Transfer & Trust Company, New
York, New York 10007.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be approximately 16,919,088 shares
of Common Stock outstanding. Of these shares, the Shares being registered hereby
will be freely tradeable without restriction under the Securities Act, for so
long as this Prospectus is kept current by the Company. An aggregate of
approximately 800,000 shares of Common Stock held by existing stockholders will
be "restricted" shares as defined in Rule 144.
In general, under Rule 144 a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted shares of the Company for at
least two years, including any person who may be deemed to be an "affiliate" of
the Company (as the term "affiliate" is defined under the Securities Act), is
entitled to sell in normal brokerage transactions during the periods when
certain information regarding the Company is publicly available, within any
three-month period, an amount of shares that does not exceed the greater of (i)
the average weekly trading volume in the Company's shares during the four
calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. A
person who has not been an "affiliate" of the Company for the three
36
<PAGE>
<PAGE>
months prior to such sale and who has held restricted shares for at least three
years would be entitled to sell such shares without restriction. Most of such
restricted shares have been held by non-affiliates of the Company for more than
three years or by affiliates of the Company for more than two years. Actual
sales, or the prospect of sales by the present stockholders of the Company, or
by future holders of restricted securities under Rule 144, or otherwise, may, in
the future, have a depressive effect upon the price of the Company's shares of
Common Stock in any market that may develop therefor.
37
<PAGE>
<PAGE>
PLAN OF DISTRIBUTION
It is estimated that up to 5,026,983 of the Selling Security Holders' Shares
may be issued by the Company (i) upon the exercise of options, warrants and
SARs that have been issued by the Company and (ii) and upon the conversion of
the Convertible Preferred Stock. However, due to the calculation the Company
will use to determine the number of shares to issue upon conversion of the
Convertible Preferred Stock, this number is subject to adjustment and may
increase depending upon factors which cannot be predicted by the Company at this
time, including, among others, the future market price of the common stock.
Up to 2,545,726 of the Selling Security Holders' Shares may be sold by the
Selling Security Holders who have acquired such shares from the Company (i) upon
the exercise of options and warrants, (ii) upon the issuance to consultants and
employees. The Company will not receive any of the proceeds from any sales by
Selling Security Holders of the Security Holder Shares, but will receive the
exercise price upon the exercise of options and warrants by the Security
Holders. See "SELLING SECURITY HOLDERS."
The Selling Security Holders have advised the Company that the sale or
distribution of the Common Stock may be effected directly to purchasers by the
Selling Security Holders as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the Boston Stock Exchange, in
the Nasdaq SmallCap Market, or in the over-the-counter market, (ii) in
transactions otherwise than on any stock exchange or in the over-the-counter
market, or (iii) through the writing of options (whether such options are listed
on an options exchange or otherwise) on, or settlement of short sales of, the
Common Stock. Any of such transactions may be effected at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case a determined by the Selling Security Holder or by
agreement between the Selling Security Holder and underwriters, brokers, dealers
or agents or purchasers. If the Selling Security Holders effect such
transactions by selling Common Stock to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders or commissions from purchaser of Common Stock for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may abe in excess of those
customary in the types of transactions involved). The Selling Security Holders
and any brokers, dealers or agents that participate in the distribution of the
Common Stock may be deemed to be underwriters, and any profit on the sale of
Common Stock by them and any discounts, concessions or commissions received by
any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act.
Because the Selling Security Holders may each be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, the Selling Security
Holders will be subject to prospectus delivery requirements under the Securities
Act. Furthermore, in the event of a "distribution" of its shares, the Selling
Security Holder, any selling broker or dealer and any "affiliated purchasers"
may be subject to Rule 10b-6 under the Exchange Act until its participation in
that distribution is completed.
At the time of a particular offer of Security Holders' Shares is made by or on
behalf of any of the
38
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<PAGE>
Selling Security Holders, to the extent such offer constitutes a distribution
under the Securities Act, a supplement to this Prospectus will be distributed,
which will set forth the type and number of securities being offered by such
Selling Security Holders and the terms of such offering, including the name or
names and addresses of any underwriters, dealers or agents, the purchase price
paid by any underwriter for securities purchased from the Selling Security
Holder and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and the proposed selling price to the public.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Security Holders'
Shares. However, all brokerage commissions, if any, attributable to the sale of
such shares by holders thereof will be borne by such holders.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the shares of
Common Stock offered by the Company, are being passed upon for the Company by
Gersten, Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue, New York, New
York 10022. Jay Kaplowitz, a name partner in Gersten, Savage, Kaplawitz &
Curtin, LLP, owns 2,000 shares of the Company's Common Stock and other options
to purchase 25,000 shares.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-3
with respect to the securities offered by this Prospectus. This Prospectus omits
certain information contained in the Registration Statement, as permitted by the
Rules and Regulations of the Commission. For further information, reference is
made to the Registration Statement, which may be obtained from the Commission's
principal facility at 450 Fifth Street, N.W., Washington, D.C., 20549 upon
payment of the Commission's charge for copying. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not complete. Where such contract or other document is an exhibit to the
Registration Statement, each such statement is deemed to be qualified and
amplified in all respects by the provision of the exhibit.
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<PAGE>
===================================== =========================================
No underwriter, dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer or solicitation to any person in any jurisdiction where
such offer or solicitation would be unlawful. Neither delivery of this
Prospectus nor any Common Stock sale hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk Factors......................
Dilution..........................
Use of Proceeds...................
Business..........................
Description of Capital Stock......
Selling Security Holders..........
Plan of Distribution..............
Concurrent Offering...............
Legal Matters.....................
Experts...........................
</TABLE>
ACTV, INC.
7,572,709 shares of Common Stock
(1) 5,026,983 shares issuable by
the Company upon the Exercise of
Options, Warrants, pursuant to
SARs, upon the conversion of
convertible preferred stock of
two of the Company's wholly-owned
subsidiaries, ACTV Holdings, Inc.
and ACTV Financing, Inc.
(2) 2,545,726 shares offered by
Selling Security Holders.
October , 1996
===================================== =========================================
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee........................................ $ 9,955.48
Fees and expenses of counsel................................ 30,000.00*
Fees and expenses of accountants............................ 6,000.00*
Miscellaneous............................................... 1,800.00*
Total.................................................... $47,755.48
* Estimate
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to paragraph "Twelfth" of the Restated Certificate of
Incorporation of the Company (Exhibit 4.1.1), which contains a
provision, as permitted by Section 145 of the Delaware General
Corporation Law, that eliminates the personal liability of directors to
the Company and its stockholders for monetary damages for unintentional
breach of a director's fiduciary duty to the Company. This provision
does not permit any limitation on, or elimination of the liability of a
director for disloyalty to the Company or its stockholders, for failing
to acting good faith, for engaging in intentional misconduct or a
knowing violation of law, for obtaining an improper personal benefit or
for paying a dividend or approving a stock repurchase that was illegal
under the Delaware General Corporation Law.
The Restated Certificate of Incorporation and By-Laws of the Company
require the Company to indemnify directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation (a "derivative action")) if
they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard of care is
applicable in the case of derivative actions, except that
indemnification extends only to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action.
Moreover, the Delaware General Corporation Law requires court approval
before there can be any indemnification where the person seeking
indemnification has been found liable to the Company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) in connection with the
securities being registered, the Company will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
<PAGE>
<PAGE>
16. EXHIBITS.
3.1 Articles of Incorporation of ACTV Financing, Inc.
3.2 Articles of Incorporation of ACTV Holdings, Inc.
*5. Opinion of Gersten, Savage, Kaplowitz & Curtin
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Gersten, Savage, Kaplowitz & Curtin (contained in
Exhibit 5)
* Previously Filed
17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
in the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer, or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing a Post-Effective Amendment No. 1 to Registration
Statement on Form S-3 and has duly caused this Post-Effective Amendment No. 1
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York and State of New York on the 22nd day of October,
1996.
ACTV, INC.
By: /s/ WILLIAM C. SAMUELS
----------------------
William C. Samuels
Chairman of the Board, Chief
Executive Officer, President and Director
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 to the Form S-3 registration statement has been signed by the
following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ WILLIAM C. SAMUELS
- ---------------------- Chairman of the Board, Chief October 22, 1996
William C. Samuels Executive Officer, President
and Director
/s/ DAVID REESE
- ---------------------- Executive Vice-President, October 22, 1996
David Reese President--ACTV Entertainment, Inc.
and Director
/s/ BRUCE CROWLEY
- ---------------------- Executive Vice-President, October 22, 1996
Bruce Crowley President--ACTV Interactive, Inc.
and Director
/s/ RICHARD HYMAN
- ---------------------- Director October 22, 1996
Richard Hyman
- ---------------------- Director October 22, 1996
William A. Frank
/s/ STEVEN W. SCHUSTER
- ---------------------- Director October 22, 1996
Steven W. Schuster
- ---------------------- Director October 22, 1996
Jess M. Ravich
/s/ CHRISTOPHER C. CLINE
- ------------------------ Vice President, Chief Financial October 22, 1996
Christopher C. Cline Officer and Secretary
<PAGE>
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation of ACTV Financing, Inc.
3.2 Articles of Incorporation of ACTV Holdings, Inc.
*5. Opinion of Gersten, Savage, Kaplowitz & Curtin
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Gersten, Savage, Kaplowitz & Curtin (contained in Exhibit 5)
* Previously Filed
<PAGE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ACTV FINANCING, INC.
The undersigned, a natural person, for the purpose of organizing
a corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware, particularly Title 8 - Chapter 1 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"
(hereinafter referred to as the "Delaware GCL"), hereby certifies that:
FIRST: Name. The name of the corporation (hereinafter
called the "Corporation") is ACTV FINANCING, INC.
SECOND: Address. The address, including street,
number, city, and county, of the registered office of the
Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New
Castle; and the name of the registered agent of the Corporation
in the State of Delaware at such address is The Corporation Trust
Company.
THIRD: Certain Definitions and Purposes.
A. The following terms shall have the indicated
definitions:
"ACTV" shall mean ACTV, Inc., a Delaware corporation.
"Contingency Satisfaction Date" shall mean the date on which the
conditions described in clause (i) and clause (ii) of the definition of Release
Date are satisfied.
"Exchange Agreement" shall mean the Registration Rights and Exchange
Agreement to be entered into between ACTV and the Investors.
"Holdings" shall mean ACTV Holdings, Inc., a Delaware
corporation.
"Investors" shall mean the initial subscribers for the
Corporation's preferred stock.
"Investment Agreement" shall mean the Preferred Stock Investment
Agreement to be entered into between the Corporation and the Investors.
"Liberty Sports Contract" shall mean that certain agreement
to be entered into by ACTV and/or its subsidiaries and Liberty
Sports, Inc. or its wholly-owned subsidiary Prime Sports West
<PAGE>
<PAGE>
("PSW") providing for immediate commercial use on economically viable terms by
ACTV and/or its subsidiaries of substantially all major professional sports
program content carried by PSW for a term of at least 3 years in connection with
the launch of ACTV's premium regional network within the existing 4,200,000
subscriber footprint of PSW.
"Release Date" shall mean the fifth business day after the day on which
all of the following conditions exist:
(i) all registration obligations of ACTV with respect to its common
stock pursuant to the Exchange Agreement are satisfied, such
registration is not subject to any suspension or stop order, the
prospectus relating to such registration is current, and none of
the Corporation, Holdings or ACTV is subject to any bankruptcy,
insolvency or similar proceeding;
(ii) the Liberty Sports Contract is executed and delivered
and in full force and effect;
(iii) the Corporation is merged with and into Holdings, the terms of
which merger are to be more fully described in the Investment
Agreement; and
(iv) the Investors receive an opinion of counsel reasonably acceptable
to the Investors that the conditions contained in clauses (i),
(ii), and (iii) above have been satisfied (where relevant, such
opinion may be based upon such counsel's knowledge).
Reference to the Investment Agreement or the Exchange Agreement shall be
deemed to include any amendments to either of such agreements entered into in
accordance with the terms of such agreement.
B. The nature of the business or purposes to be conducted
or promoted by the Corporation is limited to the following
activities and none other:
1. To authorize, issue, sell and deliver to ACTV all
one hundred (100) shares of the Common Stock, as defined herein,
on terms to be agreed upon between the Corporation and ACTV;
2. To authorize and enter into the Investment
Agreement;
3. To authorize, issue, sell and deliver to the Investors all
two hundred forty thousand (240,000) of the Preferred Shares, as defined
herein, for $25.00 per share, for an aggregate purchase price of $6,000,000,
pursuant to the Investment Agreement (such transaction shall hereinafter be
referred to as the "Private Placement");
4. To open and maintain an interest bearing escrow
account in which will be deposited the $6,000,000 of the proceeds
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from the Private Placement, pursuant to an escrow agreement to be entered into
by and among the Corporation and an escrow agent to be named therein, until the
earlier of the Release Date or the redemption of the Preferred Shares, as
described in the Fourth Article hereof;
5. To enter into and close any agreements and execute and file
any documents in connection with the Private Placement, and to do all such
things as are reasonable or necessary to enable the Corporation to carry out any
of the activities specified above.
The Corporation shall possess and exercise all the powers and privileges
granted by the Delaware GCL or by any other law of Delaware or by this
Certificate of Incorporation together with any powers incidental thereto, so far
as and to the extent that such powers and privileges are necessary or convenient
to the conduct, promotion or attainment of the business or purposes of the
Corporation.
FOURTH: Shares. The total number of shares of stock
which the Corporation shall have authority to issue is one
hundred (100) shares of common stock, $0.01 par value (the
"Common Stock") and two hundred forty thousand (240,000) shares
of preferred stock without par value.
The express terms and provisions of the shares of preferred stock
classified and designated as "5% Cumulative Convertible Preferred Stock"
(hereinafter referred to as the "Preferred Shares") are as follows:
A. Dividends.
The holders of the Preferred Shares shall be entitled to receive out of
any assets legally available therefor cumulative dividends at the rate of 5% per
annum compounded quarterly when payable (whether or not declared), payable
quarterly on March 31, June 30, September 30 and December 31 of each year, when
and as declared by the Board of Directors, in preference and priority to any
payment of any dividend on the Common Stock or any other class or series of
stock of the Corporation. Such dividends shall accrue on any given share from
the day of original issuance of such share and shall accrue from day to day
whether or not earned or declared. If at any time dividends on the outstanding
Preferred Shares at the rate set forth above shall not have been paid or
declared and set apart for payment with respect to all preceding periods, the
amount of the deficiency shall be fully paid or declared and set apart for
payment, but without interest, before any distribution, whether by way of
dividend or otherwise, shall be declared or paid upon or set apart for the
shares of any other class or series of stock of the Corporation.
B. Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the holders of the Preferred Shares
shall be entitled to receive, prior and in preference to any
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distribution of any assets of the Corporation to the holders of any other class
or series of shares, the amount of $25 per share plus any accrued but unpaid
dividends (the "Liquidation Preference").
C. Redemption. In the event that the Contingency
Satisfaction Date does not occur by December 31, 1996,
commencing on January 1, 1997, the Corporation shall offer to
purchase, from each then holder of any Preferred Shares, all of
the outstanding Preferred Shares owned by such holder pursuant
to, and as to be more fully described in, the Investment
Agreement.
D. Conversion. The Preferred Shares are convertible into
the number of shares of the common stock of ACTV as will be
determined by, and in accordance with the procedures to be set
forth in, the Exchange Agreement.
E. Voting Rights. Except as provided herein or as provided
for by law, the Preferred Shares shall have no voting rights.
F. Attorneys' Fees. Any holder of Preferred Shares shall
be entitled to recover from the Corporation the reasonable
attorneys' fees and expenses incurred by such holder in
connection with enforcement by such holder of any obligation of
the Corporation hereunder.
FIFTH: Incorporator. The name and the mailing address
of the incorporator are as follows:
NAME MAILING ADDRESS
Wesley Fredericks, Esq. Gersten Savage Kaplowitz & Curtin
575 Lexington Avenue, 27th Floor
New York, New York 10022
SIXTH: Term. The Corporation is to have perpetual
existence.
SEVENTH: Preferred Shares Vote Required.
A. Majority Vote. The affirmative vote of the majority of
the Corporation's outstanding Preferred Shares shall be
necessary:
(i) for the amendment of the Certificate of Incorporation of the
Corporation and for the amendment of the by-laws of the
Corporation (subject to the super-majority provision contained in
Section B below);
(ii) to authorize or issue any other equity security senior
to or on a parity with the Preferred Shares;
(iii) to purchase or otherwise acquire for value any
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Common Stock or other equity security of the Corporation either
junior or senior to or on a parity with the Preferred Shares;
(iv) before the Corporation may take any action to authorize
or institute proceedings to have itself adjudicated as
bankrupt or insolvent, or consent to the institution of
any bankruptcy or insolvency proceeding against it, or
seek or consent to the entry of any order for relief or
the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of
its property, or seek liquidation, winding up,
reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or
relief of debtors, or make any general assignment for
the benefit of creditors, or take any corporate action
in furtherance of any of the actions set forth above in
this subparagraph;
(v) for a consolidation or merger of the Corporation with
or into any other corporation or corporations, or a
sale of all or substantially all of the assets of the
Corporation; and
(vi) to engage in any transactions with any affiliates or any third
parties, except for transactions in specific furtherance of the
activities described in the Third and Fourth Articles hereof.
B. Super-Majority Vote. The affirmative vote of seventy-
five percent (75%) of the Corporation's outstanding Preferred
Shares shall be necessary for any amendment to the Certificate of
Incorporation or by-laws of the Corporation that may amend or
change any of the rights, preferences, or privileges of the
Preferred Shares.
EIGHTH: Powers. For the management of the business
and for the conduct of the affairs of the Corporation, and in
further definition, limitation, and regulation of the powers of
the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
A. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board
of Directors. The total number of directors which
shall constitute the whole Board of Directors shall be
fixed at two (2), one (1) of which shall be elected by
the affirmative vote of the majority of the
Corporation's outstanding Preferred Shares, and one (1)
of which shall be elected by the affirmative vote of
the majority of the Corporation's outstanding Common
Stock. Any vacancy on the Board of Directors shall be
filled by the class of stockholders which elected the
director who has vacated or will vacate his or her seat
on the Board of Directors. The phrase "whole Board" and
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the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
Corporation would have if there were no vacancies.
B. In furtherance and not in limitation of the powers conferred by
statute and subject to the Third and Seventh Articles hereof, the
board of directors is expressly authorized to make, alter or
repeal the by-laws of the Corporation.
D. Elections of directors need not be by written ballot
unless the by-laws of the Corporation shall so provide.
E. Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws may provide. The books of the
Corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or
places as may be designated from time to time by the board of
directors or in the by-laws of the Corporation.
F. Any action which is required to be or may be taken at
any annual or special meeting of directors or
stockholders of the Corporation may be taken without a
meeting, without prior notice to directors or
stockholders and without a vote if a consent in
writing, setting forth the action so taken, shall have
been signed by all of the directors or by the holders
of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or
to take such action at a meeting at which all the
shares entitled to vote thereon were present and voted.
NINTH: Prohibited Acts. Notwithstanding any other
provision of this Certificate of Incorporation and any provision
of law which otherwise so empowers the Corporation, the
Corporation shall not perform any act in contravention of any of
the following:
A. The Corporation shall not engage in any action that may
affect the separate legal identities of the Corporation
and ACTV and its affiliates, including, without
limitation: (1) holding itself out as being liable for
the debts of any other person or entity; (2) forming,
or causing to be formed, any subsidiaries; (3) acting
other than in its corporate name and through its duly
authorized officers or agents; (4) permitting ACTV or
any affiliate thereof to make any decisions with
respect to the Corporation's business or operations;
(5) failing to hold regular meetings or obtain the
necessary consents to authorize corporate action(s); or
(6) preparing financial statements only as part of
ACTV's consolidated financial statements.
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B. The Corporation shall not create, incur, assume, guarantee,
secure or in any manner become liable in respect of any
indebtedness, other than the obligations specifically referred to
herein to the holders of the Preferred Shares, or permit any
liens, claims or encumbrances to exist against the Corporation or
any of its assets;
C. The Corporation shall not commingle its funds and
assets with those of any other entity;
D. The Corporation shall not engage in any business
activity;
E. The Corporation shall not engage in any other activity
except for the activities described in the Third and
Fourth Articles hereof;
F. The Corporation shall not declare any dividends or make
any distributions with respect to the Common Stock; and
G. The Corporation shall not enter into any agreements
other than the agreements entered into in connection
with the activities described in the Third and Fourth
Articles hereof.
TENTH: Director Liability. The personal liability of
the directors of the Corporation is hereby eliminated to the
fullest extent permitted by paragraph (7) of subsection (b) of
ss.102 of the Delaware GCL, as the same may be amended and
supplemented.
ELEVENTH: Indemnity. The Corporation shall, to the
fullest extent permitted by law, as the same is now or may
hereafter be in effect, indemnify the director who is elected by
the affirmative vote of the majority of the Corporation's
outstanding Preferred Shares (including the heirs, executors,
administrators and other personal representatives of such person)
against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
such person in connection with any threatened, pending or
completed suit, action or proceeding (whether civil, criminal,
administrative or investigative in nature or otherwise) in which
such person may be involved by reason of the fact that they are
or were a director of the Corporation or are or were serving any
other incorporated or unincorporated enterprise in such capacity
at the request of the Corporation.
TWELFTH: Books and Records. The Corporation (i) shall maintain
its financial and accounting books and records separate from those of any other
entity or person, (ii) shall pay from its assets all obligations and
indebtedness of any kind incurred by it, and shall not pay from its assets any
obligations or indebtedness of any other entity or person, and (iii) shall
observe all corporate formalities required by this Certificate of Incorporation,
by-laws and the laws of the State of Delaware.
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THIRTEENTH: Amendment. From time to time any of the
provisions of this Certificate of Incorporation may be amended,
altered, or repealed, and other provisions authorized by the
Delaware GCL or other laws of the State of Delaware at the time
in force may be added or inserted in the manner and at the time
prescribed by said laws, in accordance with the Seventh Article
hereof, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of
Incorporation are granted subject to the provisions of this
Article.
Signed on August __, 1996
------------------------------
Wesley Fredericks
Sole Incorporator
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CERTIFICATE OF INCORPORATION
OF
ACTV HOLDINGS, INC.
The undersigned, a natural person, for the purpose of organizing
a corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware, particularly Title 8 - Chapter 1 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"
(hereinafter referred to as the "Delaware GCL"), hereby certifies that:
FIRST: Name. The name of the corporation (hereinafter
called the "Corporation") is ACTV HOLDINGS, INC.
SECOND: Address. The address, including street,
number, city, and county, of the registered office of the
Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New
Castle; and the name of the registered agent of the Corporation
in the State of Delaware at such address is The Corporation Trust
Company.
THIRD: Purposes. The purposes for which the
Corporation is formed are to engage in any lawful act or activity
for which corporations may be organized under the Delaware GCL.
The Corporation shall possess and exercise all the powers and privileges
granted by the Delaware GCL or by any other law of Delaware or by this
Certificate of Incorporation together with any powers incidental thereto, so far
as and to the extent that such powers and privileges are necessary or convenient
to the conduct, promotion or attainment of the business or purposes of the
Corporation.
FOURTH: Shares. The total number of shares of stock
which the Corporation shall have authority to issue is one
hundred (100) shares of common stock, $0.01 par value (the
"Common Stock") and one hundred ninety-six thousand (196,000)
shares of preferred stock without par value.
The express terms and provisions of the shares of preferred stock
classified and designated as "5% Cumulative Convertible Preferred Stock"
(hereinafter referred to as the "Preferred Shares") are as follows:
A. Dividends.
The holders of the Preferred Shares shall be entitled to receive out of
any assets legally available therefor cumulative
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dividends at the rate of 5% per annum compounded quarterly when payable (whether
or not declared), payable quarterly on March 31, June 30, September 30 and
December 31 of each year, when and as declared by the Board of Directors, in
preference and priority to any payment of any dividend on the Common Stock or
any other class or series of stock of the Corporation. Such dividends shall
accrue on any given share from the day of original issuance of such share and
shall accrue from day to day whether or not earned or declared. If at any time
dividends on the outstanding Preferred Shares at the rate set forth above shall
not have been paid or declared and set apart for payment with respect to all
preceding periods, the amount of the deficiency shall be fully paid or declared
and set apart for payment, but without interest, before any distribution,
whether by way of dividend or otherwise, shall be declared or paid upon or set
apart for the shares of any other class or series of stock of the Corporation.
B. Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the holders of the Preferred Shares
shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of
any other class or series of shares, the amount of $25 per share
plus any accrued but unpaid dividends.
C. Conversion. The Preferred Shares are convertible into
that number of shares of the common stock of ACTV, Inc., the
parent company of the Corporation ("ACTV"), as is determined by,
and in accordance with the procedures for conversion set forth
in, the Registration Rights and Exchange Agreement to be entered
into between ACTV and the initial subscribers for the
Corporation's Preferred Shares (the "Exchange Agreement").
Reference to the Exchange Agreement shall be deemed to include any
amendments thereto entered into in accordance with the terms thereof.
D. Voting Rights. Except as provided herein or as
provided for by law, the Preferred Shares shall have no voting
rights.
FIFTH: Incorporator. The name and the mailing address
of the incorporator are as follows:
NAME MAILING ADDRESS
Wesley Fredericks, Esq. Gersten Savage Kaplowitz & Curtin
575 Lexington Avenue, 27th Floor
New York, New York 10022
SIXTH: Term. The Corporation is to have perpetual
existence.
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SEVENTH: Preferred Shares Vote Required.
A. Majority Vote. The affirmative vote of the majority of
the Corporation's outstanding Preferred Shares shall be
necessary:
(i) for the amendment of the Certificate of Incorporation of the
Corporation and for the amendment of the by-laws of the
Corporation (subject to the super-majority provision contained in
Section B below);
(ii) to authorize or issue any other equity security senior
to or on a parity with the Preferred Shares;
(iii) to purchase or otherwise acquire for value any Common Stock or
other equity security of the Corporation either junior or senior
to or on a parity with the Preferred Shares;
(iv) to declare or pay any dividends or make any
distributions except to the holders of the Preferred
Shares;
(v) for a consolidation or merger of the Corporation with
or into any other corporation or corporations, or a
sale of all or substantially all of the assets of the
Corporation; and
(vi) to borrow money from ACTV or any subsidiary thereof, except an
indirect subsidiary of ACTV that is also a direct or indirect
subsidiary of the Corporation.
B. Super-Majority Vote. The affirmative vote of seventy-
five percent (75%) of the Corporation's outstanding Preferred
Shares shall be necessary for any amendment to the Certificate of
Incorporation or by-laws of the Corporation that may amend or
change any of the rights, preferences, or privileges of the
Preferred Shares.
EIGHTH: Creditors. Whenever a compromise or arrangement is
proposed between the Corporation and its creditors or any class of them and/or
between the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of ss.291 Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of ss.279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of
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stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
NINTH: Powers. For the management of the business and
for the conduct of the affairs of the Corporation, and in further
definition, limitation, and regulation of the powers of the
Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
A. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board
of Directors. The Board of Directors shall be elected
by the affirmative vote of the majority of the
Corporation's outstanding Common Stock. The phrase
"whole Board" and the phrase "total number of
directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the
Corporation would have if there were no vacancies.
B. Elections of directors need not be by written ballot
unless the by-laws of the Corporation shall so provide.
C. Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws may provide. The books of the
Corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or
places as may be designated from time to time by the board of
directors or in the by-laws of the Corporation.
D. Any action which is required to be or may be taken at
any annual or special meeting of directors or
stockholders of the Corporation may be taken without a
meeting, without prior notice to directors or
stockholders and without a vote if a consent in
writing, setting forth the action so taken, shall have
been signed by all of the directors or the holders of
outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or
to take such action at a meeting at which all the
shares entitled to vote thereon were present and voted.
TENTH: Director Liability. The personal liability of
the directors of the Corporation is hereby eliminated to the
fullest extent permitted by paragraph (7) of subsection (b) of
ss.102 of the Delaware GCL, as the same may be amended and
supplemented.
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ELEVENTH: Indemnity. The Corporation shall, to the
fullest extent permitted by law, as the same is now or may
hereafter be in effect, indemnify each person (including the
heirs, executors, administrators and other personal
representatives of such person) against expenses including
attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such person in connection
with any threatened, pending or completed suit, action or
proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be
involved by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving any
other incorporated or unincorporated enterprise in such capacity
at the request of the Corporation.
TWELFTH: Amendment. From time to time any of the
provisions of this certificate of incorporation may be amended,
altered, or repealed, and other provisions authorized by the
Delaware GCL or other laws of the State of Delaware at the time
in force may be added or inserted in the manner and at the time
prescribed by said laws, in accordance with the Seventh Article
hereof, and all rights at any time conferred upon the
stockholders of the Corporation by this certificate of
incorporation are granted subject to the provisions of this
Article.
Signed on August __, 1996
------------------------------
Wesley Fredericks
Sole Incorporator
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EXHIBIT 5
[Gersten, Savage, Kaplowitz & Curtin, LLP letterhead]
September 18, 1996
ACTV, Inc.
1270 Avenue of the Americas
New York, New York 10020
Gentlemen:
You have requested our opinion, as counsel for ACTV, Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-3 (the "Registration Statement"), under the Securities Act of 1933 (the
"Act"), being filed by the Company with the Securities and Exchange Commission.
The Registration Statement relates to an offering of 7,572,709 shares (the
"Selling Security Holders' Shares") of common stock (the "Offering"), par value
$.10 (the "Common Stock"). Up to 5,026,983 of the Selling Security Holders'
Shares may be issued by the Company upon the exercise of options, warrants,
pursuant to SARs or upon conversion of convertible preferred stock. Up to
2,545,726 of the Security Holders' Shares may be sold by security holders who
have acquired such shares from the Company (i) upon exercise of options and
warrants, and pursuant to SARs, and (ii) upon issuance to consultants.
We have examined such records and documents and made such examinations of law as
we have deemed relevant in connection with this opinion. It is our opinion that
when there has been compliance with the Act, the Selling Security Holders'
Shares, when issued, delivered, and paid for, will be fully paid, validly issued
and nonassessable.
No opinion is expressed herein as to any laws other than the laws of the State
of New York, of the United States and the corporate laws of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
of the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Gersten, Savage, Kaplowitz &
Curtin, LLP
GERSTEN, SAVAGE, KAPLOWITZ &
CURTIN, LLP
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to Registration Statement of ACTV, Inc. on Form S-3 of our report dated
March 28, 1996, appearing in the Annual Report on Form 10-K of ACTV, Inc. for
the year ended December 31, 1995 and to the reference to Deloitte & Touche LLP
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
October 22, 1996
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