<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or
ss.240.14a-12
ACTV, INC.
--------------------------------------------------------------------
(Name of Registrant as specified in its charter)
--------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement), if other than Registrant
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l) or
14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a- 6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies: __________________________________________________
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:__________(A)
(4) Proposed maximum aggregate value of transaction:__________
(5) Total fee paid:_____________________________________________
[ X ] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C>
(1) Amount Previously Paid: $125.00
____________________________________________________
(2) Form, Schedule or Registration Statement No.: Preliminary Proxy Statement
______________________________
(3) Filing Party: ACTV, Inc.
______________________________________________________________
(4) Date Filed: May 13, 1996
_________________________________________________
</TABLE>
<PAGE>
<PAGE>
ACTV, INC.
1270 Avenue of the Americas
New York, New York 10020
-----------
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 20, 1996
-----------
TO THE STOCKHOLDERS OF ACTV, INC.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders (the
"Meeting") of ACTV, Inc. (the "Company") will be held at ACTV, Inc., 1270 Avenue
of the Americas, Suite 2401, New York, New York 10020 on June 20, 1996, at 9:30
a.m., local time for the following purposes:
1. To approve an amendment to the Company's By-Laws to provide for the
election of directors to staggered terms;
2. To elect six directors to hold office for initial terms of one, two or
three years, or in the event the proposed amendment to the Company's
By-Laws authorizing a staggered Board of Directors is not approved, then
for a term of one year;
3. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock, $.10 par value per share, from 17,000,000 to
35,000,000;
4. To approve the adoption of the Company's 1996 Stock Appreciation Rights
Plan;
5. To approve the adoption of the Company's 1996 Stock Option Plan;
6. To ratify the appointment of Deloitte & Touche LLP, as the Company's
independent certified public accountants for the ensuing year; and
7. To act upon such other business as may properly come before the Meeting
or any adjournment thereof.
Only stockholders of record at the close of business on April 29, 1996 are
entitled to notice of and to vote at the Meeting and any adjournments thereof.
In order to ensure the presence of a quorum at the Meeting, it is important
that Stockholders representing a majority of the voting power of all stock
outstanding be present in person or represented by their proxies. Therefore,
whether you expect to attend the Meeting in person or not, please sign, fill
out, date and promptly return the enclosed proxy card in the enclosed
self-addressed, postage-paid envelope. If you attend the Meeting and prefer to
vote in person, you can revoke your proxy.
Dated: May 24, 1996 By Order of the Board of Directors
William C. Samuels
Chairman and Chief Executive
Officer
<PAGE>
<PAGE>
ACTV, INC.
1270 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
---------------------------
PROXY STATEMENT
---------------------------
1996 ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 9:30 a.m., at ACTV, Inc.,
1270 Avenue of the Americas, Suite 2401, New York, New York 10020
on June 20, 1996
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ACTV, Inc. (the "Company") for use at the 1996 Annual
Meeting of Stockholders of the Company (the "Meeting") to be held at 9:30 a.m.
at ACTV, Inc., 1270 Avenue of the Americas, Suite 2401, New York, New York 10020
on June 20, 1996, and at any adjournments thereof. Anyone giving a proxy may
revoke it at any time before it is exercised by giving the Chairman of the Board
of Directors of the Company written notice of the revocation, by submitting a
proxy bearing a later date, or by attending the Meeting and voting. This Proxy
Statement, the accompanying Notice of Meeting and form of proxy have been first
sent to the stockholders on or about May 24, 1996.
All properly executed, unrevoked proxies on the enclosed form, if returned
prior to the Meeting, will be voted in the manner specified by the Stockholder.
If no specific instruction is given, the shares represented by the proxy will be
voted in accordance with the Board of Directors' recommendations.
OWNERSHIP OF SECURITIES
Only stockholders of record at the close of business on April 29, 1996, the
date fixed by the Board of Directors in accordance with the Company's By-Laws,
are entitled to vote at the Meeting. As of April 29, 1996, the record date fixed
for the determination of Stockholders entitled to vote at the Meeting, there
were issued and outstanding 11,891,105 shares of common stock, $.10 par value
per share (the "Common Stock").
Each outstanding share is entitled to one vote on all matters properly
coming before the Meeting. A majority of the shares of the outstanding Common
Stock is necessary to constitute a quorum for the Meeting.
<PAGE>
<PAGE>
The following table sets forth certain information as of April 29, 1996
with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of Common Stock of the Company, each director of the Company
and all officers and directors as a group. The table does not include stock
appreciation rights ("SARs"), nor does it include options that have not yet
vested or are not exercisable within 60 days of the date hereof:
<TABLE>
<CAPTION>
Name and Address Number of Percent
of Beneficial Owner Shares of Class
- ------------------- ------ --------
<S> <C> <C>
William C. Samuels (1) 3,321,917 26.74%
c/o ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
David Reese (2) 105,000 *
c/o ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
Bruce Crowley (3) 66,000 *
c/o ACTV, Inc.
1270 Avenue of the Americas
New York, NY 10020
Richard Hyman (4) 25,000 *
c/o Triquest Financial Services, Corp.
505 Park Avenue
New York, NY 10022
Howard Squadron (5) 65,267 *
c/o Squadron, Ellenoff, Plesent,
Sheinfeld & Sorkin
551 Fifth Avenue
New York, NY 10176
The Washington Post Company (6) 2,341,334 19.69%
1150 15th Street, N.W.
Washington, D.C. 20071
William A. Frank 0 *
c/o The Greenwich Group
1177 High Ridge Road
Stamford, CT 06905
All Directors and Officers 3,645,163 28.7%
as a Group (6 persons)
(1)(2)(3)(4)(5)(6)(7)
</TABLE>
2
<PAGE>
<PAGE>
- ----------
* Indicates less than 1% of shares of Common Stock outstanding.
(1) Includes (a) 240,950 shares of Common Stock owned by Mr. Samuels, (b)
533,035 shares of Common Stock issuable to Mr. Samuels upon the
exercise of stock options, and (c) 2,341,334 shares of Common Stock
owned by The Washington Post Company (the "Post Company") and 206,598
shares owned by Dr. Michael J. Freeman, respectively, which are subject
to voting agreements with Mr. Samuels.
(2) Consists of 105,000 shares of Common Stock issuable to Mr. Reese upon
the exercise of stock options.
(3) Consists of 66,000 shares of Common Stock issuable to Mr. Crowley upon
the exercise of stock options.
(4) Consists of 25,000 shares issuable upon the exercise of stock options.
(5) Includes 50,000 shares issuable upon the exercise of stock options. Mr.
Squadron served as a Director of the Company since January 1995,
however, he has announced his intention to resign as a Director and
will not stand for reelection at the 1996 Annual Meeting of
Stockholders.
(6) All of the Post Company's shares are subject to a voting agreement with
Mr. Samuels. Does not include shares issuable upon the exercise of the
right of the Post Company to purchase from the Company, at a fair
market exercise price to be determined, the number of shares of Common
Stock necessary (currently 7,598,224 shares) to bring the Post
Company's percentage ownership of the total then outstanding shares to
51%. See "Certain Relationships and Related Transactions." At present,
the Company does not have enough shares authorized to accommodate the
Post Company should it choose to exercise such right. Therefore, the
Board of Directors has proposed an amendment to the Restated
Certificate of Incorporation which would increase the authorized number
of shares of Common Stock, and enable the Company to fulfill its
obligations should the Post Company exercise such right. See "Proposal
No. 2."
(7) Includes 835,035 shares issuable upon the exercise of options that have
vested or vest within 60 days of the date of this Proxy Statement.
3
<PAGE>
<PAGE>
PROPOSAL NO. 1
AMENDMENT OF BY-LAWS TO AUTHORIZE
STAGGERED TERMS FOR ELECTION OF DIRECTORS
The Board of Directors of the Company has adopted resolutions proposing an
amendment to the Company's By-Laws under which the Board of Directors will be
divided into three classes, as provided under Section 141 of the General
Corporation Law of Delaware (the "GCL"). Initially Class III directors (William
C. Samuels and William A. Frank) would be elected for a three-year term, Class
II directors (David Reese and Steven W. Schuster) would be elected for a
two-year term, and Class I directors (Bruce Crowley and Richard Hyman) would be
elected for a one-year term; thereafter, successors to directors whose terms
expire will be elected for three-year terms. A copy of the proposed amendment to
the Company's By-Laws is attached hereto as Appendix I.
Section 141 of the GCL allows a corporation to amend its By-Laws to provide
for the election of directors to staggered terms. Under this statute, the board
may be divided into one, two or three classes of directors who may then be
elected to initial terms of one, two and three-year terms if there are three
classes. Thereafter, and at each annual election held after such classification
and election, directors shall be chosen for a full term, as the case may be, to
succeed those whose terms expire. The Company's Board of Directors has proposed
an amendment to its By-Laws under which there would be three classes of
directors who would be initially elected to one, two and three-year terms,
respectively, and thereafter to three-year terms. The Board of Directors has
designated which of its current members are to be assigned to each of the three
classes of directors, if the amendment is approved. If the number of directors
is changed in the future, any increase or decrease must be apportioned among the
classes so the number of directors in each class is as nearly equal as possible.
Any additional director of any class elected to fill a vacancy resulting from an
increase in the number of directors shall hold office for a term that shall
coincide with the remaining term of that class. In no event may a decrease in
the number of directors shorten the terms of any incumbent director. Each
elected or appointed director shall hold office until the annual meeting for the
year in which such director's term expires and until such director's successor
shall be elected and qualified.
The Company believes that the proposed amendment to establish staggered
terms for the election of directions will provide additional continuity to its
management by having persons serve on its Board of Directors for a longer period
of time, without standing for reelection. The Board of Directors intends to
expand the number of positions on the Board as it identifies qualified persons
who are willing to serve as directors of the Company. The Company believes that
three-year terms for its directors will be more attractive to a potential
director candidate and thus will make available to the Company more candidates.
While the Company believes the proposed amendment to its By-Laws is
warranted because of the factors discussed above, the amendment will also make
it more difficult to change
4
<PAGE>
<PAGE>
control of the Company. If there were an attempt by the stockholders to change
control of the Company by removing and replacing all or a majority of the Board
of Directors it will be more difficult if there are staggered terms for the
election of directors. Since not all directors will stand for election at a
single stockholders' meeting, as is the case now, the stockholders desiring to
change control would have to vote at multiple meetings in order to do so. It
would require at least two annual meetings to remove and replace a majority of
the directors of the Company and stockholders would have to vote at multiple
meetings in order to do so, and it would require three annual meetings to remove
and replace the entire Board of Directors.
Stockholder Vote Required
Approval of the amendment to the By-Laws requires the affirmative vote of
the holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S BY-LAWS AUTHORIZING THE ELECTION
OF PERSONS TO THE COMPANY'S BOARD OF DIRECTORS FOR STAGGERED TERMS.
5
<PAGE>
<PAGE>
PROPOSAL NO. 2
ELECTION OF DIRECTORS
Six directors are proposed to be elected at the Meeting, each to hold
office for a period of one, two or three years as set forth below, or in the
event the proposed amendment to the Company's By-Laws authorizing a staggered
Board of Directors is not approved, then for a period of one year, and in any
event until a successor has been elected and qualified. It is intended that the
accompanying proxy will be voted in favor of the following persons to serve as
directors, unless the stockholder indicates to the contrary on the proxy. The
Company expects that each of the nominees will be available for election, but if
any of them is not a candidate at the time the election occurs, it is intended
that such proxy will be voted for the election of another nominee to be
designated by the Board of Directors to fill any such vacancy or the number of
directors to be elected at this time may be reduced by the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
William C. Samuels 53 Chairman, Chief Executive
Officer, President and
Director
David Reese 39 Executive Vice-President,
President -- ACTV
Entertainment, Inc. and
Director
Bruce Crowley 38 Executive Vice-President,
President -- ACTV
Interactive, Inc. and Director
Richard Hyman 44 Director
William A. Frank 48 Director
Steven W. Schuster 41 Director
</TABLE>
6
<PAGE>
<PAGE>
Nominees for Directors to Serve a Three-Year Term
WILLIAM C. SAMUELS has served as President and a Director of the Company
since August 1, 1989. He became the Chief Executive Officer in 1993 and Chairman
of the Board in 1994. He also served as Chairman of ACTV Interactive, a
partnership with the Post Company, from July 1992 through March 1994, when the
Company acquired the Post Company's interest in ACTV Interactive, Inc. ("ACTV
Interactive"). Mr. Samuels is a trustee of the Howard J. Samuels Institute at
City College. Mr. Samuels has a JD from Harvard Law School (1968) and a BS in
Economics and Engineering from the Massachusetts Institute of Technology (1965).
WILLIAM A. FRANK has been a Director since April 1996. He currently serves
as the Chief Executive Officer of Greenwich Entertainment Group (the "Greenwich
Group"), a position he has held since August 1994. The Greenwich Group is a
licensee of the Company's Programming Technology for use in malls and museums.
See "Certain Relationships and Related Transactions." Mr. Frank also currently
serves as Chairman of the Board of Corsearch, a data research company. From
October 1993 to July 1994, Mr. Frank was employed by the Company as President of
Private Networks. Prior thereto, he was employed for a period of eighteen years
at Alexander Proudfoot Company, a strategic management consulting company. Mr.
Frank has a B.S. from the University of Missouri (1970).
Nominees for Directors to Serve a Two-Year Term
DAVID REESE has been Executive Vice President of the Company since November
1992 and has been President of ACTV Entertainment, Inc. ("ACTV Entertainment"),
a subsidiary of the Company, since November 1994. He has been employed by the
Company since December 1988, and served as the Company's Vice President of
Finance from September 1989 through November 1992. He has been a Director since
1992. Mr. Reese has a BS from Pennsylvania State University (1978).
STEVEN W. SCHUSTER has been a Director of the Company since May 1996. He
has been engaged in the practice of law for more than 16 years, since January
1996, with the firm of McLaughlin & Stern LLP. From June 1993 to December 1995
he was a member of the law firm of Shane & Paolillo, P.C., and from January 1991
to May 1993 he was a member of the law firm of Gersten, Savage, Kaplowitz &
Curtin, LLP, counsel to the Company. Mr. Schuster received his BA from Harvard
University (1976) and his JD from New York University School of Law (1980).
Nominees for Directors to serve a One-Year Term
BRUCE CROWLEY joined the Company as President - Distance Learning in
October 1994, became Executive Vice President in October 1995, and became
President of ACTV Interactive and a Director of the Company in December 1995.
Prior thereto, he had been employed by KDI Corporation since 1988, and was most
recently responsible for KDI
7
<PAGE>
<PAGE>
Corporation's education division. Mr. Crowley has a B.A. from Colgate University
(1979) and an M.B.A. from Columbia University (1984).
RICHARD HYMAN has been a Director since December 1994. For more than the
past five years, he has been the President of Triquest Financial Services, Corp.
Mr. Hyman received a BA from the University of Wisconsin (1974).
Stockholder Vote Required
Election of each director requires the affirmative vote of the holders of a
plurality of the shares of Common Stock present in person or represented by
proxy at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION TO THE
BOARD OF DIRECTORS OF THE COMPANY OF EACH OF THE NOMINEES.
Executive Compensation
Employment Agreements
The Company and Mr. Samuels entered into an employment agreement in August
1995. Mr. Samuels serves as Chairman of the Board, President and Chief Executive
Officer of the Company. For the five-year term of the agreement, Mr. Samuels
will be paid a minimum annual salary of $190,000 and a bonus paid in cash and/or
in unregistered securities equal to 2% of the increase over a twelve-month
period in the total market capitalization of the Company over fifty million
dollars. Mr. Samuels' employment agreement contains non-competition provisions
pursuant to which he agreed not to engage in a business that is competitive with
the Company during the term of his employment agreement and for one year
thereafter.
Mr. Samuels currently holds fully vested options to purchase an aggregate
of 533,035 shares of Common Stock at an exercise price of $2.50 per share,
exercisable through various dates from August 1997 through June 2001. Upon the
issuance of any stock dividends, stock splits or combinations, the number of
shares issuable upon the exercise of options for 533,035 of such shares may be
adjusted to avoid dilution. Options for 120,000 of such 533,035 shares may also
be adjusted to avoid dilution from the issuance from August 1989 through July
1993 by the Company of any Common Stock (including Common Stock issued after
July 1993 based on options granted during the August 1989 to July 1993 period)
as a result of any financing, joint venture or other business transaction. In
addition, Mr. Samuels has unvested options to purchase an aggregate of 525,000
shares of Common Stock at an exercise price of $3.25 per share, a third of which
vest on January 1, 1997, 1998 and 1999, respectively, which options are
exercisable through 2003. During 1995, Mr. Samuels exercised 100,000 options at
$2.50 per share and 80,000 at $3.50 per share, therefore increasing his
shareholdings to 240,950
8
<PAGE>
<PAGE>
shares of Common Stock. The Company has also issued to Mr. Samuels 215,000
outstanding SARs.
The Company and Mr. Reese entered into an employment agreement in August
1995. For the five-year term of the agreement, Mr. Reese will be paid a minimum
annual base salary of $150,000. Mr. Reese's employment agreement contains
non-competition provisions pursuant to which he agreed not to engage in a
business that is competitive with the Company during the term of his employment
agreement and for one year thereafter.
The Company has granted Mr. Reese fully vested options to purchase 49,683
shares of Common Stock at an exercise price of $2.50 per share, which options
are exercisable through March 1997. The Company has also granted Mr. Reese fully
vested options to purchase 55,317 shares of Common Stock at an exercise price of
$3.50 per share, which options are exercisable through January 2002. In
addition, Mr. Reese has unvested options to purchase an aggregate of 330,000
shares of Common Stock at an exercise price of $3.25 per share, a third of which
vest on January 1, 1997, 1998 and 1999, respectively, which options are
exercisable through 2003. The Company has also issued to Mr. Reese 124,000
outstanding SARs.
The Company and Bruce Crowley entered into an employment agreement in
December 1995. Mr. Crowley has agreed to serve at an annual base salary of
$150,000. Mr. Crowley's employment agreement contains non-competition provisions
pursuant to which he agreed not to engage in a business that is competitive with
the Company during the term of his employment agreement and for one year
thereafter.
The Company has granted to Mr. Crowley options to purchase 100,000 shares
of Common Stock at an exercise price of $3.50 per share, as well as 100,000
SARs. In addition, Mr. Crowley has unvested options to purchase an aggregate of
201,000 shares of Common Stock at an exercise price of $3.25 per share, a third
of which vest on January 1, 1997, 1998 and 1999, respectively, which options are
exercisable through 2003.
Mr. Samuels', Mr. Reese's and Mr. Crowley's employment contracts contain a
change of control provision whereby, in certain circumstances, including the
possibility that a person other than the Post Company becomes the owner of 30%
or more of the outstanding securities of the employer and they are not retained,
they receive a bonus not to exceed 2.7 times the then current base salary and
the exercise price on all options is reduced to $.10 per option.
The Company and Michael J. Freeman entered into an employment agreement in
November 1994, whereby Dr. Freeman agreed to serve as Advanced Product
Development Liaison for a term of five years from the original date of the
agreement. Dr. Freeman is paid a minimum base salary of $167,000 per year. Dr.
Freeman is required to devote as much time as he, in his discretion, deems
necessary to discharge his duties. The employment agreement of Dr. Freeman
contains non-competition provisions pursuant to which he agreed not to engage in
9
<PAGE>
<PAGE>
a business that is competitive with the Company during the term of his
employment agreement and for one year thereafter.
At the time of issuance, all options to the Company's employees were
granted at an exercise price equal to or greater than the prevailing market
price for the Company's Common Stock.
Summary Compensation Table
The following table sets forth all cash compensation for services rendered
in all capacities to the Company and its subsidiaries for the fiscal years ended
December 31, 1995, December 31, 1994, and December 31, 1993, paid to the
Company's Chief Executive Officer, the four other most highly compensated
executive officers (the "Named Executive Officers") at the end of the above
fiscal years whose total compensation exceeded $100,000 per annum, and up to two
persons whose compensation exceeded $100,000 during the above fiscal years,
although they were not executive officers at the end of such years.
<TABLE>
<CAPTION>
Restricted All Other
Name and Principal Stock Compen-
Position Year Salary Bonus Awards Options/SARs sation
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William C. Samuels 1995 $196,597 $52,000 625,087/30,000 $185,551
Chairman, Chief 1994 $150,000 $25,000 80,000/100,000 $ 4,320
Executive Officer (1) 1993 $150,000 152,948/0
Michael J. Freeman 1995 $160,409 $197,652
Ph. D., Chairman of the 1994 $162,500 $ 2,610
Board (2) 1993 $162,500
David Reese 1995 $149,022 330,000/30,000 $ 86,957
President, ACTV 1994 $123,078 $15,000 40,000/30,000 $ 990
Entertainment (3) 1993 $100,000 15,317/0
Bruce Crowley 1995 $147,990 $10,000 201,000/0
President, ACTV 1994 $ 69,231 100,000/100,000 $ 55,000
Interactive (4) 1993
James Crook 1995 $107,347 $2,100 0/20,000 $ 79,426
Executive Vice Presi- 1994
dent, Ed. Sales (5) 1993
Gregory Harper 1995
President, Technology 1994 $126,923 $32,211
(6) 1993
</TABLE>
10
<PAGE>
<PAGE>
- ----------
(1) Mr. Samuels has served as Chief Executive Officer of the Company since
1993, Chairman of the Board since 1994, and President and a Director of
the Company since August 1, 1989. Mr. Samuels' "other compensation" for
1994 relates to life insurance premiums paid by the Company. His "other
compensation" for 1995 relates to life insurance premiums paid by the
Company ($4,176) and to the exercise of SARs ($181,375).
(2) Dr. Freeman was Chairman of the Board of Directors until November 1994,
and was Chief Executive Officer of the Company from 1985 to 1992. Dr.
Freeman's "other compensation" for 1994 relates to life insurance
premiums paid by the Company. His "other compensation" for 1995 relates
to life insurance premiums paid by the Company ($2,523) and to the
exercise of SARs ($195,129).
(3) Mr. Reese has been the Company's Executive Vice President since November
1992 and the President of ACTV Entertainment since 1994. Prior thereto
he was the Company's Vice President of Finance from September 1989
through November 1992. Mr. Reese's "other compensation" for 1994 relates
to life insurance premiums paid by the Company. His "other compensation"
for 1995 relates to life insurance premiums paid by the Company ($957)
and to the exercise of SARs ($86,000).
(4) Mr. Crowley has been President of ACTV Interactive since December 1995,
and prior thereto, the Company's President, Distance Learning since
October 1994. During the period January to September 1994, Mr. Crowley
performed consulting services for the Company for which he was paid
$55,000.
(5) Mr. Crook has been Executive Vice President, Education Sales for the
Company or its subsidiaries since joining the Company in 1990. Mr.
Crook's "other compensation" for 1995 relates to life insurance premiums
paid by the Company ($4,176) and to the exercise of SARs ($75,250). In
1993 and 1994, Mr. Crook's compensation from the Company was less than
$100,000.
(6) Mr. Harper served as the President of Technology for the Company from
November 1993 to November 1994.
11
<PAGE>
<PAGE>
Options and Stock Appreciation Rights to Named Executive Officers
The following tables set forth certain information with respect to all
outstanding stock options and SARs granted or issued during 1995 to the
Company's Named Executive Officers.
SAR Grants
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities SARs Stock Price
Underlying Granted Exercise Appreciation for
SARs to Employees Price Expiration Option Term
Name of Holder Granted in Fiscal Year ($/Share) Date 5%($) 10%($)
- -------------- ------- -------------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William Samuels 30,000 17.2% $3.50 5/26/05 $66,034 $167,343
David Reese 30,000 17.2% $3.50 5/26/05 $66,034 $167,343
James Crook 20,000 11.5% $3.50 5/26/05 $44,023 $111,562
</TABLE>
Option Grants
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted Exercise Appreciation for
Options to Employees Price Expiration Option Term
Name of Holder Granted in Fiscal Year ($/Share) Date 5%($) 10%($)
- -------------- ------- -------------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William Samuels 525,000 30.7% $3.25 12/31/03 $814,658 $1,951,248
William Samuels 100,087 5.9% $2.50 12/31/03 $155,308 $ 371,990
David Reese 330,000 19.3% $3.25 12/31/03 $512,071 $1,226,499
Bruce Crowley 201,000 11.8% $3.25 12/31/03 $311,898 $ 747,049
</TABLE>
12
<PAGE>
<PAGE>
Ten-Year Option Repricing
The following table sets forth certain information with respect to option
repricings during the past ten years for the Company's Named Executive Officers.
The purpose of the option repricings in fiscal 1995 was to provide additional
incentives to certain employees, officers and directors of the Company in a
manner consistent with industry practices. The option repricings were approved
by the Company's Board of Directors.
<TABLE>
<CAPTION>
Length of
Market Original
Number of Price of Exercise Option
Securities Stock at Price at Term Re-
Underlying Time of Time of maining at
Options/SARs Repricing Repricing New Date of Re-
Repriced or or Amend- or Amend- Exercise pricing or
Amended ment ment Price Amend-
Name of Holder Date (#) ($) ($) ($) ment
- -------------- ---- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C>
William Samuels 11/19/92 120,000 2.00 6.00 2.50 3.2 Yrs
David Reese 11/19/92 54,683 2.00 4.09 2.50 1.3 Yrs
William Samuels 1/13/95 80,000 3.44 5.00 3.50 7.0 Yrs
David Reese 1/13/95 40,000 3.44 5.00 3.50 7.0 Yrs
David Reese 1/13/95 15,317 3.44 5.50 3.50 3.9 Yrs
Bruce Crowley 1/13/95 100,000 3.44 5.50 3.50 4.5 Yrs
</TABLE>
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<PAGE>
Ten-Year SAR Repricing
The following table sets forth certain information with respect to stock
appreciation right repricings during the past ten years for the Company's Named
Executive Officers. The purpose of the stock appreciation right repricings in
fiscal 1995 was to provide additional incentives to certain employees, officers
and directors of the Company in a manner consistent with industry practices and
in accordance with the terms of the Company's 1992 Stock Appreciation Rights
Plan. The stock appreciation rights repricings were approved by the Company's
SAR Committee.
<TABLE>
<CAPTION>
Market Exercise
Number of Price of Price at Length of
Securities Stock at Time of Original
Underlying time of Repric- Option Term
Options/SARs Repricing ing or New Remaining
Repriced or or Amend- Amend- Exercise at Date of
Amended ment ment Price Repricing or
Name of Holder Date (#) (#) (#) ($) Amendment
- -------------- ---- --- --- --- --- ---------
<S> <C> <C> <C> <C> <C> <C>
William Samuels 1/13/95 100,000 3.44 5.50 3.50 9.6 Yrs
William Samuels 11/17/95 30,000 3.44 4.50 3.50 9.5 Yrs
David Reese 1/13/95 30,000 3.44 5.50 3.50 9.6 Yrs
David Reese 11/17/95 30,000 3.44 4.50 3.50 9.5 Yrs
Bruce Crowley 1/13/95 100,000 3.44 5.50 3.50 9.5 Yrs
</TABLE>
14
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<PAGE>
Option/SAR Year End Values (1)
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End at FY-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William Samuels (2) 180,000 $165,000 41,000/174,000 SARs $49,688/$160,625
20,000 $50,000 533,035/525,000 Options $632,979/$229,688
Michael Freeman, Ph.D. (2) 0/64,000 SARs $0/$140,000
0/0 Options $0/$0
David Reese (2) 38,000/86,000 SARs $71,125/$80,125
65,000/370,000 Options $61,871/$151,875
Bruce Crowley (2) 20,000/80,000 SARs $3,750/$15,000
33,000/268,000 Options $6,188/$100,500
James Crook (2) 28,000/48,000 SARs $61,250/$65,000
21,000/20,000 Options $24,938/$3,750
</TABLE>
(1) The closing bid price of a share of the Company's Common Stock at
December 31, 1995 was $3 11/16. The base prices of SARs were either
$1.50 or $3.50, and the exercise prices of stock options were either
$2.50, $3.25 or $3.50.
(2) During 1995, Mr. Samuels exercised 180,000 options and exercised 43,000
SARs (cash proceeds of $181,375), Mr. Reese exercised 16,000 SARs (cash
proceeds of $86,000), Mr. Crook exercised 14,000 SARs (cash proceeds of
$75,250) and Dr. Freeman exercised 96,000 SARs (proceeds of 70,956
shares of unregistered stock).
Board Compensation Report
Executive Compensation Policy
The Company's executive compensation policy is designed to attract,
motivate, reward and retain the key executive talent necessary to achieve the
Company's business objectives and contribute to the long-term success of the
Company. In order to meet these goals, the Company's compensation policy for its
executive officers focuses primarily on determining appropriate salary levels
and providing long-term stock-based incentives. To a lesser extent, the
Company's compensation policy also contemplates performance-based cash bonuses.
The Company's compensation principles for the Chief Executive Officer are
identical to those of the Company's other executive officers.
15
<PAGE>
<PAGE>
Cash Compensation. In determining its recommendations for adjustments to
officers' base salaries for fiscal 1995, the Company focused primarily on the
scope of each officer's responsibilities, each officer's contributions to the
Company's success in moving toward its long-term goals during the fiscal year,
the accomplishment of goals set by the officer and approved by the Board for
that year, the Company's assessment of the quality of services rendered by the
officer, comparison with compensation for officers of comparable companies and
an appraisal of the Company's financial position. In certain situations,
relating primarily to the completion of important transactions or developments,
the Company may also pay cash bonuses, the amount of which will be determined
based on the contribution of the officer and the benefit to the Company of the
transaction or development.
Equity Compensation. The grant of stock options and stock appreciation
rights to executive officers constitutes an important element of long-term
compensation for the executive officers. The grant of stock options and stock
appreciation rights increases management's equity ownership in the Company with
the goal of ensuring that the interests of management remain closely aligned
with those of the Company's stockholders. The Board believes that stock options
and stock appreciation rights in the Company provide a direct link between
executive compensation and stockholder value. By attaching vesting requirements,
stock options and stock appreciation rights also create an incentive for
executive officers to remain with the Company for the long term. See "Stock
Option Plans" and "1992 Stock Appreciation Rights Plan."
Chief Executive Officer Compensation
As indicated above, the factors and criteria upon which the compensation of
William C. Samuels, the Chief Executive Officer, is based are identical to the
criteria used in evaluating the compensation packages of the other executive
officers of the Company. The Chief Executive Officer's individual contributions
to the Company included his leadership role in establishing and retaining a
strong management team, developing and implementing the Company's business plans
and attracting investment capital to the Company. In addition, the Company
reviewed compensation levels of chief executive officers at comparable companies
with the Company's industry.
William C. Samuels
David Reese
Bruce Crowley
Richard Hyman
William A. Frank
Steven W. Schuster
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The Company did not have a compensation committee during the past fiscal
year and all determinations concerning executive compensation for such period
for the Company's executive officers were made by the Board of Directors. The
directors abstained from participation in compensation determinations concerning
their own compensation. None of the executive officers of the Company has served
on the board of directors or on the compensation committee of any other entity,
any of whose officers served on the Board of Directors of the Company.
Corporate Performance Graph
The following graph shows a comparison of cumulative total stockholder
returns from December 31, 1990 through December 31, 1995 for the Company, the
Nasdaq Stock Market-U.S. Index ("Nasdaq") and the Hambrecht & Quist Technology
Index ("H&Q").
[The graph shows that the cumulative total stockholder returns
for such investment in the Company, Nasdaq and H&Q resulted in
values of $39, $61 and $148, respectively, on December 31,
1991; values of $89, $187 and $170, respectively, on December
31, 1992; values of $279, $214 and $186, respectively, on
December 31, 1993; values of $153, $210 and $215,
respectively, on December 31, 1994; and values of $158, $297
and $323, respectively, on December 31, 1995.]
The graph assumes that the value of the investment in the Company's Common
Stock, Nasdaq and H&Q was $100 on December 31, 1990 and that all dividends were
reinvested. No dividends have been declared or paid on the Company's Common
Stock.
Other Compensation
Outside directors may be paid an honorarium for attending meetings of the
Board of Directors of the Company, in an amount that management anticipates will
not exceed $500 per meeting.
17
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<PAGE>
Agreements with Management
In June 1985, a group of investors, including Dr. Freeman, engaged in a
restructuring of the Company and the purchase of the shares of certain previous
investors. In connection with such restructuring, the Company obligated itself
to repay certain creditors, out of a repayment pool ("Repayment Pool") to be
funded with 10% of the Company's available cash flow in excess of $1,000,000 in
any calendar year. As of December 31, 1993, the aggregate amount of principal
and interest due such creditors was approximately $709,794. During 1994, the
Company extinguished all outstanding obligations under the Repayment Pool by
paying cash, and in three cases issuing promissory notes, in separately
negotiated settlement agreements with the holders of the obligations. The
settlement price in all these agreements was approximately 18% of the
obligations' face value. The three notes, issued to Nolan Bushnell, Prudential
Bache Securities, Inc., and Dr. Freeman, in the original principal amounts of
$190,000, $25,000 and $8,770, respectively, were also repaid during 1994, at
either their original principal amount, or at a discounted amount.
Stock Options and Stock Appreciation Rights
Stock Option Plans
On August 9, 1989, the Board of Directors approved a 1989 Employee
Incentive Stock Option Plan and a 1989 Non-Qualified Stock Option Plan
(collectively, the "Plans") and on October 20, 1989, the stockholders authorized
and approved the adoption of the Plans. Michael J. Freeman is not eligible to
participate in either Plan. The 1989 Employee Incentive Stock Option Plan, which
is administered by the Board of Directors, provides for the issuance of up to an
aggregate of 100,000 shares of Common Stock upon exercise of options granted to
key employees. This Plan stipulates that the option price may not be less than
the fair market value on the date of the grant and, from May 4, 1990, through
May 4, 1992, could not be less than $5.50 per share. Options granted under this
Plan shall not be exercisable for a period longer than ten (10) years from the
date of the grant. The Plan generally provides that at the time of exercise of
any option the purchase price must be delivered in cash, or at the option of the
Board of Directors, or a committee designated by the Board to administer the
Plan (the "Committee"), through delivery of the Company's Common Stock equal in
value to the option exercise price, or by a combination thereof. Options under
this Plan may be issued
18
<PAGE>
<PAGE>
as "Incentive Stock Options" under federal tax laws. As of December 31, 1995,
100,000 options had been granted under this Plan at exercise prices of $2.50 to
$3.50 per share, which options expire between the years 1997 and 2000. During
1995, 2,000 options granted under the Plan were exercised.
The 1989 Non-qualified Stock Option Plan, which is administered by the
Board of Directors, provides for the issuance of up to an aggregate of 100,000
shares of Common Stock upon exercise of options granted to employees, officers,
directors, consultants and independent contractors. This Plan provides that the
Board has the discretion to establish the option exercise price, and that the
option exercise price may be less than fair market value at the time of the
grant of the option. However, a further provision is that from May 4, 1990
through May 4, 1992, no options could be granted having an exercise price that
was less than the higher of the then current market price of the Company's
Common Stock or $5.50 per share. Options granted under this Plan shall expire on
a date determined by the Board or the Committee, but in no event later than
three months after the termination of employment or retainer. This Plan
generally provides that the purchase price must be delivered in cash, or if
permitted by the Board or the Committee, services rendered or by a combination
thereof. As of December 31, 1995, 100,000 options had been granted under this
Plan at exercise prices of $2.50 to $5.50 per share, which options expire
between the years 1997 and 1998. During 1995, 1,000 options under the Plan were
exercised.
The Company has issued options to purchase shares of Common Stock at
varying prices, expiring at dates from 1996 to 2003, that are not part of the
Plans. These include currently outstanding options to (i) Mr. Samuels for
533,035 shares at $2.50 per share and 525,000 at $3.25 per share; (ii) Mr. Reese
for 49,683 shares at $2.50 per share, 55,317 at $3.50 per share, and 330,000 at
$3.25 per share; Mr. Crowley for 100,000 shares at $3.50 per share and 201,000
at $3.25 per share; and Mr. Crook for 21,000 shares at $2.50 per share and
20,000 at $3.50 per share.
1992 Stock Appreciation Rights Plan
The Company's 1992 Stock Appreciation Rights Plan (the "1992 SAR Plan") was
approved by the Company's stockholders in December 1992. The 1992 SAR Plan
provides a means whereby employees, officers, directors, consultants and
independent contractors may acquire the right to participate in the appreciation
of the Common Stock of the Company pursuant to stock appreciation rights
("SARs"). The 1992 SAR Plan is designed to promote the long-term interest of the
Company and its stockholders by providing the recipients with an additional
incentive to promote the financial success of the Company and its subsidiaries.
Subject to adjustment as set forth in the 1992 SAR Plan, the aggregate number of
SARs that may be granted shall not exceed 900,000. The 1992 SAR Plan is
administered by the Stock Appreciation Rights Committee (the "SAR Committee").
19
<PAGE>
<PAGE>
SARs may not be exercised until the expiration of six months from the date
of grant, and could in no event be exercised earlier than May 1, 1994. One-fifth
of the SARs awarded to a recipient vest at the end of each 12-month period
following the date of grant. If a holder of an SAR ceases to be an employee,
director or consultant of the Company, or one of its subsidiaries or an
affiliate, other than by reason of the holder's death or disability, any SARs
that have not vested shall become void. Exercise of SARs also will be subject to
such further restrictions (including limits on the time of exercise) as may be
required to satisfy the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission and any other applicable law or regulation (including,
without limitation, federal and state securities laws and regulations). SARs are
not transferable, except by will or under the laws of descent and distribution
or pursuant to a domestic relations order as defined in the Internal Revenue
Code of 1986, as amended.
Upon exercise of an SAR, the holder will receive for each share for which
an SAR is exercised, as determined by the SAR Committee in its discretion, (a)
shares of the Company's Common Stock, (b) cash, or (c) cash and shares of Common
Stock, equal to the difference between (i) the fair market value per share of
the Common Stock on the date of exercise of the SAR and (ii) the value of an
SAR, which amount shall be no less than the fair market value per share of
Common Stock on the date of grant of the SAR.
A grant of SARs has no federal income tax consequences at the time of such
grant. Upon the exercise of SARs, the amount of any cash and, generally, the
fair market value of any shares of Common Stock received, is taxable to the
holder as ordinary income; the Company will have a corresponding deduction. Upon
the sale of any Common Stock acquired by the exercise of SARs, holders will
realize long-term or short-term capital gains or losses, depending upon their
holding period for such Common Stock.
Under the Company's 1992 SAR Plan, as of December 31, 1995, the Company had
granted a total of 874,000 SARs at exercise prices of either $1.50 or $3.50 per
share, including 290,000 SARs to William Samuels, 160,000 SARs to Dr. Michael
Freeman, 100,000 SARs to Bruce Crowley, 140,000 SARs to David Reese and 90,000
SARs to James Crook. The initial prices of all the SARs granted were equal to
the fair market values of a share of Common Stock on the dates of grant. During
1995, Mr. Samuels exercised 43,000 SARs and received cash proceeds of $181,375,
Mr. Reese exercised 16,000 SARs and received cash proceeds of $86,000, Mr. Crook
exercised 14,000 SARs and received cash proceeds of $75,250, and Dr. Freeman
exercised 96,000 SARs and received 70,956 unregistered shares of the Company's
Common Stock as proceeds.
20
<PAGE>
<PAGE>
The SARs expire between 1998 and 2004; one-fifth of the total SARs granted
to each recipient vest at the end of each 12 month period following the date of
grant.
SECTION 16(a) REPORTING
As under the securities laws of the United States, the Company's directors,
its executive (and certain other) officers, and any persons holding ten percent
or more of the Company's Common Stock must report on their ownership of the
Company's Common Stock and any changes in that ownership to the Securities and
Exchange Commission and to the National Association of Securities Dealers,
Inc.'s Automated Quotation System. Specific due dates for these reports have
been established. During the year ended December 31, 1995, all reports for all
transactions were filed on a timely basis, except for inadvertent late filings
of a Form 3 for each of Howard Squadron and Richard Hyman, relating to their
appointment as directors in January 1995. Upon discovery of these oversights, a
Form 3 setting forth an initial statement of beneficial ownership for each of
Howard Squadron and Richard Hyman was promptly filed.
MEETINGS OF THE BOARD OF DIRECTORS
There were three meetings of the Company's Board of Directors during 1995
held on July 11, 1995, October 23, 1995 and December 11, 1995. All of the
Directors were either present or participated by telephone conference call at
such meetings, except Richard Hyman was not present at, nor did he participate
in the July 11, 1995 meeting. There were three unanimous written consents of the
Company's Board of Directors, pursuant to Section 141 of the General Corporation
Law of Delaware, during 1995 dated January 13, 1995, May 26, 1995 and July 31,
1995. The Company has one formal committee, the SAR Committee, consisting of
Richard Hyman and William A. Frank, who replaced Jay M. Kaplowitz, a former
director, in April, 1996. There were three meetings of the SAR Committee during
1995, held on January 13, 1995, May 26, 1995 and November 17, 1995.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 17, 1992, the Post Company acquired an 8% Convertible Promissory
Note of the Company in the principal amount of $1,500,000 (the "Convertible
Note") and, in connection therewith, acquired 720,000 unregistered shares of
Common Stock. The principal amount of the Convertible Note was payable in four
installments of $375,000, together with accrued interest thereon, on March 15,
1994, September 15, 1994, March 15, 1995, and September 15, 1995. The purpose of
this
21
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<PAGE>
transaction was to provide working capital to the Company. On March 15, 1994,
the unpaid principal and accrued and unpaid interest on the Convertible Note
were converted into 871,334 shares of Common Stock of the Company at $2.00 per
share.
On March 11, 1994, the Post Company entered into a voting agreement with
the Company and William C. Samuels, Chief Executive Officer of the Company, as
voting trustee ("Voting Trustee"), pursuant to which the Post Company has
assigned to Mr. Samuels its voting rights with respect to the Company's Common
Stock that it holds. This voting trust remains in effect for 10 years, or as
long as the Post Company's shareholdings in the Company are less than 51% of
outstanding Common Stock. The Post Company also regains the right to vote its
shares of Common Stock under certain circumstances, including the proposal of
any amendment to the Company's certificate of incorporation requiring
stockholder approval; in case of any reclassification or change of the
outstanding Common Stock of the Company, any consolidation of the Company with,
or merger of the Company into, another corporation, or in the case of a sale or
conveyance to another corporation or other entity of all or substantially all of
the property, assets or business of the Company; upon the commencement of a
proxy contest regarding the Company's Board of Directors; if a person or entity
acquires 20% or more of the outstanding Common Stock of the Company; or if a
conflict of interest (as determined by the Post Company in its sole discretion)
involving the Voting Trustee or any successor Voting Trustee should arise.
On March 17, 1992, effective with the formation of ACTV Interactive, the
Post Company acquired an option (the "Option") pursuant to an option agreement
(the "Option Agreement") to purchase an additional 750,000 shares of the
Company's Common Stock at $2.00 per share, or $2.50 per share if exercised after
March 15, 1994. On March 15, 1994, the Post Company exercised this Option,
receiving 750,000 shares at $2.00 per share. On such date, the average of the
high bid and ask prices of the Company's Common Stock was $5 7/8. The Post
Company also obtained, pursuant to the Option Agreement, certain "piggyback" and
demand registration rights with respect to the 720,000 shares of Common Stock
that it purchased in 1992 and the shares of Common Stock that it received upon
exercise of the Option and conversion of the Convertible Note. In connection
with the Option Agreement, the Post Company also received the right to purchase,
from the Company, at a fair market exercise price to be determined, an amount of
shares of Common Stock necessary to increase the Post Company's percentage
ownership of the total then outstanding shares of Common Stock to 51%. Such
right is exercisable through March 17, 1997, subject to extension in certain
circumstances.
On July 14, 1992, the Post Company and the Company formed ACTV Interactive
to market the Company's Programming Technology for educational applications
world-wide. The Post Company invested $2.5 million and owned 51% of ACTV
Interactive. ACTV Interactive, Inc., a wholly-owned subsidiary of the Company,
owned a 49% interest in ACTV Interactive. In connection with the formation of
ACTV
22
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Interactive, the Company entered into a license agreement (the "License
Agreement") with the partnership, pursuant to which ACTV Interactive was given a
license to exploit the Programming Technology in the creation and distribution
of educational programming. The License Agreement provided for the Company to
receive a five percent (5%) royalty on certain revenues generated by ACTV
Interactive, subject to certain adjustments.
On March 11, 1994, the Company purchased the Post Company's entire 51%
interest in ACTV Interactive for consideration of $4.5 million, consisting of
$2.5 million in cash at closing and a $2 million note due December 31, 1996 (the
"New Note"). The New Note accrued interest at 8% and was paid in full by October
1995.
The consideration for the acquisition by the Company of the Post Company's
interest in ACTV Interactive was based on the value of the ACTV Programming it
had developed for education, its marketing and sales of such programming, and
the Company's assessment of the future value of the use of the Programming
Technology in the education and distance learning markets.
Jay M. Kaplowitz, a former Director of the Company, is a partner of
Gersten, Savage, Kaplowitz & Curtin, LLP, general counsel to the Company. Mr.
Kaplowitz owns 2,000 shares of Common Stock of the Company and options to
purchase 25,000 shares at an exercise price of $3.50 per share.
William A. Frank is a director of the Company and the Chief Executive
Officer of Greenwich Entertainment Group (the "Greenwich Group"), a position he
has held since August 1994. In January 1995, the Company granted an exclusive
license to the Greenwich Group for the use of the Company's Programming
Technology in shopping malls, museums and entertainment centers. 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 2000 and thereafter. If the minimum is not paid, the
Company has the right to cancel its license as to future theaters. In addition,
the Company has invested approximately $274,000 in the Greenwich Group in
exchange for common stock.
All current transactions between the Company, and its officers, directors
and principal stockholders or any affiliates thereof are, and in the future such
transactions will be, on terms no less favorable to the Company than could be
obtained from unaffiliated third-parties.
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PROPOSAL NO. 3
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK
The Board of Directors of the Company has adopted resolutions proposing an
amendment to the Company's Restated Certificate of Incorporation which would
amend the first paragraph of Article IV of the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock, $.01
par value, to 35,000,000 shares from the 17,000,000 shares currently authorized.
There are currently 11,892,105 shares of Common Stock and no shares of Preferred
Stock outstanding.
The Board believes that it is advisable to authorize for issuance a
sufficient number of shares of Common Stock in order for the Company to issue
shares of Common Stock upon the exercise of outstanding options, warrants, stock
appreciation rights, and other existing rights to purchase Common Stock. In
particular, the Company presently does not have sufficient authorized shares to
accommodate the Post Company should it choose to exercise its right to purchase
from the Company such number of shares of Common Stock necessary to bring the
Post Company's percentage ownership of the total outstanding shares to 51%. See
"Certain Relationships and Related Transactions." In addition, the Board
believes that it is desirable to have the additional shares available to enable
the Company to take advantage of favorable financing opportunities that may
arise in the future. The Board believes that the availability of such shares for
issuance in the future will give the Company greater flexibility (with respect
to the purpose of such issuance and the nature of any consideration that may be
received therefor) and permit such shares to be issued without the expense and
delay of holding a stockholders meeting. The shares would be available for
issuance by the Board without further stockholder authorization, except as may
be required by law or by the rules of Nasdaq (or any other national quotation
system or stock exchange on which the shares of Common Stock may then be
listed). The issuance of any additional shares of Common Stock may result in a
dilution of the voting power of the holders of outstanding shares of Common
Stock and their equity interest in the Company.
Although not intended as an anti-takeover device, issuing additional shares
the Common Stock could impede a non-negotiated acquisition of the Company by
diluting the ownership interests of a substantial stockholder, increasing the
total amount of consideration necessary for a person to obtain control of the
Company, or increasing the voting power of friendly third-parties.
24
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<PAGE>
Stockholder Vote Required
Approval of the amendment to the Restated Certificate of Incorporation
requires the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting of
Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK.
25
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PROPOSAL NO. 4
ADOPTION OF THE COMPANY'S 1996
STOCK APPRECIATION RIGHTS PLAN
The Company's 1996 Stock Appreciation Rights Plan (the "1996 SAR Plan") was
adopted by the Board of Directors in April 1996. The 1996 SAR Plan will provide
a means whereby employees, officers, directors, consultants and independent
contractors may acquire the right to participate in the appreciation of the
Common Stock of the Company pursuant to "Stock Appreciation Rights" ("SARs").
The 1996 SAR Plan is designed to promote the long-term interest of the Company
and its stockholders by providing these individuals with an additional incentive
to promote the financial success of the Company and its subsidiary corporations.
Subject to adjustment as set forth in the 1996 SAR Plan, the aggregate number of
SARs that may be granted pursuant to the 1996 SAR Plan shall not exceed 500,000;
provided, however that at no time shall there be more than an aggregate of
900,000 outstanding, unexercised SARs granted pursuant to both the 1996 SAR Plan
and the Company's 1992 Stock Appreciation Rights Plan. (See "1992 Stock
Appreciation Rights Plan"). The 1996 SAR Plan is administered by the Stock
Appreciation Rights Committee (the "SAR Committee"). The 1996 SAR Plan imposes
no limit on the number of recipients to whom awards may be made.
SARs may not be exercised until the expiration of six months from the date
of grant but in no event earlier than January 1, 1997. SARs shall vest in a lump
sum or in such installments, which need not be equal, as the Committee shall
determine. If a holder of an SAR ceases to be an employee, director or
consultant of the Company or one of its subsidiaries or an affiliate, other than
by reason of the holder's death or disability, any SARs that have not vested
shall become void. Exercise of SARs also will be subject to such further
restrictions (including limits on the time of exercise) as may be required to
satisfy the requirements of Rule 16b-3 promulgated by the Securities and
Exchange Commission and any other applicable law or regulation (including,
without limitation, federal and state securities laws and regulations). SARs are
not transferable except by will or under the laws of descent and distribution or
pursuant to a domestic relations order as defined in the Internal Revenue Code
of 1986, as amended.
Upon exercise of an SAR, the holder will receive for each share for which
an SAR is exercised, as determined by the SAR Committee in its discretion, (a)
shares of the Company's Common Stock, or (b) cash or (c) cash and shares of the
Company's Common Stock, equal to the difference between (i) the fair market
value per share of the Common Stock on the date of exercise of the SAR and (ii)
the value of an SAR, which amount shall be no less than the fair market value
per share of Common Stock on the date of grant of the SAR.
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The terms of the SARs will be set forth in a certificate of grant issued to
the holder, which certificate will contain the provisions referred to above and
such other provisions as the SAR Committee may determine.
A grant of SARs has no federal income tax consequences at the time of such
grant. Upon the exercise of such SARs, the amount of any cash and, generally,
the fair market value of any shares of Common Stock of the Company received, is
taxable to the holder as ordinary income and the Company will have a
corresponding deduction. Upon the sale of the Company's Common Stock acquired by
the exercise of SARs, holders will realize long-term or short-term capital gain
or loss, depending upon their holding period of such stock.
A copy of the 1996 SAR Plan is attached hereto as Appendix II. The
preceding summary of the 1996 SAR Plan does not purport to be complete and is
qualified in its entirety by reference to the complete text of the 1996 SAR
Plan.
Stockholder Vote Required
Approval of the Company's 1996 Stock Appreciation Rights Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE COMPANY'S 1996 STOCK APPRECIATION RIGHTS PLAN.
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PROPOSAL NO. 5
ADOPTION OF THE COMPANY'S
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted
by the Board of Directors in April 1996. The purpose of the 1996 Option Plan is
to grant officers, employees and others who provide significant services to the
Company a favorable opportunity to acquire Common Stock so that they have an
incentive to contribute to its success and remain in its employ. Under the 1996
Option Plan, the Company is authorized to issue options for a total of 500,000
shares of Common Stock.
Description of 1996 Stock Option Plan
All officers and other employees of the Company and other persons who
perform significant services for or on behalf of the Company are eligible to
participate in the 1996 Option Plan. The Company currently has approximately 25
full-time employees.
The Company may grant under the 1996 Option Plan both incentive stock
options ("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and stock options that
do not qualify for incentive treatment under the Code ("Nonstatutory Options").
A copy of the 1996 Option Plan is attached hereto as Appendix III. The
following summary of the 1996 Option Plan does not purport to be complete and is
qualified in its entirety by reference to the complete text of the 1996 Option
Plan.
Administration
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), if each member is a "disinterested person" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
or a committee (the "Committee") of two or more directors, each of whom is a
disinterested person. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
Subject to the provisions of the 1996 Option Plan, the Committee has the
authority to construe and interpret the 1996 Option Plan, to prescribe, adopt,
amend and rescind rules and regulations relating to the administration of the
1996 Option Plan and
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to make all other determinations necessary or advisable for its administration.
Subject to the limitations of the 1996 Option Plan, the Committee also selects
from among the eligible persons those individuals who will receive options,
whether an optionee will receive Incentive Stock Options or Nonstatutory
Options, or both, and the amount, price, restrictions and all other terms and
provisions of such options (which need not be identical).
Stock Subject to the 1996 Option Plan
Subject to adjustment as described below, the stock to be offered under the
1996 Option Plan are shares of authorized but unissued Common Stock, including
any shares repurchased under the terms of the 1996 Option Plan or any stock
option agreement ("Stock Option Agreement") entered into pursuant to the 1996
Option Plan. The cumulative aggregate number of shares of Common Stock to be
issued under the 1996 Option Plan will not exceed 500,000, subject to adjustment
as described below.
Exercise Price
The exercise price of each Incentive Stock Option granted under the 1996
Option Plan will be determined by the Committee, but will be not less than 100%
of the "Fair Market Value" (as defined in the 1996 Option Plan) of Common Stock
on the date of grant (or 110% of Fair Market Value in the case of an employee
who at the time owns more than 10% of the total combined voting power of all
classes of capital stock of the Company). The exercise price of each
Nonstatutory Option will be determined by the Committee, but will not be less
than 85% of the Fair Market Value of Common Stock on the date of grant. Whether
an option granted under the 1996 Option Plan is intended to be an Incentive
Stock Option or a Nonstatutory Stock Option will be determined by the Committee
at the time the Committee acts to grant the option and set forth in the related
Stock Option Agreement.
"Fair Market Value" for purposes of the 1996 Option Plan means: (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on the day previous to such
date, or, if shares were not traded on the day previous to such date, then on
the next preceding trading day during which a sale occurred; or (ii) if Common
Stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, (1) the last sales price (if Common Stock is then listed on
the Nasdaq Stock Market) or (2) the mean between the closing representative bid
and asked price (in all other cases) for Common Stock on the day prior to such
date as reported by Nasdaq or such successor quotation system; or (iii) if there
is no listing or trading of Common Stock either on a national exchange or
over-the-counter, that price determined in good faith by the Committee to be the
fair value per share of Common Stock, based upon such evidence as it deems
necessary or advisable. On May 21, 1996, the Fair Market Value was $3 15/16
based on the closing sale price of the Common Stock as reported on Nasdaq.
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In the discretion of the Committee exercised at the time the option is
exercised, the exercise price of any option granted under the 1996 Option Plan
will be payable in full in cash, by check or by the optionee's interest-bearing
promissory note (subject to any limitations of applicable state corporations
law) delivered at the time of exercise. In the discretion of the Committee and
upon receipt of all regulatory approvals, an optionee may be permitted to
deliver as payment in whole or in part of the exercise price certificates for
Common Stock of the Company (valued for this purpose at its Fair Market Value on
the day of exercise) or other property deemed appropriate by the Committee.
So-called cashless exercises as permitted under applicable rules and regulations
of the Securities and Exchange Commission and the Federal Reserve Board also
will be permitted in the discretion of the Committee. The Committee also has
discretion to permit consecutive book entry stock-for-stock exercises of
options.
Irrespective of the manner of payment of the exercise price of an option,
the delivery of shares pursuant to the exercise will be conditioned upon payment
by the optionee to the Company of amounts sufficient to enable the Company to
pay all applicable federal, state and local withholding taxes.
Exercise Period
The Committee shall provide, in the terms of each Stock Option Agreement,
when the option subject to such agreement expires and becomes unexercisable, but
in no event will an Incentive Stock Option granted under the Plan be exercisable
after the expiration of ten years from the date it is granted. Without limiting
the generality of the foregoing, the Committee may provide in the Stock Option
Agreement that the option subject thereto expires 30 days following a
Termination of Employment for any reason other than death or disability or six
months following a Termination of Employment for disability or following an
optionee's death; provided, however, that in no event shall any option granted
under the Plan be exercised after the expiration date of such option set forth
in the applicable Stock Option Agreement.
Exercise of Options
Each option granted under the 1996 Option Plan will become exercisable in a
lump sum or in such installments, which need not be equal, as the Committee
determines, provided, however, that each option will become exercisable as to at
least 10% of the shares of Common Stock covered thereby on each anniversary of
the date such option is granted. If in any given installment period the holder
of an option does not purchase all of the shares which the holder is entitled to
purchase in that installment period, the holder's right to purchase any shares
not purchased in that period will continue until the expiration or sooner
termination of such holder's option. The Committee may, at any time after grant
of the option and from time to time, increase the number of shares purchasable
in any installment, subject to the total number of
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shares subject to the option and the limitations set forth in the 1996 Option
Plan as to the number of shares as to which Incentive Stock Options may first
become exercisable in any year.
Transferability of Options
An option granted under the 1996 Option Plan will be nontransferable by the
optionee other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order (as defined in the Code), and will be
exercisable during the optionee's lifetime only by the optionee or by his or her
guardian or legal representative. More particularly, an option may not be
assigned, transferred (except as provided in the preceding sentence), pledged or
hypothecated (whether by operation of law or otherwise), and will not be subject
to execution, attachment or similar process.
Conditions to Issuance of Stock Certificates; Legends
In order to enforce any restrictions imposed upon Common Stock issued upon
exercise of any option granted under the 1996 Option Plan or to which such
Common Stock may be subject, the Committee may cause a legend or legends to be
placed on any share certificates representing such Common Stock.
Adjustments Upon Changes in Capitalization; Merger and Consolidation
If the outstanding shares of Common Stock are changed into, or exchanged
for cash or different number or kind of shares or securities of the Company or
of another corporation through reorganization, merger, recapitalization,
reclassification, stock split-up, reverse stock split, stock dividend, stock
consolidation, stock combination stock reclassification or similar transaction,
an appropriate adjustment will be made by the Committee in the number and kind
of shares as to which options may be granted. In the event of such change or
exchange, other than for shares or securities of another corporation or by
reason of reorganization, the Committee will also make a corresponding
adjustment in the number or kind of shares, and the exercise price per share
allocated to unexercised options or portions thereof, of options which have been
granted prior to such change. Any such adjustment, however, will be made without
change in the total price applicable to the unexercised options or portions
thereof, of options which have been granted prior to such change. Any such
adjustment, however, will be made without change in the total price applicable
to the unexercised portion of the option but with a corresponding adjustment in
the price for each share (except for any change in the aggregate price resulting
from rounding-off of share quantities or prices).
In the event of a "spin-off" or other substantial distribution of assets of
the Company which has a material diminutive effect upon the Fair Market Value of
Common Stock, the Committee will make such an adjustment to the exercise prices
of
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options then outstanding under the 1996 Option Plan as it determines is
appropriate and equitable to reflect such diminution.
In connection with the dissolution or liquidation of the Company or a
partial liquidation involving 50% or more of the assets of the Company, a
reorganization of the Company in which another entity is the survivor, a merger
or reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
another security, a sale of more than 50% of the Company's assets, or a similar
event that the Committee determines would materially alter the structure of the
Company or its ownership, the Committee, upon 30 days prior written notice to
the option holders, may do one or more of the following: (i) shorten the period
during which options are exercisable (provided they remain exercisable for at
least 30 days after the date the notice is given); (ii) accelerate any vesting
schedule to which an option is subject; (iii) arrange to have the surviving or
successor entity grant replacement options with appropriate adjustments in the
number and kind of securities and option prices; or (iv) cancel options upon
payment to the option holders in cash, with respect to each option to the extent
then exercisable (including any options as to which the exercise has been
accelerated as contemplated in clause (ii) above), of any amount that is the
equivalent of the Fair Market Value of the Common Stock (at the effective time
of the dissolution, liquidation, merger, reorganization, sale or other event) or
the fair market value of the option.
No fractional share of Common Stock will be issued on account of any of the
foregoing adjustments.
Amendment and Termination
The Board or the Committee may at any time suspend, amend or terminate the
1996 Option Plan and may, with the consent of an optionee, make such
modifications of the terms and conditions of such optionee's option as it deems
advisable; provided, however, that without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or
(C) materially modify the requirements as to eligibility for participation
in the Plan. The amendment, suspension or termination of the 1996 Option
Plan will not, however, without the consent of the optionee to be affected,
alter or impair any rights or obligations under any option.
No option may be granted during any period of suspension nor after
termination of the 1996 Option Plan.
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Privileges of Stock Ownership; Reports to Option Holders
A participant in the 1996 Option Plan will not be entitled to the privilege
of stock ownership as to any shares of Common Stock unless and until they are
actually issued to the participant.
The Company will furnish to each optionee under the 1996 Option Plan the
Company's annual report and such other periodic reports, if any, as are
disseminated by the Company in the ordinary course to its stockholders.
Termination
Unless earlier terminated by the Board or the Committee, the 1996 Option
Plan will terminate automatically as of the close of business on the day
preceding the tenth anniversary date of its adoption by the Board. The
termination of the 1996 Option Plan will not affect the validity of any Stock
Option Agreement outstanding at the date of such termination.
Federal Income Tax Treatment
Under the Code, neither the grant nor the exercise of Incentive Stock
Options is a taxable event to the optionee (except to the extent an optionee may
be subject to alternative minimum tax); rather, the optionee is subject to tax
only upon the sale of the common stock acquired upon exercise of the Incentive
Stock Option. Upon such a sale, the entire difference between the amount
realized upon the sale and the exercise price of the option will be taxable to
the optionee. Subject to certain holding period requirements, such difference
will be taxed as a capital gain rather than as ordinary income.
Optionees who receive Nonstatutory Options will be subject to taxation upon
exercise of such options on the spread between the Fair Market Value of the
Common Stock on the date of exercise and the exercise price of such options.
This spread is treated as ordinary income to the optionee, and the Company is
permitted to deduct as an employee expense a corresponding amount. Nonstatutory
Options do not give rise to a tax preference item subject to the alternative
minimum tax.
Stockholder Vote Required
Approval of the Company's 1996 Stock Option Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE COMPANY'S 1996 STOCK OPTION PLAN.
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PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
The Board of Directors of the Company has adopted resolutions appointing
Deloitte & Touche LLP as the Company's independent certified public accountants
for the ensuing year. Deloitte & Touche LLP, which has served as the Company's
independent certified public accountants since 1989, is familiar with the
Company's operations, accounting policies and procedures and is, in the
Company's opinion, well-qualified to act in this capacity. A member of Deloitte
& Touche LLP will be available to answer questions and will have the opportunity
to make a statement if he or she so desires at the Annual Meeting of
Stockholders.
Stockholder Vote Required
Ratification of the appointment of Deloitte & Touche LLP as independent
certified public accountants requires the affirmative vote of the holders of a
majority of the shares of Common Stock present in person or represented by proxy
at the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
referred to in the notice of meeting that will be presented for consideration at
the Meeting. However, it is possible that certain proposals may be raised at the
Meeting by one or more stockholders. In such case, or if any other matter should
properly come before the Meeting, it is the intention of the person named in the
accompanying proxy to vote such proxy in accordance with his best judgment.
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SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. Solicitations
may be made by mail, personal interview, telephone, and telegram by directors,
officers and employees of the Company. The Company will reimburse banks,
brokerage firms, other custodians, nominees and fiduciaries for reasonable
expenses incurred in sending proxy material to beneficial owners of the
Company's capital stock.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1997 Annual Meeting of Stockholders must
be received by the Company no later than January 1, 1997 in order that they may
be considered for inclusion in the Proxy Statement and form of proxy relating to
that Meeting.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION
Copies of the annual report (Form 10-K) of the Company for the year ended
December 31, 1995, as filed with the Securities and Exchange Commission (without
exhibits), and any amendments thereto, are available to stockholders free of
charge by writing to ACTV, Inc., 1270 Avenue of the Americas, New York, New York
10020.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company and its
subsidiaries for the fiscal year ended December 31, 1995, and Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
annexed hereto as Appendix IV.
By Order of the Board of
Directors of ACTV, Inc.
William C. Samuels
Chairman and Chief Executive Officer
May 24, 1996
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APPENDIX I
ACTV, INC.
PROPOSED AMENDMENT TO BY-LAWS
Article III Section 2 of the Company's By-Laws is proposed to be amended to
read as follows:
ARTICLE III
Section 2. Number and Term of Office. The Board of Directors shall consist
initially of four (4) directors. The number of directors may be changed from
time to time by resolution duly adopted by the Board of Directors or the
stockholders, except as provided by law or the Certificate of Incorporation. The
Board of Directors shall be divided into three classes, designated Class I,
Class II and Class III. Initially, Class I directors shall be elected for a
one-year term, Class II directors for a two-year term and Class III directors
for a three-year term. At any annual meeting of stockholders held after the
initial election of all Classes of directors, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so the number of directors in each class
is as nearly equal as possible, and any additional director of any class elected
to fill a vacancy in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until the annual meeting for the year in which such director's term
expires and until such director's successor shall be elected and shall qualify,
subject, however to prior death, resignation, retirement, disqualification or
removal from office. Except as provided in Section 3 of this Article, directors
shall be elected by the holders of record of a plurality of the votes cast at
Annual Meetings of Stockholders. Any director may resign at any time upon
written notice to the Corporation. Directors need not be stockholders.
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APPENDIX II
ACTV, INC.
1996 STOCK APPRECIATION RIGHTS PLAN
As adopted __________, 1996
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1. Purpose.
The purpose of this 1996 Stock Appreciation Rights Plan (the "Plan") of
ACTV, Inc., a Delaware corporation (the "Company"), is to secure for the Company
and its stockholders the benefits arising from participation in stock
appreciation by selected (a) employees of the Company or its subsidiaries,
affiliates, licensees or joint venture partners, (b) Directors or officers or
(c) consultants (a, b and c are collectively referred to herein as the
"Participants") as the Board of Directors of the Company, or a committee thereof
constituted for the purpose, may from time to time determine. This Plan will
provide a means whereby such employees, Directors and consultants may acquire
the right to participate in the appreciation of the Common Stock of the Company
pursuant to "stock appreciation rights."
2. Administration.
2.1 This Plan shall be administrated by the Board of Directors of the
Company (the "Board of Directors") if each member is a "disinterested person" as
that term is defined in Rule 16b-3(c) of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or a committee (the "Committee") of two or more directors, each of whom
is a disinterested person. Any action of the Board of Directors or the Committee
with respect to administration of this Plan shall be taken by a majority vote or
written consent of its members.
2.2 Subject to the provisions of this Plan, the Board of Directors or the
Committee shall have authority (i) to construe and interpret this Plan, (ii) to
define the terms used therein, (iii) to prescribe, amend and rescind rules and
regulations relating to this Plan, (iv) to determine the individuals to whom and
the time or times at which stock appreciation rights shall be granted, the
number of shares to be subject to stock appreciation rights, the Initial Value
(as hereinafter defined) of a stock appreciation right (subject to the
limitations set forth in Section 6 hereof), the number of installments, if any,
in which each stock appreciation right may be exercised, the commencement of the
period during which each stock appreciation right may be exercised and the
duration of each stock appreciation right, (v) to approve and determine the
duration of leaves of absence which may be granted to Participants without
constituting a termination of their employment for the purposes of this Plan,
and (vi) to make all other determinations necessary or advisable for the
administration of this Plan. The Initial Value shall be the value as of the date
of grant of the stock appreciation rights, subject to any repricings, which
value shall be no less than the fair market value of a share of Common Stock
determined as set forth in Paragraph 7. All determinations and interpretations
made by the Board of Directors or the Committee shall be binding and
conclusive on all Participants in this Plan and their legal representatives
and beneficiaries.
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3. Shares Subject to this Plan.
Subject to adjustment as provided in Paragraph 17 hereof, the aggregate
number of stock appreciation rights that may be granted under this Plan shall
not exceed 500,000; provided, however, that at no time shall there be more than
an aggregate of 900,000 outstanding, unexercised SARs granted pursuant to both
this Plan and the Company's 1992 Stock Appreciation Rights Plan. If any stock
appreciation rights granted under this Plan should expire or terminate for any
reason without having been exercised in full, the unexercised stock appreciation
rights shall again be available to be granted under this Plan.
4. Eligibility and Participation.
4.1 All employees, officers, Directors, consultants of the Company or any
subsidiary corporation (as defined in Section 425(f) of the Internal Revenue
Code of 1986, as amended (the "Code")) or the Company's affiliates, licensees or
joint venture partners shall be eligible to receive stock appreciation rights.
4.2 All stock appreciation rights granted under this Plan shall be granted
within ten years from April 19, 1996.
5. Duration of Stock Appreciation Rights.
Each stock appreciation right and all rights associated therewith shall
expire on such date as the Board of Directors or the Committee may determine,
but in no event earlier than five years or later than ten years from the date on
which the stock appreciation right is granted, and shall be subject to earlier
termination as provided herein.
6. Terms and Conditions of Stock Appreciation Rights.
All stock appreciation rights shall be evidenced by a Certificate of Grant
(sometimes referred to herein as the "Certificate") in such form as the Board of
Directors or the Committee shall from time to time approve. A grant of stock
appreciation rights shall be subject to the following terms and conditions:
6.1 Each stock appreciation right shall entitle a Participant to an amount
equal to the excess of the Exercise Value (as defined below) of one share of
Common Stock over the Initial Value of one share of Common Stock (the
"Appreciation"). The Initial Value of each stock appreciation right shall be
specified in the Certificate of Grant. The Exercise Value of each stock
appreciation right shall be the fair market value of a share of Common Stock on
the date the stock appreciation right is exercised, determined as set forth in
Paragraph 7. The total Appreciation available to a Participant from the exercise
of any stock appreciation
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right shall be equal to the number of stock appreciation rights exercised,
multiplied by the Appreciation per stock appreciation right. Participants
acknowledge that a stock appreciation right is a method of incentive
compensation for key employees, Directors and consultants and does not
constitute an offering or sale of Common Stock to anyone.
6.2 The Appreciation available to a Participant upon exercise of the
Participant's stock appreciation rights shall be payable in cash or Common Stock
as determined by the Board of Directors or the Committee. If payment is made in
Common Stock of the Company, then the fair market value of the Common Stock for
purposes of calculating the number of shares of Common Stock that shall be
issued to pay the Appreciation shall be based upon the fair market value of the
Common Stock as determined in Paragraph 7 on the date of exercise of the stock
appreciation rights. If the total Appreciation is paid in Common Stock, the
total Appreciation will be reduced to the largest amount divisible by the fair
market value of one share of Common Stock. Appreciation shall be paid as
compensation and without interest by the Company as specified in the Certificate
of Grant.
6.3 A maximum of 500,000 stock appreciation rights may be granted, subject
to the restrictions contained in Paragraph 3. Such stock appreciation rights
shall have an Initial Value of no less than the fair market value of a share of
Common Stock as determined in Paragraph 7 as of the date of grant of the stock
appreciation rights.
6.4 No stock appreciation right granted under this Plan shall be
exercisable if such exercise would involve a violation of any applicable law or
regulation (including without limitation, federal and state securities laws and
regulations). Each stock appreciation right shall be exercisable in such
installments during the period prior to its expiration date as the Board of
Directors or the Committee shall determine; provided, however, that, unless
otherwise determined by the Board of Directors or the Committee, if a
Participant shall not in any given installment period exercise all of the stock
appreciation rights which the Participant is entitled to exercise in such
installment period, then the Participant's right to exercise any stock
appreciation rights not exercised in such installment period shall continue
until the expiration date or sooner termination of the Participant's stock
appreciation rights.
7. Fair Market Value of Common Stock
The fair market value of a share of Common Stock of the Company for
purposes of this Plan shall be the closing price or last trade price of a share
as supplied by the National Association of Securities Dealers, Inc. through the
Nasdaq Stock Market (or its successor in function) or, if such shares are then
traded on a principal stock exchange, by reference to the closing price of a
share on the
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principal stock exchange on which such shares are traded, in each case as
reported by The Wall Street Journal for the business day immediately preceding
the date on which the fair market value is determined (or, if for any reason no
such price is available, in such other manner as the Board of Directors or the
Committee may deem appropriate to reflect the then fair market value thereof).
8. Exercise of a SAR.
A stock appreciation right may be exercised by the Participants commencing
six months after the date of grant, but in no event earlier than January 1,
1997, by written notice to the Company specifying the extent to which such stock
appreciation right is to be exercised.
9. Withholding Tax.
Upon the exercise of a stock appreciation right, the Company shall have the
right to require an employee Participant, and such employee Participant by
accepting the stock appreciation rights granted under this Plan agrees, to pay
the Company the amount of any taxes which the Company may be required to
withhold with respect thereto. In the event the Appreciation is paid with Common
Stock, then such employee Participant or other Participant may elect to pay the
amount of any taxes which the Company may be required to withhold by delivering
to the Company shares of the Company's Common Stock having a fair market value
determined in accordance with Paragraph 7 hereof equal to the withholding tax
obligation determined by the Company. Such shares so delivered may be either
shares withheld by the Company upon the exercise of the stock appreciation
rights or other shares. Such election may not be made by those persons subject
to the provisions of Section 16(b) of the Exchange Act within six months of the
date of grant of a stock appreciation right, except that this limitation will
not apply in the event of death or disability occurring prior to the expiration
of the six month period. The election, by those persons subject to Section 16(B)
of the Exchange Act, must be made either (i) not later than six months less one
day prior to the date as of which the amount of tax to be withheld is determined
(the "Tax Date"), or (ii) in the ten-day window period
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provided in Rule 16b-3(e) of the General Rules and Regulations under the
Exchange Act, but in no event later than the Tax Date.
10. Non-Transferability.
A stock appreciation right granted under this Plan shall, by its terms, be
non-transferable by the holder either voluntarily or by operation of law, other
than by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined in the Code, and shall be exercisable during
the holder's lifetime only by the holder, regardless of any community property
interest therein of the spouse of the holder, or such spouse's successors in
interest. If the spouse of the holder shall have acquired a community property
interest in a stock appreciation right, the holder, or the holder's permitted
successors in interest, may exercise the stock appreciation rights on behalf of
the spouse of the holder or such spouse's successors in interest.
11. Holding of Stock After Exercise of Right.
At the discretion of the Board of Directors or the Committee, any stock
appreciation right may provide that the Participant, by accepting such stock
appreciation rights, represents and agrees, for the Participant and the
Participant's permitted transferees that none of the shares acquired upon
exercise of a stock appreciation right will be acquired with a view to any sale,
transfer or distribution of said shares in violation of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, and the person entitled to exercise the same shall
furnish evidence satisfactory to the Company (including a written and signed
representation) to that effect in form and substance satisfactory to the
Company, including an indemnification of the Company in the event of any
violation of the Securities Act by such person.
12. Registration Rights.
12.1 Piggyback Registration.
If, at any time after the date hereof, the Company should propose to file a
registration statement with the Securities and Exchange Commission (the "SEC")
under the Securities Act (other than in connection with a merger or pursuant to
Form S-8) it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such registration statement, to the
Participants. If any Participant notifies the Company within twenty (20) days
after receipt of any such notice of its desire to include any of the shares of
Common Stock in such proposed registration statement, the Company shall afford
such Participant the opportunity to have any of the shares of Common Stock
issued pursuant to this Plan registered
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pursuant to such registration statement. Notwithstanding the provisions of this
Paragraph 12.1, the Company shall have the right at any time after it shall have
given written notice pursuant to this Paragraph 12.1 (irrespective of whether a
written request for inclusion of all or a portion of the shares of Common Stock
shall have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but not prior to the
effective date thereof.
If an underwriter objects in writing to the exercise of the above piggyback
rights by the Participants and all other shareholders of the Company seeking to
exercise their respective piggyback rights, on the basis that such inclusion
will adversely affect the underwriter's ability to market the securities
included in the registration statement, such objection would preclude inclusion
of shares of Common Stock by the Participants and all other shareholders of the
Company and at the option of the Participants, the Company will register all or
part of such shares of Common Stock in its next registration statement or the
Participants shall have the right, exercisable by written notice to the Company,
to have the Company prepare and file with the SEC, a registration or offering
statement on Form S-1 and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Participants, in order to comply with the provisions of the Securities Act, so
as to permit a public offering and sale of all or a portion of the shares of
Common Stock by the Participants. The Participants may not provide such written
notice until ninety (90) days from the effective date of the registration
statement for which the underwriter objected to the inclusion of all or part of
the Participants' shares of Common Stock issued pursuant to this Plan. The
Company will provide the Participants a copy of the written objection received
from the underwriter with respect to the exercise of the Participants' piggyback
rights.
12.2 Covenants with Respect to Registration
In connection with any registration hereunder, the Company and the
Participants shall covenant and agree as follows:
(a) The Company shall pay all costs, fees and expenses (excluding fees
and expenses of Participants' counsel and any underwriting or selling fees,
expenses or commissions), fees and expenses (excluding fees and expenses of
Participants' counsel and any underwriting or selling fees, expenses or
commissions) in connection with all registration statements filed pursuant to
Paragraph 12.1 hereof including, without limitation, all registration fees,
filing and NASD fees, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses.
(b) The Company will endeavor in good faith in cooperation with the
Participants to register the shares of Common Stock included in a registration
statement hereunder for offering and sale under the securities or blue
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sky laws of such states as reasonably are requested by the Participants,
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(c) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts, including the filing with the SEC of any necessary amendments
or supplements to the registration statement to have any registration statements
declared and remain effective at the earliest possible time and to cooperate in
the sale of the shares so registered, and shall furnish the Participants such
number of prospectuses as shall reasonably be requested. Prior to filing any
registration statement described herein, the Company will furnish to the
Participants and their counsel the registration statements and amendments and
supplements thereto, and any prospectus forming a part thereof, which documents
shall be subject to the review and comment of each Participant and its counsel
to the extent such documents relate to the Participants.
(d) The Company shall indemnify the Participants against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever and
including reasonable fees and expenses of Participants' counsel) to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
arising from such registration statement.
(e) The Participants shall indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever including reasonable fees and expenses of Company's counsel) to which
they may become subject under the Securities Act, the Exchange Act or otherwise,
arising from information furnished in writing by or on behalf of the
Participants, for specific inclusion in such registration statement.
(f) The Participants shall give the Company prompt notice of any such
liability, claim or lawsuit which the Participants contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right, subject to the consent of the Participants, which consent shall not
be unreasonably withheld, to settle, compromise and dispose of such liability,
claim or lawsuit, excepting therefrom any and all proceedings or hearings before
any regulatory bodies and/or authorities.
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The Company shall give to the Participants prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Participants' indemnification and the Participants thereupon shall be
granted the right to a take any and all necessary and proper action, at their
sole cost and expense, with respect to such liability, claim and lawsuit,
including the right, subject to the consent of the Company, which consent shall
not be unreasonably withheld, to settle, compromise or dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
In order to provide for just and equitable contribution under the
Securities Act in any case in which (i) any person entitled to indemnification
under this Paragraph 12.2 makes claim for indemnification pursuant hereto but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Paragraph 12.2 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such person in circumstances for which
indemnification is provided under this Paragraph 12.2, then, and in each such
case, the Company and the Participants shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after any
contribution from others) in such proportion taking into consideration the
relative benefits received by each party from the offering covered by the
registration statement (taking into account the portion of the proceeds of the
offering realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was assessed,
the opportunity to correct and prevent any statement or omission and other
equitable considerations appropriate under the circumstances; provided, however,
that notwithstanding the above, in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt of written notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof, but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid fifteen (15)
days, the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking
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contribution without the written consent of such contributing party. The
indemnification provisions contained in this Paragraph 12.2 are in addition to
any other rights or remedies which either party hereto may have with respect to
the other or hereunder.
The indemnification payments required by this Paragraph 12.2 shall be made
by periodic payments on the amount thereof during the course of the
investigation or defense, as and when the invoices therefor are received, or
expense, loss, damage or liability incurred.
(g) The Company shall furnish to the Participants a signed counterpart,
addressed to the Participants of (i) an opinion of counsel to the Company, dated
the effective date of a registration statement filed pursuant to this Section 12
and (ii) a "cold comfort" letter dated the effective date of such registration
statement signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities. The Company shall
also furnish to the Participants copies of all written comments received from
the SEC with respect to such registration statement and all written responses of
the Company thereto.
13. Termination of Employment.
13.1 If a holder of a stock appreciation right ceases to be employed by,
affiliated with or a joint venturer with the Company or one of its subsidiary
corporations or affiliates (as defined in Section 425(f) of the Code) or ceases
to be a director or consultant for any reason, then any of the holder's stock
appreciation rights that have not then vested shall immediately become void and
of no further force or effect and any of the holder's stock appreciation rights
that have vested prior to the cessation of employment, affiliation with the
Company or joint venture relationship with the Company must be exercised within
365 days of such cessation of the employment, affiliation with the Company or
joint venture with the Company. If, at the end of such 365 day period, such
vested SARs have not been exercised by the Participant, then such vested stock
appreciation rights shall become void and of no further force and effect;
provided, however, that if (i) such cessation of employment, affiliation with
the Company or joint venture with the Company shall be due to the holder's
retirement under the provisions of any pension or retirement plan of the Company
or such subsidiary or (ii) if the Board of Directors of the Company or the
Committee consents (which shall be set forth in a written resolution), such
stock appreciation rights may be exercised to the extent and for the term
exercisable on the date of such cessation of employment, affiliation or joint
venture with the Company as set forth in the Plan and the Certificate of Grant.
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13.2 A leave of absence approved in writing by the Board of Directors or
the Committee shall not be deemed a termination of employment for the purposes
of this Paragraph 13, but no stock appreciation rights may be exercised during
any such leave of absence, except during the first three months thereof.
13.3. If a Participant shall die while he is an employee, consultant or
Director or within three (3) months after the termination without Cause of his
employment or consulting arrangement or term as Director, any outstanding stock
appreciation right may be exercised to the extent exercisable on the date of
death, by the person(s) entitled to do so under the Participant's will or, if
the Participant shall have failed to make testamentary disposition of such
Participant's stock appreciation right or shall have died intestate, by the
Participant's legal representative(s), in either case at any time prior to the
expiration date of the Participant's stock appreciation right or within one (1)
year of the date of the Participant's death, whichever shall be the shorter
period, provided that Participants shall have been an employee or consultant for
a continuous period of at least six (6) months from the date of grant of the
Participant's stock appreciation rights.
14. Vesting.
The holder's stock appreciation rights shall be deemed to have vested in a
lump sum or in such installments, which need not be equal, as the Committee
shall determine.
15. Permanent Disability of Stock Appreciation Right Holder.
The permanent disability of a holder of a stock appreciation right will
have the effect specified in the individual Certificate of Grant as determined
by the Board of Directors or the Committee.
16. Privileges of Stock Ownership.
No person entitled to exercise any stock appreciation right granted under
this Plan shall have any of the rights or privileges of a stockholder of the
Company in respect of any shares of Common Stock issuable upon exercise of such
stock appreciation right until certificates representing such shares shall have
been issued and delivered. No shares shall be issued and delivered upon exercise
of any stock appreciation right unless and until, in the opinion of counsel for
the Company, there shall have been full compliance with any applicable
registration requirements of the Securities Act, any applicable listing
requirements of any national securities exchange or automated quotation system
on which the Common Stock is then listed or quoted, and any other requirements
of law or of any regulatory bodies having jurisdiction over such issuance and
delivery.
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17. Adjustments.
17.1 If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of stock appreciation rights which
may be granted under this Plan. A corresponding adjustment changing the number
or kind of stock appreciation rights allocated to unexercised options or
portions thereof, which shall have been granted prior to any such change, shall
likewise be made. Any such adjustment in the outstanding stock appreciation
rights shall be made without change in the aggregate Initial Value applicable to
the unexercised portion of the stock appreciation rights but with a
corresponding adjustment in the Initial Value for each share of Common Stock
covered by the stock appreciation right.
17.2 Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property or more than eighty percent
of the then outstanding stock of the Company to another corporation, this Plan
shall terminate, and any stock appreciation rights theretofore granted hereunder
shall terminate.
17.3 Notwithstanding the foregoing, the Board of Directors or the Committee
may provide in writing in connection with such transaction for any or all of the
following alternatives (separately or in combinations): (i) for the stock
appreciation rights theretofore granted to become immediately exercisable; (ii)
for the assumption by the successor corporation of the stock appreciation rights
theretofore granted or the substitution by such corporation for such stock
appreciation rights of new stock appreciation rights covering the stock of the
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; or (iii) for the
continuance of this Plan by such successor corporation in which event the Plan
and the stock appreciation rights theretofore granted shall continue in the
manner and under the terms so provided.
17.4 Adjustments under this Paragraph 17 shall be made by the Board of
Directors or the Committee, whose determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive.
18. Amendment and Termination of Plan.
18.1. The Board of Directors or the Committee may at any time suspend or
terminate this Plan. The Board of Directors or the Committee may also at
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any time amend or revise the terms of this Plan, provided that no such amendment
or revision shall, unless appropriate stockholder approval of such amendment or
revision is obtained, (A) materially increase the benefits accruing, to
participants under the Plan; (B) materially increase the number of securities
which may be issued under the Plan; or (C) materially modify the requirements as
to eligibility for participation in the Plan.
18.2 No amendment, suspension or termination of this Plan shall, without
the consent of the holder, alter or impair any rights or obligations under any
stock appreciation right theretofore granted under this Plan.
19. Effective Date of Plan
This plan shall be deemed effective on April 19, 1996. The adoption of the
Plan shall not affect any other compensation or incentive plans in effect for
the Company, any subsidiary or any parent corporation. Nothing in the Plan shall
be construed to limit the right of the Company (i) to establish any other forms
of incentives or compensation for employees of the Company, any subsidiary or
any parent corporation or (ii) to grant or assume options or other rights
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
firm or association.
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APPENDIX III
ACTV, INC.
1996 STOCK OPTION PLAN
As adopted __________, 1996
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1. PURPOSE OF PLAN; ADMINISTRATION
1.1 Purpose.
The ACTV, Inc. 1996 Stock Option Plan (hereinafter, the "Plan") is hereby
established to grant to officers and other employees of ACTV, Inc. ("ACTV") or
of its parents or subsidiaries (as defined in Sections 424(e) and (f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code")), if
any (individually and collectively, the Company"), and to non-employee
directors, consultants and advisors and other persons who may perform
significant services for or on behalf of the Company, a favorable
opportunity to acquire common stock, $.10 par value ("Common Stock"), of
ACTV and, thereby, to create an incentive for such persons to remain in the
employ of or provide services to the Company and to contribute to its success.
The Company may grant under the Plan both incentive stock options within
the meaning of Section 422 of the Code ("Incentive Stock Options") and stock
options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to "options,' shall include both incentive Stock Options and
Nonstatutory Options.
1.2 Administration.
The Plan shall be administered by the Board of Directors of ACTV (the
"Board"), if each member is a "disinterested person" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), or a
committee (the "Committee") of two or more directors, each of whom is a
disinterested person. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
A majority of the members of the Committee shall constitute a quorum for
the purposes of the Plan. Provided a quorum is present, the Committee may take
action by affirmative vote or consent of a majority of its members present at a
meeting. Meetings may be held telephonically as long as all members are able to
hear one another, and a member of the Committee shall be deemed to be present
for this purpose if he or she is in simultaneous communication by telephone with
the other members who are able to hear one another. In lieu of action at a
meeting, the Committee may act by written consent of a majority of its members.
Subject to the express provisions of the Plan, the Committee shall have the
authority to construe and interpret the Plan and all Stock Option Agreements (as
defined in Section 3.4) entered into pursuant hereto and to define the terms
used therein, to prescribe, adopt, amend and rescind rules and regulations
relating to the administration
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of the Plan and to make all other determinations necessary or advisable for the
administration of the Plan; provided, however, that the Committee may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper; and, provided, further, in its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee under the Plan. Subject to the express limitations of the Plan, the
Committee shall designate the individuals from among the class of persons
eligible to participate as provided in Section 1.3 who shall receive options,
whether an optionee will receive Incentive Stock Options or Nonstatutory
Options, or both, and the amount, price, restrictions and all other terms and
provisions of such options (which need not be identical).
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All exchanges and liabilities
which members of the Committee incur in connection with the administration of
this Plan shall be borne by the Company. The Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, the Company and the Company's officers and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, and all members of the Committee shall be fully protected
by the Company in respect of any such action, determination or interpretation.
1.3 Participation.
Officers and other employees of the Company, non-employee directors,
consultants and advisors and other persons who may perform significant services
for or on behalf of the Company shall be eligible for selection to
participate in the Plan upon approval by the Committee; provided, however,
that only "employees" (within the meaning of Section 3401(c) of the Code) of the
Company shall be eligible for the grant of Incentive Stock Options. An
individual who has been granted an option may, if otherwise eligible, be granted
additional options if the Committee shall so determine. No person is eligible to
participate in the Plan by matter of right; only those eligible persons who are
selected by the Committee in its discretion shall participate in the Plan.
1.4 Stock Subject to the Plan.
Subject to adjustment as provided in Section 3.5, the stock to be offered
under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. The cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 500,000,
subject to adjustment as set forth in Section 3.5.
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If any option granted hereunder shall expire or termina e for any reason
without having been fully exercised, the unpurchased shares subject thereto
shall again be available for the purposes of the Plan. For purposes of this
Section 1.4, where the exercise price of options is paid by means of the
grantee's surrender of previously owned shares of Common Stock, only the net
number of additional shares issued and which remain outstanding in connection
with such exercise shall be deemed "issued" for purposes of the Plan.
2. STOCK OPTIONS
2.1 Option Price.
The exercise price of each incentive Stock option granted under the Plan
shall be determined by the Committee, but shall not be less than 100% of the
"Fair Market Value" (as defined below) of Common Stock on the date of grant. If
an Incentive Stock Option is granted to an employee who at the time such option
is granted owns (within the meaning of section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of capital stock of the
Company, the option exercise price shall be at least 110% of the Fair Market
Value of Common Stock on the date of grant. The exercise price of each
Nonstatutory Option also shall be determined by the Committee, but shall not be
less than 85% of the Fair Market Value of Common Stock on the date of grant. The
status of each option granted under the Plan as either an Incentive Stock Option
or a Nonstatutory Stock Option shall be determined by the Committee at the time
the Committee acts to grant the option, and shall be clearly identified as such
in the Stock Option Agreement relating thereto.
"Fair Market Value" for purposes of the Plan shall mean: (i) the closing
price of a share of Common Stock on the principal exchange on which shares of
Common Stock are then trading, if any, on the day previous to such date, or, if
shares were not traded on the day previous to such date, then on the next
preceding trading day during which a sale occurred; or (ii) if Common Stock is
not traded on an exchange but is quoted on Nasdaq or a successor quotation
system, (1) the last sales price (if Common Stock is then listed on the Nasdaq
Stock Market) or (2) the mean between the closing representative bid and asked
price (in all other cases) for Common Stock on the day prior to such date as
reported by Nasdaq or such successor quotation system; or (iii) if there is no
listing or trading of Common Stock either on a national exchange or
over-the-counter, that price determined in good faith by the Committee to be the
fair value per share of Common Stock, based upon such evidence as it deems
necessary or advisable.
In the discretion of the Committee exercised at the time the option is
exercised, the exercise price of any option granted under the Plan shall be paid
in full in cash, by check or by the optionee's interest-bearing promissory note
(subject to any limitations of applicable state corporations law) delivered at
the time of exercise; provided, however, that subject to the timing requirements
of Section 2.7, in the discretion of the Committee
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and upon receipt of all regulatory approvals, the person exercising the option
may deliver as payment in whole or in part of such exercise price certificates
for Common Stock of the Company (duly endorsed or with duly executed stock
powers attached), which shall be valued at its Fair Market Value on the day of
exercise of the option, or other property deemed appropriate by the Committee;
and, provided further, that subject to Section 422 of the Code so-called
cashless exercises as permitted under applicable rules and regulations of the
Securities and Exchange Commission and the Federal Reserve Board shall be
permitted in the discretion of the Committee. Without limiting the Committee's
discretion in this regard, consecutive book entry stock-for-stock exercises of
options (or "pyramiding") also are permitted in the Committee's discretion.
Irrespective of the form of payment, the delivery of shares pursuant to the
exercise of an option shall be conditioned upon payment by the optionee to the
Company of amounts sufficient to enable the Company to pay all federal, state,
and local withholding taxes applicable, in the Company's judgment, to the
exercise. In the discretion of the Committee, such payment to the Company may be
effected through (i) the Company's withholding from the number of shares of
Common Stock that would otherwise be delivered to the optionee by the Company on
exercise of the option a number of shares of Common Stock equal in value (as
determined by the Fair Market Value of Common Stock on the date of exercise) to
the aggregate withholding taxes, (ii) payment by the optionee to the Company of
the aggregate withholding taxes in cash, (iii) withholding by the Company from
other amounts contemporaneously owed by the Company to the optionee, or (iv) any
combination of these three methods, as determined by the Committee in its
discretion.
2.2 Option Period.
(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 30
days following a Termination of Employment for any reason other than death or
disability or six months following a Termination of Employment for disability or
following an optionee's death.
(b) Outside Date for Exercise. Notwithstanding any provision of this
Section 2.2, in no event shall any option granted under the Plan be exercised
after the expiration date of such option set forth in the applicable Stock
Option Agreement.
2.3 Exercise of Options.
Each option granted under the Plan shall become exercisable and the total
number of shares subject thereto shall be purchasable, in a lump sum or in such
installments,
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which need not be equal, as the Committee shall determine; provided, however,
that each option shall become exercisable in full no later than ten years after
such option is granted, and each option shall become exercisable as to at least
10% of the shares of Common Stock covered thereby on each anniversary of the
date such option is granted; and provided, further, that if the holder of an
option shall not in any given installment period purchase all of the shares
which such holder is entitled to purchase in such installment period, such
holder's right to purchase any shares not purchased in such installment period
shall continue until the expiration or sooner termination of such holder's
option. The Committee may, at any time after grant of the option and from time
to time, increase the number of shares purchasable in any installment, subject
to the total number of shares subject to the option and the limitations set
forth in Section 2.5. At any time and from time to time prior to the time when
any exercisable option or exercisable portion thereof becomes unexercisable
under the Plan or the applicable Stock Option Agreement, such option or portion
thereof may be exercised in whole or in part; provided, however, that the
Committee may, by the terms of the option, require any partial exercise to be
with respect to a specified minimum number of shares. No option or installment
thereof shall be exercisable except with respect to whole shares. Fractional
share interests shall be disregarded, except that they may be accumulated as
provided above and except that if such a fractional share interest constitutes
the total shares of Common Stock remaining available for purchase under an
option at the time of exercise, the optionee shall be entitled to receive on
exercise a certified or bank cashier's check in an amount equal to the Fair
Market Value of such fractional share of stock.
2.4 Transferability of Options.
Except as the Committee may determine as aforesaid, an option granted under
the Plan shall, by its terms, be nontransferable by the optionee other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined by the Code), and shall be exercisable
during the optionee's lifetime only by the optionee or by his or her guardian or
legal representative. More particularly, but without limiting the generality of
the immediately preceding sentence, an option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
the Plan and the applicable Stock Option Agreement, and any levy of any
attachment or similar process upon an option, shall be null and void, and
otherwise without effect, and the Committee may, in its sole discretion, upon
the happening of any such event, terminate such option forthwith.
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2.5 Limitation on Exercise of Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined on the date
of grant) of the Common Stock with respect to which Incentive Stock Options
granted hereunder (together with all other Incentive Stock Option plans of the
Company) are exercisable for the first time by an optionee in any calendar year
under the Plan exceeds $100,000, such options granted hereunder shall be treated
as Nonstatutory Options to the extent required by Section 422 of the Code. The
rule set forth in the preceding sentence shall be applied by taking options into
account in the order in which they were granted.
2.6 Disqualifying Dispositions of Incentive Stock Options.
If Common Stock acquired upon exercise of any Incentive Stock Option is
disposed of in a disposition that, under Section 422 of the Code, disqualifies
the option holder from the application of Section 421(a) of the Code, the holder
of the Common Stock immediately before the disposition shall comply with any
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
2.7 Certain Timing Requirements.
At the discretion of the Committee, shares of Common Stock issuable to the
optionee upon exercise of an option may be used to satisfy the option exercise
price or the tax withholding consequences of such exercise, in the case of
persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
optionee to use shares of Common Stock issuable to the optionee upon exercise of
the option to pay all or part of the option price or the withholding taxes made
at least six months prior to the payment of such option price or withholding
taxes.
2.8 No Effect on Employment.
Nothing in the Plan or in any Stock Option Agreement hereunder shall confer
upon any optionee any right to continue in the employ of the Company, any Parent
Corporation or any subsidiary or shall interfere with or restrict in any way the
rights of the Company, its Parent Corporation and its Subsidiaries, which are
hereby expressly reserved, to discharge any optionee at any time for any reason
whatsoever, with or without cause.
For purposes of the Plan, "Parent Corporation" shall mean any corporation
in an unbroken chain of corporations ending with the Company if each of the
corporations other than the Company then owns stock possessing 50% or more of
the total combined
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voting power of all classes of stock in one of the other corporations in such
chain. For purposes of the Plan, "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
3. OTHER PROVISIONS
3.1 Sick Leave and Leaves of Absence.
Unless otherwise provided in the Stock Option Agreement, and to the extent
permitted by Section 422 of the Code, an optionee's employment shall not be
deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Company if the period of any such leave does not exceed
a period approved by the Company, or, if longer, if the optionee's right to
reemployment by the Company is guaranteed either contractually or by statute. A
Stock Option Agreement may contain such additional or different provisions with
respect to leave of absence as the Committee may approve, either at the time of
grant of an option or at a later time.
3.2 Termination of Employment.
For purposes of the Plan "Termination of Employment," shall mean the time
when the employee-employer relationship between the optionee and the Company,
any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an optionee by
the Company, any Subsidiary or any Parent Corporation, (ii) at the discretion of
the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company, a Subsidiary or any Parent Corporation
with the former employee. Subject to Section 3.1, the Committee, in its absolute
discretion, shall determine the affect of all matters and questions relating to
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, a leave of absence or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that such leave of absence or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then-applicable regulations
and revenue rulings under said Section.
3.3 Issuance of Stock Certificates.
Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon
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exercise. Notwithstanding the foregoing, the Committee in its discretion may
require the Company to retain possession of any certificate evidencing stock
acquired upon exercise of an option which remains subject to repurchase under
the provisions of the Stock Option Agreement or any other agreement signed by
the optionee in order to facilitate such repurchase provisions.
3.4 Terms and Conditions of Options.
Each option granted under the Plan shall be evidenced by a written Stock
Option Agreement ("Stock Option Agreement") between the option holder and the
Company providing that the option is subject to the terms and conditions of the
Plan and to such other terms and conditions not inconsistent therewith as the
Committee may deem appropriate in each case.
3.5 Adjustments Upon Changes in Capitalization; Merger and Consolidation.
If the outstanding shares of Common Stock are changed into, or exchanged
for cash or a different number or kind of shares or securities of the Company or
of another corporation through reorganization, merger, recapitalization,
reclassification, stock split-up, reverse stock split, stock dividend, stock
consolidation, stock combination, stock reclassification or similar transaction,
an appropriate adjustment shall be made by the Committee in the number and kind
of shares as to which options and restricted stock may be granted. in the event
of such a change or exchange, other than for shares or securities of another
corporation or by reason of reorganization, the Committee shall also make a
corresponding adjustment changing the number or kind of shares and the exercise
price per share allocated to unexercised options or portions thereof, which
shall have been granted prior to any such change, shall likewise be made. Any
such adjustment, however, shall be made without change in the total price
applicable to the unexercised portion of the option but with a corresponding
adjustment in the price for each share (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices).
In the event of a "spin-off" or other substantial distribution of assets of
the Company which has a material diminutive effect upon the Fair Market Value of
the Common Stock, the Committee in its discretion shall make an appropriate and
equitable adjustment to the exercise prices of options then outstanding under
the Plan.
Where an adjustment under this Section 3.5 of the type described above is
made to an Incentive Stock Option, the adjustment will be made in a manner which
will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.
In connection with the dissolution or liquidation of ACTV or a partial
liquidation involving 50% or more of the assets of ACTV, a reorganization of
ACTV in which another entity is the survivor, a merger or reorganization of ACTV
under which more
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than 50% of the Common Stock outstanding prior to the merger or reorganization
is converted into cash or into another security, a sale of more than 50% of the
Company's assets, or a similar event that the Committee determines, in its
discretion, would materially alter the structure of ACTV or its ownership, the
Committee, upon 30 days prior written notice to the option holders, may, in its
discretion, do one or more of the following: (i) shorten the period during which
options are exercisable (provided they remain exercisable for at least 30 days
after the date the notice is given); (ii) accelerate any vesting schedule to
which an option is subject; (iii) arrange to have the surviving or successor
entity grant replacement options with appropriate adjustments in the number and
kind of securities and option prices, or (iv) cancel options upon payment to the
option holders in cash, with respect to each option to the extent then
exercisable (including any options as to which the exercise has been accelerated
as contemplated in clause (ii) above), of any amount that is the equivalent of
the Fair Market Value of the Common Stock (at the effective time of the
dissolution, liquidation, merger, reorganization, sale or other event) or the
fair market value of the option. In the case of a change in corporate control,
the Committee may, in considering the advisability or the terms and conditions
of any acceleration of the exercisability of any option pursuant to this Section
3.5, take into account the penalties that may result directly or indirectly from
such acceleration to either the Company or the option holder, or both, under
Section 280G of the Code, and may decide to limit such acceleration to the
extent necessary to avoid or mitigate such penalties or their effects.
No fractional share of Common Stock shall be issued under the Plan on
account of any adjustment under this Section 3.5.
3.6 Rights of Participants and Beneficiaries.
The Company shall pay all amounts payable hereunder only to the option
holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall
not be liable for the debts, contracts or engagements of any optionee or his or
her beneficiaries, and rights to cash payments under the Plan may not be taken
in execution by attachment or garnishment, or by any other legal or equitable
proceeding while in the hands of the Company.
3.7 Government Regulations.
The Plan, and the grant and exercise of options and the issuance and
delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
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representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
3.8 Amendment and Termination.
The Board or the Committee may at any time suspend, amend or terminate the
Plan and may, with the consent of the option holder, make such modifications of
the terms and conditions of such option holder's option as it shall deem
advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option way be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.
3.9 Time of Grant And Exercise of Option.
An option shall be deemed to be exercised when the Secretary of the Company
receives written notice from an option holder of such exercise, payment of the
purchase price determined pursuant to Section 2.1 of the Plan and set forth in
the Stock Option Agreement, and all representations, indemnifications and
documents reasonably requested by the Committee.
3.10 Privileges of Stock Ownership; Non-Distributive Intent; Reports to
Option Holders.
A participant in the Plan shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to the optionee.
Upon exercise of an option at a time when there is not in effect under the
Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.
The Company shall furnish to each optionee under the Plan the Company's
annual report and such other periodic reports, if any, as are disseminated by
the Company in the ordinary course to its stockholders.
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3.11 Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued upon
exercise of an option granted under the Plan or to which such Common Stock may
be subject, the Committee may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends shall
make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by applicable laws or regulations. If any restriction with respect to
which a legend was placed on any certificate ceases to apply to Common Stock
represented by such certificate, the owner of the Common Stock represented by
such certificate may require the Company to cause the issuance of a new
certificate not bearing the legend.
Additionally, and not by way of limitation, the Committee may impose such
restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange upon which Common Stock is then traded.
3.12 Use of Proceeds.
Proceeds realized pursuant to the exercise of options under the Plan shall
constitute general funds of the Company.
3.13 Changes in Capital Structure; No Impediment to Corporate Transactions.
The existence of outstanding options under the Plan shall not affect the
Company's right to effect adjustments, recapitalizations, reorganizations or
other changes in its or any other corporation's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock, the dissolution or
liquidation of the Company's or any other corporation's assets or business, or
any other corporate act, whether similar to the events described above or
otherwise.
3.14 Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
stockholders of ACTV within twelve months after the date of the Board's initial
adoption of the Plan. Options may be granted but not exercised prior to
stockholder approval of the Plan. If any options are so granted and stockholder
approval shall not have been obtained within twelve months of the date of
adoption of this Plan by the Board of Directors, such options shall terminate
retroactively as of the date they were granted.
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3.15 Termination.
The Plan shall terminate automatically as of the close of business on the
day preceding the tenth anniversary date of its adoption by the Board or earlier
as provided in Section 3.8. Unless otherwise provided herein, the termination of
the Plan shall not affect the validity of any option agreement outstanding at
the date of such termination.
3.16 No Effect on Other Plans.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
* * *
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APPENDIX IV
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
ACTV, Inc. (the "Company") was organized to develop and market the ACTV
Programming Technology, which permits each viewer to simultaneously experience
individualized television programming. Since its inception, the Company has
incurred operating losses approximating $30.4 million related directly to the
development and marketing of the ACTV Programming Technology.
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"), multi-microwave distribution systems
("MMDS"), broadcast systems, distance learning networks and closed circuit
televisions systems. It is compatible with commonly available 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 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.
In March 1988, the Company formed ACTV Entertainment Inc. ("ACTV Entertainment")
as an equal shareholder with Le Groupe Videotron ("LGV") of Canada. 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.
In June 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 a subsidiary of LGV. In exchange for gaining full ownership and
control of ACTV Entertainment in the settlement and for the conversion of LGV's
exclusive license for Canada and Europe to a non-exclusive license, the Company
agreed to give up the license fee revenue it had received from LGV for LGV's use
of the Programming Technology in Canada and Europe.
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 capacity. 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 production capacity and in making its ACTV
Programming available for use with set-top converters manufactured and
distributed by others, including other cable and broadcast network operators.
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 "BUSINESS -- Entertainment -- Reorganization of
ACTV Entertainment and the LGV Agreements."
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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, if the
trial is successful, the planned regional television network that would target
approximately 4.2 million sports subscribers in the region that reaches from Los
Angeles to San Diego and Phoenix.
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 most of 1996 and may extend into 1997. The Company believes that the
Regional Network is the first programming service in the U.S. to both enhance
existing programming and offer new individualized content.
Programming for the Regional Network is being provided to ACTV by Prime Sports -
West, currently a unit of Telecommunications, Inc.'s ("TCI") Liberty Media,
Liberty Sports division, which has approximately 4.2 million subscribers in the
Southwest region of the U.S., Cable News Network, Inc. ("CNN") and the Game Show
Network, a subsidiary of Sony Entertainment, Inc. ("Sony"). The cable operator
for the Regional Network is Ventura County Cablevision, currently a subsidiary
of Western Communications, whose ownership is scheduled to be transferred to TCI
in early 1996. TCI and News Corp. have announced a joint venture, which, if
completed, would merge Liberty Sports with Fox Sports. See "BUSINESS -
Entertainment."
The Company has established four new wholly-owned subsidiaries which would
operate additional regional individualized networks covering the San Francisco,
Chicago, New York and Atlanta regions in the event that the Company decides to
expand and provide similar services to those of the Regional Network in other
regions across the U.S. To date, the four 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.
In January 1995, the Company signed an exclusive license with Greenwich
Entertainment Group ("The Greenwich Group") for the use of the Programming
Technology in the theater environment, specifically in shopping malls, museums
and entertainment centers. The first theater opened in the Mall of America in
Minneapolis, Minnesota on November 18, 1995. See "BUSINESS -- Site-Based
Entertainment and Internet Applications."
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. 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.
There is 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 which 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.
In July 1992, the Company entered into an agreement with a subsidiary of the
Washington Post Company (the "Post Company") to form ACTV Interactive, a
partnership organized for the purpose of marketing products and services
incorporating the Programming Technology to the education marketplace. The
subsidiary of the Post Company owned a 51% share.
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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 a $2 million promissory note (the "Note"). The principal
amount of, and accrued interest due on, the Note was paid in full in October
1995.
Through March 17, 1997 (subject to extension in certain circumstances), the Post
Company has the right to purchase from the Company, at a price to be 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 such option is
exercised, the Post Company will be able to control the affairs of the Company.
The Company believes that channel capacity will not be a significant factor in
the distance learning or site-based entertainment market. However, in order to
be delivered over cable, MMDS or DBS systems for the in-home entertainment
market, the ACTV Programming must compete for channel space on these 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, MMDS or DBS operators will devote a sufficient number of channels of
band-width to the Programming Technology in the future. The Company may be
limited in its ability to expand into the in-home entertainment market, unless
cable, MMDS and DBS operators continue to upgrade and increase their channel
capacity using some form of "compression technology," whereby the digitalization
of the information required to produce a television picture reduces the channel
capacity required for programming that incorporates the Programming Technology.
The compression technologies recently deployed and those currently under
development would enable the Company to use the more complex applications of the
Programming Technology on one channel of band-width. The Company believes,
although there can be no assurance, that the cable, MMDS and DBS industries are,
in general, moving in the direction of increasing channel capacity. The costs
associated with such compression technology may result in substantial additional
costs to cable, MMDS and DBS operators. However, the Company's management cannot
currently quantify such additional costs, which may adversely affect the
Company's future operations. The Company is continuing its investigation of
various compression techniques. See "BUSINESS."
The Company anticipates continued good working relationships with both the Post
Company and LGV and believes, although there can be no assurance, that the
restructuring of these relationships has put the Company in an improved position
with regard to its ability to enter into other strategic alliances and to seek
additional financing when required. There can be no assurance, however, that
such strategic alliances or additional financing will be available to the
Company when desired on terms acceptable to the Company or at all.
For purposes of discussing the combined statements of the Company, its
subsidiaries, and ACTV Interactive, all intercompany items have been eliminated.
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RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1995
During the year ended December 31, 1995, the Company's revenues increased 40%,
to $1,311,860, from $938,416 in the year ended December 31, 1994. The increase
was the result of higher sales to the education market and to the Company's
recognition in the more recent period of the sales of its education subsidiary,
ACTV Interactive, during the full year. Prior to the Company's purchase on March
11, 1994 of the Washington Post's 51% interest in this subsidiary, in which the
Company previously owned the remaining 49% interest, the results of ACTV
Interactive were accounted for under the equity method of accounting. As a
result, the sales of ACTV Interactive during the period from January 1, 1994, to
March 11, 1994, were not included in the reported revenues of the Company.
Cost of sales in the year ended December 31, 1995, was $334,136, compared to
$296,839 in the year ended December 31, 1994. All cost of sales for both years
were related to education product sales. The Company's cost of sales as a
percentage of sales revenue decreased to 25% in 1995, as compared to 31% in
1994. The decrease during the more recent period was the result of
proportionately greater sales of programming, which carries a higher margin,
versus equipment.
Total expenses excluding cost of sales and interest expense in the year ended
December 31, 1995, increased 46%, to $7,938,748, from $5,437,293 in the
comparable period in 1994. A significant factor was the increase in stock
appreciation rights expense of over $1 million during the year ended December
31, 1995, due to a higher price of the Company's stock at year end, as well as
to certain exercises during 1995. The increase was due also to higher research
and development expenses, and to greater selling and administrative and
operating costs associated with the May 1995 launch of the Company's network
trial in Los Angeles. A third reason for the increase was the Company's
recognition in the more recent period, as explained above, of the expenses of
ACTV Interactive, which during a portion of 1994 were reported separately.
Direct expenses related to the entertainment market for the fiscal year ended
December 31, 1995 were approximately $1.4 million, and direct expenses related
to the education market for the fiscal year ended December 31, 1995 were
approximately $1.9 million.
Depreciation and amortization expense for the year ended December 31, 1995,
increased 54%, to $1,113,278, from $798,559 for the year ended December 31,
1994. This increase was the result of the greater depreciation expense in the
more recent period relating to equipment used in the Los Angeles trial and to
patents. In addition, the Company's amortization of goodwill arising from the
purchase of the Washington Post's interest in ACTV Interactive was higher in
1995 due to its recognition for the full yearly period, as compared to its
recognition in 1994 for the period from March 11, 1994 to December 31, 1994.
The Company's interest expense for the year ended December 31, 1995, decreased
57%, to $98,392, compared to $226,671 in the prior year's comparable period. The
decrease was due to the repayment of in full of the Company's debt obligations
during 1995. Interest income in the year ended December 31, 1995, increased
216%, to $138,510, compared with $43,877 in the year ended December 31, 1994.
The increase resulted from higher available cash balances in the more recent
period.
For the year ended December 31, 1995, the Company's net loss before
extraordinary items was $6,920,906, or $.68 per share, an increase of 35% over
the net loss of $5,122,010, or $.65 per share, incurred in the prior year's
comparable period. The Company recorded an extraordinary gain of $94,117 in the
year ended December 31, 1995 and $656,770 in the year ended December 31, 1994,
the result of the extinguishment of certain obligations for value that was less
than the amounts recorded on the Company's books for such obligations. Net loss
after the extraordinary gain for the year ended
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December 31, 1995, was $6,826,789, or $.67 per share as compared to $4,465,240,
or $.57 per share, for the year ended December 31, 1994. The increase in net
loss was due to principally to the increased operating, selling and
administrative and stock appreciation right expenses noted above during the more
recent year.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1994
During the year ended December 31, 1994, the Company's revenues increased 470%,
to $938,416, from $164,602 in the year ended December 31, 1993. The increase was
primarily the result of the Company's recognition in the more recent period of
the sales of its education subsidiary, ACTV Interactive. Prior to the Company's
purchase in March 1994 of the Washington Post's 51% interest in this subsidiary,
in which the Company previously owned the remaining 49% interest, the results of
ACTV Interactive were accounted for under the equity method of accounting. All
of the Company's revenues for the year ended December 31, 1994, were generated
by its ACTV Interactive subsidiary through its activities in the entertainment
market.
On a pro forma basis, assuming that the Company's results were consolidated with
those of ACTV Interactive for the entire year ended December 31, 1994, (see Note
15), revenues increased 16%, to $1,128,472 compared with revenues of $970,498
pro forma in the year ended December 31, 1993. Pro Forma education sales in the
year ended December 31, 1994 were $1,128,472, an increase of 34% over pro forma
education sales of $842,752 in the comparable period in 1993.
Cost of sales in the year ended December 31, 1994, was $296,839, all of which
related to education product sales. The Company recorded no cost of sales for
the year ended December 31, 1993, since it was reported separately by ACTV
Interactive.
Total expenses excluding cost of sales and interest expense in the year ended
December 31, 1994, increased 58%, to $5,437,293, from $3,443,513 in the
comparable period in 1993. This increase was partially the result of the
Company's recognition in the more recent period, as explained above, of the
expenses of ACTV Interactive, which in 1993 were reported separately. On a pro
forma basis, total expenses (including cost of sales) before interest expense in
the year ended December 31, 1994, increased 10%, to $6,220,578, from $5,674,152
in the year ended December 31, 1993. The increase was due also to higher
research and development expenses, and to greater general and administrative
costs associated with market and product development for application of the
Programming Technology in the distance learning and in-home entertainment
markets.
Direct expenses related to the entertainment market for the fiscal year ended
December 31, 1994 were approximately $1.4 million, and direct expenses related
to the education market for the fiscal year ended December 31, 1994 were
approximately $350,000.
Depreciation and amortization expense for the year ended December 31, 1994,
increased 48%, to $798,559, from $534,947 for the year ended December 31, 1993.
This increase was the result of the Company's amortization of goodwill in the
more recent period arising from the purchase of the Washington Post's interest
in ACTV Interactive.
The Company's interest expense for the year ended December 31, 1994, decreased
47%, to $226,671, compared to $428,221 in the prior year's comparable period.
The decrease was due in part to the elimination of expense related to original
issue discount on the $1.5 million convertible note payable to the Washington
Post Company. The full principal value of this note, plus all accrued interest,
was converted by the Post Company into common shares of ACTV, Inc. in March
1994. Interest expense declined also due to the repayment of certain obligations
of the repayment pool, as well as the accrual of interest payable on the
repayment pool obligations at lower rats, in reflection of a general decline in
interest rates. Interest income in the year ended December 31, 1994, decreased
29%, to $43,877,
<PAGE>
<PAGE>
compared with $56,480 in the year ended December 31, 1993. The decrease resulted
from lower available cash balances in the more recent period and lower market
rates of interest.
For the year ended December 31, 1994, the Company's net loss before
extraordinary items was $5,122,010, or $.65 per share, an increase of 23% over
the net loss of $4,156,955, or $.72 per share, incurred in the prior year's
comparable period. The Company recorded an extraordinary gain of $656,770 in the
year ended December 31, 1994, the result of the extinguishment of certain
obligations for value that was less than the amounts recorded on the Company's
books for such obligations. Net loss after the extraordinary gain for the year
ended December 31, 1994, was $4,465,240, or $.57 per share.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company (including its operating subsidiaries ACTV
Entertainment, ACTV Interactive, Inc., The Los Angeles Individualized Television
Network, Inc., and 3D Virtual, Inc.) has not generated revenues sufficient to
fund its operations, and has incurred operating losses. Through December 31,
1995, the Company had an accumulated deficit of approximately $30.4 million. The
Company's cash position on December 31, 1995, was $3,531,782 compared to
$2,479,840 on December 31, 1994.
During the year ended December 31, 1995, the Company used $5,098,477 in cash for
its operations, compared with $3,885,852 for the year ended December 31, 1994.
The increase in the more recent year was due to higher selling and
administrative expenses and to increased operating activity related to the
Company's individualized television trial launched in May 1995. The Company met
its cash needs in the year ended December 31, 1995, principally from the
proceeds of a series of sales of common stock to private investors throughout
the first three quarters of the year (aggregating $8.9 million in proceeds).
During the year ended December 31, 1995, the Company used cash of $2,247,469 to
repay in full both its short-term and long-term notes payable obligations.
The Company met its cash needs in the year ended December 31, 1994, from the
remaining proceeds of the redemption of its Redeemable Warrants in May 1993,
from the exercise of options by the Post Company and by others (aggregating $1.6
million in proceeds) and from a series of private sales of the Company's Common
Stock during the fourth quarter of the year (aggregating $3.0 million in
proceeds). During the year ended December 31, 1994, the Company used cash of
$136,020 and issued notes for $215,000 to extinguish obligations recorded at an
aggregate value of $1,000,666 as of December 31, 1993.
During 1994, the Company raised $1,500,000 in equity from the conversion by the
Post Company of its option to purchase 750,000 shares of the Company's Common
Stock at $2.00 per share. In a separate transaction, the Company eliminated its
convertible note payable obligation to the Post Company, as the Post Company
converted the note's full principal and accrued interest of $1,742,667 into
871,334 shares of the Company's Common Stock at $2.00 per share.
With respect to investing activities in the year ended December 31, 1995, the
Company used cash of $575,323 related to equipment purchases for the California
trial referred to above. In the year ended December 31, 1994, the Company used
cash of $2,500,000 to purchase the Post Company's 51% interest in ACTV
Interactive and cash of $142,122 related to new patent filings. The Company had
only minimal other investing activities in the period.
ACTV Entertainment, ACTV Interactive and The Los Angeles Individualized
Television Network, Inc. and 3D Virtual, Inc. are dependent on advances from the
Company to meet their obligations.
<PAGE>
<PAGE>
During the year ended December 31, 1995, the Company advanced approximately
$500,000 to ACTV Interactive and $1.7 million to its The Los Angeles
Individualized Television Network, Inc. subsidiary. Advances to other
subsidiaries were minimal during 1995.
During the year ended December 31, 1994, the Company advanced approximately
$350,000 to its ACTV Entertainment subsidiary, and approximately $390,000 to its
ACTV Interactive subsidiary. Advances are based upon budgeted expenses and
revenues for each respective subsidiary. Adjustments are made during the course
of the year based upon the subsidiary's performance versus the projections made
in the budget.
The Company's balance sheet as of December 31, 1995, also reflects the accrual
of expenses of $566,883 related to the Company's stock appreciation rights plan.
As compared to the Company's balance sheet as of December 31, 1994, the
Company's balance sheet as of December 31, 1995, reflects a decrease of $25,250
in short-term notes payable relating to repayment of a note, and a decrease in
notes payable of $2,325,061, resulting from repayments of principal and interest
resulting from a note payable to the Post Company.
The Company believes that it may be required to expend approximately $200,000 in
during 1996 to facilitate the completion of current research and development
projects. In addition, the Company began work in the fourth quarter of 1995 and
the first quarter of 1996 on two new research and development projects relating
to its HyperTV Internet product and to firmware for advanced analog and digital
set-top converter boxes. The Company has committed approximately $150,000 in
expenditures during 1996 for these new projects, but total research and
development expenditures in 1996 could be significantly higher.
During the first quarter of 1996, the Company raised approximately $1.9 million
from the private sale of shares of the Company's Common Stock.
Management of the Company believes that its current funds, including the $1.9
million raised in the first quarter of 1996, will enable the Company to finance
its operations for at least the next twelve month period. However, if the
Company's assumptions and beliefs prove to be incorrect, the Company may require
additional financing during this period. In the event that the Company does
require additional financing, the Company has no agreements, arrangements or
understandings to obtain such additional financing.
The Company does not have any material contractual commitments for capital
expenditures.
IMPACT OF INFLATION
Inflation has not had any significant effect on the Company's operating costs.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109.
The adoption of this pronouncement did not have a material impact on the
financial statements.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106 AND 112.
The Company does not have an employee benefit plan affected by these
pronouncements.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121.
This statement, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," is effective for fiscal years beginning after December 15, 1995.
The Company does not expect the effect on its
<PAGE>
<PAGE>
consolidated financial condition and results of operations from the adoption of
this statement to be material.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS NO. 123").
This statement, "Accounting for Stock-Based Compensation," requires adoption of
disclosure provisions no later than fiscal years beginning after December 15,
1995. The new standard defines a fair value method of accounting for the
issuance of stock options and other equity instruments. Pursuant to SFAS No. 123
companies are encouraged, but not required, to adopt the fair value method of
employee stock-based transactions. The Company has not yet determined if it will
elect to change to the fair value method, nor has it determined the effect the
SFAS No. 123 will have on its operating results, financial position and per
share results should it elect to make such a change.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of ACTV, Inc.:
We have audited the accompanying consolidated balance sheets of ACTV, Inc. and
subsidiaries ("the Company") as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the index at Item 14 (a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1995 and 1994 and the results of its operations and its cash flows
in the three year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 28, 1996
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......... $2,479,840 $3,531,782
Accounts receivable............... 198,353 349,291
Education equipment inventory..... 146,283 112,218
Other............................. 114,937 61,011
----------- -----------
Total current assets.......... 2,939,413 4,054,302
----------- -----------
Property and equipment-net........ 5,712 416,895
----------- -----------
Other Assets:
Video program inventory........... 644,472 214,824
Patents and patents pending....... 174,181 268,980
Goodwill.......................... 3,920,304 3,493,932
Other............................. 49,232 102,195
----------- -----------
Total other assets............ 4,788,189 4,079,931
----------- -----------
Total ..................... $7,733,314 $8,551,128
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
expenses..................... $660,268 $1,090,392
Deferred stock appreciation rights 750,192 566,883
Short-term note payable........... 25,250 --
----------- -----------
Total current liabilities..... 1,435,710 1,657,275
Notes payable (related parties)....... 2,325,061 --
----------- -----------
Total liabilities............. 3,760,771 1,657,275
Shareholders' equity:
Preferred stock, $.10 par value,
1,000,000 shares authorized,
none issued .................. -- --
Common stock, $.10 par value,
17,000,000 shares authorized:
issued and outstanding 9,019,550
at December 31, 1994, 11,396,419
at December 31, 1995.......... 901,955 1,139,642
Additional paid-in capital........ 26,608,830 36,686,742
Notes receivable from stock sales. -- (567,500)
----------- -----------
Total......................... 27,510,785 37,258,884
Accumulated deficit............... (23,538,242) (30,365,031)
----------- -----------
Total shareholders' equity.... 3,972,543 6,893,853
----------- -----------
Total...................... $7,733,314 $8,551,128
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales revenues ....................... $ -- $928,640 $1,311,130
License fees from related party ...... 127,746 -- 730
Royalties from related party ......... 36,856 9,776 --
----------- ----------- -----------
Total revenues .................... 164,602 938,416 1,311,860
Cost of Sales ........................ -- 296,839 334,136
----------- ----------- -----------
Gross profit ...................... 164,602 641,577 977,724
Expenses:
Operating expenses ................... 145,344 890,871 1,260,134
Selling and administrative ........... 1,463,962 4,193,931 4,998,020
Depreciation and amortization ........ 534,947 446,092 686,906
Amortization of goodwill ............. -- 343,467 426,372
Stock appreciation rights ............ 1,299,260 (437,068) 567,316
----------- ----------- -----------
Total expenses .................... 3,443,513 5,437,293 7,938,748
Interest (income) ...................... (56,480) (43,877) (138,510)
Interest expense-- related parties ..... 428,221 226,671 98,392
----------- ----------- -----------
Interest expense (income) - net ...... 371,741 182,794 (40,118)
Loss before minority interest in equity
of investee and extraordinary gain ... 3,650,652 4,978,510 6,920,906
Interest in ACTV Interactive ........... (506,303) (143,500) --
----------- ----------- -----------
Net loss before extraordinary
gain ................................... 4,156,955 5,122,010 6,920,906
Gain on extinguishment of debt and
equipment lease obligations ............ -- 656,770 94,117
----------- ----------- -----------
Net loss ............................... $4,156,955 $4,465,240 $6,826,789
=========== =========== ===========
Loss per common share before
extraordinary gain ..................... $.72 $.65 $.68
Loss per common share after
extraordinary gain ..................... $.72 $.67 $.67
Weighted average number of common shares
outstanding ............................ 5,800,134 7,897,278 10,162,128
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FROM JANUARY 1, 1993 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In
Shares Amount Capital Deficit
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Balances December 31, 1992 4,828,228 $482,823 $15,439,538 $(14,916,047)
Issuance of shares in connection
with exercise of warrant 1,507,236 150,723 4,466,996 --
Issuance of shares in connection
with exercise of stock options 172,335 17,234 426,291 --
Net loss -- -- -- (4,156,955)
---------- ---------- ----------- ------------
Balances December 31, 1993 6,507,799 $650,780 $20,332,825 $(19,073,002)
Issuance of shares in connection
with financing 757,100 75,710 2,892,628 --
Issuance of shares in connection
with exercise of stock options 818,317 81,832 1,564,326 --
Issuance of shares in connection
with conversion of convertible note 871,334 87,133 1,508,051 --
Issuance of shares for services 65,000 6,500 311,000 --
Net loss -- -- -- (4,465,240)
---------- ---------- ----------- ------------
Balances December 31, 1994 9,019,550 $901,955 $26,608,830 $(23,538,242)
========== ========== =========== ============
Issuance of shares in connection
with financings 1,990,293 199,029 8,730,627 --
Issuance of shares in connection
with exercise of stock options 308,247 30,825 1,074,924 --
Issuance of shares for services 78,329 7,833 217,361 --
Net loss -- -- -- (6,826,789)
---------- ---------- ------------ ------------
Balances December 31, 1995 11,396,419 $1,139,642 $36,631,742 $(30,365,031)
========== ========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1994 1995
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................... $4,156,955 $4,465,240 $6,826,789
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization ..... 534,947 789,558 1,220,873
Stock appreciation rights ......... 1,299,260 (549,068) (183,309)
Gain on extinguishment of debt and
equipment lease obligations ... -- (656,770) (94,717)
Stock issued in lieu of cash
compensation .................. -- 250,000 563,430
Reclassification of equipment ..... -- 1,151 --
Changes in assets and liabilities:
Loss from interest in ACTV
Interactive ................... 506,303 143,500 --
Accounts receivable ............... (102,945) (48,917) (150,938)
Other assets ...................... (3,551) 31,765 80,552
Accounts payable and accrued
expenses ...................... 142,668 404,733 165,023
Education equipment inventory ..... -- (13,183) 34,065
Interest payable .................. 428,000 226,619 93,333
----------- ----------- -----------
Net cash used in operating
activities .................... (1,352,273) (3,885,852) (5,098,477)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants
and options ....................... 5,061,244 1,646,159 122,810
Proceeds from equity financing .... -- 2,968,338 8,951,859
Equipment lease repayment ......... -- (65,000) --
Discounted note prepayment ........ -- -- (101,458)
Note repayment .................... -- -- (2,247,469)
Repayment pool principal repayment -- (71,020) --
----------- ----------- -----------
Net cash provided by financing
activities ............................ 5,061,244 4,478,477 6,725,742
Cash flows from investing activities:
Cash acquired in acquisition of
remaining interest in
affiliate ..................... -- 672,160 --
Cash paid for interest in affiliate -- (2,500,000) --
Investment in patents pending ..... -- (142,122) --
Investment in property and
equipment ..................... (5,828) (1,686) (575,323)
----------- ----------- -----------
Net cash used in investing activities . (5,828) (1,971,648) (575,323)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents ..................... 3,703,143 (1,379,023) (1,051,942)
Cash and cash equivalents,
beginning of period ............... 155,720 3,858,863 2,479,840
----------- ----------- -----------
Cash and cash equivalents,
end of period ..................... 3,858,863 2,479,840 3,531,782
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
Supplemental disclosure of cash flow information: See Note 17
<PAGE>
<PAGE>
ACTV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization ACTV, Inc., incorporated July 8, 1983, and its subsidiaries (the
"Company" or "ACTV"), were organized to develop and market a proprietary
interactive television programming technology (the "Programming Technology"),
that permits a viewer to experience instantly responsive television. Since its
inception, the Company has been engaged in the development of the Programming
Technology, as well as the production of interactive programs ("ACTV
Programming") and the marketing and sales of the various products and services
incorporating the Programming Technology.
In March 1988, the Company formed ACTV Entertainment, Inc. ("ACTV
Entertainment"), formerly ACTV Domestic Corporation, and granted it a license to
develop, promote, distribute and market interactive television incorporating the
Programming Technology in the United States cable, DBS, and broadcast television
markets. On June 8, 1993, the Company became the sole shareholder in ACTV
Entertainment under the terms of an agreement with a subsidiary of Le Groupe
Videotron, Ltee. ("LGV"). The agreement also provides LGV with a 20-year,
non-exclusive, royalty-free license to produce ACTV Programming for a limited
number of potential Videoway subscribers in the United States, Canada and
certain European countries. The license is limited to the condition that neither
LGV nor its sublicensees 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 party programmers will be paid exclusively to ACTV
Entertainment. The financial statements consolidate the financial results of
ACTV Entertainment with those of the Company. ACTV Entertainment is currently
dependent on advances and/or loans from the Company.
On July 14, 1992, the Company entered into an agreement with a subsidiary of The
Washington Post Company (the "Post Company") to form ACTV Interactive, a
partnership organized for the purpose of marketing products and services
incorporating the Company's Programming Technology to the education marketplace.
The Company contributed its applicable Programming Technology and the subsidiary
of the Post Company contributed $2,500,000 in cash. As a result thereof, the
Company recognized an increase of $1,225,000 in its additional paid-in capital
representing its pro rata share in the equity of the joint venture. The Company
owned, during 1993, through its wholly owned subsidiary ACTV Interactive, Inc.
("Interactive"), formerly ACTV Education, Inc., a 49% interest in ACTV
Interactive, and accounted for its investment under the equity method of
accounting. Furthermore, under the terms of a worldwide license, the Company
received a 5% royalty on sales made by ACTV Interactive. Interactive is
currently dependent on advances and/or loans from the Company.
On March 11, 1994, the Company purchased the Post Company's full 51% interest in
ACTV Interactive for $2.5 million in cash and a $2 million 8% note due December
31, 1996 (See Note 14). During 1995, in a series of payments, the Company repaid
in full this note and all accrued interest thereon.
Principles of Consolidation -- The Company's consolidated financial statements
include the balances of its wholly-owned operating subsidiaries, ACTV
Entertainment, Interactive, The Los Angeles Individualized Television Network,
Inc. and 3D Virtual, Inc. In consolidation, all intercompany account balances
are eliminated.
Property and Equipment - Property and equipment are recorded at cost and
depreciated on the straight-line method over their estimated useful lives
(generally five years). Depreciation expense for the years ended December 31,
1993, 1994 and 1995 aggregated $61,662, $6,207, and $70,790 respectively.
Video Program Inventory - Video program inventory of the Company, which is
stated at the lower of cost or net realizable value, consists of capitalized
production costs related to programs completed. All video program inventory for
items not currently in use has been fully amortized as of December 31, 1995. The
Company is amortizing those programs that are still in use over a period of five
years, which approximates their estimated useful life. The balances at December
31, 1994, and 1995, are net of accumulated amortization of $2,056,143 and
$2,250,908, respectively. No entertainment programs were in production at either
December 31, 1994, or 1995, with the exception of live sports and
<PAGE>
<PAGE>
news programs for the Los Angeles trial. The Company envisions that such
programming will not be repeated, and, therefore, the cost of its production is
expensed on a current basis.
Education Equipment - Education equipment consists of ACTV System 500
interactive terminals, ACTV videocassette recorders, television monitors and
computer printers that the Company holds in inventory. This inventory is carried
on the Company's books at the lower of cost or market.
Patents and Patents Pending - The cost of patents, which for patents issued
represents the consideration paid for the assignment of patent rights to the
Company by an employee and for patents pending represents legal costs related
directly to such patents pending, is being amortized on a straight-line basis
over the estimated economic lives of the respective patents (averaging 10
years), which is less than the statutory life of each patent. The balances at
December 31, 1994, and 1995, are net of accumulated amortization of $85,969 and
$101,170, respectively.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition - Sales are primarily recorded as products are shipped and
services are rendered, using the completed contract method of accounting.
Research and Development - Research and development costs, which represent
primarily refinements to the Programming Technology, were $171,802 for the year
ended December 31, 1993, $465,740 for the year ended December 31, 1994 and
$616,455 for the year ended December 31, 1995.
Loss per Common Share - Loss per common share equals net loss divided by the
weighted average number of shares of Common Stock outstanding during the period.
Reclassifications - Certain reclassifications have been made in the December 31,
1993, and 1994, financial statements to conform to the December 31, 1995,
presentation.
Intangibles - The excess of the purchase cost over the fair value of net assets
acquired in an acquisition (goodwill) is being amortized on a straight-line
basis over a period of 10 years. On a quarterly basis, the Company evaluates the
realizability of goodwill based upon the expected undiscounted cash flows of the
acquired business. Impairments, if any, will be recognized through a charge to
operation in the period in which the impairment is deemed to exist. Based on
such analysis, the Company does not believe that goodwill has been impaired.
<PAGE>
<PAGE>
2. NATURE OF OPERATIONS
ACTV, Inc. generates revenues from the sale of individualized 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. Currently, the
principal markets for the Company's products are education and in-home
entertainment within the United States and Canada. Education programming and
related equipment is sold to schools, colleges, and private education networks.
In-home entertainment programming will be sold to the end user through cable
television systems, or through other providers of television programming to home
viewers, e.g., satellite, telephone company fiber networks, etc. No single
client accounted for more than 10% of the Company's revenues during the year
ended December 31, 1995, except for Georgia Public Television, which accounted
for approximately 11% of total 1995 revenue.
3. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1995 and the
reported amounts of revenues and expenses during the year ended December 31,
1995. Actual results could differ from these estimates.
4. PROPERTY AND EQUIPMENT - NET
Property and equipment - net at December 31, 1994, and 1995, consisted of the
following (at cost):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Machinery and equipment $815,949 $477,213
Office furniture and fixtures 189,515 10,472
--------- --------
Total 1,005,464 487,685
Less accumulated depreciation 999,752 70,790
--------- --------
Total $5,712 $416,895
========= ========
</TABLE>
5. RESTRUCTURING AND REFINANCING
On June 11, 1985, the Company entered into a Refinancing and Restructuring
Agreement (the "Plan") providing for the termination of prior agreements
relating to the formation of ACTV, Inc. The Plan also stated that any amounts
owing by the Company to related parties and other creditors at the date of the
agreement were the responsibility of the Company. Such amounts were to be
repayable solely from the "Repayment Pool", which was defined as ten percent of
"available cash flow" in excess of $1,000,000 generated by the Company in any
given calendar year. Available cash flow was defined as the excess of gross
revenues (excluding financing proceeds) over certain cash expenditures.
At December 31, 1993 total obligations repayable solely from the Repayment Pool
aggregated $709,794.
During 1994, the Company, in separate transactions concluded with all holders of
Repayment Pool obligations, settled all outstanding liabilities related to the
Repayment Pool. Average consideration paid by the Company in such settlement
transactions was approximately 17% of face value. For the year ended December
31, 1994, the Company recognized an extraordinary gain of $620,898 related to
the Repayment Pool settlement transactions.
6. RELATED PARTY TRANSACTIONS
Equipment Lease Payable - On January 12, 1984, the Company entered into an
equipment lease agreement with a related party (a former employee of the
Company). Under the terms of this operating lease, the Company was required
to make base rental payments of $8,814 per month for five years. In April of
1986, rental payments were discontinued. All unpaid rentals from April 1986
through December 31, 1988, were accrued as current liabilities in the
financial statements for the year ended December 31, 1993,
<PAGE>
<PAGE>
due to the fact that the rental payments may have been paid by a third party, a
former officer of the Company, who instituted litigation against the Company to
seek reimbursement.
During 1994, the Company settled this dispute by paying $65,000 in cash and by
issuing a promissory note in the amount of $190,000 to the complainant. For the
year ended December 31, 1994, the Company recognized an extraordinary gain of
$35,872 related to this settlement.
Other - Interest expense on amounts due to related parties for the years ended
December 31, 1993, 1994 and 1995 aggregated $20,000, and $0, and $0 ,
respectively.
7. FINANCING ACTIVITIES
During 1995, the Company raised approximately $8.9 million from a series of
private sales of shares of the Company's common stock totaling 1,990,293 shares.
During the first quarter of 1996, the Company raised approximately $1.9 million
from private sales of shares of the Company's common stock totaling 450,000
shares.
In March 1992, the Company issued to the Post Company $1,500,000 aggregate
principal amount of units represented by an 8% convertible note (the
"Convertible Note") and 720,000 shares of the Company's common stock (the
"Common Stock"). Also in March 1992, the Post Company acquired pursuant to an
option agreement (the "Option Agreement") an option to purchase up to 750,000
shares of Common Stock at either $2.00 or $2.50 per share, depending on the date
of exercise. Both the conversion of the Convertible Note and the exercise of the
option were dependent upon the occurrence of certain events. The Convertible
Note required that 25% of the outstanding balance be retired by March 17, 1994,
and the remaining outstanding balance be retired in three semi-annual
installments. The Company recorded the fair market value of the common shares
issued ($720,000) as original issue discount, and had been amortizing this
amount over the life of the Notes. The Convertible Note was secured by a
security interest as described in Note 14.
In connection with the Option Agreement, the Post Company also received the
right to purchase from the Company at a fair market exercise price to be
determined an amount of shares of Common Stock necessary to increase the Post
Company's percentage ownership of the total then outstanding shares of Common
Stock to 51%. Such right is exercisable through March 17, 1997, subject to
extension in certain circumstances. Until March 17, 1995, the Post Company
agreed not to acquire more than 40% of the Company unless certain events
occurred, such as a tender offer, a proxy contest, or the acquisition by a third
party of in excess of 15% of the Company's common stock, as set forth in a
standstill agreement between the Company and the Post Company.
In March 1994, the Post Company exercised its option to purchase 750,000 shares
at $2.00 per share, and converted the Convertible Note's principal, plus accrued
interest of $241,000, into 871,334 shares of the Common Stock. (See Note 15.)
During 1995, the Company repaid in full principal and interest relating to a $2
million note issued in March 1994 pursuant to the Company's purchase of the Post
Company's 51% interest in ACTV Interactive (See Note 15.) Upon repayment of this
obligation, the security interest described in Note 14 was canceled.
In May 1993, the Company completed the redemption of its outstanding Redeemable
Warrants. The Company received approximately $4.5 million from the warrant
exercise to purchase approximately 1.5 million shares of Common Stock.
Management of the Company believes that its current funds, including the $1.9
million raised in the first quarter of 1996, will enable the Company to finance
its operations for at least the next twelve month period. However, if the
Company's assumptions and beliefs prove to be incorrect, the Company may require
additional financing during this period. In the event that the Company does
require additional financing, the Company has no agreements, arrangements or
understandings to obtain such additional financing.
<PAGE>
<PAGE>
8. SHAREHOLDERS' EQUITY
Common Stock At December 31, 1995, the Company was authorized to issue
17,000,000 shares of Common Stock, of which 11,396,419 were issued and
outstanding.
At December 31, 1995, the Company had reserved shares of Common Stock for
issuance as follows:
<TABLE>
<S> <C>
1989 Qualified Stock Option Plan 59,000
1989 Non-Qualified Stock Option Plan 56,500
Options granted outside of formal plans 2,526,582
---------
Total 2,642,082
</TABLE>
Preferred Stock At December 31, 1995, the Company was authorized to issue
1,000,000 shares of Preferred Stock, par value $0.10 per share, designated as
Series A Convertible Preferred Stock (666,667 shares) and Series B Convertible
Preferred Stock (333,333 shares). No shares of Preferred Stock are issued and
outstanding.
Underwriter Warrants In April 1993, the Company and the underwriter of the
Company's initial public offering of May 1990 (the "Underwriter") executed an
agreement pursuant to which the Underwriter will provide financial advisory and
investment banking services to the Company for two years, and the Company issued
to the Underwriter warrants to purchase 100,000 shares of Common Stock at $5.50
per share, exercisable at any time through December 31, 1995. On the date of
issuance of these warrants, the market price of the Company's common shares was
greater than the warrant exercise price. The Underwriter warrants expired
unexercised on December 31, 1995.
9. STOCK OPTIONS
During 1989, the Board of Directors approved an Employee Incentive Stock Option
Plan (the "Employee Plan"). The Employee Plan provides for the granting of up to
100,000 options to purchase Common Stock to key employees. The Employee Plan
stipulates that the option price be not less than fair market value on the date
of grant. Options granted will have an expiration date not to exceed ten years
from the date of grant. At December 31, 1995, 100,000 options had been granted
under this plan, of which 41,000 had been exercised.
In addition, in August 1989, the Board of Directors approved a Non-Qualified
Stock Option Plan (the "Non-Qualified Plan"), to be administered by the Board or
a committee appointed by the Board. The Non-Qualified Plan provides for the
granting of up to 100,000 options to purchase shares of Common Stock to
employees, officers, directors, consultants and independent contractors. The
Non-Qualified Plan stipulates that the option price be not less than fair market
value at the date of grant, or such other price as the Board may determine.
Options granted under this Plan shall expire on a date determined by the
committee but in no event later than three months after the termination of
employment or retainer. At December 31, 1995, 100,000 options had been granted
under this plan, of which 43,500 had been exercised.
At December 31, 1995, the Company had options outstanding that were issued to
Directors, certain employees and consultants for the purchase of 2,526,582
shares of Common Stock . The prices of these options range from $1.03 to $5.50
per share; they have expiration dates in the years 1996 through 2002. The
options granted are not part of the Employee Incentive Stock Option Plan or the
Non-Qualified Stock Option Plan discussed above.
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1995
------------- ------------
<S> <C> <C>
Options outstanding, beginning
of period 1,442,934 1,654,104
Options granted to employee pursuant
to 1989 agreement 0 100,087
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Options granted outside of formal plans 376,500 1,606,000
Options exercised (68,316) (278,333)
Options canceled (97,014) (439,776)
--------------- ---------------
Options outstanding, end of period 1,654,104 2,642,082
=============== ===============
Options exercisable, end of period 1,064,254 1,059,082
Price range of outstanding options,
end of period $1.03 to $8.19 $1.03 to $5.50
</TABLE>
10. STOCK APPRECIATION RIGHTS PLAN
The Company's 1992 Stock Appreciation Rights Plan ("SAR Plan") was approved by
the Company's stockholders in December 1992. Subject to adjustment as set forth
in the SAR Plan, the aggregate number of Stock Appreciation Rights ("SARs") that
may be granted shall not exceed 900,000. The SAR Plan is administered by the
Stock Appreciation Rights Committee (the "SAR Committee").
SARs may not be exercised until the expiration of six months from the date of
grant, but in no event were exercisable earlier than May 1, 1994. If a holder of
a SAR ceases to be an employee, director or consultant of the Company or one of
its subsidiaries or an affiliate, other than by reason of the holder's death or
disability, any SARs that have not vested shall become void. SARs are not
transferable except by will or under the laws of descent and distribution.
Upon exercise of a SAR, the holder will receive for each share for which a SAR
is exercised, as determined by the SAR Committee in its discretion, (a) shares
of the Company's Common Stock, (b) cash, or (c) cash and shares of the Company's
Common Stock, equal to the difference between (i) the fair market value per
share of the Common Stock on the date of exercise of the SAR and (ii) the value
of a SAR, which amount shall be no less than the fair market value per share of
Common Stock on the date of grant of the SAR.
Under the Company's SAR Plan, as of December 31, 1995, the Company has granted
874,000 SARs to nine employees that have exercise prices from $1.50 to $3.50.
The SARs expire between 2002 and 2004. One-fifth of the total SARs granted to
each recipient vest at the end of each 12-month period following the date of
grant. During 1995, a total of 201,000 SARs were exercised.
11. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective January 1, 1993. There was no
cumulative effect of adopting SFAS No. 109 on the Company's financial
statements. The Company previously reported taxes under the guidance of APB
Opinion No. 11, "Accounting for Income Taxes."
Deferred income taxes reflect the net tax effects at an effective tax rate of
35.33% of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax effects
of significant items comprising the Company's net deferred tax asset as of
December 31, 1994, and December 31, 1995, are as follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards $8,225,157 $10,192,638
Differences between book and tax basis of property 246,539 86,029
------------ ------------
8,471,696 10,278,667
Deferred tax liabilities:
Differences between book and tax basis of property (170,010) (261,193)
------------ ------------
8,301,686 10,017,474
Valuation Allowance (8,301,686) (10,017,474)
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ============
</TABLE>
The increase in the valuation allowance for the year ended December 31, 1995,
was approximately $1,716,000. There was no provision or benefit for federal
income taxes as a result of the net operating loss in the current year.
At December 31, 1995, the Company has federal net operating loss carryovers of
approximately $28.8 million. These carryovers may be subject to certain
limitations and will expire between the years 1998 and 2009.
12. COMMITMENTS
At December 31, 1995, future aggregate minimum lease commitments under
non-cancelable operating leases, which expire in 1999 and 2001, were
approximately $562,671. The leases contain customary escalation clauses, based
principally on real estate taxes. Rent expense related to these leases for the
years ended December 31, 1993, 1994 and 1995 aggregated $97,584, $169,457, and
$176,264 respectively. The Company has employment agreements with certain key
employees. These agreements extend for a period of a maximum of five years and
contain non-competition provisions which extend two years after termination of
employment with the Company. At December 31, 1995, the Company is committed to
expend a total of approximately $1.5 million under these agreements.
13. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and receivables.
The Company attempts to mitigate cash investment risks by placing such
investments in insured depository accounts and with financial institutions that
have high credit ratings. Concentrations of risk with respect to trade
receivables exist because of the relatively few companies or other organizations
(primarily educational or government bodies) with which the Company currently
does business. The Company attempts to limit these risks by closely monitoring
the credit of those to whom it is contemplating providing its products, and
continuing such credit monitoring activities and other collection activities
throughout the payment period. In certain instances, the Company further
minimizes concentrations of credit risks by requiring partial advance payments
for the products provided.
14. PURCHASE OF REMAINING INTEREST IN SUBSIDIARY
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 a $2 million note due December 31, 1996, (the "New
Note"). The New Note accrued interest at 8%, and specified required prepayments
from net proceeds in excess of an aggregate $5 million received by the Company
in the event of subsequent debt or equity financing. The principal of the New
Note was secured by certain collateral pursuant to a security agreement, through
which the Post Company acquired (a) a security interest in and lien, second in
priority, with respect to the collateral as to which the Company has granted a
first priority security interest pursuant to the Termination Agreement and (b) a
security interest in and lien, first in priority, with respect to any existing
United States patents and pending applications. During 1995, the Company repaid
in full principal and interest relating to the New Note. Upon repayment of this
obligation, the security interest described above was canceled.
<PAGE>
<PAGE>
15. CONVERSION OF OPTIONS AND CONVERTIBLE NOTE
On March 15, 1994, the unpaid principal and accrued and unpaid interest on the
$1,500,000 Convertible Note were converted into 871,334 shares of Common Stock
of the Company at $2.00 per share.
On March 15, 1994, the Post Company exercised its option to purchase an
additional 750,000 shares of the Company's Common Stock at $2.00 per share,
receiving 750,000 shares at $2.00 per share.
16. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1993, AND DECEMBER 31, 1994
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1994, has been prepared to reflect the financial effects of the
event described in Note 14, as if it had occurred on January 1, 1994. This
statement consolidates the results of the Company and ACTV Interactive, for the
year ended December 31, 1994, with the following adjustments: inclusion of
revenues and expenses of ACTV Interactive from January 1, 1994, to March 11,
1994; elimination of intercompany sales and royalty expense; and elimination of
the Company's loss for its interest in ACTV Interactive under the equity method
of accounting.
The Company's pro forma statement of operations for the years ended December 31,
1993, and December 31, 1994, prepared as indicated above but assuming that the
events described in Note 14 and Note 15 occurred January 1, 1993, are as
follows:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Revenues $970,498 $1,128,472
Cost of sales 237,683 364,119
Operating expenses 639,781 983,971
General and administrative expenses 2,603,736 4,519,997
Depreciation and amortization 893,692 789,559
Stock appreciation rights 1,299,260 (437,068)
Net interest expense 91,014 179,262
----------- -----------
Net loss before extraordinary gain $4,794,668 $5,271,368
Gain on extinguishment of certain obligations -- 656,770
----------- -----------
Net loss $4,794,668 $4,614,598
=========== ===========
Loss per share before extraordinary gain $.65 $.67
Loss per share after extraordinary gain $.65 $.58
</TABLE>
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The consolidated balance sheet at December 31, 1994, reflects non-cash activity
during the year ended December 31, 1994, that relates to the Company's purchase
on March 11, 1994 of the Washington Post Company's 51% interest in ACTV
Interactive: issuance of note payable of $2,000,000, and the acquisition of net
assets other than cash of $118,485. This net asset amount is comprised of
current assets of $238,560, fixed assets of $5,176, inventory of $133,101 and
current liabilities of $258,352. In addition, in a separate non-cash
transaction, the Post Company's convertible note payable was converted to common
stock and additional paid in capital (net of original issue discount of
$147,484) of $1,595,183. The consolidated balance sheet at December 31, 1994,
also reflects non-cash activity during the year ended December 31, 1994, that
relates: (i) to the extinguishment of the Company's equipment lease obligation
to a related party: issuance of note payable of $190,000; (ii) to the
extinguishment of a portion of the Company's contingent Repayment Pool
obligation: issuance of note payable of $25,000; and (iii) to the issuance of
common stock in exchange for services to be rendered: increase in common stock
and additional paid in capital of $67,500 and increase in prepaid expense of
$67,500.
The consolidated balance sheet at December 31, 1995, reflects non-cash activity
during the year ended December 31, 1995, that relates to the acquisition of a
patent: a credit to shareholders' equity of $110,000 for options issued but not
<PAGE>
<PAGE>
yet vested at a price below the prevailing market price on the date of issuance.
In addition, the consolidated balance sheet at December 31, 1995, reflects
non-cash activity during the year ended December 31, 1995, relating to
non-recourse loans made by the Company to certain employees in August 1995 to
purchase the Company's Common Stock by exercising options: a debit to
shareholders' equity of $567,500. The due dates of the non-recourse loans
correspond with the respective expiration dates of the options exercised.
The Company made no cash payments of interest or income taxes during the years
ended December 31, 1994 and 1995.
<PAGE>
<PAGE>
GENERAL PROXY - ANNUAL MEETING OF STOCKHOLDERS OF ACTV, INC.
The undersigned hereby appoints William C. Samuels, with full power of
substitution, proxy to vote all of the shares of Common Stock of the undersigned
and with all of the powers the undersigned would possess if personally present,
at the Annual Meeting of Stockholders of ACTV, Inc., to be held at ACTV, Inc.,
1270 Avenue of the Americas, New York, New York on June 20, 1996 at 9:30 a.m.
and at all adjournments thereof, upon the matters specified below, all as more
fully described in the Proxy Statement dated May 24, 1996 and with the
discretionary powers upon all other matters which come before the meeting or any
adjournment thereof.
This Proxy is solicited on behalf of ACTV, Inc.'s Board of Directors.
1. To approve an amendment to the Company's By-Laws to provide for the election
of directors to staggered terms.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To elect directors to hold office for initial terms of one, two or three
years, or in the event Proposal No. 1 is not approved, then for a term of
one year.
William C. Samuels, William A. Frank, David Reese
Steven W. Schuster, Bruce Crowley, Richard Hyman
FOR ALL NOMINEES WITHHELD FOR ALL NOMINEES
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual, write that
nominee's name in the space provided below:
- --------------------------------------------------------------------------------
3. To approve an amendment to the Company's Restated Certificate of
Incorporation which would increase the authorized shares of the Company's
Common Stock to 35,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To adopt the Company's 1996 Stock Appreciation Rights Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To adopt the Company's 1996 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. To ratify the appointment of Deloitte & Touche, LLP as the Company's
independent certified public accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. In their discretion, upon such other matter or matters that may properly
come before the meeting, or any adjournments thereof.
- --------------------------------------------------------------------------------
(Continued and to be signed on the other side)
<PAGE>
<PAGE>
(Continued from other side)
Every properly signed proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, 3, 4, 5 AND 6.
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Meeting and Proxy Statement and hereby revokes any proxy or proxies
heretofore given.
Please mark, date, sign and mail your proxy promptly in the envelope provided.
Date: ____________________________, 1996
_________________________________________
(Print name of Stockholder)
_________________________________________
(Print name of Stockholder)
_________________________________________
Signature
_________________________________________
Signature
Number of Shares ________________________
Note: Please sign exactly as name appears
in the Company's records. Joint owners
should each sign. When signing as
attorney, executor or trustee, please
give title as such.
<PAGE>
